Long-awaited pension dashboard expected next year

Pension dashboards, which are designed to make it easier for people to decide where their pension is best placed, are expected to be released next year along with league tables for pensions. The aim is to allow pension savers to see how their workplace pension schemes compare to other pension providers in the marketplace.

The pension dashboard has been discussed for years, by everyone from the government to scheme providers and financial advisers. But the FCA and the TPR are consulting on a new ‘Value for Money’ framework for workplace pensions, and assessments are due to be published from 2028.

Savers will be able to compare providers, including workplace pensions, based on charges, returns, and quality of service once the dashboards are fully set up. It will help people to get the best value for money for their pension contributions by checking their provider against the league table.

What benefits will people see?

The aim of the pension dashboard has always been to create an easier way of comparing pension providers for the general public. Pensions at their simplest are tax-efficient savings vehicles – you put in £80 as a basic rate taxpayer and the government gives you tax relief of £20 to make your contribution up to £100. Higher rate and additional rate taxpayers would pay £60 and £55 respectively, and get £40 and £45 respectively in tax relief to make up a £100 contribution.

Rachel Vahey, head of public policy at AJ Bell, said: “The Government has set out an ambitious programme of reforms that has the potential to transform workplace pensions, making it easier for people to compare pensions and switch to get a better deal.

“Pension savers deserve to know how well their pension scheme is performing. ‘Traffic lights’ league tables must be easy to understand and help people make more informed decisions about their retirement savings, rather than burying them in technical language or complex metrics.”

What will I be able to see through the pension dashboard?

You will be able to see all the details of all your pension plans in one place once the dashboard is launched. This will include both state and private pensions, and which pension scheme provider your pension is with. You will see contact details, and the current value of the pension, along with a prediction of what it could generate for you in income once you reach retirement age, according to AJ Bell.

The first incarnation of the dashboard will be accessed through MoneyHelper, which is run by the Money and Pensions Service (MaPS). But it’s expected that other companies, such as pension providers, banks or your employer, will all offer a pension dashboard eventually. The MaPS dashboard is expected to be available to the public in financial year 2027/28.

Ms Vahey said: “Greater transparency should empower people to take control of their retirement planning. Whether that means increasing contributions, reviewing their investment strategy or consolidating pension pots with a provider that better meets their needs for better information, service, price, or wider investment choice, giving them more opportunity to improve their long-term retirement outcomes.”

What else can we expect?

Aside from the impending launch of the pension dashboard, and the league table of pension funds, the Government has also set out a ‘roadmap’ timetable for workplace pensions reform. This includes aiming to create 20 defined contribution ‘megafunds’. A defined contribution pension is a pension where what you eventually receive depends on what you put in and how that money has grown over time.

It has also suggested other reforms, such as the consolidation of dormant small pension pots, and introducing a series of default retirement options for workers saving into their workplace pension. These so-called ‘guided retirement’ options, which are due to start from 2029, could include pension income solutions such as a combination of annuity and drawdown, or a collective solution, designed by pension trustees and providers. You wouldn’t have to accept these options, you could be offered other solutions, or even transfer your pension elsewhere if you prefer.

Larger workplace pension schemes will have to publish Value for Money assessments from 2028, leaving them competing to show how well their scheme is performing. This is based on cost, investment returns, and how good the scheme’s administrative support is. They will be scored from red to green in a traffic light system, which goes from poor value, to outperforming on value. The worst performers will be expected to improve, or close.

Other changes to workplace pensions include the scale provisions, which require “all defined contribution multi-employer schemes which are used for automatic enrolment to have assets of at least £25 billion in a single main default arrangement”, said Ms Vahey.

She added: “This will mean that some pension savers are moved to different pension schemes, as their workplace pensions go through a transitional period.

“Combined with pensions dashboards, these reforms have the potential to create a new generation of more engaged savers. For the first time, people will be able to see what pension savings they have built up across different providers, alongside clearer information about how well those pensions are delivering for them.”

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If you would like to find out more about how the pension dashboard and other changes will affect you or your business, then please get in touch with us and we will explain what you need to know.

Start of the new tax year – now’s the time to use allowances

Many of us love to work to a deadline, but when it comes to maximising your tax allowances each tax year, it isn’t a great strategy to leave it until the last minute to mop them up. If you want to maximise allowances, you have up to 12 months to do so by starting as soon as you can, and this can also make it possible for those with less disposable income to see greater benefits.

As the income tax thresholds have been frozen for another year, you need to make the most of the tax allowances you do have, especially as many of them are set to reduce in coming tax years.

Rachael Griffin, tax and financial planning expert at Quilter, said: “This is a year to use the allowances you can, but the bigger task is getting ready for the major structural shifts arriving in 2027. Cash ISA limits will be cut for under‑65s and savings income will be taxed more heavily, while unused pensions will fall within inheritance tax (IHT), so households need to… prepare for a very different tax landscape.”

For example, if you start your saving into your Individual Savings Account (ISA) as soon as you can, you have more time to use the full £20,000 allowance. You could put up to £1,666 per month into an ISA to build up to the full £20,000 over 12 months. This might be easier for some people than finding the full £20,000 in one go and can also boost your savings over time.

The two extremes of ISA investing were evident at one of the world’s largest investment management firms on April 5 and then April 6 this year. The final investor of the 2025/26 tax year invested via the Fidelity International platform with just 20 minutes to go at 23:40 of April 5. While the first investor of this tax year put money into their ISA within the first hour of April 6.

Fidelity has also calculated that by using your ISA allowance early, you benefit more, as you can see from the table below. Early Shirley, who has invested the full allowance for the last 10 years as soon as possible, has the largest pot at £321,570. Monthly Monty, who puts in the full amount allowed each month, has £303,625 – ahead of Last-Minute Lara who invests at the end of the tax year, and has £299,385. The difference between Early Shirley and Last-Minute Lara is a whopping £22,185 over 10 years.

Returns generated after 10 years of investing the maximum ISA allowance

Source: Datastream, Fidelity International, 05/04/2016-06/04/2026. Total return in GBP of FTSE All Share

What else should be considered now?

Topping up your pension is one thing you should try to do early in the new tax year. You can put up to £60,000 a year, or 100% of your earnings, whichever is lower, into your pension each year and receive tax relief.

If you haven’t used up your full allowance for previous years, you can add more into your pension pot by using what are known as “carry forward” rules. This has an additional benefit of reducing your tax bill, while boosting your long-term retirement plans, but you should speak to your accountant before actioning this.

You can also gift up to £3,000 a year free of IHT, said Ms Griffin, or £6,000 jointly for a married couple or civil partners. If you didn’t use the allowance for the last tax year, then you can gift as much as £12,000 as a couple in this tax year.

One major change to be aware of this tax year is the requirement for some taxpayers to do ‘digital reporting’ to HMRC. From April 6, you are required to submit quarterly updates under new reporting rules if you are self-employed or a landlord earning over £50,000. Even though there are no penalties for missing a filing this year, it is sensible to get used to how the system works to make sure you don’t get caught out later by errors, or penalties, which will apply from January 31, 2027, if the last return of the year is late.

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If you are interested in seeing how you can use your tax allowances earlier in the tax year, or need more information about digital reporting, then please get in touch with us and we will do what we can to help you.

Will it still be sensible to take income in dividends?

Increases in the dividend tax levels from April 6 are set to eat into the income of directors, who will often pay themselves in dividends, but is it still sensible to take payments this way for the coming tax year?

The dividend tax rates are set to rise by 2 percentage points from April 6. This will raise the Basic Rate from 8.75% to 10.75%, and the Higher Rate from 33.75% to 35.75%. But the Additional rate of 39.35% will remain the same.

So, does this rise create a case for paying yourself via a salary rather than dividends going forwards, or are dividends still the best way for directors to pay themselves from their companies?

Dividends still win, but a mix of salary and dividends is best

Even though the increase in dividend tax rates will reduce the benefit of paying yourself in dividends, it still makes more sense financially to take dividends than it would to pay yourself a salary alone in most cases.

By taking a salary, your company would need to pay Employer National Insurance Contributions (NICs) on your salary at 13.8% for any amounts of £9,100 or above. You would also need to pay employee NICs on your salary above £12,570 – which is the level of the personal allowance – at 8% up to £50,270, and at 2% above this level. On top of this, you also pay income tax at 20% as a basic rate taxpayer, 40% as a higher rate taxpayer, or 45% as an additional rate taxpayer.

By taking dividends, assuming your Corporation Tax has already been paid and your profits are high enough for you to do so, you would usually have more in your pocket as they are not subject to NICs like a salary. Your company would pay no NICs, and neither would you, and the dividend tax levels are also below the higher rate and additional rate income tax bands.

If you’re not earning much in dividends, you should check with your accountant whether you’re better off taking your earnings as a salary or in dividends, as there could be a point where the balance tips in favour of salary. But typically, you are still better off taking dividends, even though the benefits are narrowing.

Still, the best way to pay yourself from your company is likely to be via a mix of the two. This would mean taking a small salary, equivalent to the personal allowance of £12,570, and then taking the remainder in dividends. This means you pay some NICs, which will still qualify you for the State pension, but you will pay little or no income tax on the salary, and a salary is also deductible for Corporation Tax.

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If you are interested in seeing how you can legitimately reduce your tax burden through dividends, then please get in touch with us and we will do what we can to help you.

Pensions come under Inheritance Tax rules from April 2027

Pensions are set to be drawn into the Inheritance Tax (IHT) net from April 2027, in a major change to the current rules, which means you need to know what to expect so you can prepare accordingly.

Currently, you can pass your pension onto your beneficiaries in its entirety without it being caught in the IHT net as part of your overall estate on death. But from April next year, this is set to change, and your pension may be subject to IHT if the value of your estate is high enough. The beneficiary who receives your pension may also face an income tax charge on any income they draw from it.

Pensions passed directly to spouses or civil partners will continue to be free of IHT. But any other beneficiary may face IHT on the pension that is passed on when you die, depending on the value of your estate.

What changes can we expect if passing on a pension fund?

The biggest change is that any pension passed onto a beneficiary other than a spouse or civil partner may be subject to IHT at 40% if the total value of your estate breaches the IHT threshold. This is currently made up of a nil rate band of £325,000, with an additional £175,000 residence nil rate band, which can be applied if you pass your home on to direct descendants. This means you have up to £500,000 each, if you have children that you can pass your family home onto.

If one spouse or civil partner dies before the other, and doesn’t use all their IHT allowances, then the surviving spouse or civil partner can use the remaining amount. This gives a total of up to £1m before IHT is applied, depending on the remaining allowance available.

Once these limits are exceeded, any amount above this level is subject to IHT at 40%. Given the average UK house price in January 2026 was £300,077, according to data from Halifax, and that the pension pot will be included in the estate from April 2027 onwards, it will be easier to breach. This means more estates are likely to be affected.

What happens to any death-in-service benefits?

Death-in-service benefits – which are paid from the pension scheme if you die while still working – will be outside of IHT. But any other death benefits paid, such as a lump sum from the pension fund, or any remaining pension to be passed on, will generally be included in the estate for IHT.

If you die before you reach 75, then anyone who you pass your remaining pension pot to, can usually draw money from the pension without income tax, but it may still be subject to IHT, unless it is passed directly to a spouse or civil partner or your overall estate is below the threshold.

If you die after age 75, then as well as IHT, any income drawn from the pension by the beneficiary will also be subject to income tax. If it is passed to your spouse or civil partner, it won’t be subject to IHT, but he or she will still pay income tax on withdrawals in this case.

How can you reduce the impact of rule changes next year?

The best way to reduce the impact of these changes when you’re passing on your pension fund, could be to start drawing down more of your pension and ‘gifting’ money to those you want to receive it. But there are rules you need to consider before you do this.

For example, you are allowed to make regular gifts of any amount of money to someone, providing it doesn’t affect your standard of living. You can also make a larger, one-off gift, but you must survive the gift by seven years for it to be fully outside of the IHT net. This is known as a Potentially Exempt Transfer. Taper relief may reduce the IHT payable if the death occurs between three and seven years after the gift is made, until it is excluded from IHT entirely.

You can also gift up to £3,000 a year in total without it being subject to IHT, even if your estate exceeds the threshold on death. If you missed gifting £3,000 in one year, you could double up in the next year. But this allowance can only be carried forward for one year.

Outside of this, you can gift up to £250 per person per year to as many people as you want, but you can’t combine this with the £3,000 gift. If you have a child getting married, you can gift up to £5,000 without the spectre of IHT, or £2,500 for a grandchild, or £1,000 to anyone else.

These rules can be helpful, but you should only do this if you are able to live comfortably on the income you have remaining from your pension, or from other sources. It is always best to take advice before you make any of these decisions, to ensure you’re doing the right thing and not breaching any rules or creating problems for those left behind.

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If you would like to find out how these rules may affect you from next year, and how to deal with them effectively, then please get in touch with us and we will explain what you need to know.

Does your family know where to find your will? Or pension?

Thousands of people die each year without a will, as more than half of us don’t have one. But even for those who have written a will, there is a good chance your loved ones won’t know where to find it when you die.

Nearly half of all couples don’t know where their partner’s will is, according to research by Canada Life, and nearly 60% of us wouldn’t know how to locate our parents’ pension policies when they are gone. These two facts have the potential to leave millions of people at risk, facing unnecessary delays to probate, and even penalties at a time of bereavement. When it comes to siblings, nearly nine in 10 (87%) wouldn’t be able to locate their brother or sister’s will.

Pensions make up the second largest part of a household’s wealth, according to data from the Office for National Statistics, second only to the value of your property. Yet nearly two in five people (37%) in a relationship wouldn’t even know where to find their partner’s pension documents in the event of their death.

Why does this matter?

If these documents can’t be found when someone dies, it means executors or personal representatives face delays in getting the information they need to deal with probate efficiently, slowing everything down at a time when emotions are high.

Pensions will become part of the inheritance tax (IHT) net in 2027, and personal representatives of the deceased will be responsible for tracking down the policies. So, not knowing where to lay hands on these documents also increases the potential risk for penalties from HMRC, if an IHT bill isn’t paid on time.

However, these are just two of the important documents a partner or family member couldn’t find. Four in 10 people couldn’t find a partner’s life insurance policy, and almost half (47%) say they couldn’t find a partner’s debt or loan agreements.

What should people do to prevent these problems?

The easiest way to make sure everyone who needs them can find documents in the event of your death is to create a specific list explaining where everything is, and to tell the relevant people – your children, partner, trusted friend and so on – where to find that list. If you leave instructions about how to deal with all your assets when you die in a will, you will save your loved ones a lot of trouble.

Liz Hardie, Tax, Trusts and Estate Planning Specialist, Canada Life said: “It’s easy to put off conversations about where important documents are kept, but the consequences of not knowing can be serious, particularly as previous Canada Life research has shown that the most common problem encountered by executors of a will is tracking down policy documents.

“Whether it’s delays in accessing funds, missing out on benefits, or facing unexpected liabilities, families could be left in a difficult position simply because they didn’t have the right information at hand.

“Make time for the conversations that matter. Knowing where key documents are kept isn’t just about being prepared for the worst, it’s about making life easier for everyone, whatever the future holds.”

We can help you meet your obligations

If you want some help with making sure your affairs are in order and that your family will be able to find all the information they need when you’re no longer here, then please get in touch and we would be happy to give you the guidance you need.

Maximise your tax allowances before April

There’s just over a month until the end of the tax year on April 5, and if you have any available tax allowances that you haven’t used up completely, now is the time to start working out how to use as much of them as you can this tax year.

Various tax rules are set to change from April 6, so it is important to use up what is available this tax year to maximise the current rules.

There are many ways to reduce your tax liability each year through proper and full use of the allowances, but it is always best to work with your accountant to do everything the right way, so you don’t create a problem for yourself further down the line.

Check that your State Pension NICs record is complete

One important thing to check is that your National Insurance contributions (NICs) record for your State Pension is complete. You need to have 35 years of qualifying NICs payments to receive the new full State Pension, and at least 10 years to receive any State Pension at retirement age.

Missing years can occur if, for example, you’ve had any time off to look after children, or missed work years for any other reason, such as being ill or taking time off to travel. Even if you haven’t taken time off, you need to check your record is correct, because mistakes happen.

People who have stayed at home to look after their family should have received their NICs contribution years for this period under the Home Responsibilities Protection scheme, or by the National Insurance Credits for Parents and Carers in 2010, which replaced it. Both schemes would give you qualifying credits for the State Pension while you weren’t working. But the system hasn’t been perfect, so there is currently a government initiative to correct missing HRP records between 1978 and 2010. If you think you or someone you know may have been affected during this time, it is even more important to check your record.

If you have any gaps that aren’t mistakes, it is possible to pay voluntary contributions for up to the past six years to fill those gaps in your National Insurance record and boost your qualifying years. These payments must be made before April 5 each year.

You can get a State Pension forecast at Gov.uk which will tell you if you have any years where your contributions weren’t complete. This is an important step, because not checking could result in paying contributions that aren’t necessary to make.

Make the most of your pensions contributions

You can put as much as you like into a personal pension scheme, but there are limits on how much of your contributions will benefit from tax relief. For example, if you’re not earning at all, you can add a maximum of £3,600 including tax relief into a pension. If you are earning, you can put up to 100% of your relevant UK earnings into a pension to get tax relief, up to a maximum of £60,000. So, even if you earn enough to get more tax relief than this, you won’t receive it on contributions above this figure.

You also cannot reclaim more tax relief in a year than you were due to pay in tax, so you need to ensure your pension planning takes this into account. But you can do something called Carry Forward, which enables you to use any unused annual allowance from the previous three years, to maximise the benefits of any unused amounts from these years.

If you earn more than £200,000 a year, your annual allowance for pension contributions could reduce from £60,000 to as low as £10,000, so you must take this into account when making decisions about optimising your tax allowances towards the end of the tax year.

One important thing to remember is that if you are a 40% or 45% taxpayer, you may need to reclaim your additional pension contribution tax relief – anything above the basic rate of tax relief of 20% – through your tax return directly from HMRC. So, if this hasn’t been done, even in previous years, you should speak to your accountant for advice.

Company owners should pay themselves in dividends

Company directors can often take money out of their business more tax efficiently through dividends than as a salary, but you can only distribute dividends if you have enough ‘distributable reserves’. Bear in mind though that from April 6, 2026, the basic and higher dividend tax rates will rise by 2 percentage points, to 10.75% and 35.75% respectively, which reduces the benefit to some degree.

Also, it is typically more tax efficient if the company pays your pension contributions for you, so if there is enough money in the business to do this, then speak to your accountant about how to action this properly.

If you’re an experienced business owner, you may also want to consider investing in a Seed Enterprise Investment Scheme (SEIS), which is designed for fledgling companies looking for investment, or Venture Capital Trusts (VCTs). These both offer tax benefits that help reduce your liabilities.

Qualifying Enterprise Investment Schemes (EISs) – which would include some AIM-listed companies – offer tax relief at 30% on investments up to £1m, or £2m if the company you’re investing in qualifies under the ‘Knowledge Intensive Companies’ rules, which typically refer to companies heavily involved in research in areas such as technology or biotechnology.

The VCT tax relief is currently available on qualifying investments up to £200,000 at 30%, but this reduces to 20% from April 6, 2026.

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If you are keen to optimise the tax relief available before the end of the tax year, then please get in touch with us and we will explain what you need to know.

VCT and EIS changes – good for companies, not investors

Investors who use Venture Capital Trusts (VCTs) or Enterprise Investment Schemes (EISs) to invest in start-ups and benefit from tax relief as a result, will face new rules from April 6, 2026, thanks to changes made in the Autumn Budget.

These investment vehicles are great ways for companies to raise early investment from investors at what can be the riskiest time to invest in a business. The reward for those prepared to take the risk on investing in a start-up through VCTs or EISs are the tax breaks that are available. But investors are facing a reduction in these tax benefits from April, thanks to changes to the current rules.

The changes are different for both VCTs and EISs, and how much a company can raise with each vehicle under the new rules will depend on what type of business it is.

What are the new investment limits?

Eligible companies will be able to have a maximum of £30m in ‘gross assets’ immediately before the share issue through EISs from April 6, 2026, and £35m immediately afterwards. This is an increase of £15m and £19m respectively, compared to the amounts currently allowed.

Through both EISs and VCTs, the annual combined amount it is possible to raise will double to £10m, and as much as £20m for knowledge-intensive companies (KICs). In a lifetime, a company will be able to raise £24m through these vehicles, again doubled from the current £12m, and up to £40m for KICs.

However, investors may find these vehicles less appealing, as they will see a reduction in their upfront income tax relief on VCT investments from April 6, 2026, when it will fall from 30% to 20%, while tax relief on EISs will remain at 30%. But the way EIS and SEIS shares are treated for inheritance tax (IHT) will change, and from April 6, 2026, 50% of any value over £1m will become subject to IHT at an effective rate of 20%.

Why will these changes be made?

The changes are designed to extend the EIS and VCT limits to support both new companies, and those that are scaling up, while also equalising the tax treatment of VCTs and EISs, as EISs don’t offer dividend relief, said HMRC.

Qualifying companies are those that “are not registered in Northern Ireland trading in goods or the generation, transmission, distribution, supply, wholesale trade or cross-border exchange of electricity. These companies will remain eligible for the current scheme limits,” according to Gov.uk.

Businesses that qualify will be able to access more investment through these schemes, and there isn’t expected to be a significant change in the amount of administration required. For the several hundred businesses that are near to the current limits, this change will offer a considerable boost.

What is the impact on the people who invest via these vehicles?

Around 24,000 people invest in these vehicles, and those using VCTs will see less upfront income tax relief on their investments. But there should be no change in the way they deal with HMRC.

HMRC said this measure “does not change or introduce any tax obligations or processes”.

The largest gender investing in VCTs is men, amounting to an estimated 76% of all investors, even though men make up around 50% of the overall population. Most people (57%) investing in VCTs are aged between 45 and 64, even though this age group makes up just 31% of the overall population.

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If you are already investing in VCTs or EISs and want to know what these changes will mean, or you are interested in investing in these vehicles for the first time, then please get in touch with us and we will explain what you need to know.

Cash ISA allowance reduced to £12,000 for under 65s

The Chancellor took aim at cash ISAs in her Budget, and is reducing the amount that can be put into a cash ISA from £20,000 to £12,000, with the remaining £8,000 being eligible for investment ISAs.

These changes, which will apply from April 6, 2027, will not affect those over age 65, who will still be able to put the full £20,000 into a cash ISA each year if they prefer. The move is designed to encourage people who have typically chosen the cash ISA in preference to investment ISAs to broaden their portfolio into investment products, which traditionally have delivered better returns over the long term.

Michael Summersgill, CEO of AJ Bell CEO, said: “The Chancellor clearly recognises the huge benefit of long-term investing and the boost it can provide to people’s finances, but today’s announcement is a missed opportunity to reshape ISAs with the consumer in mind.”

Does this increase the complexity of ISA investing?

The move increases the complexity of ISA investing, at a time when experts are calling for more simplicity and flexibility for individuals, who already often find it difficult to navigate the investment landscape more widely.

Mr Summersgill said: “Government should be focused squarely on simplifying the market to make it easier for ordinary people to navigate, providing flexibility for consumers, rather than adding friction in the form of new allowances and added complexity.”

He would like to see the Government ask itself “two key questions” before implementing these proposals. The first is whether any serious person would design a system with “umpteen ISA products all with different allowances”. The second is whether there is any evidence at all that this measure will encourage people to invest.

Mr Summersgill added: “The answer to both those questions is no. Government should go back to the drawing board and examine the evidence in earnest before these proposals move forward.”

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New Pension Schemes Bill to benefit 20 million workers

The Government’s new Pension Schemes Bill is expected to make it easier for millions of people to manage their pensions, by improving returns, and combining smaller pension pots to create bigger and better pension funds.

The benefits of combining smaller pension pots can’t be underestimated, as typically the costs associated with managing these funds will fall, automatically increasing returns. This is all part of the Government’s Plan for Change, which is designed to put more money in people’s pockets.

Many workers will often create small pension pots with the various employers they work with, as few people will stay with a single employer for most of their working life – a big change from years gone by. Changing the system to enable these smaller pots to be combined into a single, larger pot that can be monitored more easily and with lower overall fees will go a long way to helping people better understand their overall financial position when they are heading towards retirement.

What will this mean for people nearing retirement?

Anyone approaching retirement will also benefit from “clear default options” for turning their pensions into retirement income, including more secure routes to deciding how they use their pension when the time comes.

This is potentially useful as the Pension Freedom rules which came into effect on April 6, 2015, removed the requirement to buy an annuity with your pension, but the extra choice has made it difficult for some people to know what to do for the best.

The suggestion from Chancellor Rachel Reeves is that all pension schemes should offer a default route to creating an income in retirement. While this would simplify things for people, it may result in some not choosing anything other than the default route, which may not be the best option for them. If you aren’t sure that what is the best option for you, either when these planned changes come in or before, then speak to your accountant for advice before you vest your pension.

The Chancellor said: “The Bill is a game changer, delivering bigger pension pots for savers and driving £50 billion of investment directly into the UK economy – putting more money into people’s pockets through the Plan for Change.

“The Bill will transform the £2 trillion pensions landscape to ensure savers get good returns for each pound they save, and drive investment into the economy, through a suite of measures…”

These measures include:

• Requiring Defined Contribution (DC) schemes to prove they are value for money, to protect savers from getting stuck in underperforming schemes.
• Simplifying retirement choices, with all pension schemes offering default routes to an income in retirement.
• Bringing together small pension pots worth £1,000 or less into one pension scheme that is certified as delivering good value to savers, making pension saving less hassle and more rewarding.
• New rules creating multi-employer DC scheme “megafunds” of at least £25 billion, so that bigger and better pension schemes can drive down costs and invest in a wider range of assets.
• Consolidating and professionalising the Local Government Pension Scheme (LGPS), with assets held in six pools that can invest in local area infrastructure, housing and clean energy.
• Increased flexibility for Defined Benefit (DB) pension schemes to safely release surpluses worth collectively £160 billion, to support employers’ investment plans and to benefit scheme members.

Source: Gov.uk

Pension changes are expected to accelerate

The Government is trying to accelerate change in the pensions marketplace to ensure people have more money in their pension fund at retirement. The changes are described as “urgent” by Minister for Pensions Torsten Bell.

He said: “Pension saving is a long game, but getting this right is urgent so that millions can look forward to a higher income in retirement.

“The Pension Schemes Bill is part of this Government’s significant pension reform agenda. It follows the major consolidation of the UK pension system set out in the Pension Investment Review.”

The need for simplification is real, as experts feel that the way pensions work has become too fragmented and too complex.

Rocio Concha, Director of Policy and Advocacy, Which? said: “It’s good to see the government taking steps to simplify them and ensure schemes provide value for money. Which? has campaigned for years for the consolidation of small pots, so we are delighted that this Bill is seeking to do just that – a move that will provide greater value for savers and support them to keep track of their pensions.

“Which? looks forward to working with the government to ensure the pensions system is fit for the future.”

Both Defined Contribution and Defined Benefit schemes covered

The two main types of pensions – Defined Benefit (DB) and Defined Contribution (DC) will both be in the sights of the Government’s simplification plans. DB pensions are the more traditional schemes, where the amount of pension you receive is based on the amount of salary you were earning when you retired from the company or organisation.

These are much rarer now, and it is much more common for people to be in DC schemes. These are where you pay in a certain amount, which is often matched by your employer, or it may pay in more or less than you do, but the amount you receive at retirement depends on the performance of the underlying pension fund investments over time. The DC pensions are the ones where you have to think about how to take your pension when the time comes, as there are a variety of ways you can currently do this, which is adding to the confusion.

Nausicaa Delfas, Chief Executive, The Pensions Regulator (TPR) said: “The Pension Schemes Bill is a once in a generation opportunity to address unfinished business in the UK pension system. Making sure all schemes are focused on delivering value for money, helping to stop small, and often forgotten pension pots forming, and guiding savers towards the right retirement products for them, will mean savers benefit from a system fit for the future.

“We have long advocated for fewer, larger well-run schemes with the size and skill to deliver better outcomes for savers. As such we are also pleased to see the proposed legislative framework for DB superfunds, providing options and choice in defined benefit consolidation.”

The bill will cover a number of other points, and you can find out more about the Government’s Pension Investment Review on Gov.uk.

Contact us

If you want to find out more about the measures that have been announced, then please get in touch with us and we will explain how the measures might benefit you.

Inheritance tax receipts up £800m in a year – how to beat the bill

Inheritance Tax (IHT) receipts from April 2024 to March 2025 have risen by £800m compared to same period the previous year. This is largely a feature of the nil rate band – the amount you can have in your estate before you must pay IHT – and the residence nil rate band (RNRB) – an extra amount that allows you to pass on at least some of your home to your direct descendants IHT free – failing to rise in line with inflation for many years now.

Currently the nil rate band sits at £325,000, while the RNRB is £175,000 for each of us, meaning a maximum of £500,000 per person can be passed on free of IHT outside of the spousal exemption. There is no IHT between spouses or civil partners, so anything passed between them on death does not face an IHT charge. Also, if one spouse doesn’t use the entirety of their nil rate band or RNRB on death, any remaining amount can be used by the second spouse at the time of their death, which could increase the amount that is passed without an IHT liability in that instance.

Tim Snaith, Partner at law firm Winckworth Sherwood, said: “IHT revenues continue to steadily rise due to the prolonged freeze on IHT thresholds. The nil-rate band (NRB) and the residence nil-rate band (RNRB) have not been adjusted for inflation or rising property values, which means more estates are becoming liable for the tax as asset values increase. It remains a persistent and unavoidable inheritance tax planning issue, and one that should not be ignored.”

Will the IHT thresholds increase soon?

Unfortunately, the IHT thresholds are due to be frozen until at least 2030, which means even more families will find themselves caught in the IHT net at a time when they are facing the grief of losing a loved one. As property prices continue to rise, even more families, especially in London and the south east, will face IHT bills unless the person who is deceased has taken the time to plan ahead and mitigate the number of assets that they leave behind that will face IHT.

This is one of the most disliked taxes, particularly as many people’s estates will face a 40% tax charge for the first time after their death. People often think IHT is something only wealthy people need to think about. But this is no longer the case, and things are about to get worse for those left behind.

Shaun Moore, tax and financial planning expert at Quilter, said: “Property prices have grown rapidly in recent years, particularly in areas such as London and the south east, which in many cases will leave little to no room for additional assets to be left to loved ones before the tax is applied. Additional policy changes, including restrictions on Agricultural Property Relief and Business Relief from April 2026, as well as unused pensions falling within the scope of IHT from 2027, will place additional strain on families.

“Tax bills are becoming increasingly difficult to mitigate, and this will only worsen as the freeze on the various thresholds continues and as policy changes set in. Seeking professional financial advice will be key to ensuring no more of your money goes to the taxman than is absolutely necessary.”

Mitigating your IHT bill

You won’t be the one worrying about paying the IHT bill as you will have left this mortal coil, but for those left behind, a lack of planning to mitigate IHT applied to your estate can create serious problems. They may be forced to sell assets to cover the costs, which might include the family home if there is no other way to pay for any IHT due.

However, there are some ways you can reduce the amount your beneficiaries would need to pay. This includes giving away some assets within your lifetime, providing it doesn’t affect your standard of living. You can also write some assets into trust, which places them outside the IHT net. This is particularly useful if you have a life insurance policy, as writing this into trust enables your family to receive that money much faster after you have died, and it is not subject to IHT. Most insurers can write this kind of policy into a trust for you, and it is definitely worth asking about.

One of the most important things to do is keep your will up to date. This can not only ensure the right people get the things you want them to receive, but it can also reduce the IHT bill on death.

Mr Snaith said: “To avoid unexpected financial burdens, it is crucial for individuals to regularly review their wills and estate planning, with professional legal advice, to manage their wealth efficiently.”

We can help you meet your obligations

If you would like to know more about how to reduce your IHT liability within the rules, then please get in touch and we would be happy to give you the guidance you need.

Still time to maximise your end of tax year planning

Now is the time to work towards maximising your end-of-year tax planning before the new tax year starts on April 6. If you haven’t used all your allowances and reliefs for this tax year, then in the coming month, you should make the time to address this.

By using up as many of your tax reliefs and allowances as possible before the end of the tax year, you can be sure you are not paying any more tax than necessary to HMRC. So, you need to think about adding to your savings, pensions and investments in the next few weeks to benefit from the tax relief.

However, you need to make any changes you need before April 5, as the new tax year begins on April 6 in the UK.

Maximising pension contributions

One of the biggest benefits is the tax relief you can receive on pension contributions. Basic rate taxpayers will receive tax relief at 20% on up to £60,000 a year of contributions, but remember, you cannot receive more in tax relief than you pay in tax in a single year.

To make a £100 contribution to your pension, you would need to pay £80 into the pot, and the Government would add £20 in tax relief. But the good news is that the amount of tax relief you receive is paid at your marginal rate. So, if you are a 40% taxpayer, then you would need to put £60 into your pension and the Government would put in £40 to make it up to £100. Additional rate taxpayers, who are paying 45% tax, will pay £55 into their pension with tax relief of £45 from the Government to make up £100.

Anyone earning above £100,000 will see their personal allowance of £12,570 removed at the rate of £1 for every £2 earned above this level. It means that by the time you have earned £125,140, your personal allowance will have reduced to zero. Thanks to a quirk of the system, this means that someone in this position will have an effective contribution of 60% from the Government, as all contributions are paid from gross salary. This can reduce the income level for the calculation of the reduction in the personal allowance.

You should mop up as much of the tax relief as you can before April 5 for the current tax year. But if you didn’t maximise your contributions in the last three years, you can also use something called ‘carry forward’ which allows you to use up any additional tax relief that remains unused in these previous years.

Optimising savings and investments

Each person in the UK can put up to £20,000 a year into an Individual Savings Account (ISA), which is a tax-efficient savings vehicle. Unlike pensions, you don’t get tax relief on the payments you put into an ISA, but you do get tax-free income from an ISA at the other end, whether through generating investment income, or withdrawals of the capital.

If you are between 18 and 40, you can also set up a Lifetime ISA to save for your retirement or your first home. You can put up to £4,000 a year into this type of ISA until you’re 50, but your first payment made into this type of ISA must be made before you are 40 to qualify, and then the Government will add 25% up to a maximum of £1,000. A Lifetime ISA makes up part of your £20,000 allowance for the 2024/25 tax year, so make sure if you invest in another ISA that you don’t breach this overall limit.

Although Capital Gains Tax (CGT) doesn’t apply to ISAs, if you have investments outside of this, then it might be worth considering taking some profit from them to maximise your CGT allowance for this tax year. For the 2024/25 tax year, you can crystallise gains of £3,000 and pay no tax thanks to the CGT annual exemption. You can use this amount before April 5 if you haven’t done this already this tax year.

Tax relief on work expenses not reimbursed by your employer

Many people don’t realise they can benefit from tax relief on work-related expenses, even if they pay PAYE. If you pay some work-related expenses, for example for membership to professional bodies, professional publication subscriptions, travel in your own vehicle for work – but crucially not to or from where your office is – or if your contract designates that you work from home, then you can reclaim these from HMRC. But this is only possible if your employer doesn’t reimburse you for them.

If you file a self-assessment tax return, then this relief is claimed on the ‘employment’ pages. If you don’t already file a self-assessment for another reason, then you can use form P87 if you are claiming less than £2,500 per year, which will need to be posted to HMRC. If it is more than this, then you will need to file a self-assessment return.

You can claim expenses as far back as four tax years, so if you haven’t been using this tax break, then make the most of it now. Remember though, you will need to provide evidence for the expenses being claimed, so make sure you keep any receipts or bank statements to prove your case.

You can currently go back much further than normal to plug any gaps in your National Insurance Contributions (NICs) record. Voluntary Class 3 NICs can usually only be paid for the last six tax years if you have missed any payments for any reason, such as illness or redundancy.

However, you can currently go back as far as 2006 to fill in any gaps in your NICs record, but this will end on April 5. You need 35 ‘qualifying years’ when you retire to get a full State pension, and if you don’t have enough qualifying years, your pension will be lower.

If you have missed contributions due to childcare responsibilities, then you should have received National Insurance Credits after 2010, or Home Responsibilities Protection between 1978 and 2010. You could get a maximum of 22 qualifying years under HRP – which was automatically converted to NI Credits in 2010. But some records were not correctly applied, so if you think you or a family member may not be benefiting from a full HRP or NI Credits record, then you can apply online to make sure that all HRP years you should have received have been applied.

You should have had HRP applied if you were claiming Child Benefit for a child under 16, but it would also apply if you were caring for someone who was receiving other benefits. You can find out more about the eligibility criteria on Gov.uk.

Contact us

If you want to find out how to maximise your tax planning before the end of the tax year, and to ensure you have every qualifying year possible for your State pension, then please get in touch with us and we will do whatever we can to help.

Nearly £57m in overpaid pension tax refunded in Q2

HMRC has had to repay a massive £56.9m in overpaid pension tax between April 1 and June 30 this year, as the problems with the emergency tax rate on flexible pension withdrawals continue to bite. HMRC will put you on an emergency tax rate when you first access your pension, but this treats your first payment as if this is what you are going to get in income every month, which leads to significant tax overpayment for new pensioners.

The figures have been laid out in the latest Pension Flexibility data released by HMRC in its newsletter, but it is a complication that people would prefer not to have. You can get a refund, but it would be better if it didn’t happen in the first place.

The problem is that your first payment may include your 25% tax-free lump sum, and the tax applied is as if you are going to be getting this amount every month from then onwards. While this would be nice if it could happen, it means you are going to be paying a lot more tax than you should do and will need to reclaim it.

How do you get a refund?

You can get a refund by filling in an online form and sending this back to HMRC. But there are three different forms you can use, which doesn’t help when it comes to simplifying things. The main one, a P55 is for claiming a refund on a pension that has been accessed flexibly.

The other forms are the P53Z which is to reclaim tax wrongfully paid on a serious ill-heath pension lump sum or if you have taken your whole pension through the flexibility rules, and the last one, the P50Z is for people who have stopped work and flexibly taken their whole pension pot, and also have a P45 from their employer. Complicated? Yes, but that’s why your accountant is best placed to help you if you need it.

In Q2 this year, HMRC says it processed:

• P55 — 11,449 forms
• P53Z — 3,612 forms
• P50Z — 1,018 forms

Total value repaid: £56,925,219

Source: HMRC

This suggests an average of £3,540 per person in overpaid tax, which is not an amount to be sniffed at, especially as this is in just one quarter of the year.

Is there any way to stop this happening?

In an ideal world, it wouldn’t happen at all, but sadly we don’t live in one. So, the best thing you can do to limit the impact this will have on you is to make your first pension withdrawal payment a small one, if you can. This way, the amount of tax taken under the emergency code will be much smaller, and you will have far less, if anything, to reclaim.

The reason the emergency code is applied is because the pension provider – which may be your old employer or a financial services company – won’t know exactly how much income you will be getting in your retirement month-by-month. You may have other sources of income, for example, and this is why HMRC insists that an emergency tax code is used.

The downside of this is that because this is effectively a PAYE system, it doesn’t cope well with one-off payments, like your tax-free lump sum, or the flexible nature of pensions now. So, the best thing you can do is be prepared, and make your refund claim as soon as possible. You can ask for your refund to be paid into your account ASAP, or you can wait until the end of the tax year and filing a tax return if you prefer. But really, why let the taxman have your money for longer than necessary?

We can help you

If you are about to retire and plan to take your pension straightaway, please get in touch with us and we would be happy to help you avoid any costly tax errors that might occur.

How to deal with an estate on death as lifetime gift clawbacks rise

Dealing with someone’s death is never easy, and unpicking their affairs once they have gone, especially if there has been no forward planning for this inevitable event, can be very hard on those left behind. This isn’t helped if there are taxes to pay on the estate from gifts made during the person’s lifetime, a problem that is on the rise. Data from HMRC shows that the average tax payable by beneficiaries on lifetime gifts was £171,186 in 2011/12 but reached £196,923 in 2020/21 according to data obtained by Evelyn Partners via a Freedom of Information request.

So, the tax charged to beneficiaries on big lifetime transfers from the deceased has risen considerably, especially in relation to the Potentially Exempt Transfer (PET) rules, which state you can make any size of gift you like in your lifetime, but you must survive this by seven years for it to be free from inheritance tax (IHT). If you don’t, then it is considered to still be part of your estate and could be taxable at as much as 40% as a result.

If this is the case, then the beneficiaries would be the ones chased for the payment, as they would be the ones who had received the gift while their loved one was alive, and this could come as a real shock, especially if they have invested the gift in something illiquid, like a property for example.

How does this work?

The PET rules are straightforward, but there could be a problem if someone is, say, in good health when they make the gift but then die suddenly in an accident, or from a condition they may not have known they have. If a gift is made under the PET rules, then there is a reducing percentage that would need to be paid depending on how many years the gift is survived by.

The different rates in this Taper Relief as it is called that would apply are currently:

Three to four years between the gift and death – 32% tax

Four to five years – 24%

Five to six years – 16%

Six to seven years – 8%

Seven or more years – 0%

Source: HMRC

A gift can be any type of asset, such as a property, land, shares and so on. But if the person who is giving the asset away retains a benefit, this will still be deemed to be inside the estate and is known as a ‘gift with reservation’. If the gift is from an estate worth less than £325,000 for an individual or £650,000 if the first spouse to die did not use any of his or her IHT allowance, then there would be no tax to pay at all. There are additional allowances of £175,000 each to pass on property to direct descendants for those who have children.

Telling HMRC about someone’s death

When someone dies, you must let all relevant organisations know about their death. For the Government organisations, which includes HMRC, there is a service called Tell Us Once, which means you tell one Government department about the bereavement and they will inform all other departments so you don’t have to tell each one separately.

You can also now use a form P1000 to inform HMRC about who is going to be dealing with the deceased’s estate. The form, which can be found on Gov.uk, allows you to give details of the person who has died, along with information about any agents who will be handling their tax affairs up to the point of their death and for income tax and capital gains of ‘informal’ administration periods.

The aim is to help speed up the time it takes to deal with an estate, but this will be kept under review. But it doesn’t replace any other means of giving information to HMRC about someone who has died, or about their estate.

We can help you meet your obligations

Dealing with a death is a tough, emotional time, and it can be difficult to get to grips with the necessary admin. If you would like us to help you at such a distressing time, please ask us for advice and we will do what we can to help.

Retiring overseas? Then think about your pension

If you are planning to retire overseas, you need to consider what to do with your pension once you leave the UK. There are a few options, including leaving your pension in the same UK pension fund, and just having the income paid to a sterling bank account, and then moving it to a local account wherever you have retired to. This method can incur charges, and you will also be subject to currency exchange fluctuations which can work in your favour if the pound is strong, or against you if it is weak.

One other option is to move your entire pension overseas, so it is being held and paid out in the currency that you are using in the country you have retired to. This removes the problems associated with currency exchange fluctuations, but you need to be sure that any pension you transfer your pension to is recognised by HMRC, otherwise it can prove costly.

How do I know if HMRC recognises my overseas pension scheme?

HMRC releases a list of Recognised Overseas Pension Schemes on the first and the 15^th of the month, or the following workday if these days fall on a weekend, and it is important to check that any scheme you are looking to move your pension to is on this list. The list changes all the time though, so keep a close eye on these changes. You can set up an alert to make this easier.

If your UK pension is not moved to a Qualifying Recognised Overseas Pension Scheme (QROPS) then you could be liable to a tax charge of up to 40% of the money being moved. So, it is vital to take advice to ensure you don’t get this wrong because your entire retirement could be negatively impacted if you do.

Let us help you

Pensions can be complicated, and when you add in the additional complication of moving that pension overseas and making sure you don’t fall foul of the transfer rules, this complication reaches another level. But we are here to help, so please get in touch and we will be happy to offer you the help and guidance you need.

Inheritance Tax at record levels, but Business Relief can help

Inheritance Tax (IHT) has reached a record level in the UK, with £7.5 billion flowing into Treasury coffers in 2023/24, up from £7.1 billion the previous tax year. One key reason for this growing tax take is rising property prices – the average house price in the UK has reached £288,949 according to Halifax – which, coupled with the lack of increase in the basic IHT thresholds since 2009/10, means more people are being pulled into the IHT net.

Currently your estate will face IHT at 40% if it exceeds £325,000. There is another allowance – the Residential Nil Rate Band – which gives you an additional £175,000 which can be used to pass your home to a direct descendant, such as your child or grandchild. This means you have a maximum of £500,000 that you can have in your estate before IHT is applied if you have children. But you can also use any of your spouse’s allowance that has been left unused if they died before you do.

Aside from this, there are numerous ways you can reduce your IHT liability during your lifetime, including making financial or asset-based gifts to relatives, using trusts effectively, and even surviving a gift you make by at least seven years. But one other way you can reduce your IHT liability is by using Business Relief.

How does Business Relief help to reduce IHT?

Business Relief is available for business owners, and on investments in companies that qualify for it. These shares can be within private companies, or companies listed on Alternative Investment Market (AIM) – the exchange for fledgling companies. Since these companies are smaller and often less established than those on the larger stock exchanges, such as the FTSE100 or the FTSE250, there is a higher risk of losing any investment you make. It may be harder to sell the shares in a private or smaller company if you needed to.

But on the plus side, any investment in a qualifying company is outside of the IHT net after just two years, rather than the seven years required for Potentially Exempt Transfers.

Will the investment always qualify for Business Relief?

You need to be holding the qualifying investment to get Business Relief when you die. But if the company has been successful and is listed on a larger exchange, such as the FTSE100, then it will no longer qualify for Business Relief. So, you need to keep a close eye on these investments if you want to be able to use them for IHT planning. You might need to invest in another company which will then need to be held for a further two years to qualify.

Another major benefit of using Business Relief is that the investment will be in your name, and if you need to have access to that money, then you can get it – if you are able to sell your shares in the company. This way you are not relinquishing control of your own assets while you are still alive.

What about if I am a business owner – what can I do?

If you own a business, then you can benefit from Business Relief on your own business if you die while you still own it. If there is a property associated with the business, there are a range of reliefs you can access. For example:

For deaths and transfers, on or after 6 April 1996, the categories of property which can qualify as relevant business property are broadly as follows with rate of relief:

• Property consisting of a business or interest in a business: 100% relief.
• Control holdings of unquoted securities in a company: 100% relief.
• Unquoted shares in a company: 100% relief.
• Control holdings of quoted shares in a company: 50% relief.
• Land, buildings, machinery or plant used by a company controlled by the transferor or by a partnership of which the transferor was a member: 50% relief.
• Settled land, buildings, machinery or plant in which the transferor had an interest in possession and used in his business (This applies to lifetime transfers only): 50% relief.

Source: M&G Wealth

There are various other ways business owners’ estates can benefit from Business Relief, but it is a complex area. You can find more information on Business Relief and how it works on GOV.UK. But the best way to maximise any benefit is to speak to your accountant, who can explain everything to you to ensure you don’t fall foul of the rules.

Contact us

If you are a business owner, or you want to know how Business Relief could help you with your IHT planning, then please get in touch with us and we would be delighted to help you understand what you can do to reduce your liability.

Make sure your will is up-to-date and you have planned for IHT

Many of us will die without a will because it is something that we fail to get around to, often because we don’t want to think about our own demise. Around half of UK adults don’t have a will, with a third of those over 55 in this position, according to research from Canada Life. Anyone dying without a will is leaving the State to dictate how their assets are split when they die, and it could even mean the State taking your money. This would mean the people you want to receive the things you leave behind may not receive them.

Your ‘last will and testament’ is essentially your final wish for what happens with your worldly goods when you die. Without a will, there is a specific set of rules by which the State will divide up your estate, In England and Wales, these are:

• Your married spouse or civil partner – even if you have separated and are yet to divorce – will inherit your whole estate and your personal possessions.
• If there are any children, grandchildren or great grandchildren, then your spouse or civil partner will inherit:
• The first £322,000 of the estate.
• All the personal possessions of the deceased,
• plus, half the remaining estate.

The rules vary in Scotland, and you can find more information here.

Writing a will is by far the best way to ensure your estate is divided in the way you want. You must keep it updated whenever you have any changes in your life, such as having a child, getting married, divorcing or a change in your net worth. If you are simply living together, your partner will have no legal access to any of your possessions without a will, and would potentially face a big IHT bill.

What do I need to think about when writing my will?

One of the reasons people might be reluctant to write a will is not knowing who they want to leave their possessions to. But the sooner you think about this and make those decisions, the sooner you will be sure that the State will have no look in when it comes to the division of your estate.

You can always update your will once it is created, so you don’t need to think of this as a one-time deal. Over time, you may find that you change your mind about who you want to receive what, and you also will have different assets over time too.

Choosing who gets what when you die isn’t easy. You may need to provide letters to explain your decisions if you think some of them may be contentious. Also, you may have a favourite charity you would like to leave a legacy to, and if this is the case, you should be aware that it will get its share before any of your loved ones, so think carefully about how you do this.

What is the most efficient way to separate my assets?

How you leave your assets and to whom is a very personal thing, and you can speak to your will writer or solicitor about this to make sure you are achieving what you want. There may be people, for example, that you want to ensure don’t receive anything when you die, and this may also need to be spelt out in your will.

You may find that leaving things in percentage terms, rather than monetary values, will also prevent you having to make changes on a more regular basis as your net wealth goes up and down throughout your life. In the case of a charity, this would mean it would only get the percentage you leave to it, and not the entire estate if your net worth had fallen significantly before you died.

For example, let’s say you are worth £650,000 including your property, you have children, and your spouse or civil partner has died previously without using any of their inheritance tax allowance. This would mean your entire estate could be passed without IHT as you can use your deceased spouse’s £325,000 allowance along with your own.

If you had previously been worth much more, say £2m, then you may have left £500,000 to a charity which would be 25% of your assets at that point. But if your estate had fallen to £650,000 when you die, then the charity would take the first £500,000, leaving just £150,000 for the remaining beneficiaries.

If instead you left 25% of your estate to the charity, then at £650,000 the amount it would be entitled to would be £162,500, leaving £487,500 to your other beneficiaries. This is an important consideration, and it might be worth using percentage values for all of your beneficiaries, so any significant change in your net worth will not mean one person or organisation getting much more than you had intended.

Is the Chancellor expected to change IHT in the upcoming Budget?

There have been rumours that the Chancellor will be making changes to IHT in the Budget, but this is something that has often been mooted before a Budget or an Autumn Statement. Yet there have been no significant changes to IHT in recent years. Even the threshold has been frozen at £325,000 bringing more people than ever into the IHT when they die thanks to rising property prices.

We won’t know for sure until Jeremy Hunt delivers the Budget on March 6, but if you don’t have a will, you should look to get one sorted as soon as you can anyway as no-one knows when the worst will happen. It can always be changed later and should be reviewed once a year at least to make sure it is still correct.

We can help you

If you are interested in estate planning to make your legacy as tax efficient as possible, then please get in touch with us and we will be happy to help you.

End of tax year planning starts now – use up any allowances

Now is the time to start thinking about your end-of-year tax planning while there is still time to maximise the benefit of any allowances you haven’t used yet this tax year. The end of the current tax year is April 5, 2024, and there are various tax breaks you want to make the most of before that date.

However, there is another date to bear in mind too – March 6, which is when Chancellor Jeremy Hunt will deliver his Budget to the House of Commons. There is some expectation that he will announce tax cuts on this date, which is customary in a General Election year. The question is whether it will be possible with an economy that is currently in recession.

Even so, there are plenty of things you can already do to help yourself legitimately save tax without waiting on a politician’s promise, so read on to find out more.

Maximise your pension contributions

Pensions is one of the most advantageous areas to maximise your tax relief. Most of us can put as much as £60,000 into a pension in the 2023/24 tax year and get tax relief on the contributions. But the actual amount you can put in and receive tax relief on is determined by how much tax you will pay in this tax year. You can’t receive more in tax relief than the tax you have paid in a single tax year.

Anyone who is a 40% or 45% taxpayer may need to reclaim their pension tax relief above 20% – which is the basic rate of income tax relief – directly from HMRC via their self-assessment return. If you have made all of the contributions you can for this tax year, then you can look to add some more to your pension by using up unused allowances from previous tax years.

This is something called Carry Forward. You can go back three years to mop up unused pension tax relief, and you must have also used up all of your allowance in the current tax year before you use Carry Forward. You must also have been a member of a UK pension scheme – not just the State Pension – for each of the previous three years you want to carry forwards.

If you earn more than £260,000, then your annual allowance which qualifies for tax relief will be reduced by £1 for every £2 above this amount you earn. The taper stops at £360,000, giving everyone a minimum of at least £10,000 annual allowance.

To make sure you don’t fall foul of any HMRC rules, you should speak to your accountant before you make your pension contributions to ensure you maximise the benefits and limit any issues.

Use up your Capital Gains Tax and ISA allowances

Each of us has a Capital Gains Tax (CGT) allowance each tax year, which for the 2023/24 tax year is just £6,000 – down from £12,300 in the 2022/23 tax year – and it is expected to fall to £3,000 for the 2024/25 tax year, unless there is a change announced in the March 6 Budget.

This amount can be used to reduce the amount of tax on any investment you may have crystallised a gain on in the relevant tax year. For example, if you invested, say, £100,000 in a fund and you made £6,000 on the investment in this tax year, you could crystallise that return between now and April 5, and you would not pay any CGT on it as it is under the CGT allowance. This is assuming you haven’t crystallised other gains elsewhere.

Remember though, CGT applies to many types of investments, including property investments that are not your own home. So, any buy-to-let property that you sell would also face CGT if you had made a gain above the £6,000 for this tax year.

Any amount of gain over this threshold in a residential property investment that isn’t your home, is taxed at 18% and 28% respectively for basic rate and higher rate taxpayers. For other investments, the rates are 8% and 20%.

To remove the threat of CGT, you can make your investments through an Individual Savings Account (ISA). For this tax year, you have a limit of £20,000 that you can invest through an ISA, and if you haven’t used your full allowance yet, you still have time to top it up before April 5. Using an ISA means your investment is excluded from CGT and Income Tax charges, so there is a real benefit to using as much of your ISA allowance as you can each tax year.

What else should I consider before the end of the tax year?

There are various other things to consider before the end of the tax year, and your accountant is best placed to advise you on your specific financial position. But other things to consider include reclaiming any tax you may have overpaid in this tax year if, for example, you were made redundant or left a job for another reason, such as moving overseas.

A Pay-As-You-Earn (PAYE) tax basis means the amount of tax you are due to pay in a whole year will be split into 12 even payments. If you are employed for the full 12 months, then you will have paid the correct amount of tax.

However, if you are made redundant or leave your job before the 12 months is up, then you will have overpaid tax as you will have not earnt the full amount expected. Any statutory redundancy pay, up to £30,000, will be tax free. But if you have other types of payments as part of your termination pay, such as unpaid wages, holiday pay and so on, then this part may be subject to tax and National Insurance. If you need to reclaim overpaid tax, or you need advice after getting a payout from the company you are made redundant from, your accountant can help.

Contact us

If you are unsure about how to maximise your tax relief or you have questions about a redundancy payment, then please get in touch with us and we would be delighted to help you understand your tax position.

The cost of divorce – what to do if you decide to split up

More people file for divorce in January than any other month of the year, probably because the stress of being together for an extended period over Christmas and New Year brings any cracks in a relationship bubbling to the surface. Or it could be that people want to start the New Year afresh and were reluctant to start divorce proceedings in the months leading up to Christmas. Either way, January sees a considerable spike in contact with family lawyers and divorce proceedings starting.

However, interestingly this year it seems that a lot of people are delaying their divorce because of the cost-of-living crisis, which is making it hard for them to afford to split. Around 272,000 couples have delayed their decision to divorce this year, according to research from insurer Legal & General. It is little wonder, given nearly half (48%) saw their incomes shrink by an average of 31% in the year following their divorce, leaving people around £9,700 worse off.

The importance of a Clean Break Order

The research also found that just under one third (31%) of couples signed what is known as a Clean Break Order, preventing future claims from their spouse. This means that 69% of couples are open to future claims from their exes, something most people wouldn’t want to contemplate, and which could become costly further down the line.

Paula Llewellyn, Managing Director (Direct), Legal & General Retail: “When people divorce, money is always an important factor especially during the challenges of the cost-of-living crisis. However, as our research shows a separation can have long-term implications for people’s finances. Many couples have not even sorted the necessary paperwork to ensure they have a clean break from their financial obligation to one another. By consulting a financial adviser people increase the likelihood of a divorce being fair and equal. While the number of people seeking out this support has increased in recent years, we need to encourage more couples to take this step.”

All your assets are up for grabs

Remember, it isn’t just your everyday assets that are considered when a couple decides to split. Any pension entitlements you have could be part of the deal too, so if one partner has a much larger pension pot than the other, then that spouse might have to offset that pension pot with another asset, such as the house, or give a share of that pension to their ex-spouse as part of the divorce.

This is something that is often ignored or actively waived by divorcing spouses, according to the Legal & General research, but it could be a considerable part of the settlement if it is taken into consideration.

You need to be open and honest about your assets during any part of the legal proceedings, as hiding assets could lead to problems further down the line. Divorce is a highly emotional time, but if you can try to be amicable about the split, the chances are it will be less painful, less drawn out, and less costly for all involved.

We can help you meet your obligations

If you are unlucky enough to be going through a divorce, or you’re thinking about ending your marriage, then please get in touch with us and we can explain what you need to know.

Could you be better off by claiming Marriage Allowance?

HMRC is encouraging those who are either married or in a civil partnership to check whether they could be up to £252 a year better off by claiming Marriage Allowance. It has launched a Marriage Allowance Calculator to help those who are unsure double check what they might be due.

Couples could be eligible where one partner is working and the other has income of less than their personal allowance of £12,570, which would include those who have retired, are not working because they are caring for children or elderly relatives, can’t work because of a long-term health condition, have a part-time job, or are low paid.

Around 68% of people in their 60s are either married or in Civil Partnerships, the Government said, and may not realise they can claim the Marriage Allowance if one of them has retired while the other is still working.

Charlie Bethel, Chief Officer, UK Men’s Sheds, a charity which brings retired men together to meet at community workshops, said: “If you have retired and your partner is still working, you may not realise that you could apply for Marriage Allowance. As a charity that brings retired men together, we are urging our members throughout the UK to invest the 30 seconds of time it takes to find out if they can claim.”

How does it work?

Marriage Allowance gives couples the chance to reduce their tax liabilities by allowing the lower or non-earning spouse to reduce the amount of tax their partner or spouse pays. This is due to the way the Personal Allowance, which is normally £12,570, and is the amount that someone can earn before they need to begin paying tax, can be dealt with.

If the couple is eligible for Marriage Allowance, then the lower or non-earning spouse or partner can transfer £1,260 of their Personal Allowance to the higher earner in the partnership. This can reduce their tax liability by as much as £252 a year.

Even better, if the couple has been eligible but hasn’t previously claimed the Marriage Allowance, then they can backdate their claim for the previous four tax year and receive a lump-sum payment of more than £1,000.

How to find out if you’re eligible

HMRC is currently promoting its Marriage Allowance Calculator, which will allow you to find out if you are eligible for the allowance or not.

Angela MacDonald, HMRC’s Deputy Chief Executive and Second Permanent Secretary, said: “The Marriage Allowance calculator helps couples to find out in seconds how much they stand to benefit. Check today and claim right away. It’s a quick and easy process that’s worth up to £252 a year.”

To benefit from the tax relief, one partner must have income less than £12,570 and the higher earning partner’s income must be between £12,571 and £50,270 or £43,662 in Scotland. HMRC has produced a YouTube video to explain who is eligible and how to apply called Marriage Allowance – who is eligible and how to apply which gives more information.

We can help you meet your obligations

Marriage Allowance is one tax benefit you might be eligible for, but there could be others. If you want to be sure you are claiming everything you can, then please get in touch and we will explain what you need to know.

How to spot tax avoidance schemes

Thousands of people found themselves caught up in the IR35 tax avoidance problems, where freelancers who were earning through a limited company set up to deal with their income were deemed – retrospectively – by HMRC to have been involved in tax avoidance. In short, if most of or all their income came from a single organisation, then HMRC argued they should have been directly employed by that organisation, and not allowed to pay themselves through their own business in dividends, as they would have paid less tax than someone directly employed.

While the fallout from IR35 continues – many are paying back huge sums to the taxman, while some have seen marriages fall apart and have even taken their own lives because of the pressure they have been under – there are many other tax avoidance schemes that HMRC has already shutdown.

Now, HMRC is running a campaign designed to help you spot a tax avoidance scheme to help prevent you getting into similar difficulties.

Is HMRC really trying to be helpful?

The campaign is specifically asking if you think you might be involved in a tax avoidance scheme, and is offering you the option of getting in touch directly with HMRC by email if you feel you might be.

The taxman goes on to say: “We’ll support you. We can help you get out of the scheme and settle your tax affairs. Ignoring the problem is not the answer. The longer you leave it the bigger the tax bill.

Our aim is to get you back on the right track. No judgement. Simply offer you the support you need. And if you can’t afford to pay everything in one go, we may be able to offer you an instalment arrangement.”

If you are paid by a single employer through PAYE, then you are probably not in a tax avoidance scheme, but check the money put into your account is the same as the net amount on your payslip. If there is any difference, then question this and find out exactly why it has happened.

You should also check if you receive any additional payments, such as untaxed loans or capital advances. This could potentially be another red flag.

Is there a list of schemes I should avoid?

HMRC does produce a list of schemes it has identified as tax avoidance schemes, but makes clear this list is not a full list of the schemes in operation.

You may think only higher earners are in these schemes, but you would be wrong. Even though some of the biggest names that have been involved in tribunals with HMRC include the likes of Gary Lineker and Eamonn Holmes, everyone from doctors, nurses, and teachers have been touched by the IR35 net. So, it is best not to be complacent.

What is an umbrella company and how do they work?

If you do temporary or contract work through a recruitment agency, you may find yourself working for what is known as an ‘umbrella company’. Usually, this is a company that employs you to do the work for clients you’re connected with through the recruitment agency.

The umbrella company will be your ‘employer’, even though the work you do will be carried out for a client of the agency that sourced the work for you. Typically, you will sign up with the agency, contracted to work for the umbrella company, and then do the work for the recruitment agency’s client. In this arrangement, you must receive at least the national minimum wage and holiday allowance in this arrangement.

You will send your work sheet to the recruitment agency, which charges the client for the hours you have worked, and this money is paid to the umbrella company which then pays you. The structure is quite complex. Remember to always check that any payments made into your account match the net pay on your payslip, and if there is any difference – higher or lower – then you should query this with the recruitment agency.

Not every umbrella company is a tax avoidance scheme, but HMRC says it could be a tax avoidance scheme if you get:

• A separate payment which you are told is not taxable, such as a loan.
• More money paid into your bank account than is shown on your payslip.
• A payment from someone other than your umbrella company, which has not been taxed.
• Asked to sign another agreement in addition to your employment contract.

Source: HMRC

If you aren’t sure whether you are working for an umbrella company or not, then you can use the online risk checker tool to get more information.

We can help you

If you want to be sure you are staying on the right side of the law when it comes to your tax affairs, then please get in touch with us and we will be happy to help you.

Pension tax overpayments – £56m returned in Q2 2023 alone, so here’s how to claim

People making the most of flexible pension withdrawals have been facing tax overpayments due to miscalculations by HMRC. In Q2 2023 alone, the taxman repaid £56,243,842 to people who had been taxed more that they should on their pension withdrawals. This amounts to an average of £3,551 per person.

The figure is up nearly £8m on the amount overpaid in the first quarter of the year and is nearly double the £33.7m collected in the same period last year. As the cost-of-living crisis continues to wreak havoc on people’s wallets, this is money that would be better being with the people who need it most.

How do you know if you have overpaid?

The people affected by the tax overpayment are those who are starting to access their pension, and it is because of an oddity within the PAYE system, according to Jon Greer, head of retirement policy at Quilter.

He added: “This emergency tax situation can be particularly frustrating for people trying to access their funds quickly. It arises due to an oddity within the PAYE system when people start to take money from their pension as they are not taxed using the correct tax code.”

The problem with emergency tax codes is that you will often end up being charged more in tax than you should be, so reclaiming the overpayment is essential. To do this you would need to use form P55 if you have flexibly accessed part of your pension, form P50Z if you have emptied your pension pot, or P53Z if you have received a serious ill-health lump sum or have accessed your pension while you are still working or receiving benefits.

However, you should always check the tax code that is being applied to any income you receive to make sure you are not paying too much tax.

How many people are reclaiming tax?

It seems plenty of people are putting in their tax claims to make sure they are getting the money they are due. For example, just in Q2 2023, HMRC said it has processed 11,232 P55 forms, 2,987 P53Z forms, and 1,620 P50Z forms, suggesting people are accessing their pensions more readily to help cope with the cost-of-living crisis.

Even though inflation has dropped slightly in the last month, wage growth means we could see additional base rate rises implemented by the Bank of England before the end of the year, according to some experts.

Flexible pension access is a way of increasing your income

If you are over 55 and want to access your pension – the minimum age can depend on the scheme rules for your employer or the insurance company that provides your pension plan – then you can begin to make withdrawals.

The first 25% of your pension can be taken tax-free, and this is easy to calculate if you take your pension pot as whole. But if you choose to take your pension out in a flexible way – which means taking a bit at a time – then you will need to pay the relevant amount of tax on that income.

It becomes more complicated if you are still working and have additional income to take into consideration for tax. This is where the tax overpayments are typically happening. One way around this is to work with a tax professional who can help make sure your tax code is correct, and that you are not going to be paying more than you need to the taxman.

This helps to reduce the risk of overpaying your tax in the first place, allowing you to keep the money in your pocket rather than having to wait for the taxman to give it back to you, which can take some time.

Contact us

If you are considering accessing your pension soon, or you have already accessed it but don’t know whether your tax code is correct, then please get in touch and we will check that you are not overpaying tax or that you have any tax rebates due from HMRC.

Reduce your company tax bill by doing a good turn

Charitable giving is something many organisations might not be considering in the current climate, especially as everyone is struggling to pay their bills. But if you have money to spare within your business, then charitable giving is a great way to reduce your tax bill on company profits while simultaneously helping a good cause.

The rules around charitable giving for companies are similar to those for Gift Aid for individuals. For companies, the maximum amount of Gift Aid that can be claimed is equivalent to the amount of tax you would have had to pay on the profits made by your business in a single tax year. There are special rules for companies that are wholly owned by charities which your accountant can help you with if you are in this position. But this article is focusing on general companies looking to make charitable donations in a tax-efficient way.

How does a charitable donation reduce Corporation Tax?

If your company has a particular affinity with a specific charity, then not only will your chosen charity benefit from your largesse by making a donation, it can reduce the amount of Corporation Tax you pay too. Gift Aid relief is applied to what the Government terms “qualifying donations” which need to meet certain conditions.

A payment is not a qualifying donation, according to Gov.uk, if:

• It’s a dividend or distribution of profits.
• It is made subject to a condition as to repayment.
• The company or a connected person receives a benefit which exceeds the ‘relevant value’in relation to the payment.
• It’s made by a charity or community amateur sports clubs.
• It’s conditional on the charity acquiring property that has not been gifted to them.
• It’s part of an arrangement whereby the charity acquires property that has not been gifted to them.

There are various ways that you can make your donation, but in each case, you must keep proper records of what was donated and when.

What ways can my business make a donation?

There are a number of different ways that your company can make a donation to a charity. The most obvious is by giving money directly to the charity of your choice. But you can also donate equipment or trading stock, land, property or shares in a company that isn’t your own – your own company’s shares don’t qualify – provide employees on secondment to the charity, and through sponsorship payments.

To claim the relief, you would need to ask your accountant to make sure the donation is listed in the company tax return for the relevant period that the donation was made.

How do I make the claim?

The way you make the claim depends on how you have made your donation. For example, if you have donated money or given or sold land, property or shares to the charity, then you would enter the total value of your donations into the ‘Qualifying donations’ box on the ‘Deductions and Reliefs’ section of your Corporation Tax return.

If you have seconded employees to work with the charity or sponsored the charity, then these would be deducted from your company profits as a business expense.

In both cases, the charitable donation would be paid out of your gross profits, so there is no need for any Gift Aid to be reclaimed by the charity. Remember, you cannot donate more than the profits generated in a single accounting period. The most your profits can be reduced to is ‘nil’, you cannot donate to make your company make a loss for tax purposes.

If you have given or sold land, property or shares to a charity, then there are special rules which apply to how you calculate their value. Your accountant is best placed to help you with this.

We can help you

If you need help to decide whether you should make charity donations from your business, and if so, how much they should be, then please get in touch with us and we will help you understand what you need to do.

Deadline to catch up on National Insurance contributions extended

Anyone with an incomplete National Insurance contributions (NICs) record between April 2006 and April 2016 now has until July 31 to add to their NICs to qualify for a full State Pension after HMRC extended the deadline.

Thousands of taxpayers have incomplete years in their NICs record who could get a higher State Pension if they make voluntary payments to top up incomplete or missing years, according to the Treasury.

The original deadline for voluntary payments to fill any gaps was April 5, 2023, but this was extended after members of the public voiced concerns that this did not give them enough time.

Victoria Atkins, the Financial Secretary to the Treasury, said: “We’ve listened to concerned members of the public and have acted. We recognise how important State Pensions are for retired individuals, which is why we are giving people more time to fill any gaps in their National Insurance record to help bolster their entitlement.”

How would I know if I’m affected?

The easiest way to find out if you have any missing NICs years is to ask for a Pensions Forecast from the Department for Work and Pensions (DWP). The relevant information to get a State Pension forecast, and to decide if making a voluntary National Insurance contribution is the best course of action for you, plus how to make a payment, is available on GOV.UK.

You can also check your National Insurance record, via the HMRC app or your Personal Tax Account. If you aren’t sure how to do this, your accountant will be able to help you. If you choose to make additional voluntary payments, these would be at the existing rates for 2022/23.

NICs to qualify for a full State Pension

To get the full State Pension, you will need to have paid 35 full years of NICs. To get any State Pension, you will need to have paid 10 full years of NICs. If you have paid between 10 and 35 full years of NICs, you will get a proportion of the full State Pension.

This is why it’s important to find out how many full years of contributions you have made. The full State Pension amount is currently £203.85 per week. So, if you had 25 full qualifying years, you would divide £203.85 by 35 and then multiply by 25 to see what you would get. In this example, you would receive £145.61 per week at the current rate.

Remember, you should get advice to see if it is worth making additional voluntary contributions to complete your NICs record. So, speak to your accountant before you make any payments.

Let us help you

Pensions – and especially the State Pension – can be complex to navigate. If you are concerned you haven’t got enough qualifying years for your full State Pension, then please get in touch with us and we will advise you on the best course of action.

Pension Carry Forward rules are now more beneficial

The Chancellor made some major changes to the pension rules in the March Budget, and one key amendment has made using something called ‘Carry Forward’ rules much more beneficial for pension savers.

How does Carry Forward work?

The Carry Forward rules allow you to use up any unused pension allowance from the last three tax years in a single year, which can give a big boost to your pension pot. There is a limit on the maximum amount you can put into your pension each tax year and receive tax relief. For the last three tax years prior to 2023/24 the annual allowance has been £40,000. However, the Chancellor raised this allowance for this tax year to £60,000.

What does this mean for me?

If you haven’t used your entire £40,000 annual allowance for the last three years – 2020/21, 2021/22 and 2022/23 – then you can make additional contributions this year to use up any remainder of the £120,000 worth of contributions you could have made during that period.

Let’s say you made £20,000 worth of contributions in each of these tax years. This would leave £60,000 of the remaining allowances you can now ‘carry forward’. Remember, this figure includes tax relief at your highest level from the taxman. If you are a 40% taxpayer, for example, then adding £40,000 to your pension would cost you just £24,000 with the remaining £16,000 being added by HMRC from the tax you would pay for that year.

You also have a £60,000 annual allowance for the 2023/24 tax year. If you hadn’t put anything into your pension for the previous three years, then this year you could add £180,000 in one go, providing you earn enough to do this. HMRC won’t give you more tax relief in a single year than the tax you have to pay. You would need to earn at least £180,000 this year to qualify for this much tax relief.

If you can’t use all of your allowance for this year, then you can always use the Carry Forward rules next year.

Don’t I have to be careful how large my pension pot gets during my lifetime?

Well, there is still theoretically a Lifetime Allowance of £1,073,100 which was the maximum you could have in your pension fund before you were hit with charges as high as 55% on amounts over this limit. But during the Budget, the Chancellor removed the penalty on this Lifetime Allowance, meaning there is no problem now for breaching it. Legislation is needed to remove the limit completely.

The change applies from April 6 this year. The only thing you can’t do is take more than £268,275 as your tax-free lump sum no matter how big your pension pot gets – which is 25% of the current Lifetime Allowance.

We can help you

Using Carry Forward is a great way to catch up on pension contributions you didn’t make in previous years. It can be especially useful if you are getting close to retirement and want to put more into your pension. If you want to explore Carry Forward, please get in touch and we will be happy to help.

Could you benefit from a free Government midlife MOT?

Our cars go through MOTs each year once they reach a certain age, but have you ever thought of giving yourself an MOT? The Government is offering a free midlife MOT for those in their 40s, 50s and 60s to help them make the right financial decisions for retirement.

The midlife MOT provides free online support to those in the private sector, and can be done face-to-face with Department for Work and Pensions staff in job centres for those looking for work. The aim is to ensure you are giving sufficient thought to your money, work and wellbeing as you head into the later stages of your life.

What’s involved?

The online midlife MOT provides a series of prompts to make you think more carefully about what you may need to do as you get older. For example, will you be able to continue in your current job as you get older? Or will you need to learn new skills to continue to provide for yourself and your family?

You are also prompted to consider whether you have enough money to live on to maintain your current lifestyle? Or whether you might need to examine your pension saving and put some extra aside to enjoy your retirement more comfortably.

The specific questions on the midlife MOT site are:

My work: Am I confident I can continue in my current job, or do I need to protect myself by reskilling? Will caring responsibilities or other priorities mean I need to work more flexibly?

My health: Am I taking the right steps to maintain or improve my health? Would workplace adjustments make it easier for me to stay in my job for longer?

My money: Do I have enough savings to maintain my current lifestyle? I’m confused about pensions, what are my options?

My work and skills: As your situation changes as you get older, you may find that flexible working arrangements can make a difference.

Source: https://www.yourpension.gov.uk/mid-life-mot/

Is this relevant to employers or just individuals?

There is a specific section of the website that highlights what employers can do to help their staff access the midlife MOT for their workplace. There are details on how this could work for both larger companies and smaller employers and you can also download toolkits to use within your business for relevant staff.

There are also a number of useful links within the YourPension.gov.uk/mid-life-mot/ webpage to help people navigate to the relevant information they need to check all aspects of their life are on track as they reach this point in their life.

Let us help you

Do you feel like you need a midlife MOT but would rather talk things through with someone than simply navigate this on your own? If so, then we can help you understand whether you are financially ready for the next chapter of your life. Just contact us and we will guide you through everything you need to know.

Make the most of the new tax year by acting now

The new tax year started on April 6 and while many people will wait until the last minute to maximise the tax benefits available to them, there is a lot to be said for starting your tax housekeeping sooner rather than later.

There are many ways we can benefit from the tax breaks available each tax year. But trying to cram everything into the month before the tax year ends means you are likely to miss out on some of them. Planning ahead from the start of the tax year means you can mop up any allowances you can access.

Use your ISA allowance early

One of the most beneficial allowances to start using early in the tax year is your Individual Savings Account (ISA) allowance. Each tax year – which runs from April 6 to April 5 – we all have the option of putting up to £20,000 into an ISA. You can put as much as you want into any type of ISA, providing you don’t breach the £20,000 threshold in a single tax year. The money grows free of Capital Gains Tax and Income Tax, plus in a cash ISA you will not pay any tax on savings interest.

Using your ISA allowance at the beginning of the year can generate significant benefits, even if you can’t put the whole £20,000 in at once. For example, if you calculate the difference in the value of an ISA with just £3,000 invested at the beginning of every tax year since 1999 compared with the same amount invested on the last day of the tax year over the same period, the early birds will have more than £9,000 extra in their pot based on the performance of the average global equity fund.

If you and your spouse have both used up your £20,000 allowance and you have children, you can also put up to £9,000 for each child into a Junior ISA. This is a perfect way to put money aside throughout their childhood to pay for school fees, university or even to build a deposit to help them buy their first home.

Use your Capital Gains Tax allowance

This tax year – 2023/24 – the Capital Gains Tax allowance has been more than halved, from £12,300 in 2022/23 to just £6,000. So, anyone crystallising gains of more than £6,000 in this tax year will need to pay CGT on any amount above this limit. The rate you pay will depend on your marginal rate of income tax and what type of asset the gain has been crystallised on.

As we all have the same CGT allowance, it is possible for spouses to shelter up to £12,000 from CGT this year, but that will take some planning. So, speak to your accountant to make sure you are making the right decisions at the right time.

Maximise your Inheritance Tax planning by using your annual allowances

Inheritance tax (IHT) is often considered to be a tax just for the rich. But as house prices have risen and the threshold for paying this tax has remained static at £325,000 since 2009, and is likely to remain at this level until 2028, more people than ever are paying IHT. In fact, the latest figures released by HMRC show IHT receipts have soared by £1 billion to £7.1 billion from April 2022 to March 2023, largely due to house price increases, especially in the South East of England.

So, if you own your home, you may want to think about how you can use the annual allowances to reduce your liability when you pass away.

Any amount you have in your estate at death above this Nil Rate Band – which includes all your assets such as your home, cars, antiques, jewellery, collections and so on – will be taxed at 40%. There is an additional allowance of £175,000 per person, called the Residence Nil Rate Band, if you are passing your home to a direct descendant, such as a child or grandchild. But this is not available to those without children.

Spouses or civil partners passing assets between them on death will not be subject to IHT. So, any unused allowance remaining can be used by the second spouse or civil partner on their death, giving a maximum threshold of £1m if none of the Nil Rate Band or RNRB was used on the first death. The allowance can be passed automatically, you would just need to let the executor of the estate on the second death know this as they would need to make the claim when they apply for probate. So, a letter with your will would be a good way to do this, or by discussing this with the person who writes your will with you.

If your estate would still exceed this level, then you can legally reduce your estate’s value each year by making gifts to loved ones. For example, you can make gifts of up to £3,000 each year which will be free of IHT when you die.

You can also make other gifts of any amount you like, and providing you survive those by seven years, they will no longer be within your estate for IHT purposes. But the rules can be complex, so get advice from your accountant if you think you could be affected by IHT.

Contact us

These are just a few of the ways you can reduce your tax bills this tax year. We can help you make the most of these and other allowances before you lose them. So, please get in touch with us and we will help you make the right financial decisions for you and your family.

Pension changes make retirement saving more attractive

Pensions got a major overhaul in the Chancellor’s Budget announcements, with an increase in the amount you can put into your pension each year and an effective removal of the limit that your pension can reach before facing significant penalties of as much as 55%.

Rise in Annual Allowances

From April, the Annual Allowance – the amount you can put into your pension each year and receive tax relief, providing you have paid enough in tax in a year to warrant it, as the taxman will not give you more in relief than you have paid – will rise from £40,000 to £60,000.

There is also a rise in the Money Purchase Annual Allowance, which is the amount you can pay into a money purchase pension each year once you have vested part of it. This rises from £4,000 to £10,000 for the 2023/24 tax year – taking it back to its previous level.

The Tapered Annual Allowance is also going up from £4,000 back to its original level of £10,000. This taper kicked in at an ‘adjusted income’ level of £240,000, but this also rises to £260,000 for the 2023/24 tax year.

Lifetime Allowance effectively removed from April 2023

One of the most eye-catching measures in the Budget was the effective removal of the Lifetime Allowance, which limited the amount a pension fund could grow to £1,0731,000 before charges of up to 55% were applied on the additional amounts unless someone had a ‘protected pension’.

From April 6, these penalties will no longer apply, meaning there is no longer a penalty for passing this limit. This renders the Lifetime Allowance irrelevant as there will not be a penalty for breaching it. But it will take separate legislation to remove the Lifetime Allowance itself completely.

This is something that will be valuable particularly for some senior NHS doctors, as there has been a rising trend in them leaving the profession through early retirement, in part at least to prevent their pension going over the Lifetime Allowance.

Limit on the tax-free lump sum

However, there is a cap on the amount that someone can take from their pension as a 25% tax-free lump sum, thanks to the removal of the penalties being removed for breaching the Lifetime Allowance.

From April 6, you will only be able to take a maximum of £268,275 tax-free from your pension, which is the same as the maximum you could take under the Lifetime Allowance.

These measures combined are expected to cost the Treasury around £4 billion over the next five years.

We can help you

These pension changes are wide ranging and could significantly change your retirement planning, so if you want to know more about how you can make the most of these changes, then please get in touch and we will be happy to help.

Additional tax rate threshold to be lowered – take advantage with your pension contributions

The 45% additional tax rate was briefly removed by Kwasi Kwarteng, then reinstated by Chancellor Jeremy Hunt, and in the latest twist, Mr Hunt announced that the point at which people would start paying this highest rate of tax would fall from £150,000 to £125,140 from April 2023.

This may seem a strange figure to move the threshold to, but it relates to the point at which the entire personal allowance for higher-rate taxpayers is removed once they hit the £100,000 income level. The personal allowance of £12,570 is reduced at a rate of £1 for every £2 you earn above £100,000. So, the entire allowance has been removed at £125,140. At present, you are taxed at 40% on this amount and above until you reach £150,000 when the rate rises to 45%. But from April, you will pay 45% from £125,140 onwards.

The unofficial 60% income tax rate

The way that the personal allowance is chipped away once you reach the £100,000 threshold means that for the money you are taxed on between this level and the £125,140, you are actually paying 60% in tax. This is not easy to follow, but it works like this:

You earn £101,000 this tax year. This means that you pay tax at 40% on this income. But because you lose the personal allowance at a rate of £1 for every £2 you earn over this figure you will lose £500 of your personal allowance on the £1,000 above the £100,000 threshold. So, you will also pay 40% tax on this additional £500, which gives a bill of £200. Since you are also taxed at 40% on that £101,000, the £1,000 over the £100,000 will give the taxman £400. Add that to the £200 you are paying on the relative loss of the personal allowance, and you have paid £600 in tax on that £1,000, which means you have paid 60% in tax.

Maximise the benefit of the tax change when it happens

While losing money in income tax because of the threshold moving to the lower level of £125,140 from April, it does mean you can benefit from higher tax relief on your pension contributions if you are pulled into the 45% tax bracket.

This is because no matter how much you pay into your pension pot, you get tax relief at your highest marginal rate. For those on the highest rate of tax, this is 45%. So, adding £100 to your pension pot will cost you £55 as the tax relief will provide the remaining £45.

Let us help you

If you think you will be negatively affected by this change or any of the frozen tax thresholds, or you want to take advantage of putting money into your pension and getting the benefit of the additional tax relief no matter which tax band you fall into, then please get in touch with us and we can go through the various options you have.

Landlords, what should you be doing now?

Changes to the Capital Gains Tax (CGT) allowances announced in the Autumn Statement mean that from next April, the current £12,300 allowance will fall to £6,000 and then to £3,000 in 2024. This is a major concern for landlords with rental property, as this will make a significant dent in the gains they can make on property before they pay tax.

It could mean that any landlord currently holding a considerable gain on a property may want to think about whether now is a good time for them to sell, especially as property values are expected to stagnate or fall, in the coming months.

Private residence relief

However, there are some ways you can reduce your CGT bill. If you have lived in the property at any point, you can get some relief from CGT under the ‘private residence relief’ rules. You can get relief for the number of years you have lived in the property, plus nine months at the end of the ownership whether you lived in the property then or not.

The example on the Gov.uk website highlights a property with a gain of £120,000 when you sell, which you have owned for 15 years. But for 7.5 years you lived in the whole property, and then rented out your property for the remaining 7.5 years. The Private Residence Relief applies for the 7.5 years you lived there plus the last nine months you owned the property.

This means you get a total of 8.25 years of Private Residence Relief, which amounts to 55% of the time you have owned it. So, you will not pay tax on 55% of the £120,000 gain, but you will on the remaining 45% – which means you will pay CGT on £54,000.

The reduction in CGT allowances could prompt landlords to sell

The more than halving of the CGT allowance from April next year means some landlords may attempt to sell some of their properties before the CGT allowance reduces. It will not be the right decision for everyone, but if a landlord is already considering this, now might be a good time to press the button.

Zaid Patel, director of London-based estate and lettings agents, Highcastle Estates: “With the CGT tax allowance to be halved to £6,000 from April 2023, we may see an increase in landlords selling up and second homeowners listing their properties with the hope of completing before April. Landlords, who own property as part of a limited company, will be further penalised as they’ll pay more tax on dividends.

“This, coupled with the rise in corporation tax, will likely lead to more landlords trying to sell their properties. However, with the rising cost of living, first-time buyers will continue to find it challenging to save for a house, which may mean demand will stifle.

“I expect house prices to drop slightly until late 2024, when there will be a rush of buyers hoping to complete before the stamp duty cuts end. It means estate agents will struggle over the next two years and cutting the dividend tax relief while increasing corporation tax could mean estate agents may start selling their businesses or winding up during this recession.”

Landlords have been hit hard

Landlords have been hit hard by various changes to what they can claim and the way in which they are taxed in recent years, especially if they do not hold the properties within a limited company. For example, if someone is getting rental income of £15,000 a year but having to pay mortgage interest amounting to, say, £8,000 a year, then previously they would be able to offset the entire interest against their rental income before tax. This would mean paying tax on just £7,000 of income.

Now, unless they own their properties within a limited company, they are not able to offset the mortgage interest against their income before tax. So, they would pay tax on the full £15,000 of income. If they were 40% taxpayers and all their allowances had already been used, this would give a tax bill of £6,000 when they are also paying £8,000 in mortgage interest. This would leave just £1,000 for the landlord. Paying 40% on the same basis on the £7,000 of income after accounting for the mortgage interest would give a bill of £2,800 – leaving £4,200 for the landlord.

This is one reason that the number of buy-to-let properties being held within a limited company has reached a record level of 300,000 according to estate agent Hamptons.

We can help you

If you have concerns about your buy-to-let property or you want to find out if you would be better off using a limited company structure, then contact us and we will work with you to help you make any necessary changes.

The Plastic Packaging Tax – what you need to know

The Plastic Packaging Tax came into effect in April this year, and if your business deals with any kind of plastic packaging in relation to your products, you may need to be registered for this.

Anyone importing or manufacturing more than 10 tonnes of plastic packaging each year to the UK will be subject to this tax. Those businesses below this threshold are exempt, but if you breach this threshold, there are a number of things you need to know. For example, if the plastic you manufacture or import has at least 30% of recycled plastic by weight, you will also be exempt from this tax. The tax is designed to encourage manufacturers both here and abroad to use more recycled plastic in their processes.

When do I need to notify HMRC?

If your business has imported or produced more than 10 tonnes of plastic since April 1 this year, you need to register within 30 days of breaching this limit. If you have already missed this deadline, then get in touch with your accountant or HMRC as soon as possible. Around 20,000 businesses are estimated to be affected by this, with an additional £400,000 as an annual cost burden on these businesses, mostly for the additional administrative requirements of this tax.

The fee charged is £200 per metric tonne used or manufactured, but what is considered ‘plastic’ is a moot point and there is more information in the HMRC guidance. There are other things to consider too, such as the plastics that qualify are those which are considered single use by the end consumer, or those used in the supply chain. For example, if plastic punnets of strawberries are imported, then the punnets themselves may be subject to this tax.

This is a complex area, so get some help

However, it is a very complex tax, and you will need specialist guidance to navigate it. You can find out more information on Gov.uk, or by speaking to your accountant who can help you.

If you need to register, you can do this online with some exceptions – or again, speak to your accountant and ask him or her to deal with this for you.

We can help you meet your obligations

If you think you need to register for the Plastic Packaging Tax, please get in touch with us and we can help you navigate this incredibly complex area.

Act now to maximise your pension contributions

The changes to income tax rates are going to benefit all taxpayers from April next year as they get to keep more of the money they have earned. But one knock-on effect is that the amount of tax relief you can get on your pension will be reduced for both 20% and 45% taxpayers, as it is based on your highest marginal rate of tax.

This means that you have just shy of six months to maximise any pension contributions you want to make to ensure you benefit from a slightly larger contribution in tax relief from the Government. For example, anyone earning more than £150,000 this year will be able to get tax relief on pension contributions at 45%. From April 2023, this will fall to 40%.

Will this only apply to higher earners?

While higher earners have the most to lose by not maximising pension contributions before the income tax rates change next year, there is also a fall in the basic rate of income tax from 20% to 19%. So, if you are currently a 20% taxpayer, there is still a benefit to acting before April 2023 to maximise your pension contributions. At present, putting £100 into your pension will cost you £80 as a 20% taxpayer. When this falls to 19%, it will cost you £81 to achieve the same contribution.

Is there anything I need to watch out for?

If you are putting money into your pension, there are some limits you need to be aware of. The most you can put into your pension each year and receive tax relief on is £40,000 – but remember, you cannot claim more tax in a single year than you have paid.

For higher earners, there are a few other things to consider. For example, once you reach an earning level of £240,000, that £40,000 a year allowance is reduced incrementally until you reach £312,000 or more. At this point, the amount you can put into your pension reduces to just £4,000.

Beware of the Lifetime Allowance

The other consideration for everyone – but it is more likely to apply to the highest earners – is the Lifetime Allowance. This is currently set at £1,073,100 and anyone with a combined pension pot that breaches this limit will face additional tax charges on their pension.

So, if you think you may hit or breach this limit, then you need to take advice sooner rather than later to ensure you use the money you have in a different way to save for your retirement. This could, perhaps, include maximising your individual savings account (ISA) allowance of £20,000 per year or making other investments that can be used to generate retirement income.

We can help you

If you want to maximise your pension contributions before the income tax bands change, then please get in touch with us and we will help you to get the most from your money without facing additional tax charges.

Can your business claim a super deduction?

If your business has spent money on plant and machinery and it is subject to corporation tax, then it may qualify for a super deduction which is a temporary allowance you do not want to miss.

Qualifying purchases will need to have been made between April 1, 2021, and April 1, 2023, and will be valid as long as you did not buy the plant or machinery due to a contract you entered into before March 3, 2021.

It is also possible to claim a special rate first year capital allowance – which is another temporary allowance – if you have bought qualifying or plant machinery as above.

Qualifying plant and machinery

There are a few rules, as you might expect, that your business needs to comply with to ensure your plant or machinery qualifies for these allowances. One of the key rules is that the machinery must be new, not used or second-hand.

It also cannot be given to you as a gift, it cannot be a car as these will not qualify for this allowance, and it cannot be bought to be leased to someone else. The exception to this final rule is if it is background plant or machinery within a building. It also cannot be purchased during the period in which the business ceases activity.

What can I claim a super deduction for?

A super deduction can be claimed on a variety of work tools, including:

• Machines such as computers, printers, lathes and planers.
• Office equipment such as desks and chairs
• Vehicles such as vans, lorries and tractors – but not cars.
• Warehouse equipment such as forklift or pallet trucks and stackers.
• Tools such as ladders or drills.
• Construction equipment, such as excavators, compactors and bulldozers.
• Some fixtures, including kitchen and bathroom fittings and fire alarm systems.

Source: Gov.uk

There are some other rules to be aware of, which is why it is best to speak to your accountant to help you make the most of this super deduction, rather than trying to go it alone.

To see how much a business can claim, let’s look at an example which is on Gov.uk. A company called Alpha Ltd bought a lathe for £10,000 on December 1, 2021. It has a calendar year end accounting period.

In the accounting period ending December 31, 2021, Alpha Ltd can claim a super deduction of 130% for this expenditure, giving them a claim of £13,000.

What about the special rate first year allowance?

If a company buys a qualifying item in its first year, then it can claim the special rate first year allowance. Again, there is an example of how much this is worth on Gov.uk. A company called Bravo Ltd buys a solar panel for £10,000 on December 1, 2021, which is for installation at its business premises and will be used in its business.

In the calendar year ending December 31, 2021, Bravo Ltd can claim the 50% special first year allowance, which gives a rebate of £5,000 for this expenditure. The remaining balance can be added to the special rate pool in the following accounting period and writing down allowances can also be claimed, according to the Gov.uk information.

Again, there are specific rules about what items qualify for the special rate first year allowance, so it is best to work with an accountant to ensure you only claim what you are allowed to.

Let us help you

Both allowances can be complex to navigate, especially as there are a number of specific rules surrounding what type of plant and machinery you can claim for. So, let us do the hard work for you and get in touch. We will make sure you are getting everything you are entitled to, so you can legitimately reduce your tax bill.

Deal with your tax return early and help with your cashflow

There is a tendency for many of us to leave our tax returns until the last minute. It’s human nature to want to delay dealing with something we find uncomfortable.

However, if you get your tax return for the 2021/22 tax year completed sooner rather than later, you will have some benefits that could help you through the cost-of-living crisis.

Benefits

A primary benefit to dealing with your tax return early is knowing it is out of the way. For some this may be less of an issue, but as accountants get busier as the tax payment deadlines approach, it can be difficult to give a return as much attention as we could at other times.

By getting your tax return calculations done early, not only are you helping your accountant to spread his or her workload in a more manageable way, more importantly for you, you will know exactly what your bill is going to be early in the year. This may make it possible to free up some of the money you had set aside to pay the bill if it is lower than you had expected.

For businesses, this could mean having extra cash to invest in expanding the business, paying off debt, or hiring an extra full or part-time employee to move the business forwards. For individuals, this money could help offset the current cost-of-living crisis we are in by giving you extra cash to cover rising energy or food bills.

Paying tax early

Remember, just because you have had the tax return completed, it does not mean you have to file it with HMRC straightaway. If you want your accountant to hold off on this part and file it later in the year – especially if you think there may be any changes necessary to the tax return down the line – then that is not a problem.

If you prefer to pay early and get it out of the way, then that is also fine. The big benefit to you is that you have the option. It may be that you do not have enough money put aside for your tax bill when you find out what it is. So, the extra time you have built in before the tax needs to be paid means you have time to get those funds together. It could be the difference between setting aside an extra amount each month to pay the bill while storing money for the next tax year or having to saddle your company with a loan that will cost in interest payments too.

Tax reliefs

It will also ensure your accountant can maximise any tax reliefs you or your business can benefit from. This could include pension payments or offsetting costs against tax that may otherwise be difficult to include if the information is not given to him or her in a timely manner, in the last-minute rush to get the data to the accountant.

It may also mean, depending on how your accountant works, that you could benefit from having more time to pay your accountant’s bill too. Spreading this cost will also help with cashflow.

Take your time

Overall, it will mean that tax is a much more leisurely affair than it often is and that is never a bad feeling. Stress is not good for any of us and building in time to deal with something that is – for many – inherently stressful anyway is a good plan.

Contact us

If you want us to start working on your tax return now or have a question about ways in which we can make your tax less taxing, please get in touch.

Payments on account due July 31

Some taxpayers must pay a tax more than once a year, and if this is you then you are facing a second tax bill before July 31.

Those exempt from making a payment on account in July include those who had a self-assessment tax bill of less than £1,000 for the previous tax year, or if you have paid more than 80% of your tax bill through your tax code or your bank has deducted interest from your savings.

It is easy to forget the July 31 deadline

While most of us think of the January 31 payment deadline as the main one, it is easy to forget that there is another payment due on July 31 – and now is the time to consider how much you need to have set aside to cover it.

How the payment on account works

Example:

Your bill for the 2020 to 2021 tax year is £3,000. You made two payments on account last year of £900 each (£1,800 in total).

The total tax to pay by midnight on January 31, 2022 is £2,700. This includes:

• your ‘balancing payment’ of £1,200 for the 2020 to 2021 tax year (£3,000 minus £1,800)
• the first payment on account of £1,500 (half your 2020 to 2021 tax bill) towards your 2021 to 2022 tax bill

You then make a second payment on account of £1,500 on July 31, 2022.

If your tax bill for the 2021 to 2022 tax year is more than £3,000 (the total of your two payments on account), you’ll need to make a ‘balancing payment’ by January 31, 2023.

Source: Gov.UK

We can help you meet your obligations

If you have to make a payment on account, then please get in touch with us soon so we can let you know how much it is going to be to help you ensure you have enough money set aside to make the payment.

Use up your tax allowances early in the tax year

If you are one of those people who is always racing to use up your tax allowances, such as Individual Savings Accounts (ISAs) at the last minute before the end of April 5, then you are not alone. But you could be making a big mistake.

When it comes to mopping up tax allowances, it is best to use your allowances at the beginning of each tax year than the end. If you have not managed to use all or any of your allowance coming up to April 5, well, it is better late than never. But if you can take advantage of using your ISA allowance, for example, at the start of the tax year, then you will benefit from an additional year of investment growth.

Benefit from an extra year of growth

It may not seem like it matters that much, but that extra period of growth – assuming markets rise over the year – will add up over time. Even if the markets dip, the adage ‘it’s about time in the markets, not timing the markets’ still holds because trying to time the market is usually not a good idea.

In addition, you get a full year of growth that is free of capital gains tax and free of income tax. By holding your assets outside of an ISA for the year, you could face a tax charge on any dividend payments from equities.

Early use gives other benefits

Starting to use your allowance at the start of the tax year also gives you other benefits. You can choose whether you put the entire £20,000 allowance into your ISA in one go, or whether you ‘drip feed’ money into the market over the full 12 months.

The latter can be an effective method to help smooth out ups and downs in the stock market, known in the trade as ‘pound-cost averaging’. Let’s take an example of you putting money into a unit trust. If you are buying units every month with the same amount of money, you will be buying more or fewer depending on the value of the units you are buying that month.

Market performance is affected by a range of factors

These values will go up and down depending on a number of factors that impact the stock markets – everything from political will to social and economic changes.

The same principle applies to your pension allowance – most people can put up to £40,000 a year into a pension and get tax relief – if you can put money aside to go into your pension each month, you are benefiting from the same investment smoothing process outlined above.

The other drawback of waiting until the end of the tax year to use your allowances, is that you are forced to put a lump sum into markets at what could be a terrible time. So, giving yourself a head start means you can benefit from the highs and the lows over the year.

Let us help you

If you want to find out more about how you can benefit from your ISA and pension allowances by taking action early, get in touch with us now and see how we can help you.

Get a business health check at the start of the tax year

Using up personal allowances is not the only reason you should see your accountant at the start of the tax year, it is also the best time to get a health and wealth check for your business too.

The end of the tax year is the busiest time for your business and your accountant, meaning devoting time and effort to checking whether your business is on track is sadly lacking.

Take the time while you have the time

However, the complete opposite is the case at the start of the tax year, so now is the time to make the most of the chance to review your business strategy, cashflow and plans for the coming year to ensure your company has the best chance of success.

What can your accountant help you with?

Your accountant is perfectly placed to help you put an effective plan in place to give your business the boost it needs at the start of the tax year. He or she can help you with everything from saving tax and paying the right amount of tax, right the way through to helping you comply with relevant regulations and improving your cashflow.

Accessing funding

A good accountant can also help you access relevant funding – whether that is a grant that your business would qualify for or an investor that would help your business to grow.

Setting out an effective business plan at the beginning of your financial year is like creating a road map for the coming months, allowing you to follow that map to achieve your goals.

We can help your business run smoothly

When things get tough, your accountant is there to help you with everything from advice to reality checks so your business can continue to run smoothly.

If you want help to set your business on the right path for this tax year, then please get in touch and find out how we can help you.

Reclaim Married Couple’s Allowance

Married Couple’s Allowance can be transferred between spouses and civil partners, and while 2m couples have claimed this since it was introduced back in 2015, there are many more people who are entitled to claim it.

Go back four years

The allowance, which is worth up to £1,220 for each year, can be reclaimed back for every year to the 2017/18 tax year right the way through to the 2021/22 tax year. For those entitled to the maximum amount, this could create a windfall of £4,880.

Claim it now

However, these payments need to be claimed before 5 April 2022. Married couples and those in civil partnerships can transfer 10% of their personal allowance to their spouse or partner if one is a non-taxpayer and the other is a basic-rate taxpayer. This could apply if one partner loses hours or sees a significant reduction in their salary due to reduced hours – entirely possible during the Covid-19 pandemic – retirement or a change of job. It also applies if someone takes a career or study break.

Who claims?

The lowest earning spouse or partner would make the claim for this transfer of personal allowance, and even if your spouse or civil partner has died since 5 April 2017, then the remaining spouse or partner can still claim this allowance. This is done via the income tax helpline. If the claim is made via the online service, they will automatically roll on to the following years.

But if you make the claim via a self-assessment, this does not automatically roll on. If a couple no longer qualifies, then they need to cancel their claim.

We can help you reclaim what is due

If you think you are entitled to the Married Couple’s Allowance or any other benefit, such as the Blind Person’s Allowance, Tax Relief for Employment Expenses – which includes the £6 per week allowance for employees required to work from home in 2020/21 and 2021/22 – and could benefit from going back up to four years with your claim, then please contact us for more information.

End of year tax planning – what you need to consider

The new tax year on April 6 is accelerating quickly towards us, and now is the time to make sure that any last-minute allowances you may not have made the most of in the 2021/22 tax year are mopped up.

There are plenty of allowances that have a time limit on each tax year, and if you can use these last few days to maximise the benefits, then it would be a good deed done.

Individual Savings Account (ISA) Allowance

Each year, we can put up to £20,000 into an ISA, and if you have not put the full amount into your ISA for this year, then consider adding any additional funds to it before April 5.

Putting your savings and investments into an ISA wrapper allows the funds to grow free of tax, and when you take those funds out at the other end, you don’t pay any tax on them then either. You can spread this across a number of different types of ISAs – for example a cash ISA, Stocks and Shares ISA, Innovative Finance ISA, which is peer-to-peer lending, or a Lifetime ISA (although you can only invest £4,000 in this type as a maximum, which would leave you £16,000 of your allowance to invest elsewhere).

If you fail to use your full ISA allowance within the tax year, then you will lose it once we hit April 6, so make sure you maximise this tax benefit.

Avoiding a 60% effective tax rate for higher earners

Once you reach £100,000 of earnings, you begin to lose your personal allowance at a rate of £1 for every £2 of earnings above this threshold. This means that by the time you reach £125,140 you no longer have a personal allowance. Between £100,000 and £125,140, your effective tax rate is 60%.

However, you can reduce the impact of this by making payments into your pension, or by donating money and benefiting from Gift Aid on the payments. Pension contributions and Gift Aid payments are made from gross income, which means you reduce the amount of taxable income you have. You cannot put more than £40,000 into your pension each year and receive tax relief, and you cannot reclaim more in tax in a single year than you would have paid.

This annual allowance as it is known will also reduce by £1 for every £2 earned above £240,000 and will stop reducing at £312,000 – leaving everyone with a minimum annual allowance of £4,000.

Carry forward

If you have any unused allowance from any of the three previous tax years, then you can carry this forward for one year to help you reduce your tax liabilities and maximise your pension contributions.

There are a few caveats to this, including:

• You must have been in a registered pension scheme for each of these previous three years.
• You must have already used all your allowance for the current tax year.
• The carried forward annual allowance from the first year must be used first.
• The amount you can carry forward may be subject to the tapered allowance if your earnings were high enough for this to apply in any of the previous three years.

Taking more than your tax-free lump sum out of a money-purchase pension scheme will also mean your annual allowance is reduced to £4,000.

However, if you have any annual allowance available from the three previous tax years and have used your full allowance for the current tax year, then this is another way you can reduce your taxable income and put extra into your pension pot. But make sure you remain within the Lifetime Allowance, which is currently set at £1,073,100.

Dividend Income

If you take dividends from your company, then you can take up to £2,000 each year at 0% tax, but if you miss this within a tax year, it is not possible to roll this over to the next year. Any dividend income after this between £12,570 and £50,270 is subject to 7.5% tax up to April 5 and 8.25% from April 6 – due to the addition of the equivalent of the 1.25% Health and Social Care Levy – so if you can bring any dividend payments into the current tax year, you may be able to avoid the additional tax.

Corporation Tax

The Corporation Tax rate is set to increase from 1 April 2023, and while this is a year away, it makes sense to plan ahead to make sure you make the most of the lower rate of 19% for the coming year.

Companies with profits between £50,000 and £250,000 will continue to pay corporation tax at 19% even after 1 April 2023, but companies with profits above this will face a tapered rate up to 25%.

For this reason, it would be wise to plan ahead for the next trading year to consider how you may be able to effectively mitigate this tax. But it is not something you should do without expert advice.

Contact us

If you are interested in benefiting from either personal or business tax advice, then please contact us and we will be happy to help you make the most of your tax breaks.

IHT receipts up by £700m – but why you should see this as a ‘voluntary’ tax

Inheritance tax (IHT) is one of the most hated taxes there is, mainly because for many people their estate faces a 40% tax rate which is higher than they would have paid during their lifetime.

HMRC’s latest figures reveal there has been a £700m increase in IHT receipts in the financial year to January 2022, with £5 billion going into Treasury coffers. Much of this additional revenue will have come from property price inflation, which has increased the value of many estates, especially as the £325,000 personal IHT allowance has stayed at the same level since 2009. Had it been left to rise with inflation, it would have been worth £428,000 in 2022/23 according to Quilter.

Transfer of allowances

Any remaining allowance can be transferred on the first death between spouses or civil partners, meaning a married couple where the first spouse or civil partner uses none of his or her NRB leaves a £650,000 allowance for the second spouse or civil partner.

The Residence Nil Rate Band (RNRB) of £175,000 is also available – and can also be transferred in the same way as above – but this has added complexity to IHT. In fact, for those who have no children, the RNRB cannot be used at all, which increases the complexity around advising on this.

However, with the average house price now at £288,000 – just £37,000 shy of the £325,000 threshold – many more people look likely to get drawn into this tax net without some prior planning.

You can mitigate this tax

Given the ways that IHT can be mitigated during our lifetimes, this can be considered a ‘voluntary tax’ and one that richer people have been planning to mitigate for years. Yet it is still considered solely a tax on the rich by many, even though those with relatively modest estates that include a property can be caught in this trap.

So, using every available way you can reduce your estate’s exposure to IHT before you pass makes sense, even if you feel you are someone of relatively modest means.

Ways to reduce your IHT liability

There are a number of ways you can lower your IHT bill, including making gifts during your lifetime to reduce your estate to below these thresholds so there is no IHT for your beneficiaries to pay.

You can make gifts to spouses or civil partners without any IHT, but you can also gift up to £3,000 a year to other people using your annual exemption. For a couple, this means they can gift up to £6,000 a year with no IHT impact.

You can also gift unlimited amounts above your normal expenditure, providing it does not alter your standard of living. If you want to make larger gifts, then providing you survive them by seven years, it will be considered a potentially exempt transfer and free of IHT.

If you die within this seven-year period, a tapered amount of IHT would be applied.

We can help you mitigate IHT

There are many more ways you can reduce your IHT liabilities, but IHT planning is a complex area, and you can easily fall foul of the rules without expert help. So, if you would like to find out more about how you can reduce your liabilities for your beneficiaries, then please do get in touch.

NI to increase by 1.25% this April to fund the Health and Care Levy – what you can do about it

The Government is set to increase National Insurance Contributions (NICs) by 1.25% from April to fund the Health and Social Care Levy, and while this may be a laudable aim, it is going to hit all of us in the pocket.

Costly increase when finances are being squeezed

The NICs hike means that someone earning £30,000 a year will pay an additional £255 into Government coffers – equivalent to 10% more than they are currently paying – while someone earning £50,000 will pay an extra £505. The lowest earners are set to be hit hardest because of the point at which NICs is applied on lower wages.

Despite numerous calls to delay this rise, especially as the cost of living is increasing at rates not seen in nearly 30 years – the Consumer Prices Index rose to 5.5% in January – the Government has insisted it is ploughing ahead with the change.

What can you do?

Unless we see a change of heart in the Spring Statement, this further reach into the pocket of employers and employees is going to sting. But there are some things you can do. For example, as the NICs are paid on your salary, if your employer has – or can offer – the option to do salary sacrifice for another benefit, you may be able to reduce the impact this has.

Salary sacrifice schemes involve your employer cutting your salary in return for paying the equivalent amount into benefits which have both tax and NICs benefits. These can include pensions, pension advice, car leasing schemes, and even cycle to work schemes.

While you get less money in your hand at the end of the month, overall you will be better off because you are getting benefits that make up that value difference, and you will pay less tax and NICs.

Dealing with a benefit in kind

For example, if you leased an electric car through your employer, the payments can be made direct from your gross salary, which means your salary is reduced, cutting the cost of the 1.25% rise. The other benefit is that there will be less income tax to pay too, while you benefit from the use of the car.

There is, of course, the benefit in kind cost to consider. But for electric cars this is only 2% from April 2022, compared to as much as 25% for even a relatively low-emission non-electric car, according to calculations from Loveelectric.cars. So, it might make financial sense to explore this with your employer or employees.

While electric cars can be expensive, the salary sacrifice scheme can make them more appealing. For example, a higher-rate taxpayer earning £60,000 a year chooses a Tesla Model 3 with a lease term of 48 months and annual agreed mileage of 5,000 miles.

Typically, the lease price would be around £524 per month, but combining the price of a lease with salary sacrifice could reduce this to £267 per month, making it much more affordable.

Company owners or directors who may not be primarily paid via a salary can use a business contract hire option which allows them to deduct the full cost of a rental from profits and then recover half of the VAT paid if it is used for personal use, or 100% if it is solely used for business purposes.

Contact us

If you are interested in taking advantage of salary sacrifice or discussing other ways you can mitigate the impact of the 1.25% rise in NICs, please get in touch with us.