Tag: private client

Is scrapping Inheritance Tax right for the economy? – FT Adviser

Posted on by Katie Trower

Can IHT reform be supported?

IHT in the UK is perceived by some as overly punitive. While only a small percentage of deaths incur IHT, public sentiment views it as particularly unjust, with some advocating for its complete abolition.

However, Katharine questions whether now is the time for significant tax reform. With the UK government’s debt exceeding 100% of GDP, there are arguments to be had against any unfunded tax cuts. IHT currently generates over £8 billion annually for the Treasury, and its elimination would mean finding alternative revenue sources.

Increases to Income Tax are not seen as viable due to already high taxation levels, with the Office for Budget Responsibility (OBR) projecting a collection of £268 billion next year. As thresholds freeze, more taxpayers find themselves in higher tax bands, compounding the issue.

When it come to Capital Gains Tax (CGT), while it has been suggested that the rates should align with Income Tax, increasing CGT carries its own risks. Higher rates could discourage the sale of assets, particularly among older taxpayers who may opt to hold onto their assets instead.

What will happen now?

Despite vocal calls for IHT reform, the Treasury has not committed to any definitive plans, with only tentative suggestions of reducing and eventually abolishing IHT when financially viable. The Chancellor has underscored the lack of leeway for tax cuts. While the debate around IHT continues, the Government has not yet found a path to its reform or abolition, and the current economic climate suggests that substantial changes to the tax system might be more disruptive than beneficial.

You can read Katharine’s comments in full via FT Adviser here.

Autumn Budget 2023 analysis

The Autumn Budget will be published on 22 November 2023 and any news about IHT reform will be announced then, if it happens. Katharine, our Private Client team and our wider tax teams will analyse each announcement made to determine what these changes mean for you. To hear our latest insights following the Budget, join our mailing list to be the first to receive news as it happens.

Private Client Briefing – Inheritance Tax and Probate 2023

Posted on by Katie Trower

The Nil Rate Band (or threshold) for IHT has been frozen at £325,000 since 2009, and there are currently no plans to increase it until at least 2028. Between 2009 and 2023, the average UK house price increased by more than 80%.

None of us likes to dwell on morbid thoughts, but there’s never been a greater need to plan for IHT, as the IHT receipts for the Treasury continue to increase, and more and more families are caught by the IHT net. This IHT and probate focused briefing highlights planning principles and opportunities for you to consider. This is of course an interesting time for IHT, with recent press reports suggesting that the Government may reduce the rate in the March 2024 Budget and include the plan to abolish IHT at some future date in its 2024 election manifesto. There is no certainty at this time: we recommend that you continue to plan for IHT but retain some flexibility until we can be sure any changes and any ‘replacement’ taxes.

Our IHT and probate specialists are available to assist with your estate planning, provide you with bespoke solutions to minimise your potential IHT exposure, and to ease the administrative burdens on death by dealing with the grant of probate. Please do not hesitate to contact me or any of the Private Client team, if we can assist you in any way.

Download the Private Client Inheritance Tax Probate Briefing below.

haysmacintyre named one of eprivateclient’s top accountancy firms for 2023

Posted on by Katie Trower

The annual listing ranks the leading UK tax advisory firms providing private client services to domestic and international clients, their businesses and their families. We are delighted to be named once again as this accolade represents our ongoing commitment to understanding our clients and their requirements, no matter how complex their tax affairs might be.

You can view the rankings here (subscription needed).

About our Private Client services

Our Private Client team advises on a broad range of issues, concerning every aspect of managing assets and family wealth in a tax efficient way, including Inheritance Tax (IHT), wills and probate, tax compliance and planning and more.

Our team is on hand to help. Get in touch with Katharine Arthur, Partner and Head of Private Client, or any member of our team, for a confidential discussion on how we can help you prepare for your next major milestone.

Your options for Inheritance Tax planning

We're sorry, but all tickets sales have ended because the event is expired.

  •  November 7, 2023
     10:00 am - 11:00 am

With a tax rate of 40% on assets passed on after death, proactive planning enables you to pass on more of your wealth to the next generation. Join this webinar to understand how to optimise your estate and minimise your tax liabilities. The webinar will be led by members of our Private Client team and (more…)

Harvesting Capital Gains Tax isn’t always a win-win for HMRC: The Financial Times

Posted on by Katie Trower

CGT is reaching record levels in the UK as more taxpayers get trapped in the net as a result of inflation and reduced exemptions. This results in HMRC being required to process many more returns and collect the tax due.

The key takeaway from Katharine’s letter is that it is unclear whether HMRC’s systems are ready to deal with the required increase in the reporting of gains, for the large number of small gains now reportable.

You can read Katharine’s comments in full in the FT article here (subscription needed).

If you need further advice, please get in touch with Katharine, Partner and Head of Private Client, here.

Capital Gains Tax reporting for residential properties

Posted on by Katie Trower

UK residents

If you are a UK resident and dispose of UK land and property, you must calculate, report, and pay CGT to HMRC on a separate return within 60 days following the completion of the property sale. Initially, the period was 30 days (completion dates between 6 April 2020 and 26 October 2021), but in the 2021 Autumn Budget, this period was increased to 60 days for completion dates on or after 27 October 2021.

It is important to note capital gains can also arise on the gift or sale at undervalue of a property, which also needs to be reported within the 60-day time scale.

The requirement to file applies to UK residents, even if you intend to file a Self Assessment (SA) tax return for that year. However, you do not have to complete the capital gains return if you sell the property you live in, provided you have lived in it throughout your period of ownership, as this gain is likely to be covered by the Principal Private Residence Relief. You also do not have to file a CGT return if no CGT is payable.

Non-UK residents

The reporting requirements for non-UK residents have been in place longer than for UK residents.

For the disposal of UK land and property between 6 April 2015 and 5 April 2020, non-UK residents were subject to a 30-day CGT reporting and payment regime (non-resident Capital Gains Tax – NRCGT). If you dispose of UK residential property or land after 6 April 2020, you must report the gain within 60 days and pay the CGT liability within the same time frame. The reporting requirement is irrespective if CGT is due or if you have made a loss.

How to report

UK residents are required to set up a Capital Gains UK property account to file a CGT return, which is made using an HMRC digital service. It is a standalone service, not within the Personal Tax Account, and it does not use Self-Assessment accounts or references.

The return is made online using your Government Gateway ID, if you have one. If you do not have an ID, you must create one when you sign in.

Non-UK residents now fall within the same reporting regime. The reporting requirements extend to all direct and indirect disposals of UK residential and non-residential property and land, including property-rich companies.

Agents can submit returns on behalf of clients. However, you must set up the CGT UK property account regardless of whether you report the gain or appoint an agent. Once the account is set up, you can authorise an agent to report the gain. Following successful filing, the agent and client will receive a confirmation email from HMRC with a payment reference used to pay the CGT liability.

Penalties & interest

Late filing penalties may be charged (up to £700 or 5% of the tax due, whichever is greater) as well as interest on any unpaid tax. These apply to both UK and non-UK residents.

CGT rates and Annual Exempt Amount

The CGT rates for residential property are 18% for the basic rate taxpayer and 28% for the higher and additional rate taxpayer.

The tax-free capital gains Annual Exempt Amount (AEA) for the 2023/24 tax year has decreased by more than 50% from its 2022/23 threshold of £12,300 to £6,000. For the 2024/25 tax year, this allowance is further reduced to £3,000.

Considerations

The rules on CGT can be complex and dealing with HMRC can be a challenging experience. A tax computation must be prepared to calculate the estimated tax due, and the CGT return can be amended for inaccuracies or details finalised after the filing deadline.

Further tax planning opportunities may be available to mitigate or defer a CGT liability. It is essential to consider these before a sale or gift of UK residential property or land is made.

If you are planning on selling or gifting residential property and would like our assistance with the CGT reporting requirement under the 60-day rules or advice on how you might mitigate your liability please get in touch with your usual haysmacintyre contact within the Private Client and Trust team.

 

Avoiding self-employed tax traps: The Sunday Times

Posted on by Katie Trower

Tax traps for the self-employed

Whilst there are upsides to being self-employed, these individuals have numerous tax deadlines they need to meet. Importantly, they may need to plug income gaps to meet their tax responsibilities. If the self-employed don’t manage their tax affairs correctly, there can be costly penalties to deal with.

Individuals can find themselves caught with tax responsibilities that they may not know about until it’s too late. These include:

  • The 60% tax band: an ‘unofficial’ band for higher rate taxpayers earning between £100,000 and £125,140.
  • National Insurance (NI): individuals can often end up paying too much or too little NI contributions.
  • Business assets: Business equipment can qualify for tax relief. However, it cannot be used for personal use or the relief could be lost.
  • Company incorporation: A more tax efficient method for higher rate taxpayers but incorporation costs and director duties may not be worth the investment.

Katharine notes that when it comes to incorporation, “the rules change so often, so it’s really important to keep up to date with what is the most tax-efficient option. Costs involved with setting up a company and filing annual accounts and other financial documents throughout the year can really add up.”

You can read the article in full with Katharine’s comments in The Sunday Times.

What should you do as a self-employed individual?

It is worthwhile seeking professional tax advice to help you understand your tax position. Wherever you are in your personal journey, our Private Client team can help you create a plan that works best for you based on your circumstances and goals. Get in touch with Katharine or our team today.

Inheritance Tax: Business Property Relief

Posted on by Katie Trower

What is Business Property Relief?

A relief, known as Business Property Relief (BPR), reduces the value of the ‘relevant business property’ in the case of an IHT chargeable event, such as death, or the lifetime transfer of assets to a trust. Relevant business property includes:

  1. A sole trade business or a partnership share
  2. Shares in an unlisted trading company
  3. Shares in a quoted trading company where the owner has voting control of more than 50%
  4. Land, buildings, or plant and machinery owned by an individual and used by a partnership or company the individual controls.

The rate of relief that will be given is 100% for assets within classes 1 and 2 above, whereas assets within classes 3 and 4 will receive relief at 50%. Shares on the Alternative Investment Market (AIM) are treated as unlisted shares for BPR purposes, and relief is therefore available at 100%.

BPR conditions

What makes the relief so beneficial is that there is no monetary limit. Whilst BPR can be a hugely valuable relief for business owners, it can also be very easy to trip up on, due to the conditions that need to be met to qualify for the relief.

The individual must have owned the asset for at least two years at the point of the chargeable event and it must not be subject to a binding contract for sale. BPR will be restricted if the company holds ‘excepted assets’. Excepted assets are assets that are neither used for business purposes, in the two years preceding the transfer, nor required for future use in the business. An example of this would be large cash deposits which are not required for future use in the trade.

BPR will not be available if the business activity consists wholly or mainly of dealing in securities, stocks or shares, land or buildings, or making or holding investments. HMRC will look at all aspects of the business to determine if it is trading or investment, such as the business’ main activities, the assets and the sources of income. It is therefore critical for a business owner to ensure that the activities of the business comply with the conditions for relief.

HMRC will generally class ‘land-based’ businesses as investment businesses. One exception is property development businesses. The activity of dealing in land is not currently treated as relevant business property. However, a property development business constructing houses or other properties for resale should qualify for BPR.

BPR and trusts

BPR is also effective when settling relevant business property into a trust. The transfer into a trust will benefit from 100% relief (unless it is shares in a quoted trading company which carries 50% relief) and there would be no IHT charge on the way in. Similarly, the relief applies on distributions of business assets from the trust to beneficiaries once they have been held in the trust for at least two years. What makes transferring relevant business property into a trust more tax efficient, is that the donor can elect to claim gift holdover relief, which prevents the donor from suffering an immediate CGT charge on the deemed disposal of shares. The trust inherits the donor’s book cost of the shares and is then chargeable to CGT, when the trust eventually disposes of the assets. Settling business interests in a trust can be helpful with estate planning to pass on the benefit of the assets without relinquishing control.

There are many IHT planning opportunities available which involve business interests, and the potential benefits should not be overlooked. Please get in contact with the Private Client & Trusts team, or your usual haysmacintyre contact, for more information on how we can help.

 

Record Inheritance Tax receipts in 2023

Posted on by Katie Trower

The Government’s decision to freeze the IHT threshold has led to more families being dragged into the IHT net. The IHT threshold of £325,000 has not increased since 2009, while the average UK house price increased by more than 80% between 2009 and early 2023. The announcement in the 2022 Autumn Statement to freeze the IHT threshold until April 2028, will see the Government collect billions in extra tax that would not be possible if the nil rate band had increased with inflation.

While there have been calls for the abolition of IHT, it is unlikely that the Treasury would be willing to forfeit £7bn a year in receipts, which helps to fund our public services, without a viable alternative. We may see some IHT reforms, but scrapping the tax altogether would leave a sizeable hole in the Treasury budget, presumably needing to be filled by increases in other taxes.

In our opinion, given the current state of the UK economy, IHT is here to stay. Therefore, lifetime planning remains key if you wish to minimise the tax you pay to the Treasury and maximise the family wealth you pass on to the next generation.

IHT planning can include lifetime giving, charitable giving, gifting surplus income or setting up a family trust or investment company. Maximising IHT allowances and reliefs also plays a part in reducing your exposure.

Our IHT specialists are on hand to assist you with your estate planning and provide you with bespoke solutions to minimise your potential IHT exposure.

For a full list of our IHT planning services, please download our factsheet here and contact Kay Mind, Director, for any further assistance.

Capital Gains Tax on fractional shares: The Daily Mail

Posted on by Katie Trower

HMRC’s current stance is that fractional shares are not eligible for investment with an ISA. As such, when investors sell their shares, they may have to pay CGT on any profit made.

Katharine comments: “It seems unfair. I’m not sure why HMRC is worried about this when the Government is supposed to be encouraging share ownership and investment in business.”

Leaving investors uncertain about whether their portfolios are compliant or not could lead to a lack of enthusiasm for investment. This comes at a time when the Government has committed to opening up investment opportunities to all.

In terms of liabilities, if HMRC believes the ISA investment in fractional shares to be void, the investor could face Income Tax on dividends as well as the previously mentioned CGT on sale. A decision by HMRC on penalties could also take months, leaving investors in further doubt about their portfolios. HMRC could seek to recover tax (and interest) from previous years as well, depending on their stance. This all adds up, leading to what could potentially be a costly venture for individuals, and ultimately platforms such as Freetrade.

You can read Katharine’s comments in full on The Daily Mail here.

If you have any concerns about your tax position, please get in touch with Katharine here or a member of our Private Client team.

 

 

 

Get in touch