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Month: June 2024

Not in the NIC of time

Written by admin on . Posted in National Insurance Contributions, Pensioners, Pensions, self-assessment, Self-Employed. No Comments on Not in the NIC of time

A useful new web tool has emerged, a little late in the game, in a joint effort from two government departments.

In early 2023, HMRC and the Department for Work and Pensions (DWP) found they were unable to cope with the volume generated by a 5 April cut-off date that had been set a decade previously. The deadline related to the option to pay backdated National Insurance contributions (NICs) to fill in gaps in contribution records going back to 2006/7, rather than the standard six-year period. Media coverage of the option – often quoting the more extreme examples of benefit – had prompted a surge of last-minute interest, which the departments were unable to manage.

After denying there was a problem, the government finally revealed a band-aid solution in March, pushing the deadline out to 31 July 2023. This solution came unstuck about three months later when, still unable to cope with requests for information, the deadline was extended again to 5 April 2025 – two years after the original cut-off date.

One of the biggest issues causing delays was the difficulty in obtaining details of contribution gaps from the DWP (unavailable online) and then paying HMRC the appropriate amount. Now, at long last, a ‘fully end-to-end digital solution’ has been launched by the DWP and HMRC under the banner Check your State Pension forecast. It is not a complete solution, because it will not work if you are beyond the State pension age (presently 66 years), self-employed or currently living outside the UK with gaps incurred while working abroad. You will also need to have a Personal Tax Account with HMRC to log in (or register for one first with GOV.UK).

If you think you might have missed contributions going back to April 2006, it is well worth taking a few minutes to check your position with the new tool. To fill in one year’s missing contribution (before the 2023/24 tax years) costs £824.20 and could mean an extra £328.64 a year in State pension.

Photo by Keith Tanner on Unsplash

Uncertainty for landlords

Written by admin on . Posted in Leasehold, Property. No Comments on Uncertainty for landlords

Despite support from the Labour Party, the Renters (Reform) Bill was not enacted before parliament was prorogued ahead of the general election. The Leasehold and Freehold Reform Act made it under the wire, but without the expected cap on ground rents.

Rental reform

The Renters (Reform) Bill would have seen the abolition of the controversial Section 21 notices, which enable landlords to take possession of a property without providing a reason. Tenants and homelessness charities expressed consternation at the failure to enact the provision.

The Bill is likely to return in some form regardless of who wins the election. A Labour government might well abolish Section 21 notices for all tenancies straight away despite the readiness of the county court system to process possession orders.

Leasehold reform

There was no expectation of an immediate reduction of all ground rents to a peppercorn amount, but it was reported a month ago that a compromise would see ground rents initially capped at £250 annually. Although this measure was not included, the new Act may help landlords who own leasehold flats and apartments:

  • Leaseholders can now obtain a 990-year lease extension; previously, leases for flats and apartments could only be extended by 90 years.
  • When a lease is extended, future ground rent will effectively be set at zero.

The valuation process is now more favourable to the leaseholder because there is no longer any requirement to pay a marriage value, plus the future value of ground rents in the valuation calculation is restricted. Prior to the new Act, marriage value came into play when a lease had 80 years or less to run. It represented the increased market value of obtaining a longer lease.

Ground rent is not payable on new leases granted from 30 June 2022, so the new measure will help landlords with older leases move to a level playing field.

Furnished holiday lets

The advantageous tax regime for furnished holiday lettings is set to be abolished from April 2025, but the election announcement has introduced uncertainty here as well. The draft legislation has not even been published yet.

HMRC have rejected a suggestion to introduce a brightline test which would have clearly set out the distinction between trading and investment for such properties.

Photo by Jamie Whiffen on Unsplash

Election tax stories…………………

Written by admin on . Posted in Income Tax, Pensioners, Pensions, VAT. No Comments on Election tax stories…………………

It’s early days yet, but some pointers on tax have emerged from both the main parties.

Within one week of the surprise firing of the general election starting gun, both the Conservatives and Labour have been promoting their tax plans. We can expect more to emerge in the coming weeks and in the manifestos, which will probably appear during the second week of June.

The Conservatives were first out of the blocks with a new tax proposal – higher personal allowances for pensioners. The driver for this is, ironically, an existing Conservative policy, the freezing of personal allowances until April 2028. At present the new State pension (£221.20 a week – £11,502 a year) is below the personal allowance (£12,570). However, given the State pension rises each year in line with the triple lock, it is destined to overtake the personal allowance in the future. As a result, a pensioner with only State pension would have tax to pay.

Mr Sunak’s solution is ‘triple lock plus’, which would see the personal allowance rise in line with the State pension increases, but only for those who have reached State pension age. The cost would be £2.4 billion a year by 2029/30, which the Conservatives said would be funded by that favourite revenue source of politicians seeking re-election, clamping down on tax avoidance.

Rachel Reeves, the Shadow Chancellor, subsequently said that the Labour party would not copy the personal allowance reform. She already has tax avoidance measures earmarked to replace the revenue she had planned to raise from increased tax on non-domiciled individuals. The non-domiciled option was effectively closed off by Chancellor of the Exchequer Jeremy Hunt’s March 2024 Budget, which had its own (similar) ‘non-dom’ proposals.

The Labour party has also responded to Conservative campaign rhetoric with pledges not to increase income tax, National Insurance, corporation tax or value added tax, removing major revenue-raising options.

Budget plans?

On the subject of Budgets, the Shadow Chancellor was asked whether she would hold an emergency Budget if she entered 11 Downing Street. She replied that there would be no Budget without a report from the Office for Budget Responsibility (OBR) – a sideswipe at the Truss Mini-Budget which lacked any OBR oversight. The OBR requires a minimum of ten weeks’ notice to prepare a report, meaning that there will be no Reeves’ Budget until mid-September, at the earliest. The corollary is that August could be a busy month for tax planning.

Photo by Manny Becerra on Unsplash

Electric vehicles can boost income with salary sacrifice

Written by admin on . Posted in Employment Tax, National Insurance Contributions, self-assessment. No Comments on Electric vehicles can boost income with salary sacrifice

It may seem counter-intuitive, but taking a pay cut and opting for a salary sacrifice scheme with an electric car can boost take-home pay thanks to tax and national insurance contribution (NIC) savings.

Salary sacrifice

Despite the recent introduction of the Government’s zero emission vehicle mandate, the number of electric car sales seems to have stalled recently.

Electric cars work well as part of a salary sacrifice scheme because the taxable benefit for employees is low. It is calculated as just 2% of the car’s list price. This percentage is to increase by 1% for each of the next three tax years but will still be a fairly reasonable 5% by 2027/28.

However, it is important to note that while hybrid cars can have the same tax advantage, the electric range for the majority of models is too low to qualify for the 2% rate. The current percentage for most hybrids will be a less attractive 12%.

High marginal tax rates

With tax thresholds frozen, more and more employees are facing higher marginal tax rates. In particular, a rate of 60% applies on income between £100,000 and £125,140 due to the withdrawal of the personal allowance:

  • For example, an employee earning £125,000 might sacrifice £10,000 of their gross earnings, with the employer then providing an electric car worth £40,000. The employer’s leasing arrangements will typically cover the full costs of running the car.
  • The employee’s tax and NIC bill will be reduced by £6,200, although they will have to pay tax of £480 on the benefit of having the company car.
  • However, if the employee had leased the car personally, it would take almost £26,000 of their gross pay to cover similar leasing costs.

From the employer’s perspective, an electric car salary sacrifice arrangement could help boost staff retention, as well as attracting new staff.

A basic guide to salary sacrifice for employers can be found here.

Photo by Christina @ wocintechchat.com on Unsplash

The importance of a well-drafted will

Written by admin on . Posted in Lasting Will & Testaments, Law, Wills & Probate. No Comments on The importance of a well-drafted will

The risk of relying on homemade wills was highlighted in a recent case where a will was held to be invalid. Even a well-written will must be kept up to date given the possibility of future inheritance tax (IHT) changes.

Invalid will

While there is usually the presumption that the testator will have had knowledge of a will, and will have approved it, a will might be considered as suspicious if:

  • It is a homemade will;
  • It is created by a beneficiary;
  • It contains spelling mistakes;
  • It represents a radical change from a previous will; or
  • The relationship between the testator and beneficiary was not close.

In the case of Ingram and Whitfield v Abraham 2023, a homemade will would have seen Joanne Abraham’s estate inherited by her brother – who drafted the will – rather than her children who were previously the beneficiaries. The homemade will, which also misspelt Joanne’s name, was held to be invalid, therefore, her children inherited the estate.

Future IHT changes

 Although IHT reliefs have remained largely unchanged since the introduction of the residence nil rate band in 2017, future changes cannot be ruled out – especially with an election on the horizon.

 The Institute for Fiscal Studies has recommended that three IHT reliefs are cancelled:

  1. AIM shares: these shares are exempt from IHT, with AIM portfolios – including AIM ISAs – often used to avoid IHT.
  2. Business and agricultural property relief: although full abolishment might be politically difficult, relief could be capped.
  3. Pension pots: funds in money purchase pension schemes can currently be passed on to beneficiaries free of IHT.

The lesson here is to review your will regularly, even if it is well-written, because your circumstances, wealth and IHT rules could change.

The Government’s guide to making a will can be found here.

Photo by Jon Tyson on Unsplash