Regular Gifts Out Of Your Income Is Tax Efficient

One tax planning opportunity that many thought the chancellor might restrict was the exemption from inheritance tax for regular gifts out of an individual’s income.

Inheritance tax is designed to tax transfers of capital so if the donor can demonstrate that the gifts are made out of surplus income then the transfers are not taken into consideration for IHT. The exemption applies where there is a regularity to the payments, such as a standing order to pay school fees.

HMRC will also require proof that the payments are paid out of post-tax income and do not limit the donor’s normal lifestyle. Detailed records are required, and we can help you with a suitable spreadsheet.

12th February 2021 – Hillmans Weekly Update

 

Below I have summarised all the main tax related updates we have seen this week.

• Possible Inheritance Tax Changes
• Will CGT Rates Go Up?
• What to do if you’re employed and cannot work – guidance for employees
• VAT on purchases from the EU

If you have any queries about this week’s content, or if you need any assistance please do not hesitate to contact me.

I hope you have a good weekend.

Stay safe and well.

Cheers,

Steve

Steven Hillman BSc (Hons) ACA
Chartered Accountant
Tel: 01934 444100

Possible Inheritance Tax Changes

The Office of Tax Simplification (OTS) has suggested simplifying Inheritance Tax (IHT) on lifetime gifts including reducing the period of potential exemption from 7 to 5 years. Such a change would mean that the donor would only be required to survive for 5 years following a gift for the transfer to be exempt from IHT.

The OTS also suggested that the conditions for Business Property Relief might be tightened up by aligning the rules with the definition of a trading company for CGT. This relief currently provides 100% relief on the transfer of shares in an unquoted company.

The suggested change would mean that more transfers of shares would potentially be liable to inheritance tax and may require a careful review of your plans if you are looking to pass on your business.

Passing on the Family Home

TIME TO REVIEW YOUR WILL

Top of the to do list for many individuals is to make or update their will. Many think this is something to leave until later in life but it is important to get things in place once property is acquired or when children come along. 

In the absence of a will there are statutory rules which dictate how your assets are distributed on death. Those statutory intestacy rules may not be tax efficient and you might to want to make specific provision in your Will for your unmarried partner or for the guardianship of your children.

PASSING ON THE FAMILY HOME

One recent change that should be taken into consideration when drafting your Will is the additional Inheritance Tax (IHT) nil rate band for passing on the family home to direct descendants on death. 

Now that the additional relief is fully phased in it provides an extra £175,000 on top of to the normal £325,000 nil rate band.  Where the allowance is unused on the death of the first spouse, the unused allowance is available on the death of the surviving spouse, potentially allowing a married couple (or civil partners) to potentially pass on assets of up to £1 million without paying IHT.

This additional relief is, however, restricted if your assets exceed £2 million. 

This relief is even available when you downsize to a smaller property. 

For example, if a married couple currently live In a large house worth  £500,000 downsize to a flat worth £300,000, they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property.  

They could even sell up completely and move into a rental property or a care home and still get the inheritance tax relief! 

Review of the Budget 16th March 2016

Welcome, to the Budget 16th March 2016 edition of Tax Tips & News.

In this analysis we have mainly concentrated on the tax measures that will directly affect individuals, employers and small businesses.

We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.

Please contact us for advice in your own specific circumstances.

We're here to help!

Budget 16th March 2016

· Summary

· Individuals

· Capital gains tax

· Inheritance tax

· Business tax

· VAT

Summer Budget 8th July 2015

SUMMARY

Chancellor George Osborne has delivered the first Budget by a wholly Conservative government in almost 20 years. The March 2015 Budget provided some clues as to possible new measures and of course, the Conservative election manifesto contained a wide range of commitments to be introduced during the course of the current parliament.

The Chancellor said that this is a Budget for working families in a 'one-nation society'. In 'a big Budget for a country with big ambitions', he focused on how the government will continue with its deficit-reduction plans, whilst giving the promised support to 'hard-working families'. He said that whilst the deficit would be cut at the same pace as under the previous government, it would be a bold budget containing bold new measures.

As predicted, savings in welfare spending of around £12bn, and increases in revenue from tax avoidance and evasion to yield around £5bn made an early couple of headlines in the Chancellor's speech.

Budget March 2015

Summary

This was a forward-looking Budget, with much of the content based on the assumption that the current Government will pick up where it left off, after the General Election on 7 May 2015.

The sweeteners for voters include; a cut in duty on beer, cider and sprites, including whisky. The tax on road fuel is frozen, but the tax and NI charges for having the private use of a company car or van are set to increase above the levels which had already been predicted.

There are two changes to entrepreneurs' relief which take effect immediately, but those should not affect people who are selling significant stakes in their businesses.

For the future the Chancellor promised to increase the tax-free personal allowance up to £11,000 and introduce a new tax-free savings allowance of £1,000, but not until April 2016 at the earliest. Class 2 NIC is set to be combined with Class 4 NIC, which will be a simplification for the self-employed.

The promised abolition of annual tax returns to be replaced by an online tax account may sound attractive, but HMRC's track-record of mixing up figures submitted under RTI does not bode well for such an ambitious project.

We have organised the coverage below into future promises, which can only happen after the General Election, and immediate changes which take effect from 18 March 2015, or from April 2015.

This newsletter is a summary of the key tax points from the Budget, based on the documents released on 18 March 2015. It is possible that a different position will be shown by the draft legislation which is due to be published on 24 March 2015. We will keep you informed of any significant developments.