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What happens if I want to protect my assets from IHT?

Adrian Mooy - Tuesday, June 26, 2018
In the UK, individuals and families who wish to pass on their legacy need to tread very carefully in order to ensure they are not hit with a hefty Inheritance Tax (IHT) bill.


IHT is levied at a rate of 40 per cent of an estate’s total value on all estates valued at £325,000 or more. This £325,000 threshold is known as the ‘nil rate band’ and, despite ever-rising wealth across the country, has remained frozen at this amount for several years.
According to up-to-date figures from HM Revenue & Customs (HMRC), the Treasury collected a record £5.3 billion in IHT last year – up 13 per cent on the amount of IHT brought in the previous year.
Reports continue to emerge suggesting that more and more middle-class families are falling foul of the so-called ‘death tax’, which is why it is now more important than ever to plan ahead by seeking specialist tax planning advice.
Individuals and families who want to explore ways of mitigating their IHT liability should investigate all of their options in order to determine which methods of tax planning are most suitable.
One option worth exploring might be the additional residence nil rate band (RNRB). First introduced in April 2017, this is an additional tax-free threshold families can tap into if they plan on leaving a residential property to their direct lineal descendants in their Wills.
As of 6 April 2018, individuals can pass on an additional £125,000 in property value to children, grandchildren, step children and foster children completely tax-free using this allowance.
As married couples or those in a civil partnership can combine their allowances, this means that couples can effectively pass on £900,000 worth of property completely tax-free if they seek appropriate advice to incorporate the RNRB into their Wills.
But there are many other beneficial tax savings available. For example, individuals can reduce the rate at which they will incur IHT on the total value of their estate by passing a portion of it to a charity when they die.
By leaving 10 per cent of their estate to a charity, individuals will pay IHT at a rate of just 36 per cent as opposed to 40 per cent, for example.
There are a number of ways in which families and individuals can mitigate their eventual IHT liability and it is always worth seeking tailored advice to determine which methods are most suitable.


OTS calls for overhaul of ‘complex’ tax charges and reliefs

Adrian Mooy - Monday, June 25, 2018

An overhaul of tax charges and reliefs affecting businesses is urgently required, the OTS has said.


In a report published midway through April, the OTS looked closely at business taxes, charges and reliefs, identifying a number of areas in which it believes simplification or streamlining ought to be considered.


In total, the OTS identified as many as 32 areas where it felt streamlining and simplification was needed.


12 of these were highlighted as priorities for immediate consideration, including, amongst others, the Entrepreneur’s Relief (ER) scheme, which the OTS said was ‘disincentivising’ some founder shareholders from bringing in external venture capital by requiring shareholders to hold a minimum of five per cent of a company’s share capital in order to be eligible for the relief.


Its report also criticised the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). It said that these schemes, along with the Venture Capital Trust (VCT) scheme, were not necessarily targeted effectively in line with the capital needs of future businesses and that ‘complexities’ built into the legislation governing them often caused confusion.


The OTS added that, while those who invest in start-up businesses through such schemes can benefit from several tax reliefs, these schemes do not currently provide any reliefs for the actual founders of the emerging businesses involved – something which the OTS said must be examined.


In addition, the report recommended that a ‘one-stop shop’ registration and filing facility be introduced for small incorporated businesses.


Under existing rules, such businesses need to register separately with HM Revenue & Customs (HMRC) and with Companies House.


Paul Morton, Tax Director at the OTS, described the report as “a significant first step towards meeting the pressing need to undertake a detailed review of the tax system as it operates across the business lifecycle.” He added that the paper was “aimed at helping the businesses that are the lifeblood of the UK economy to maximise their opportunities” by making Britain’s business tax system clearer and more “simple to understand and use.”

Workplace pension contributions more than double

Adrian Mooy - Monday, June 18, 2018


The percentage of salary employers and employees must contribute to a workplace pension has increased from 6 April 2018.


Employees will now contribute three per cent (up from one per cent) of their annual salary into a personal workplace pension, while employer contributions have increased from one to two per cent.


Under the new rules, an employee earning an average salary (around £27,000) can expect to pay about £350 more a year into their personal pension. If this sounds too steep, a worker can choose to opt out of automatic enrolment. But this also means they will no longer be saving for their retirement.


A limited number of schemes do also allow workers to continue paying the old rate of one per cent of total salary. However, if the employee chooses the latter option, an employer has no obligation to make further contributions to their pension.


The measures are part of a campaign to help workers save more for retirement, but the increases won’t stop there. Contributions will rise again from April next year to five per cent from the employee and three per cent from the employer.


The most recent figures show that more than one million employers have enrolled over 9.3 million workers into a workplace pension scheme.


Currently, only employees who meet eligibility requirements – linked to pay and age – need to be enrolled, but employers should carefully monitor workers’ individual circumstances so they can be enrolled when the time comes.