Are You Affected by Inheritance Tax?

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The Inheritance Tax (IHT) collected by HMRC for the year June 2016 to May 2017 saw an increase of 9% on the previous year, rising to over £5 billion for the first time.

According to law firm Wilsons, this is attributed to rising property values and the freezing of the basic Inheritance Tax allowance, which has remained at £325,000 since the 2009/10 tax year.

It will be interesting to see how the new family home allowance (officially known as the main residence nil rate band) impacts on these figures. This relief was introduced in April 2017 and, according to HMRC, is intended to ‘reduce the burden of IHT for families by making it easier to pass on the family home to direct descendants for all but the largest estates.’

As well as this, there are other allowances which can reduce an individual’s exposure to inheritance tax and now, more than ever, it is important to assess how best to align your IHT position with your expectations for the future.

Green & Co have an Inheritance Tax and Care Home Review service that we run in conjunction with a local solicitors. If you’d like to discuss this service or any related matters please contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Don’t Be a Lottery Loser – Protect Your Syndicate Winnings

 

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If you and your employees club together to take a chance on the Lottery by operating a workplace syndicate, but you do not have a formal agreement in place, a large win could cause tax issues in the future.

If ever you are fortunate enough to win the jackpot, the winnings will undoubtedly be collected and distributed by a nominated individual, normally the same person who buys the tickets.  However, if by some stroke of misfortune, that person dies within 7 years of the win, HMRC could argue the distributions were technically gifts, particularly if no written agreement exists.  In that event the gifts would be treated as failed Potentially Exempt Transfers (PETs) and therefore subject to Inheritance Tax.

Admittedly this is not an everyday occurrence, but it can happen, and HMRC are likely to chase all those who shared in the winnings for any resulting liability.

Verbal agreements can of course be valid, but they are much more difficult to prove, so if you are a part of a syndicate, it is wiser to draw up a document, showing all members, the amount of the stake each pays and how any winnings are to be shared.  It should always be updated when new members join to ensure they don’t get caught out by the IHT trap.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

New Tax Year – New Rules!

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So, the 6th of April brings in the new tax year with new rules, but what are the changes?

  • Personal Allowance – increases to £11,000.
  • Personal Savings Allowance – if you are in the 20% band for income tax, you will pay no tax on the first £1,000 of interest you get from savings. If you are a 40% taxpayer, you are allowed to earn £500 of interest tax-free ,rather than £1,000.
  • ISA limits
    • ISA – £15,240
    • Junior Isa limit- £4,080
    • Child trust fund limit- £4,080
  • National living wage – 25 and overs are now entitled to a minimum pay of £7.20 per hour.
  • Dividend Allowance – The first £5,000 you receive in dividends is tax free. Above £5,000, basic-rate taxpayers will pay 7.5% tax, higher-rate taxpayers 32.5%, and additional rate taxpayers 38.1%.
  • Employment Allowance – The new amount of £3,000 can be reclaimed against employers NI.
  • Tax on Loans to Directors -The 25% tax charge on loans to directors, etc. increases to 32.5%.
  • Capital Gains Tax – The higher rate of capital gains tax is reducing from 28% to 20% and the basic rate from 18% to 10%. However, the new rates will not apply to residential property that does not qualify for private residence relief.
  • Vat Registration – The thresholds increase to £83,000 for registration and £81,000 for deregistration.
  • Landlords and Second-home Owners – Will have to pay an extra 3% in stamp duty for second properties bought after 1 April 2016. This is on top of the normal rates (0% on the first £125,000; 2% for £125,001 to 250,000; 5% for £250,001 to £925,000; 10% for £925,001 to £1.5m, and 12% above £1.5m).

If you have any questions regarding the changes, please do not hesitate to contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of gubgib at FreeDigitalPhotos.net

Rules Surrounding New Inheritance Tax Relief Deemed Too Complex

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In the Summer 2015 budget the Government announced plans for a main residence nil rate band (RNRB) to be introduced from 6 April 2017. Currently, individuals have a nil rate band (NRB) of £325,000, which is the threshold up to which their estate and taxable gifts are exempt from inheritance tax.

Subject to qualifying conditions, individuals will have a main residence nil rate band in addition to the NRB when they pass a residence onto a direct descendant on death. As with the NRB, any unused RNRB can be transferred to a surviving spouse.

The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015, subject to certain qualifying conditions, and there will be a tapered withdrawal of the RNRB for estates with a net value of more than £2 million. There is further detail on the measure, but this summarises the key features.

The proposals however have come under attack from the chair of the House of Commons Treasury Select Committee, Mr Andrew Tyrie, who feels that they are so complex that individuals affected will be unable to understand them. He said that “traps lie everywhere in the detail” and “tax policy must be made more practicable and coherent”.

Indeed there have been many calls to scrap the RNRB and instead increase the NRB. Mr Osborne has however rejected this call from Andrew Tyrie, stating that the UK tax system is “no more complex than comparable systems”. So with any changes to proposals unlikely, individuals are encouraged to consider how they will be affected by the measure.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net

Happy Holidays From Green & Co

20151218_133025232_iOSAs we take our Christmas break at the end of another productive year, we would like to take this opportunity to thank you, our loyal blog readers! Whether you are already a client, a prospective client, or just like to read our informative articles each week, it is you who keeps this blog going.

Working with our clients in 2015, has also helped to grow Green & Co’s services, allowing us to assist our clients in both setting and achieving their goals. Our services span from general accounts to business goal setting and much more…

  • Year-end and management accounts
  • Tax returns and tax planning
  • Auditing
  • VAT and bookkeeping
  • Payroll (Including Auto Enrolment)
  • Construction Industry Scheme (CIS)
  • Sage Training
  • Business forecasting and goal setting
  • Exit strategies
  • Profit improvement
  • Profit extraction
  • Corporate re-structuring
  • Inheritance tax review and estate planning
  • Virtual office services

Green & Co also specialise in accounting for a number of fields:

  • Doctors
  • Property developers
  • Independent financial advisors
  • Solicitors
  • Insurance brokers
  • And of course, farming!

If you would like to know any more about any of the above, please give our friendly team a call on 01633 871122 once we are back from our Christmas break – refuelled and recharged to combat another year together!

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Family Home Allowance – The New Inheritance Tax Relief

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Currently, Inheritance tax is paid if a person’s estate (their property, money and possessions) is over £325,000. This is known as the inheritance tax threshold. Any assets that are above this amount incur an Inheritance Tax charge of 40%. Married couples or civil partners are able to double their allowance up to £650,000 before tax is payable.

However, from April 2017, an additional “family home allowance” is being introduced for people owning a home. It will eventually be worth an extra £175,000 per person – meaning the tax free band can be up to £1m for couples. It can even be transferred between married couples and civil partners if one dies before it is introduced in 2017.

The existing £325,000 nil rate band is frozen at its current level until 2021.

In order to qualify for the family home allowance, the property must have been the main family home at some point and be left to one or more direct descendants, including children, step children, adopted children, foster children and even grandchildren. However, it will not include other family members such as nieces and nephews.

If there is more than one property in the estate, only one will qualify for the new allowance. If a home is sold or downsized any time from 8th July 2015, the family home allowance will still be allowable as long as assets of an equivalent value are passed to the descendants instead.

For estates with a net value of more than £2m, the family home nil rate band is withdrawn at £1 for every £2 over the £2m threshold.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.