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.
Let’s Talk Inheritance Tax
Nearly 4% of estates are paying inheritance tax or roughly 27000. However, this number is rising rapidly as increasing house prices take more and more people into the IHT bracket. The Lifetime allowance of £325,000 has not moved for over a decade.
The average bill for inheritance tax is now £214,000, raising £5.76bn in taxes. This figure is expected to reach £8bn by 2028.
IHT thresholds have been frozen until 2027/28, and so more and more people are getting caught in the IHT net simply because of property wealth.
There was also a significant increase in claims for agricultural and business property relief (APR, BPR) to £4.2bn, an increase of £1.4bn (51%). Most of this increase was concentrated in the value of BPR, which increased by £1.3bn. The value of APR was only up by £91m.
Inheritance tax take hit a record £795m in one month in June as more estates were caught by the rules, the highest figure ever recorded.
The freezing of tax thresholds generally is giving the Treasury a steady stream of tax revenue, with inheritance tax (IHT) proving an easy win.
The Office for Budget Responsibility forecasted a modest £0.2bn increase in IHT revenues for the financial year to 31 March 2024 but it seems likely that in reality the increase will be much higher.
It is reported that The Conservatives are considering scrapping IHT as part of their manifesto pledge for the next election. Given the widespread dislike for this tax, it might get them some votes.
NIC and Car Allowances
The approved rate for a mileage allowance paid by an employer is 45p per mile. If the employer pays less than this, the employee can claim tax relief on the difference.
Following a couple of successful cases, it seems that the same relief is due for National Insurance. So, if your employer pays less than 45p per mile you can now get not only tax relief on the rest but also relief for the NIC you have paid as well.
There is a possibility that HMRC may appeal these decisions, and we will just have to wait and see if they do, and if so, the final outcome.
The New Single R&D Tax Relief Scheme
The government have just published the draft legislation for the new combined R&D Tax Relief Scheme.
The draft has been published for technical consultation, and if the legislation is to go ahead, this is likely to be announced in the Chancellor’s Autumn Statement.
Some of the important points include:
- Companies will not be able to claim R&D relief on activities that were contracted to them by another person or company.
- Expenditure may not qualify for relief if it’s been subsidised either by a grant or by another entity.
- The costs on which relief will be given are very similar to the current set.
- Contributions to independent research which could be claimed by larger companies are removed.
- The credit will be 20% of qualifying expenditure, which is in line with the recent increase in R&D expenditure credit (RDEC) from 13% to 20%.
HMRC published its annual report on 17 July, which provided new figures on the level of error and fraud found across the two existing schemes. The report estimates that over £1bn of SME relief was attributable to non-compliant claims. In the smallest claims (with expenditure less than £10,000) over 75% of the claim value was found to be non-compliant.
HMRC has also published details of its approach to compliance in R&D tax reliefs. In the report, HMRC describes its approach as educational and helpful. They say they’re trying to support the right companies to apply in the right way at the right time.
£1.7bn in Unclaimed Child Trust Funds
It has been reported that 42% of eligible 18-20 year olds have not claimed the savings in their matured accounts, a total of over £1.7bn.
Introduced by former chancellor Gordon Brown in September 2002, CTFs provided tax-free savings accounts for all eligible children in the UK who were born between 1 September 2002 and 2 January 2011 – an average account is worth £1,900.
The aims behind CTFs for young people to come into a pot of money on reaching 18, with the promotion of financial literacy and good saving habits. But many young people are unaware that they have money waiting to be claimed.
HMRC has increased its communications since 2018 to help advertise the existence of the accounts. In 2020, the tax authority ran a social media campaign that led to peaks in enquiries.
Plan to Tax Inherited Pensions
The government plans to change income tax rules for people who inherit pensions to make them liable for marginal rates income tax.
The announcement to charge tax on pensions benefit at marginal rates of tax from 6 April 2024 was made briefly in the guidance about how the lifetime allowance will work and was released as part of Legislation Day on 18 July. This follows the removal of the lifetime allowance cap which removed tax liability on larger pension pots more than £1.07m.
The document states that it will be changing the tax treatment of payments of uncrystallised and crystallised lump sum death benefits in the event a pension holder dies under age 75, charging tax at the marginal tax rate.
If correct, then this represents a quite significant change to the tax treatment of beneficiary pensions.
You may want to take advice from your IFA or pension advisor.
HMRC Gives £1.8m to Charity
The grants are to help charities and other voluntary organisation who support taxpayers in need of extra assistance.
Eligible organisations need to bid for the funding through HMRC’s voluntary and community sector grant funding programme.
Bids can be submitted between 24 July and 21 August 2023.
This is the 12th round of funding HMRC is awarding as ‘part of its commitment to help everyone get their tax right’.
The organisation must be a registered charity, voluntary and community sector organisation, social enterprise, mutual or a co-operative.
RNIB’s Sight Loss Advice Service is one of 12 organisations previously awarded under the grant programme.
In the last year, funded organisations supported 39,000 taxpayers over the phone, with face-to-face meetings and via email.
The funding will be available to provide free advice to taxpayers with complex needs who may face barriers in understanding their tax obligations and claiming their entitlements; are digitally excluded from accessing HMRC services or have any other difficulty in interacting directly with HMRC.
Companies House Verification
Companies House is reviewing fees but any changes to the current low level of fees can only be made through legislative change.
Companies House has started to cleanse existing incorrect information on its registers due to new powers and has implemented the next phase of the Register of Overseas Entities where it will pursue owners who have not signed up to the register. It’s also working more closely with HMRC and other agencies to share more data to help tackle economic crime.
Companies House needs to improve verification of the information provided on companies. Companies House is moving towards being able to verify the identities of individuals who register and file with Companies House.
All new and existing registered company directors, people with significant control (PSCs) and anyone else filing on behalf of companies with the registrars will be required to verify their identities.
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