Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.
On 1 April 2023, the National Living Wage (NLW) rate for workers aged 23 years and over will rise by 9.7% to £10.42. Other groups, including those under 18 and apprentices, also see their hourly take-home pay jump.
The government approved the rise last November to “help businesses recruit and retain staff, and to support workers with rising bills and prices.”
However, the number of jobs paying below the National Living Wage in 2023 is expected to increase from 3.5m to 5.1m as wages continue to lag behind inflation.
It means paying an extra £1,600 a year for a full-time national minimum wage worker.
So, the cost of hiring is about to go up.
HMRC will be stepping up enforcement of low pay, and the dangers of being caught out following an inspection can be brutal.
Rough Road for Car Dealers
HMRC is in the process of writing to motor dealers about the practice of manipulating the sales value of a vehicle and the trade in value, generally as they say, to satisfy the requirements of a finance company.
The dealer has control over the price for the new vehicle and the value of the trade in, so it can manipulate both to suit the finance company’s deposit requirements. The dealer just has to keep the margin the same.
This in itself is not a problem. The problem is that some dealers then account for VAT on the forecourt price not the price notified to the finance company. But the finance company claims back VAT on the inflated price, so HMRC are out of pocket.
Motor dealers must therefore declare the correct figures on their returns which is the figure reported to the finance company.
Tax Breaks for “Married” couples
There are a number of tax breaks available for married couples and civil partnerships when compared with cohabiting couples.
Optimising tax allowances
Married couples and civil partners can transfer assets such as cash and investments between them, without giving rise to any tax liabilities and this creates numerous tax planning opportunities to maximise the use of two sets of tax allowances or ISA allowances, two personal savings allowances etc
Married couples can also switch shares held outside of ISAs between each other to benefit from two sets of annual dividend allowances.
They can transfer assets so as to take advantage of Capital Gains Tax annual exemptions.
The key here is that married couples (and civil partners) can transfer assets between themselves – known as ‘inter-spousal transfers’ – without triggering a tax liability. This option is not available to unmarried couples who risk a tax charge on a transfer.
Unmarried couples can pass on assets valued up to £325,000 tax-free upon death (the inheritance tax nil rate band), but anything above this is potentially subject to 40% inheritance tax (IHT).
Where there are children, the couple may benefit from the residence nil rate band (RNRB) of £175,000, which can mean that together with the £325,000 nil rate band an individual can pass assets up to £500,000 tax-free upon their death.
However, a deceased spouse or civil partner can pass an estate of any worth to the surviving spouse without immediate tax consequences. Furthermore, any IHT or RNRB nil rate band that is unused by the deceased can be passed on for the spouse for their use in the future – creating a potential nil rate band of £1000,000 for the survivor.
A surviving spouse can effectively inherit the ISA savings of their deceased partner and maintain their tax-efficient ISA status. The surviving partner will receive an extra ISA allowance known as an additional permitted subscription. This is equal to the value of the deceased’s ISA holdings at the date of death and is in addition to the surviving person’s own annual ISA allowance. This is not permitted between any other individuals.
Finally, the annual marriage allowance is available to couples where one partner is earning less than the tax-free personal allowance of £12,570 per annum and the higher earning partner has earnings between £12,570 and £43,662 in Scotland.
The marriage allowance enables those eligible to transfer £1,260 of the lower earner’s annual tax-free personal allowance to their spouse or civil partner, creating a tax saving of up to £252 a year.
Tax relief for travel is available where either:
- the journey actually part of the work, or
- the travel is in order for work to take place and is not ‘ordinary commuting’
Ordinary commuting means travel between a permanent workplace and home or anywhere else that is not a workplace.
HMRC will only accept that relief is available in cases where the employee works from home as an objective requirement of the job, rather than through personal choice.
Even then, it is important to appreciate that where an employee works from home for part of the time, relief will only be given in respect of travel between home and a permanent workplace during those times when the employee’s home is also a workplace.
Travel both to and from a temporary workplace, whether starting out from home or from some other place, is not ordinary commuting and thus is eligible for tax relief.
ISAs form part of a person’s taxable estate along with other savings, investments and possessions, so up to 40% of could be eaten up by inheritance tax rather than passed to your loved ones.
An alternative option is to invest in certain AIM shares within your ISA many of which will qualify for BPR (Business Property Relief). Providing you hold them on death and have been invested for at least two years they should be free of inheritance tax.
Make a will
You can make it as tax efficient as you want.
Use your pension allowance
Pensions are not usually subject to IHT for those under 75 years old so if you have any pension allowance left, make use of it.
Set up a trust.
Trusts have traditionally been a staple of IHT planning. They can mean money falls outside an estate if you live for at least seven years after establishing the trust.
Invest in companies qualifying for business property relief (BPR)
If you own or invest in a business that qualifies for business property relief you can benefit from full IHT relief. You must be a shareholder for at least two years and still be so on death.
EIS and SEIS Investments
These tax schemes offer a generous tax relief. Investments also qualify for BPR, so could be passed on free of IHT after two years.
Commercial forest investments should be free of IHT if held for at least two years and on death. You should also benefit from capital appreciation in the value of the trees (and the land they are on) and from any income produced by harvesting the trees and selling the timber (this income may also be tax free).
Use your gift allowances
Every year you can give up to £3,000 away tax free. If you did not use it last year, you can combine it and pass on £6,000.
You can also give up to £250 each year to however many people you wish (but only one gift per recipient per year) or make a wedding gift of up to £5,000 to your child; up to £2,500 to your grandchild; up to £2,500 to your spouse or civil partner to be and £1,000 to anyone else.
You can pass on as much as you like IHT free but you must live for at least seven years after giving money away.
Make regular gifts
You can make regular gifts from your income. These gifts are immediately IHT free (no need to wait for seven years) and there is no cap on how much you can give away, provided you can demonstrate your standard of living is not affected.
Leave a legacy – give to charity
If you leave at least 10% of your net estate to a charity or a few other organisations, you may be able to get a discount on the IHT rate – 36% instead of 40% .
If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at firstname.lastname@example.org.