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From new year to year end – time to keep a tax-planning resolution?

Written by admin on . Posted in Capital Gains Tax, High Income Child Benefit Charge, Inheritance Tax. No Comments on From new year to year end – time to keep a tax-planning resolution?

As 2025 gets under way, it is once again the time of year to start considering your tax year-end planning.

The early months of the year are the time to undertake year-end tax planning. Unsurprisingly, the traditional drivers have been the tax year-end (Saturday 5 April 2025) and the Spring Budget. On this occasion, after last October’s blockbuster, there is no Spring Budget, although Rachel Reeves will deliver a Spring Forecast in late March. In the wake of that Autumn Budget, there is plenty to consider:

  • Pension contributions: The Budget announcement that pensions will fall within the scope of inheritance tax (IHT) from 2027/28 makes the review of pension contributions slightly different from previous years. For most people, pensions remain a highly tax-efficient way of saving for retirement, but for the wealthy few unconcerned about retirement income, they are no longer the estate-planning tool of choice.
  • Capital gains tax (CGT): Capital gains tax rates increased in the Budget to 24% for higher and additional rate taxpayers and 18% for other taxpayers. If you have not used your annual exemption – now just £3,000 of gains – you should consider doing so after what has been a generally good year on the world’s stock markets.
  • IHT: Now is the time to use your annual exempt amount (£3,000 per tax year) for 2024/25 if you have not already done so. If you did not use your full exemption from 2023/24, you can also gift the unused element after you have exhausted this year’s exemption.
  • Marriage allowances: If you or your spouse/civil partner had income below the personal allowance in 2020/21 (£12,500), you have until 5 April 2025 to claim the marriage allowance for that year (£1,250), which could produce a tax saving of up to £250. A claim can only be made if the other partner was a basic rate taxpayer (starter, basic or intermediate rate in Scotland) in that tax year. The same principle applies (with an allowance of £1,260) for 2021/22 and subsequent years onwards.
  • Threshold planning: The long-term freezes that have applied to income tax allowances and many thresholds may mean you move into a higher tax band in the coming tax year. Equally you could find yourself crossing the unchanged £60,000 threshold for the high-income child benefit charge or the £100,000 threshold for personal allowance taper and loss of tax-free childcare. Among the strategies to beat the unmoving thresholds, you could bring forward income into 2024/25 (e.g., by closing an interest-paying account) or move some income-generating investments across to your (lower income) spouse or civil partner by 5 April.

It is best to seek advice before taking any action – in tax, errors can be costly and difficult to unwind.

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The Autumn Budget – a brave new tax world

Written by admin on . Posted in Budget, Capital Gains Tax, Corporation Tax, Income Tax, Inheritance Tax, National Insurance Contributions. No Comments on The Autumn Budget – a brave new tax world

Chancellor Rachel Reeves’ first Budget was a significant one in all senses.

“…this Budget delivers a large, sustained increase in spending, taxation, and borrowing.”

So said the Office for Budget Responsibility (OBR) in the first paragraph of its overview of the Autumn Budget. The numbers are indeed large:

  • spending is up by almost £70 billion a year over the next five years;
  • taxation will rise by £36 billion a year; and
  • borrowing will still be above £70 billion a year in 2029/30.

The Chancellor’s tax-raising opportunities were constrained by the Labour manifesto pledges to hold the rates of income tax, VAT, corporation tax and national insurance contributions (NICs) – only for employees, although other interpretations are available. The result was that other taxes had to carry the burden of providing extra funds for the Treasury:

  • Over half the additional revenue came from changes to employer’s NICs from 2025/26. These saw the class 1 employer rate rise from 13.8% to 15.0%, and the starting point for payments fall from £9,100 of annual earnings to £5,000. The impact of this was mitigated slightly by a £5,500 increase to £10,500 in the employment allowance – effectively an employer NIC credit.
  • The main capital gains tax rates have increased from 10% to 18% (for non-taxpayers and basic rate taxpayers) and from 20% to 24% (for higher and additional rate taxpayers). The rate for business assets disposal relief will rise from 10% to 14% in 2025/26 and then 18% in the following tax year, with the maximum amount of lifetime relievable gain staying at £1 million.
  • Inheritance tax (IHT) relief for businesses and agricultural property will be cut back from April 2026, with the relief for qualifying shares listed on the Alternative Investment Market halved to 50%.
  • Death benefits from pensions will be brought into IHT from 2027/28, although there were none of the other tax changes that had been rumoured in the weeks before the Budget. Notably full income tax relief on contributions remains and employer contributions continue to be free of NICs.

If you could be affected by any of these changes (or further changes not mentioned in this update), make sure that you seek advice. The sooner you are prepared for this new, higher tax environment, the better.

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Capital gains tax receipts

Written by admin on . Posted in Budget, Capital Gains Tax. No Comments on Capital gains tax receipts

Raising tax rates is a traditional government strategy to increase tax receipts for HMRC, but this may not be the case for capital gains tax (CGT). This is because taxpayers generally have more control over when gains are realised.

The upcoming Budget at the end of October is widely expected to see a hike in CGT rates. However, recently published data from HMRC suggests that the 4% higher rate reduction from 6 April 2024 (28% down to 24%) on residential property disposals may have helped to increase tax receipts as landlords could be taking a good opportunity to sell up.

For the five months to 31 August 2024, CGT receipts increased by nearly 10% compared to the year before.

Take care to plan ahead

Compared to landlords, those with an investment portfolio have more opportunity for CGT planning since they have considerable flexibility over the timing of disposals. However, there is now somewhat less scope for basic CGT planning with the annual exempt amount cut to just £3,000:

  • With an investment portfolio, disposals can be spread over several years to make use of multiple annual exempt amounts and basic rate tax bands. Couples can also make use of the annual exempt amounts and basic rate tax bands of a spouse or civil partner. Such strategies should be used with care, however, as this type of planning will unravel if CGT rates increase in the future.
  • Making personal pension contributions in the same year as a disposal will increase the basic rate tax band.
  • More sophisticated investors might consider investing in a seed enterprise investment scheme. With 50% income tax relief and CGT exemption on 50% of a reinvested gain, a landlord could currently benefit from total tax relief of 64%. This relief will increase in line with any future uplift of CGT rates. These investments are high risk and advice should be taken before engaging in them.

Longer term, those with a large investment portfolio might be able to avoid any tax liability if they retire overseas. This option does not work for landlords because UK property remains subject to CGT regardless of the owner’s residence status.

HMRC’s guide to capital gains tax (what you pay it on, rates and allowances) can be found here.

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Will increased capital gains tax (CGT) mean less tax gets paid?

Written by admin on . Posted in Budget, Capital Gains Tax, Wealth. No Comments on Will increased capital gains tax (CGT) mean less tax gets paid?

Capital gains tax: a minority sport?

The Labour Party’s 2024 manifesto said, ‘We will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.’ The absence of any comment on CGT meant that Rachel Reeves received persistent questions during the election campaign about a possible increase. Unsurprisingly, there was no definitive answer.

At the beginning of August, HMRC published new data about how much CGT had raised. The figures were for 2022/23, when the annual exemption was £12,300 of gains, as opposed to the current £3,000. Nevertheless, they provide some interesting information about who pays how much:

  • Only 348,000 people made enough capital gains to pay the tax. That is about 1% of the number of income taxpayers.
  • The total amount of CGT paid by individuals was £13.63 billion, with trusts accounting for another £0.797 billion.
  • 2,000 taxpayers – less than 1% of all CGT payers (who realised at least £5 million of gains) – paid 41% of all CGT collected from individuals. Another 4,000 taxpayers with gains between £2 million and £5 million paid 16% of the total.
  • There was more tax paid in the previous two tax years. Between 2021/22 and 2022/23 the Exchequer’s receipts fell by 15%.

That final bullet point deserves an explanation, because it is unusual for tax receipts to fall year-on-year, yet alone for two years. In July 2020, the then chancellor Rishi Sunak, commissioned the now-defunct Office of Tax Simplification (OTS) to review CGT. The move prompted speculation that CGT would be increased, a sentiment that was reinforced when the OTS suggested aligning CGT rates with income tax and sharply reducing the annual exemption. The predictable result was a pre-emptive rush to realise gains, boosting CGT payments.

In the event, Mr Sunak ignored the OTS proposals, although subsequently one of his many successors did take up the idea of cutting the annual exemption. As we wait to see what will be in Rachel Reeves’ Budget on 30 October, the story of CGT receipts may have provided her with an interesting lesson: hints of raising the tax are enough in itself to generate extra revenue.

Source HMRC

Thoughts for buy-to-let owners selling up

Written by admin on . Posted in Capital Gains Tax, Income Tax, Landlord, Leasehold, self-assessment. No Comments on Thoughts for buy-to-let owners selling up

While the higher rate of capital gains tax (CGT) on residential property disposals has dropped by 4%, from 28% to 24%, from 6 April 2024, the vast majority of landlords who sell up are facing a higher CGT bill when compared to two years ago.

Buy-to-let landlords may be selling because of the implications of the Renters Reform Bill, while furnished holiday homeowners will see their advantageous tax benefits removed from April 2025.

Higher CGT bills

Landlords will generally be worse off despite the 4% rate cut, because it generally doesn’t compensate for the recent reduction of the annual exempt amount from £12,300 to £3,000.

  • Basic rate taxpaying sellers: will be worse off as the lower rate for gains falling within the basic rate tax band is unchanged at 18%.
  • Higher/additional rate taxpaying sellers: with a gain of less than £68,000, will be worse off; such as newer landlords who have benefited from less price growth and northern landlords where property values are generally lower.

Only higher and additional rate taxpayers with a gain in excess of £68,000 will find themselves better off.

Already sold up

 Landlords who have already sold their property and face a CGT liability at the previous higher rate of 28% could consider a risky strategy of potentially benefiting from the 4% rate reduction – by deferring the gain through an enterprise investment scheme (EIS). The gain will come back into charge when the EIS investment is realised.

There are two main risks associated with this plan:

  • EIS investment risk: some or all of the investment could be lost; and
  • CGT rate change: the rate of CGT could go up again by the time the gain comes back into charge.

While not worth it solely for the rate reduction, this is a useful bonus if considering an EIS investment for the 30% income tax relief.

HMRC’s guide to tax when you sell property can be found on the government website.

Photo by Tierra Mallorca on Unsplash

 

Buy-to-let owners selling up

Written by admin on . Posted in Capital Gains Tax, self-assessment. No Comments on Buy-to-let owners selling up

While the higher rate of capital gains tax (CGT) on residential property disposals has dropped by 4%, from 28% to 24%, from 6 April 2024, the vast majority of landlords who sell up are facing a higher CGT bill when compared to two years ago.

Buy-to-let landlords may be selling because of the implications of the Renters Reform Bill, while furnished holiday homeowners will see their advantageous tax benefits removed from April 2025.

Higher CGT bills

Landlords will generally be worse off despite the 4% rate cut, because it generally doesn’t compensate for the recent reduction of the annual exempt amount from £12,300 to £3,000.

  • Basic rate taxpaying sellers: will be worse off as the lower rate for gains falling within the basic rate tax band is unchanged at 18%.
  • Higher/additional rate taxpaying sellers: with a gain of less than £68,000, will be worse off; such as newer landlords who have benefited from less price growth and northern landlords where property values are generally lower.

Only higher and additional rate taxpayers with a gain in excess of £68,000 will find themselves better off.

Already sold up

 Landlords who have already sold their property and face a CGT liability at the previous higher rate of 28% could consider a risky strategy of potentially benefiting from the 4% rate reduction – by deferring the gain through an enterprise investment scheme (EIS). The gain will come back into charge when the EIS investment is realised.

There are two main risks associated with this plan:

  • EIS investment risk: some or all of the investment could be lost; and
  • CGT rate change: the rate of CGT could go up again by the time the gain comes back into charge.

While not worth it solely for the rate reduction, this is a useful bonus if considering an EIS investment for the 30% income tax relief.

HMRC’s guide to tax when you sell property can be found on the government website.

Photo by George Pagan III on Unsplash

 

 

Interest rate rises fuelling increased tax take

Written by admin on . Posted in Capital Gains Tax, Income Tax, PAYE. No Comments on Interest rate rises fuelling increased tax take

The Bank of England base rate increase is impacting on the government’s tax takes, with more taxpayers paying tax on savings income due to higher interest rates. Increased mortgage rates are contributing to rocketing capital gains tax (CGT) takings too.

The impact of savings on tax

National Savings & Investment is offering a 5% return on its one-year bonds, and some financial institutions are offering 6% for a similar investment. So, a higher rate taxpayer with £10,000 or more invested will easily exceed their £500 savings allowance. In fact, it is estimated that the number of taxpayers paying tax on their savings income for 2023/24 will be a million more than the previous year.

There are two options to minimise tax liabilities:

  • You could move savings into ISA accounts, up to an annual investment limit of £20,000. This limit could restrict the scope of such planning for some.
  • You could invest in tax-free premium bonds. Although not paying interest as such, the expected annual return for larger investments is 4.65% – equivalent to a gross 7.75% for a higher rate taxpayer.

It’s advisable to keep careful track of your savings income for tax purposes. If tax is owed, it will be paid through self-assessment or via a PAYE coding adjustment.

Why is capital gains tax revenue increasing now?

The substantial increase in CGT receipts reported recently is partly explained by the number of buy-to-let landlords who are selling up. A buy-to-let was a good investment choice when mortgage costs were low, property prices were increasing, and cash savings accounts offered a very poor return in comparison. But all three of these factors are now in reverse, and landlords will often be able to get a better return investing their funds elsewhere.

Uncertainty around possible future increases to CGT is also pushing landlords to sell sooner rather than later.

If selling up, landlords can keep CGT bills as low as possible by:

  • Making sure any qualifying expenditure is claimed, including any enhancement expenditure which hasn’t qualified as a deduction against property income.
  • Disposing of any other investments standing at a loss in the same tax year, because capital losses cannot be carried back to earlier tax years.
  • Putting property into joint ownership with a spouse or civil partner prior to disposal.

These measures can help alleviate some of the seemingly punitive rates of CGT.

HMRC information on the taxation of savings income on can be found here [savings interest] and we are always happy to advise you on your options.

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Cash basis reform: potential turnover threshold changes

Written by admin on . Posted in Capital Gains Tax, self-assessment, Self-Employed, VAT. No Comments on Cash basis reform: potential turnover threshold changes

With basis period reform now underway, HMRC is looking at further tax simplification for sole traders and partnerships by increasing the cash basis turnover threshold. The cash basis scheme removes complexities such as accruals and most capital allowances.

The cash basis can only be used currently if a business’s annual turnover does not exceed £150,000, although the business can then remain in the scheme until turnover reaches £300,000.

Income threshold

HMRC is considering two alternatives to expand the availability of the cash basis:

  • The turnover limit could be set at £1.35 million, with businesses not required to leave until turnover reaches £1.6 million. These are the same limits that apply for the VAT cash accounting scheme.
  • The turnover threshold could be removed so that any business, regardless of size, can join.

HMRC is also looking at making the cash basis the default method of calculating trading income for eligible businesses, so the scheme would become ‘opt out’, rather than the current ‘opt in’.

Other proposals

Two reasons why a business may currently choose not to use the cash basis are because of restrictions on relief for interest costs, and the use of losses. HMRC is looking at changes here, although nothing definite has been announced:

  • Interest and bank charges are restricted to a maximum deduction of £500. This limit might be increased, possibly as high as £1,000. With the rise in interest rates, the £500 restriction means the cash basis is currently not beneficial for many businesses.
  • If the cash basis is used, any losses can only be carried forward – they cannot be relieved against other income or carried back. A number of options are being considered, but it does look as if loss relief rules will be relaxed, just not to the extent that relief is available where normal accounting rules are used.

HMRC’s guide to the cash basis can be found here.

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The demise of paper tax returns

Written by admin on . Posted in Benefits, Capital Gains Tax, Making Tax Digital, self-assessment. No Comments on The demise of paper tax returns

More than 12 million taxpayers file self-assessment tax returns, but less than 3% do so using a paper return. Given this low demand, HMRC is reviewing the current paper filing service.

HMRC stopped sending out paper tax returns three years ago, with any taxpayer wishing to file by paper required to download a blank version of the form. That move brought a further 3% of taxpayers to the online service. HMRC has now announced that self-assessment tax returns will not be available to download for the 2022/23 tax year.

Alternatives

Subject to a limited exception, anyone who still wants to file offline will have to obtain a tax return form by phoning HMRC.

  • The limited exception is for visually impaired taxpayers and those aged 70 or over who have not previously submitted online. HMRC will continue sending them paper returns to complete.
  • As an alternative to contacting HMRC, a blank tax return can be printed using commercial software.

There are some taxpayers who, because of the complex tax calculations involved, simply cannot file online. This is the case even if commercial software is used, which means they will have to print their completed tax return and file it by post.

Online filing

HMRC has written to some 135,000 taxpayers who file on paper to encourage them to complete returns online in the future. In many cases, this may now be the most sensible option, and there is a wide range of commercial low-cost software available if anyone does not wish to use HMRC’s offering.

Filing online has two distinct advantages:

  • Not having to use the postal system when a return might be lost; HMRC will sometimes deny having received a mailed return even when there is a record of delivery.
  • An additional three months to file each year – the online filing deadline being 31 January following the tax year, rather than 31 October.


Capital gains tax (CGT)

Going somewhat in the opposite direction, HMRC has made a downloadable version of its CGT UK property return available on a four-month trial basis. The intention is that the downloadable form can be used by those taxpayers who cannot report and pay tax using the online service.

HMRC guidance on self-assessment tax returns can be found here.

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Tax implications for the bank of mum and dad

Written by admin on . Posted in Capital Gains Tax, Property, SDLT, Stamp Duty. No Comments on Tax implications for the bank of mum and dad

With property prices expected to fall during 2023, parents may be thinking about getting their children onto the property ladder. However, although help with a deposit does not raise that many tax issues, joint ownership can have expensive tax consequences.

Nearly half of first-time property buyers aged under 35 have received help from the bank of mum and dad. However the following implications should be considered alongside generous intentions.

Help with a deposit

  • Outright gift: This will be treated as a gift for inheritance tax (IHT) purposes. There is no immediate tax cost, but it could mean more IHT is payable if the parent subsequently dies within seven years.
  • Loan: An interest-free loan arrangement avoids any IHT implications, but it could impact on mortgage affordability calculations.


Stamp duty

Joint ownership is likely to mean upfront stamp duty consequences.

  • In England and Northern Ireland, first-time buyers can benefit from a nil-rate threshold of £425,000, saving a potential £8,750 compared to a normal purchaser. However, with joint ownership, all purchasers need to be first-time buyers to qualify for relief; parents are unlikely to qualify.
  • There is a similar, although much lower, relief for Scottish first-time buyers.
  • Furthermore, the inclusion of parents will probably mean that the stamp duty surcharge on second homes is payable. For property in England and Northern Ireland, this is 3%, with higher surcharges for Scottish and Welsh property.

The surcharge can mean an extra cost of £9,480 for a property purchase in England at the latest published average price (October 2022) of £316,000.

Capital gains tax (CGT)

CGT exemption on property disposal only applies if a property has been the seller’s main residence, and this again is unlikely to be the case for a joint owning parent. The tax charge will probably be mainly, or wholly, at 28%. The future reduction of the CGT annual exemption to just £3,000 will not help.

A useful guide on helping a child buy their first home can be found here.

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