Is It Time to Review Your Estate Plan?

Estate Planning

Planning to minimise the inheritance tax (IHT) due on your estate is always important, but the recent introduction of the residence nil-rate band (RNRB) means now could be the ideal time to review your existing plans.

What is the RNRB?

IHT is charged at 40% on estates worth in excess of the nil-rate band, which is currently £325,000. Married couples and registered civil partners can pass any unused nil-rate band on death to one another.

However, 6 April 2017 saw the introduction of an additional nil-rate band – the RNRB – which is intended to take the family home out of IHT for all but the wealthiest. The RNRB is set at £100,000 for deaths in 2017/18, rising to £125,000 in 2018/19, £150,000 in 2019/20, and £175,000 in 2020/21. It is then set to increase in line with the Consumer Prices Index from 2021/22 onwards.

The introduction of the RNRB means that up to £1 million of a married couple’s estate could eventually be taken outside the scope of IHT if the full nil-rate bands (£325,000 + £175,000 x 2) are available to each spouse.

The RNRB is also available when a person downsizes or ceases to own a home on or after 8 July 2015 where assets of an equivalent value, up to the value of the RNRB, are passed on death to direct descendants.

It is important to note that the additional band can only be used in respect of one residential property, which does not have to be the main family home but must at some point have been a residence of the deceased.

There will also be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million (at a withdrawal rate of £1 for every £2 over this threshold).

Reviewing your estate plan

It is always advisable to review your Will and planning strategies on a regular basis, but it is particularly pertinent following changes in your personal or family circumstances or significant new tax rules. The introduction of the RNRB is one such example.

The additional nil-rate band will only apply when a main residence is passed on death to one or more descendants (including a child, stepchild, adopted child or foster child) of the deceased and their descendants. In order to utilise the RNRB, you may need to review your Will to check that the property is being bequeathed to the correct beneficiaries. The home doesn’t have to be specifically mentioned in the deceased’s Will, as long as it has at some point been a residence of the deceased.

It is also important to review your Will where property has been left in trust, as certain types of trusts may not be eligible for the RNRB. This is a complicated area and we suggest that you consult an expert for further advice.

If downsizing is contemplated, special care is needed to include provisions in a Will which will satisfy the conditions of obtaining the additional band.

For more information on the RNRB or for advice on other tax-efficient estate planning strategies, please contact us.

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

New Welsh Land Transaction Tax Receives Royal Assent

welsh land transaction tax

A new Land Transaction Tax (LTT) is set to replace Stamp Duty Land Tax (SDLT) in Wales, with effect from April 2018.

The legislation is similar to the existing UK SDLT legislation, and the new LTT will be payable by the purchaser when buying or leasing a building or land, in line with a series of set rates and bands.

Higher rates of tax will apply to purchases of additional residential properties, as is currently the case, but there are some additional rules.

The new LTT marks the latest step in the drive towards tax devolution, which has seen the introduction of the Land and Buildings Transaction Tax (LBTT) in Scotland, and the Scottish Rate of Income Tax.

The proposed rates and bands for the LTT are set to be announced by October 2017. The Welsh Revenue Authority (WRA) will be responsible for the collection and management of the LTT from April 2018.

For more information on the Land Transaction Tax please contact our tax team.

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

Advisory Fuel Rates from 1st September 2017

Fuel rates

For employees using a company car, the new fuel rates for use from 1 September are as follows:

Engine Size Petrol LPG Diesel
Amount per mile (in pence)
1400cc or less 11 7 9
1401cc to 1600cc 13 8 9
1601cc to 2000cc 13 8 11
Over 2000cc 21 13 12

For the purpose of fuel rates, hybrid cars are treated as either petrol or diesel cars.

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

Cash-Based Lifetime ISA Enters the Market

Cash-based lifetime ISA

The first cash-based Lifetime ISA recently entered the market, allowing adults under the age of 40 to put aside cash sums in order to save for their first home or their future retirement.

The Lifetime ISA was first introduced in April, but initially only share-based investments were available. A new cash Lifetime ISA has since been launched.

Under the scheme, savers aged between 18 and 39 can invest up to £4,000 a year and will receive a 25% bonus on contributions from the government up until their 50th birthday.

Both the tax-free savings and the government bonus can be used for a deposit for a first home in the UK worth up to £450,000 at any time from 12 months after first saving into the account.

Alternatively, the funds, including the government bonus, may be withdrawn from the Lifetime ISA from age 60 tax-free for any purpose. However, where the funds are withdrawn before the age of 60 the account holder will lose the government bonus (plus any interest or growth on this) and will be liable to pay a 5% surcharge.

For further information on the cash Lifetime ISA or for other tips to reduce your tax, please contact us.

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

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.

To Have, Hold & Share Rental Income Tax Efficiently

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As of 6 April 2017 the tax relief landlords receive for mortgage interest and other finance costs is restricted. The restriction is being introduced gradually so that by 2020/21 landlords will receive tax relief for finance costs at basic rate (currently 20%) instead of at the rate at which they pay tax.

This change does not just affect higher rate taxpayers.  Some people may find that, even though they are currently a basic rate taxpayer, as finance costs are no longer deducted in calculating their net rents, their income can be pushed into the higher rate bracket.

For spouses and civil partners who jointly own rental property, in the absence of an agreement to the contrary, the profits will typically be split 50/50. This can however be inefficient for tax purposes if one spouse is a basic rate taxpayer and the other is taxed at higher rate.

In such circumstances, they can register a beneficial ownership on the asset which stipulates a different ownership split, for example 80/20 and submit Form 17 to HMRC in order to tax the profits as such. This should of course be discussed with the experts in application to your personal circumstances before implementing.

If you’d like any further information 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.

Tax and Your Company Car

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There are many factors which will influence your choice of company car. These can include the distance you travel, terrain covered, the price, your lifestyle and perhaps even your clients. However, is tax ever a consideration?

The start of the tax year saw an increase in the company car rates and indeed the rates are increasing quite significantly year on year. Assuming however that you have some degree of choice over the car make and model, you can influence the tax that you pay.

The two factors which determine the tax charge attached to a company car are the list price of the vehicle and its CO2 emissions.

The table below shows the benefit in kind charge for cars with various, hypothetical,  list prices and CO2 emissions.  The rates applicable to the current tax year (2017/18) have been used.

List price CO2 emissions Fuel type Benefit in kind value
£17,000 102g/km Petrol £3,230
£25,000 99g/km Petrol £4,500
£25,000 117g/km Diesel £6,250
£35,000 0g/km Electric £3,150
£50,000 41g/km Electric/Petrol £4,500
£50,000 155g/km Diesel £16,500

In addition to the company car benefit there is also a fuel benefit if the employer provides fuel for private use; the value of the fuel benefit is affected by the CO2 emissions but not by the list price.

Although tax will not be the only issue affecting your choice of company car, perhaps it ‘auto’ be a consideration?

If you’d like any more information please contact Green & Co Accountants.

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.

HMRC Cash Crackdown

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HMRC has shopkeepers in its sights at the start of a new crackdown on cash payments.

Returns submitted to HMRC by shops and restaurants, whom it believes may not be declaring all of the cash payments they take, are to be crosschecked against the number of card payments taken.

HMRC estimate around 30% of transactions in these business are paid for in cash, and it is thought that investigations will centre on businesses recording more than 90% of their transactions are paid by card.

There are concerns, however, that the new plans could lead to lengthy and unnecessary investigations which could be financially damaging for small businesses.

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

Advisory Fuel Rates from 1st June 2017

Fuel rates

For employees using a company car, the new fuel rates for use from 1 June are as below:

Engine Size Petrol LPG Diesel
Amount per mile (in pence)
1400cc or less 11 7 9
1401cc to 1600cc 14 9 9
1601cc to 2000cc 14 9 11
Over 2000cc 21 14 13

For the purpose of fuel rates, hybrid cars are treated as either petrol or diesel cars.

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