Archive for the ‘Tax’ Category

Reviewing Your Plan For The Inheritance Tax

Posted by Janay Harris

Each new year brings all of us the opportunity to examine our future plans for what will be necessary for our future needs in financial and wealth planning.  As we go over our assets and liabilities, we need to be aware of the Inheritance Tax (IHT), and what it might mean to our beneficiaries and our estate.

The IHT has had many changes and modifications over the past several years, and many families are unaware of the potential benefits that they can receive by conducting some simple financial planning for the IHT.  By reviewing your current and potential future financial situation, even families with moderate to high levels of wealth in savings, pensions, and land ownership could protect themselves from a big IHT hit.

From the 2015 to 2021, the ordinary nil rate band will hold steady at £325,000.  In addition to this rate, the potential passing of a family home has been affected by rule changes in the Summer Budget of last year.  The new changes created a situation where property that at any time in the life of the deceased was a primary residence will be subject to a new residence nil rate band.  The band will be £100,000 for deaths occurring after 5 April 2017, and the band increases to £175,000 for deaths occurring after 5 April 2020.

If any potential tax shelters are unused, then they will be available for use by the spouse or civil partner resulting in the potential value of IHT exemptions £1m from 6 April 2020 for a couple.  A major drawback is that estates with an assessed value in excess of £2.2m will not be eligible for any benefits under the new rule changes.  The full 40% liability of the IHT will be assessed on these estates.

Reduce Your IHT

By committing to several smaller steps over a wide range of years, you can improve your results and liabilities in regards to the IHT tax that will be paid upon your death.  One way to help lessen the eventual tax burden is to make sure that every available allowance, exemption and relief is being used.  These are placed in the tax code for your benefit, so make sure you use them.


One way to lessen your eventual IHT burden is to gift your assets over your lifetime.  After seven years, these gifts will no longer be eligible to be taxed under the guidelines of the IHT if there is no benefit gained from the gift of assets.


There are several other forms of gifting that have IHT benefits.  One is the annual gift exemption which stands at £3,000.  If no gifts were made in the previous year, then the allowance is £6,000.  One kind of gift that can be eligible for use as an allowance is the small gift of £250 per beneficiary.  Another is the marriage gift where you can give children up to £5,000, grandchildren £2,500, and £1,000 to anyone else getting married.  If you look, there are many different tax allowances that can be found.

Using Surplus Income

Do you have extra income just lying around, and you don’t know what to do with it?  There is a way to make gifts out this additional income, and you can avoid the IHT as these gifts are not subject to taxation even if you pass away within seven years.

Inheritance Tax and Gifts

With the Prime Minister making changes to estate taxation, the implications of the Inheritance Tax are on most peoples’ minds.  The government estimates that receipts focused on IHT will increase from £4.6bn in recent years to £5.6bn in 2020-2021.  It is estimated however from research that only 14% of taxable persons are aware of correct IHT thresholds that affect all of us.

According to Octopus CEO, Simon Rogerson, 21% of households with a family income over £50,000 are spending to reduce their IHT tax liability, and 4% of households over the age of 60 reduce their IHT liability through using investments that are shelters from IHT.  Despite all of the talk about IHT, very few people make future financial plans with IHT in mind.

According to the HMRC, the Inheritance Tax is used when a person’s estate is worth more than £325,000 at the time of death.  This rate is for the years 2016/2017 with the estate consisting of a person’s property, money, investments, and possessions.  Estates valued over £325,000 are taxed 40% in accordance with IHT.  If 10% or more of the estate is left to charity, then the IHT rate is reduced to 36% of the estate’s value.

If married and civil partners live permanently in the UK, then they have the option to transfer funds tax free to each other.  This means that when one dies, then the allowance for the remaining spouse or partner can double to £650,000.  This increase would allow most to escape the IHT entirely.

Other ways to limit or avoid the IHT completely is through the use of tax reliefs such as the agriculture relief, a heritage asset, or the woodland relief.  The use of any of these reliefs can be verified through contacting the HMRC.

Military service can also be a tax relief for the deceased’s estate.  If the death occurred while on active service or active service contributed to the death of the person in question, then the estate of the deceased is exempt from IHT as well.

Find Out How To Lessen Your Tax Bill

Posted by Janay Harris

Due to the number of ways you can mitigate your tax burden the inheritance tax is an easy tax to avoid.  One of the best ways is the nil rate band which allows you to leave up to £500,000 to each person without a tax penalty.

For those looking to take care of their families and heirs making use of tax reliefs is acceptable practice in addition to the use of trusts.  Investors looking to make more money can also use EISs and a variety of investment tools for their finances.

The Inheritance Tax (IHT) has become a heavily debated issue in recent years as property, the main asset of many people has begun to gain in value at a rapid pace in recent years.  In the creation of every political budget, pressure from every Budget and Autumn Statement look to make changes to the nil rate band sitting at £325,000 since 2010 as homes and other types of properties were devalued.  As the Inheritance Tax was changed, many people saw it as a way to secure their wealth.

With the benefits of the IHT, financial planners are finding other means to help with estate planning.  One way to help financial planning is to explore using trusts for life insurance.  The idea here is that when the person passes away, the months an estate can be in probate are eliminated and the intended inheritors can access the estate funds right away.  Other ways that the IHT can be avoided is through placing funds in many different kinds of investments that are subject to business property relief which lessens the amount available to IHT.

Finally, look to making multiple gifts to beneficiaries during your lifetime to reduce impact from the IHT.  The only catch here is that if you pass away within seven years of making the gift, there is potential to be subject to the IHT tax liability.


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Top Tax Tips For Budgets And Bills From The Government

Posted by Janay Harris

The country’s tax laws are constantly changing as the Autumn Statements were modified, and the December Statement is expecting to be enhanced as well.  Upon the recommendations of the Chartered Institute of Taxation in conjunction with the Institute for Government and the Institute for Fiscal Studies, a Better Budgets report was made public earlier this year with specific ideas for the better performance of Government.

There were ten recommendations in all.  The first was to adhere to a single principal fiscal event while reducing the number of additional Budget measures.  This recommendation stressed fiscal solvency through sticking to an initial Budget and prevent overspending through the limiting/eliminating additions to the Budget through the year.

Second, there is a necessity to define the principles and priorities of tax policy in a clear and manner.  Creating early statements for the priorities and approaches to the tax system would give Parliament the framework to fiscally responsibility.

Third would be to create a Corporate Tax Road Map model, which were outlined in the Better Budgets report and could be applied across the tax system.  The fourth would be to begin tax consultations earlier in the taxation process to prevent time and money being wasted with consultations that occur when the tax process is in motion and key decisions have been made and implemented.   A fifth idea would be to find more active approaches to consultations in which people being consulted are found before the consultation was necessary and respondents could be polled for their opinions giving valuable feedback.

The sixth recommendation would be to poll the public in order to see where future reforms might be initiated.  Through conducting external reviews via independent means, the policy making process could be improved using more public participation.  The basis for the seventh recommendation is to have the Treasury and HMRC address the potential gaps in the perceived capability of making tax policy.  Allowing insiders who can develop a tax expertise in HMT and policy expertise in HMRC needs to be supported.

The eighth recommendation supports the improvement of internal processes in order to modify the making of tax and Budget policy.  The use of small Budget Cabinet Committees will improve making decisions through a collective means resulting in expert challenges presenting issues and suggesting solutions.  Ninth, the ability of Parliament and the public to review and criticize tax proposals needs to be improved.  The Government needs to provide both Parliament and the public clear documentation of decision-making in order to enhance transparency.  Parliamentary committees working on taxes need to have better working relationships with access to more information from tax experts.

Finally, all tax measures need to be institutionalized and have the ability to be evaluated through post-legislative review.  These reviews need to be efficient and on a regular basis to see if these measures are achieving their goals within proper means.  More data needs to be available to Parliament so that the legislative body can hold the government accountable if necessary.

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Tax Breaks That Are Beneficial For The Married Couple

Posted by Janay Harris

Newly passed tax allowances have been missed by married couples.  According to the Freedom of Information Bureau the insurer Royal London stated that over £1.3bn in allowances remain unclaimed by eligible married couples.

In 2015, a new Marriage Allowance was initiated to help married couples to allow any unused tax-free allowances to be transferred to married spouses who are higher earners.  Additional benefits of the allowance were that it was made available to people in civil unions and up to 10% of an unused allowance for an individual could be transferred.

For 2017 alone, this increased access to tax savings would save couples upwards of £230.  Couples who would have used the credit since it’s inception every year would have earned an additional £662 in total tax savings.

For eligible couples, the Marriage Allowance transfers up to £1,150 of a personal allowance to a husband, wife or civil partner as long as they are the higher earner.  This allowance can reduce a tax burden by £230 in the tax year.  The lower earner must earn £11,500 or less, and any claim can be retroactively backdated to 2015.  The couple’s higher earner must be between £11,500 and £45,000 annually.  Couples who receive a pension and living abroad receiving a personal allowance are also eligible.

Steve Webb, Director of Policy at Royal London stated, “The Government has created a tax break specifically designed to benefit married couples and civil partners, but the take-up of the new allowance is shocklingly low

“Even in the third year of operation, around two million couples who could benefit from the marriage allowance are not doing so.  When family finances are so tight, I would encourage every married couple to check whether they might be eligible, including for the last two years, as they could qualify.”

In 2015, the HMRC projected that nearly 4.2 million couples would benefit from the new tax allowance.  However, FOI has provided data that only 2.2 million couples have claimed the allowance to date.  FOI findings were that in 2015 only 644,916 couples claimed the allowance.  Nearly 1.2 million allowances were used in 2016, and just over 2.2 million in 2017.

While more and more couples used the tax allowance every year, this result means that two million couples are still eligible, but they have not yet claimed the allowance.  If these two million couples would retroactively apply for the allowance of £662 per couple then the total tax savings from allowance use would be £1.3bn.

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