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Month: June 2023

Increase in number of estates paying IHT

Written by admin on . Posted in Inheritance Tax, Lasting Will & Testaments, Wealth. No Comments on Increase in number of estates paying IHT

The combination of a frozen inheritance tax (IHT) nil rate band and considerably higher property values has pushed more estates into the IHT net. The average IHT bill is now nearly £62,000, with much larger amounts payable if an estate includes a property in London or the South East.

Increase in property values

Even though property prices have fallen recently, the average price of a detached house went up by more than £20,000 to nearly £454,000 during the year to March 2023. The average price for London property is not far off £525,000.

  • Since the nil rate band was frozen back in 2009, the average UK property has risen in value by 86%.
  • The FTSE All Share index shows an even better return, having gone up by just under 245%. An investment of £50,000 in March 2009 would have been worth over £170,000 by March 2023.

With cash savings also added in, a typical estate is now valued at just under £480,000. If the residence nil rate band is not available, the IHT liability on such an estate is £62,000. However, if the nil rate band had been uprated with inflation, no IHT would have been payable on such an estate.

Mitigating IHT liability

Mitigating a future IHT liability requires a shift from being a saver to a spender. This might mean putting assets into trust or making pension contributions – financial advice being essential here.

Making lifetime gifts will obviously reduce the value of an estate. Options could include regular monthly saving into junior ISAs for grandchildren (with such gifts normally completely free of IHT) or helping a child with their first home by paying the deposit (such a large gift will exceed the available exemptions but will fall out of IHT after seven years).

Even if you decide to just spend on yourself, leasing a new car or taking extended holidays abroad looks much more affordable if you factor in the future 40% IHT reduction.

HMRC’s basic guide to how IHT works, including details of various exemptions, can be found here.

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Self-assessment threshold rises from 2023/24

Written by admin on . Posted in PAYE, self-assessment, Self-Employed, Tax. No Comments on Self-assessment threshold rises from 2023/24

There is a long list of reasons why it is necessary to complete a self-assessment tax return, but PAYE taxpayers are generally exempt from the requirement. Previously, exemption was subject to a £100,000 income ceiling, but the threshold has been increased to £150,000 for the current tax year onwards.

The £150,000 threshold applies to total income – not just gross salary – and also any taxable benefits and income from savings and investments.

Other reasons to file a return

There are a number of other reasons why an employee with income below £150,000 will still be required to complete a tax return. For example, where the taxpayer also has:

  • Income from property rental;
  • More than £10,000 in either dividend income or savings income;
  • Income from a trust;
  • To pay capital gains tax (more likely now with the exempt amount reduced from £12,300 to £6,000);
  • Income from self-employment or partnership income; or
  • To pay the High Income Child Benefit Charge.

When a return is not required

Employed taxpayers with income between £100,000 and £150,000 for 2022/23 ­– and with no other reason for completing a return – should receive a self-assessment exit letter from HMRC confirming that they do not need to complete a return for 2023/24.

In other situations, it will be necessary for taxpayers to contact HMRC and inform them why a return is no longer necessary.

Taxpayers can ask for a return to be withdrawn even after HMRC has charged late filing penalties. Subject to HMRC agreement, the penalties will then be waived.

Even if a tax return is not strictly required, there are some situations where a taxpayer might want to complete a return anyway. The main reason will normally be to claim a relief, such as pension contributions or donations to charity.

If a tax return is not submitted, it will be more important than ever to check your tax code, which will typically be used to collect tax on taxable benefits and savings income.

To check if a self-assessment tax return is required, use HMRC’s online tool found here.

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The Ofgem price cap returns

Written by admin on . Posted in Budget, Business Rates, Self-Employed. No Comments on The Ofgem price cap returns

From 1 July, the energy price cap set by energy regulator, Ofgem, will fall from £3,280 to £2,074. Prices are currently capped at £2,500, but this further reduction will help home-based employees and any small business owners who work out of residential accommodation.

In October last year, the government introduced a temporary energy price guarantee that has limited the annual gas and electricity costs for a typical household. This cap was set to increase from £2,500 to £3,000 this July, however, the lower energy price cap of £2,074 will now apply instead.

Impact of the cap

The energy price cap is set quarterly, so the limit of £2,074 will apply from 1 July to 30 September 2023.

  • Customers on standard variable tariffs with typical consumption will see their bills fall in line with the cut in prices.
  • However, annual bills are not capped as such. Households with higher energy use will pay more than the cap, with lower energy users paying less.

The £3,000 energy price guarantee will remain in place as a safety net until 31 March 2024 just in case energy prices increase above this level.

Even with the price reduction from 1 July, energy prices will still be almost double what they were before costs started to soar.

Fixed energy deals

There are virtually no fixed energy deals currently available, although they might return now that prices have started to fall.

The energy price cap is forecast to remain around £2,000 until March 2024, so any fixed rate deal must be compared to this rate. A fixed rate deal will provide certainty, but the downside is being locked in for a fixed term should prices fall. An exit fee – which can be quite substantial ­– is normally charged to end a fixed deal early.

A government briefing of the energy price guarantee and how it operates alongside the energy price cap can be found here.

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Government’s tax take on growth trajectory

Written by admin on . Posted in Corporation Tax, Tax, VAT. No Comments on Government’s tax take on growth trajectory

Analysis of the projected outcomes of the government’s tax policies show an expected increase to the number of higher rate personal taxpayers, with the corporate tax yield expected to grow substantially.

Income tax

The default policy for income tax has generally been to increase thresholds in line with inflation. This is currently not happening, in particular for the personal allowance and the basic rate band, which are frozen at 2021/22 levels until 2027/28. The latest costing of these two threshold measures will mean:

  • Additional tax receipts of £13.1 billion for 2023/24, with over £20 billion in additional receipts for each of the four following years.
  • Some 2.2 million taxpayers having to pay tax for 2023/24 who would not otherwise have had to do so, with an extra 1.3 million having to pay higher rate tax.

The exception to the frozen rule is the additional rate threshold, which was cut from 2023/24, pushing more taxpayers into that higher bracket. Not surprisingly, income tax now accounts for 28% of the government’s tax take, up 2% from a few years ago.

VAT registration

The VAT registration threshold has stayed at £85,000 since April 2017, so it should come as no surprise that there are now around 300,000 registrations annually, although a disproportionate number of traders are avoiding registration by keeping turnover just below £85,000.

Corporation tax

The government’s yield from corporation tax was just over 8% in 2021/22, but the new main rate of 25% means this is expected to increase to about 10%. In actual figures, this is an increase from £68 billion to £112 billion.

Although there are around 1.5 million SMEs, they only contribute 45% of the total collected corporation tax. The other 55% comes from 18,000 large companies.

By 2027/28, the tax burden is forecast to reach a post-war high of 37.7% of GDP, with the highest ratio of corporation tax receipts to GDP since this tax was introduced nearly 60 years ago. Keeping on top of tax planning and how businesses and individuals can minimise their tax burden is more important than ever.

The Office for Budget Responsibility’s detailed economic and fiscal outlook can be found here.

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Potential benefits from directors’ loans

Written by admin on . Posted in benefit-in-Kind, Benefits, Employment Tax, Tax. No Comments on Potential benefits from directors’ loans

Business owners could seek to earn interest on directors’ loans with little-to-no tax implications, although only patient directors willing to meet the reporting requirements will benefit.

Even though the rate of interest charged by HMRC on late tax payments is currently 6.75%, the rate charged on a beneficial loan for 2023/24 is much lower at 2.25%. Therefore, taking a company loan could be an attractive option for directors.

There will be no taxable benefit for 2023/24 if a director’s beneficial loans do not exceed £10,000 at any point throughout the year.

Company charge

The tax treatment of a director’s loan is complicated because there is also a company tax charge if the director is (very basically) also a shareholder and their company is a close company. For owner-managed companies, this will generally be the case.

  • The tax charge is at the rate of 33.75% on the amount of loan should the loan still be outstanding nine months and a day after the end of the company’s accounting period in which the loan is made.
  • However, this tax charge is refunded to the company if the loan is subsequently repaid by the director.


An opportunity

Given that high street banks are currently offering one-year fixed rate ISAs with an interest rate of around 4.2%, opportunistic directors could therefore:

  • Take a £20,000 interest-free loan from their company;
  • Invest this for one year, receiving tax-free interest of £840; and
  • Repay the £20,000 company loan.

Depending on the timing and the company’s accounting period, there might not be a tax charge on the company. Even if the tax charge is payable, it will be repaid once the company loan is refunded. The director will have a taxable benefit of £20,000 at 2.25% = £450 (pro-rata according to the days outstanding during the tax year). Even for an additional rate taxpayer, the tax cost will just be a little over £200.

The downside will be the various reporting requirements for both the director(s) and the company.

HEALTH WARNING: Please do not take the above as advice. These are the mere meandering thoughts of a sad old man. If anything you’ve read is of interest then please seek professional guidance from your accountant or tax adviser (you’ve been warned!!!!).

HMRC guidance on director’s loans can be found here.

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2023/24 – the 23-month tax year?

Written by admin on . Posted in Budget, Income Tax, self-assessment, Self-Employed, Tax. No Comments on 2023/24 – the 23-month tax year?

If you are self-employed, the new tax year may be longer than you think.

If you are self-employed, until 2023/24, you have normally been taxed on the profits made in the accounting year that ends in the tax year. For example, if your accounting year ran to 30 April, then in the last tax year, 2022/23, you are taxed on the profits for your accounting year ending on 30 April 2022 – a few weeks after the start of the tax year.

Some while ago, the government decided that it would speed matters up by forcing all the self-employed (including partners in partnerships) to pay tax on the profits earned in the tax year. As is obvious from the example above, moving from the accounting year system to a tax year one implies a catch-up exercise that theoretically results in more than 12 months’ profits being taxed in a single tax year.

Unless your accounting year ends on 31 March or 5 April, that is what will start happening in this tax year. Taking the 30 April year end again, in 2023/24 the default position will be that your taxable profits are:

  • The “normal” calculation of profits for the accounting year ending 30 April 2023, plus
  • One fifth of a catch-up element equal to:
    • Your profits from 1 May 2023 to 5 April 2024 (341/366ths of the profits in your account year ending 30 April 2024), less
    • Any overlap relief because of double taxation that occurred earlier (typically when you started trading).

In the following four tax years (during which the personal allowance and higher rate threshold are frozen), your taxable profits will be those earned across the 12 months of the tax year (with pro-rated calculations, if necessary), plus that one fifth catch-up element. As an alternative, you can opt for any amount more than a fifth up to the full catch-up element to be taxed in 2023/24 with corresponding adjustments for later years.

If your head is hurting, you are not alone. At least you have the remainder of the tax year to consider the implications and prepare for what is likely to be a larger tax bill (as more income is being taxed) come January 2025. Make sure you take advice about the planning opportunities that arise – 2023/24 could be the right time to make a large pension contribution.

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Neglected Child Trust Funds lying unclaimed

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A recent investigation into Child Trust Funds (CTFs) by the National Audit Office (NAO) has revealed that, disturbingly, nearly £400 million in matured CTFs remain unclaimed.

CTFs were opened for some 6.3 million children born between 1 September 2002 and
2 January 2011 into which the government paid £2 billion.

Unclaimed funds

The first CTFs began maturing from 1 September 2020 onwards as children reached 18. By
5 April 2021, some 175,000 18-year-olds had either withdrawn or reinvested the funds from their matured CFTs, but 145,000 (45%) matured CTFs went unclaimed. A more up-to-date estimate shows the situation improving, but 27% of CTFs maturing at least one year earlier are still unclaimed.

There are various reasons for this:

  • 28% of CTFs – 1.7 million accounts – were set up by HMRC when parents did not do so. Without parental involvement, it is no surprise that account holders may be unaware of a CTF’s existence.
  • The number of CTF providers has shrunk to 55, compared to 74 in 2011. Some have merged, with others exiting the CTF market. This means many CTFs will now have a different provider to when the account was set up.
  • Although HMRC has begun publicising the fact that a child might have a CTF, such as writing to 15-year-olds with their National Insurance number, the NAO is generally unimpressed with HMRC’s performance. Much of HMRC’s statistical data is incomplete, with several active CTF providers not providing annual return data.


Tracing lost accounts

As a result of government contributions, every CTF has between £100 and £500 invested, even if no family contributions have been made. So, it is worthwhile tracking down lost accounts.

  • If the provider is known, then they should be contacted directly.
  • If the provider is not known, HMRC provides a tracing service for parents and guardians, or for those aged at least 16 and looking after their own CTF. There is an online form that can be used, although details can also be requested by post.

HMRC will usually respond with details of the CTF provider within three weeks.

The starting point for HMRC’s CTF tracing service can be found here.

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