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Month: March 2024

HMRC ramps up its checks and investigations

Written by admin on . Posted in Company Director, HMRC Investigations, Inheritance Tax. No Comments on HMRC ramps up its checks and investigations

There’s no respite for HMRC with inheritance tax (IHT) accounts, undeclared dividend income and gains from share disposals to scrutinise.

HMRC is currently busy with several ongoing checks. They are looking at IHT accounts, targeting undeclared dividend income, and making sure any gains from share disposals have been correctly declared.

Inheritance tax accounts

The complexities of IHT can catch out even seasoned observers and there are many pitfalls, including:

  • Business property: 100% relief from IHT may be available, so it is important to make sure claims are correct. It is worth noting that relief may not be available if a business has a large amount of cash or assets held as investments.
  • Valuations: HMRC might contest valuations submitted in respect of unquoted shares, property or jointly owned assets. To avoid problems, obtain formal IHT valuations from experts.
  • Payment deadline: IHT on an estate must be paid within six months after the end of the month in which death occurred; this is a much tighter deadline than for most other major taxes.

Dividend income

HMRC is writing to company owners who may have undeclared dividend income. Its approach is to compare a company’s reported profits with the movement in reserves. Where a difference is identified, this could be an indication of dividends being paid to shareholders.

Anyone receiving a letter should contact HMRC within 30 days of its receipt, even if there is no dividend income to declare, or risk facing a compliance check.

Share disposals

Letters are also being sent to taxpayers who have disposed of shares but are suspected of omitting the details from their tax returns.

HMRC has looked for discrepancies by checking the information it has on share disposals against details declared on self-assessment tax returns. Anyone receiving a letter will have 60 days to amend their return.

If no capital gains tax is due on the disposal identified by HMRC, the taxpayer needs to explain why in writing.

HMRC’s guide to valuing an estate for IHT purposes can be found here.

Photo by Sander Sammy on Unsplash

Spring Budget: a pre-election balancing act

Written by admin on . Posted in Budget. No Comments on Spring Budget: a pre-election balancing act

What was almost certainly the last Budget before the election was a serving of the widely expected, sprinkled with a handful of small surprises.

The Chancellor of the Exchequer, Jeremy Hunt, delivered the Spring Budget 2024 on 6 March. As anticipated, it was a typical pre-election event focused on tax relief measures – including further national insurance contributions (NICs) cuts – and the promise of a new savings bond from National Savings.

With little fiscal wriggle room, Mr Hunt was unable to give away as much as some of his backbenchers may have wanted, yet managed to hit some political targets, including co-opting Labour’s flagship scrapping of non-domicile rules.

Key announcements

The main headlines and changes to grapple with are:

  • High income child benefit charge (HICBC): This unpopular tax charge will undergo a two-stage reform. Firstly, in 2024/25, the income threshold rises in 2024/25 with a £10,000 increase from £50,000 to £60,000 with a halving of the rate of charge. As a result, the full 100% HICBC charge will apply once individual income exceeds £80,000. Secondly, by April 2026, the income threshold will be switched from an individual basis to a household basis.
  • National insurance contributions (NICs): From 6 April 2024, the main rates of employee (class 1) and self-employed (class 4) NICs will be cut by two percentage points to 8% and 6% respectively, doubling down on the cuts announced in last November’s Autumn Statement. The maximum annual saving is £754.
  • Residential property: In 2024/25, the maximum capital gains tax rate on residential property gains will fall to 24%. The lowered rate may encourage more buy-to-let investors to sell up rather than pay higher mortgage rates at the end of their fixed-rate deals. It may have a similar impact on holiday cottage owners, as the favourable tax rules for furnished holiday lets will be scrapped from April 2025.
  • UK ISA: The Chancellor issued a consultation paper on a new ‘UK ISA’. This will have a contribution limit of £5,000 – in addition to the existing overall £20,000 ISA limit (unchanged since 2017/18). However, investments will have to be primarily in the UK, probably both shares and bonds. There was no specific timeline on the proposal.

These Budget changes may affect you personally or your business. For more information on any aspect of the implications of the Budget, please contact us.

How to navigate the £500 trust income exemption

Written by admin on . Posted in Uncategorized. No Comments on How to navigate the £500 trust income exemption

The introduction of a £500 income exemption from 6 April 2024 will impact many trusts. It comes with various complications, especially as income within the £500 exemption will still be taxable in the hands of beneficiaries.

The exemption is on an all-or-nothing basis. A trust with an income of £501 will find the whole amount is taxable; not just the excess over £500. A further complication is that, in some circumstances, the £500 exemption is shared between trusts created by the same person.

When the £500 exemption was first proposed, it appeared relatively generous for savings income given the bank rate was 0.75%. However, it does not appear as beneficial now that the current bank rate sits at 5.25%.

Interest in possession (IIP) trusts

IIP trusts pay income tax at 20%, except for dividend income which is taxed at 8.75%. The £500 exemption will mean that smaller IIP trusts no longer have to file returns or pay tax, but this income will now be received gross by beneficiaries without any associated tax credit.

This is good news for non-tax paying beneficiaries as they will no longer need to make repayment claims. However, basic rate taxpayers will now have to account for tax on trust income, a liability previously met by the tax credit.

There will be no change for either the trust or the beneficiaries where trust income exceeds £500.

Discretionary trusts

Discretionary trusts pay tax at 45%, except for dividend income which is at 39.35% – the same rates paid by an additional rate individual taxpayer. Previously, there was a £1,000 standard rate band on which lower rates applied.

The £500 income exemption has replaced the standard rate band.

The complication for discretionary trusts is that any distributions to beneficiaries carry a 45% tax credit, even if the exemption applies. Therefore, the trust will still have to pay sufficient tax to cover the tax credit, which can mean complex calculations.

The beneficiaries of discretionary trusts will not see any change to their tax treatment given that trust income will continue to have a 45% tax credit attached.

Photo by Ronda Dorsey on Unsplash

Spring Budget: a pre-election balancing act

Written by admin on . Posted in Budget. No Comments on Spring Budget: a pre-election balancing act

What was almost certainly the last Budget before the election was a serving of the widely expected, sprinkled with a handful of small surprises.

The Chancellor of the Exchequer, Jeremy Hunt, delivered the Spring Budget 2024 on 6 March. As anticipated, it was a typical pre-election event focused on tax relief measures – including further national insurance contributions (NICs) cuts – and the promise of a new savings bond from National Savings.

With little fiscal wriggle room, Mr Hunt was unable to give away as much as some of his backbenchers may have wanted, yet managed to hit some political targets, including co-opting Labour’s flagship scrapping of non-domicile rules.

Key announcements

The main headlines and changes to grapple with are:

  • High income child benefit charge (HICBC): This unpopular tax charge will undergo a two-stage reform. Firstly, in 2024/25, the income threshold rises in 2024/25 with a £10,000 increase from £50,000 to £60,000 with a halving of the rate of charge. As a result, the full 100% HICBC charge will apply once individual income exceeds £80,000. Secondly, by April 2026, the income threshold will be switched from an individual basis to a household basis.
  • National insurance contributions (NICs): From 6 April 2024, the main rates of employee (class 1) and self-employed (class 4) NICs will be cut by two percentage points to 8% and 6% respectively, doubling down on the cuts announced in last November’s Autumn Statement. The maximum annual saving is £754.
  • Residential property: In 2024/25, the maximum capital gains tax rate on residential property gains will fall to 24%. The lowered rate may encourage more buy-to-let investors to sell up rather than pay higher mortgage rates at the end of their fixed-rate deals. It may have a similar impact on holiday cottage owners, as the favourable tax rules for furnished holiday lets will be scrapped from April 2025.
  • UK ISA: The Chancellor issued a consultation paper on a new ‘UK ISA’. This will have a contribution limit of £5,000 – in addition to the existing overall £20,000 ISA limit (unchanged since 2017/18). However, investments will have to be primarily in the UK, probably both shares and bonds. There was no specific timeline on the proposal.

These Budget changes may affect you personally or your business. For more information on any aspect of the implications of the Budget, please contact us.

Photo by Diane Helentjaris on Unsplash

Moving to Scotland – the cost in tax

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There are many benefits to moving to Scotland for work or retirement, especially the stunning scenery. However, anyone contemplating a move should consider the tax cost of relocating from elsewhere in the UK.

The Scottish Parliament has set income tax rates and bands since April 2017, with the result that most Scottish taxpayers have generally faced a higher tax burden than other UK taxpayers. This cost is set to get even wider from April 2024.

Tax rates

The main difference between Scottish tax rates and those applicable to the rest of the UK is going to be Scotland’s new advanced rate of 45% which, from April 2024, will apply on income between £75,000 and £125,140. This is 5% higher than is payable on equivalent income in other parts of the UK.

Given that the personal allowance is tapered away where income is between £100,000 and £125,140, this will mean a marginal rate of 67.5% on this band of income: it is 60% in other parts of the UK. Once income hits £125,140, the Scottish top rate is 48% compared to the rest of the UK’s 45% additional rate.

Comparison

The Scottish tax system generally hits harder at the higher end of the pay scale. Someone moving to Scotland after April with an income of £40,000 will see their annual tax bill go up by just over £110. However, it is nearly £3,350 more with an income of £100,000, and almost £6,000 where income is £150,000.

At the lower end of the scale, a pensioner moving to Scotland with an income of, say, £25,000, will actually see a modest reduction in their tax liability.

Scottish taxpayers

Having one home in Scotland and living there will make you a Scottish taxpayer, but also if:

  • You have two or more homes – whether owned, rented or lived in for free – and the main home is in Scotland; or
  • You spend more time in Scotland compared to the rest of the UK.

A person’s main home is usually where the majority of time is spent, although this is not always the case.

The government has published a guide to income tax in Scotland on its website.

Photo by jim Divine on Unsplash

Another lesson learned in equal pay

Written by admin on . Posted in Employment Law, Equal Pay, PAYE, Tax. No Comments on Another lesson learned in equal pay

Having already paid out over £1 billion in equal pay claims, and now facing claims for further millions, Birmingham City Council’s financial crisis is a stark reminder of why it is so important to get equal pay right.

All employers will undoubtably know the basic principle that men and women must receive equal pay for doing equal work. However, it is possible for employers to be caught out by some complications of the rules:

  • Associated employers: equal pay applies across associated employers. This is not about overall control, but also where one organisation sets the pay and benefits for both entities.
  • Pay: equality extends to payment for holidays, overtime, redundancy, sickness and performance. Entitlement to benefits, such as company cars, must also be on an equal basis, along with pension funding and entitlement.
  • Terms and conditions: the whole employment package needs to be equal – not only salaries. For example, working hours and annual leave allowance must be equivalent.
  • Right to equal pay: it does not matter whether employees are full-time or part-time when considering equal pay; apprentices and agency workers are also included.

Equal work

Where equal pay rules become less black and white is in the arena of equal work. This is where Birmingham City Council came unstuck. The original dispute in 2012 arose because bonuses given to staff in traditionally male-dominated roles discriminated against female workers working in roles such as cleaners, teaching assistants and catering staff.

Comparisons are not necessarily on an exact like-for-like basis. It might be that the level of skill, responsibility and effort needed to do work are equivalent, or work might simply be of equal value, even if the roles seem different, such as comparing warehouse and clerical jobs.

Differences in pay

Although differences in pay terms and conditions are permitted, this must have nothing to do with gender identity. For example, someone in a similar role could be paid more if they are better qualified or are employed in a location where recruitment is difficult.

One way for employers to avoid equal pay disputes is to be transparent in regard to pay and grading systems. Job descriptions should be up-to-date and accurate.

The Advisory, Conciliation and Arbitration Service (Acas) has published guidance for employers on equal pay on its website.

Photo by That’s Her Business on Unsplash