What Labour has said

The Labour manifesto is light on detail but commits to not raising income tax, VAT or national insurance. These are the three biggest revenue generators, so it begs the question as to where funds will come from for any increased public spending. The manifesto sets out revenue raising measures including a significant £5bn chunk from reducing tax avoidance, but it’s likely that more will be needed.

With major taxes protected, CGT is potentially a target. In early June, Rachel Reeves said she had ‘no plans’ to raise CGT, but that falls short of a commitment and has largely served to fuel speculation that she may well do so.

Labour has already appointed a panel of tax experts to assist and advise. They include Edward Troup, former director at HM Treasury, ex First Permanent Secretary at HMRC and adviser to Kenneth Clarke in the 1990s. Troup is on record as wanting to increase taxes for the baby boomer generation, saying that today’s pensioners have it ‘ridiculously good’. A CGT hike could be part of his playbook.

How and when might a CGT rise happen?

Any CGT hike that is introduced will, inevitably, be done at short notice to prevent people from making pre-emptive sales to avoid the higher rates. CGT is driven by the date of the transaction, so it’s perfectly possible to change the rates mid-year.

In theory, it would therefore be possible for Rachel Reeves to introduce a CGT increase almost as soon as she takes office. The incoming 2010 Conservative government was elected on 6 May and George Osborne raised the CGT rate on 23 June. However, an immediate hike would require a very swift 180 degree turn from Ms Reeves on ‘no plans’ to raise CGT. She has also said that she wants to give the Office of Budget Responsibility ten weeks to review her plans, so any Budget event could not be before mid-September.

Should I take action now?

At present, any assets held at death are inherited at market value for CGT purposes. While wholesale reform of CGT, including this feature, is not impossible, it seems unlikely without consultation. Thus, if you have an asset which you are likely to hold all your life and which is standing at a gain, then it could make sense to do nothing.

CGT is triggered when the owner loses beneficial ownership of the asset. This can occur before the sale is completed. Thus, if you are in the process of disposing of a property, the trigger date for CGT is the exchange of contracts rather than completion. It follows that if you are part way through a sale, it would be sensible to proceed to exchange as soon as possible.

If you have an unrealised capital gain on an asset you are likely to realise before death, then the options involve triggering a CGT disposal in order to ensure that the gain is taxed at current rates. There are a number of ways to do this.

The most straightforward route would be a sale. For liquid assets – stocks, shares, etc. – this is quick and easy. It is less so for real estate assets. The decision to sell requires consideration of whether the risk of paying tax at higher rates under a new tax regime outweighs the benefit of paying tax in the future (essentially the time value of money) plus transaction costs and reinvestment risks. The lower the transaction costs and time value the greater the incentive to sell now.

So, if you intended to sell a liquid portfolio of equities in six months, the transaction costs are low and, in fact, the capital gain would still fall into the 2024/25 tax year. Your tax would therefore still fall due on 31 January 2026 and the time value would be nil. In those circumstances it might be wise to sell now. However, for an investment property which you had no immediate plan or need to sell, the tax would fall due within 60 days of completion and the transaction and reinvestment costs are high (legal fees, stamp duty, etc.), so holding on may make more sense.

Selling is not the only way to create a CGT disposal. A gift can be completed quickly and is also treated as a disposal, with the donee acquiring the asset at market value for future CGT purposes. The gain is taxed even though you have received no proceeds from the transaction. The tax is still payable in the normal way, and so you would need to ensure that you understood the market value of the asset and had the liquid funds to meet the tax liability.

Similarly, a gift into trust could create a CGT disposal, so that trustees acquire the asset at market value, effectively rebasing it for CGT purposes. There are other tax implications involved in establishing a trust which need to be weighed up carefully.

Inevitably the uncertainty makes it difficult to plan. Beyond the immediate thought process set out above, the doubt over the future of CGT reinforces our view that holding investments within a diverse range of structures will offer the best protection. If you hold assets in an ISA, pension, investment bond and general investment account as well as rental property, then a change to the taxation of one pot should not materially impact the whole financial plan.

Ultimately, anyone taking action to try to accelerate gains and avoid CGT increases should think about whether disposals make sense commercially as well as for tax purposes. The old maxim about tax tails wagging commercial dogs is probably over-used, but makes even more sense when the tax tail in question is speculative.

Clare Munro is our Senior Tax Advisor. Within her day-to-day role, she provides tax advice to high-net-worth clients in relation to their banking and wealth management needs. With a particular interest in inheritance tax and capital gains tax planning, Clare helps clients to structure their wealth tax efficiently to preserve it through family generations.

Important information

Tax laws are subject to change and taxation will vary depending on individual circumstances.

The post New government? New strategy for capital gains tax? appeared first on Weatherbys Private Bank.

Clare Munro is our Senior Tax Advisor. Within her day-to-day role, she provides tax advice to high-net-worth clients in relation to their banking and wealth management needs. With a particular interest in inheritance tax and capital gains tax planning, Clare helps clients to structure their wealth tax efficiently to preserve it through family generations.

Important information
Tax laws are subject to change and taxation will vary depending on individual circumstances.

*Featured on the Financial Times website on 30th April 2024: Your business needs a will too.

The post Your business needs a will too appeared first on Weatherbys Private Bank.

As we outline below, there are two significant changes to the rules if you are considering contributing to your pension before this tax year end.

Boosting your pension pot got easier – no Lifetime allowance charge and higher annual allowance

The Lifetime Allowance (LTA) charge, which capped the level of tax-advantaged pension savings that could be accumulated over a lifetime, has been abolished from the 2023/24 tax year.  Previously if you had a substantial pension pot you may have been reluctant to make further contributions for fear of exceeding the £1,073,100 limit and incurring a tax charge.  Abolition of the Lifetime Allowance charge could enable you to contribute to what remains a highly tax-efficient structure. The second big change is that the maximum amount you can contribute to a pension each year has increased for 2023/24 to £60,000 from £40,000.

The old Lifetime Allowance remains relevant for calculating tax free cash and death benefits.  If you have claimed any form of Fixed Protection, that will allow you a higher level of tax free cash, but otherwise the tax free cash that you can withdraw from your fund is limited to 25% of £1,073,100 or £268,275.  It means that, if your pot grows to more than £1,073,100, or your higher protected allowance, anything paid as a lump sum above that limit will be taxable at your marginal income tax rate.

Pension Tax Relief before 6 April 2024

Tax relief is given for those contributions made in the tax year, which is why you must act before the end of the tax year on 5 April. To qualify you must be a so-called ‘relevant UK individual’ under the age of 75. Typically, that means that you need to be a UK resident or to have relevant UK earnings. This is usually employment income or self-employment income including income from furnished holiday lets – but not investment or general property income.

How much can you contribute?

For most people, the contributions which can attract relief will be driven by their earned income. The exception is that anyone can make a gross contribution of £3,600 (so £2,880 net) even if they have no income. In such circumstances, the basic rate relief is not clawed back.

Otherwise, the amount that anyone can save in a pension in a tax year is limited to the lower of their relevant earnings (earned income) and the available annual allowance. The available annual allowance is made up of the current year’s £60,000, plus any unused annual allowance from the previous three years. Importantly, you need to have been a member of a registered pension scheme during each of the previous three years to carry this allowance forward to the current tax year. As we mentioned above, the annual allowance increased from £40,000 to £60,000 for this tax year but any unused relief from previous tax years will be at the previous lower limit.

Case Study– how does it work in practice?

Take Bridget, who earns £200,000 per year and who hasn’t made any contributions to her Self-Invested Personal Pension (SIPP) for the past three years due to concerns about the Lifetime Allowance limit.

Should she want to top up her pension, her maximum contributions would be:

Bridget could contribute a total of £180,000 to her pension scheme before 6 April 2024 with the benefit of tax relief. Unused relief is used on a ‘first in first out’ basis. So, if Bridget only contributes £100,000 to her pension, she will use the current year’s relief, plus £40,000 from 2020/21.

You can only get relief based on your earnings for the current tax year. Let’s say Bridget earned £80,000 rather than £200,000; her capacity to make pension contributions in 2023/24 would be limited to £80,000.  In this case, she would use her 2023/24 allowance, plus £20,000 of the unused capacity carried forward from 2020/21. The remaining £20,000 annual allowance from 2020/21 would be lost.

Clearly getting the income tax relief is important and if you intend to use previous years’ pension relief capacity, it makes sense to get financial planning advice to ensure that you get the numbers right.  In particular, there are situations where the full annual allowance is not available and advice on contribution levels is critical.

• For those that earn more than £260,000 a year, the annual allowance is tapered down to a minimum of £10,000
• For those who’ve taken certain pension benefits, the Money Purchase Annual Allowance of £10,000 applies instead of the full £60,000.

Are more pension contributions right for me?

So what does this all mean for pension contributions in the 2023/24 tax year?

Pension saving is, first and foremost, a means of providing for retirement.  To encourage us to save for retirement, the Government gives tax relief for pension contributions on entry to the fund, on growth and partially on withdrawal.  In addition, the fund does not form part of your estate for IHT purposes. 

That all makes pensions highly attractive if you’re paying additional rate tax or if you are caught by one of the system’s tax rate ‘cliff edges’ – losing your personal allowance, for example.

There remains a good deal of uncertainty around the tax position of pensions and pension holders; a change of government could yet see a wholesale transformation of the tax relief environment.  If your pension savings have plenty of room for growth before hitting the old Lifetime Allowance, then making contributions should be a straightforward decision in favour of tax efficiency.

If your fund is at or near the old Lifetime Allowance, the possibility of a reintroduction of a cap on lifetime pension saving needs to be weighed against the other incentives, but the 2023 changes to pension relief limits create top up opportunities which weren’t there a year ago.

Action now

Whatever your pension position, we would welcome a discussion with you about the deadline for contributions this year and how we can help you to build retirement wealth.  Please call your private banking team or submit an enquiry using the button below.

Clare Munro is our Senior Tax Advisor. Within her day-to-day role, she provides tax advice to high-net-worth clients in relation to their banking and wealth management needs. With a particular interest in inheritance tax and capital gains tax planning, Clare helps clients to structure their wealth tax efficiently to preserve it through family generations.

Important information

This article does not constitute advice.  Tax laws are subject to change and taxation will vary depending on individual circumstances.

The post Pensions – how taking advice now could make a difference of £1000s appeared first on Weatherbys Private Bank.

In general, capital gains tax is charged at 20% when you sell an asset at a profit. However, assets which are considered ‘wasting assets’ with a useful life of 50 years or less fall outside the capital gains tax regime. Clearly there are many cars still on the road after 50 years, but broadly speaking, cars are mechanical structures which deteriorate over time and are not expected to last that long. Consequently, cars are considered wasting assets and are exempt from capital gains tax. That might sound good, but it also means that losses from car sales are not allowable. As most cars are sold at a loss, you can see why the capital gains tax exemption makes sense from HMRC’s viewpoint.

Sadly, there is no equivalent exemption from inheritance tax. If you are ‘domiciled’ in the UK, meaning that the UK is your permanent home, HMRC will want 40% of your worldwide estate over £325,000 on your death. Car collections form part of that worldwide estate and, in the absence of any planning, will need to be valued for probate purposes and included in the IHT calculation that is submitted to HMRC.

It is, of course, possible to make a gift of your cars during your lifetime and, if you survive for seven years from the date of the gift, then the gift is exempt from inheritance tax. The title to a car can be changed easily using the V5 form and so, in theory, this is an easy piece of estate planning. What makes it more complicated are the rules which prevent you from making gifts ‘with strings attached’. So, just as for inheritance tax purposes you cannot transfer your house to your children and continue to live in it, you cannot transfer your cars to your beneficiaries and continue to use and keep them as you did before. If you do, it’s called a ‘gift with reservation’ and it doesn’t work for inheritance tax.

The answer is that you should pay your beneficiaries a market rent for use of the car after making the gift. The rent will be taxable income for them, but they may find that the income tax liability is a good deal cheaper than paying the inheritance tax, particularly if your car has a pampered life and doesn’t go out very often. The rental values for classic cars are unlikely to bear much resemblance to those you’d find at a normal car hire company, so you might need to take some advice. Simply accepting an occasional lift in the gifted car will not cause the gift to be ineffective.

On the other hand, the matter of where to store the cars can be problematic. If you have special garage accommodation for your collection, moving the cars to your child’s house may not be practical. Bear in mind that HMRC may want sight of your insurance policy and the insurers will need accurate information on the whereabouts of the cars. So, if you keep the vehicles in their existing garage, you can expect HMRC to apply the gift with reservation provisions to stop your gift working for IHT purposes.

If, having made a gift of a car or two, you don’t survive for seven years after the gift, then additional tax may be due on your death. If the car’s value is less than the £325,000 nil rate band and you have not made other gifts in the seven years leading up to your death, then no further tax is due on the gift. Note, however, that the value of the car at the date of the gift is deducted from the £325,000 which is available for the rest of your estate. If, on the other hand, the value of the car is more than £325,000, then additional tax becomes due. So, for example, if you gift a car worth £500,000 and die after 5 years, then inheritance tax is due on the excess over £325,000, i.e. £175,000. The tax at 40% would be £70,000, but a tapering of the tax applies after three years, so for someone dying between 5 and 6 years after the gift, there is a 60% reduction. So rather than paying £70,000, the beneficiary would pay £28,000, an effective rate of 16% on the £175,000 which was subject to inheritance tax.

Another point to remember is that the growth in value of any car which is successfully gifted is outside your estate. So, even if you die within seven years of the gift, the value taxed is the original value at the point of gift, not the market value at the date of your death.

Finally, there is an exemption from both IHT and CGT for assets which are of national, scientific, historic or architectural interest. Usually this applies to buildings and gardens but could in theory apply to collections of historic vehicles. Inevitably the exemption comes with conditions, so the asset must remain in the UK and must be available for public access. When the car is transferred, following a death for example, the exemption will be withdrawn unless the new owner agrees to the conditions.

All in all, there is much to be said for thinking about estate planning for your car collection, but the inheritance tax rules are complicated, so drive carefully!

Clare Munro is our Senior Tax Advisor. Within her day-to-day role, she provides tax advice to high-net-worth clients in relation to their banking and wealth management needs. With a particular interest in inheritance tax and capital gains tax planning, Clare helps clients to structure their wealth tax efficiently to preserve it through family generations.

Important information
Tax laws are subject to change and taxation will vary depending on individual circumstances.

*Featured on the Walton-on-Thames Aston Martin blog (February 2024): The winding road to tax planning for car collections.

The post The winding road to tax planning for car collections appeared first on Weatherbys Private Bank.

Encouraging clients to start the year by imagining their own deaths might seem a gloomy suggestion. It need not leave you depressed or dispirited about unfulfilled dreams – ready to head to the foothills of Everest with ropes and crampons in your suitcase looking to hire a Sherpa. I think it can be a positive exercise. It helps you to think about your legacy. And there are several parts to that.

Often the person picking up the pieces is a close family member or friend; sometimes a professional, like an accountant or lawyer, charging by the hour. The first question you might ask is: are your executors still the right people for the role?

I have seen instances where the executor was fine in their prime – when the will was written. But 30 years later they are too frail and ill. I have also seen instances where the executor has already died.

An executor’s job is a miserable one. Make it easier. A good suggestion I heard recently was to try doing your own probate (or “confirmation” in Scotland) – there are lots of guides online to help. You discover what it would be like for someone else.

Is all the necessary documentation in one place – either on your computer or in your home? Do your executors have access to it? Do they have contact details for your advisers as well as your beneficiaries? Is the information up to date? An advantage of having an adviser or private banker at the hub of your financial world is that much of this information is already held in a professional data system. Regardless, you can still make things easier for your executors.

Picture them going through your filing cabinet. If you never throw paperwork out, what will they think when they find a savings plan that started with one company 30 years ago and several confusing rebrands and takeovers later is now looked after by a completely different business? Do you need all that documented history?

IHT legacy

Consider, too, inheritance tax (IHT). HMRC may drill down into your gift register to see if any large gifts have been made in the last seven years on which IHT might now be owed. If you have been making regular gifts out of income – an IHT-efficient form of giving – HMRC may want to see records to show this was truly out of income rather than capital. If you have not logged this information it could take you – and therefore your executors – hours to do so. This will encourage you to be more conscientious about logging gifts in future.

Liquidity

How will executors pay the IHT bill? Ordinarily it must be settled within six months of death but for some non-liquid assets like property, HMRC allows you to pay by instalments across 10 years. It does charge interest, though, and you must settle the full bill on disposal. All this makes winding up your estate even more complex. Most people just want the job done and that may mean taking a price cut on a property to sell quickly. Experience suggests that in today’s market this could mean knocking another 20 per cent off the reasonable asking price. Recognising this may encourage you to move into more liquid assets now or – as many of our clients do – to take out whole-of-life insurance that pays enough on death to cover at least this part of the IHT bill. This simplifies things for your executors and gives your beneficiaries more time to dispose of assets if and when ready.

Beneficiaries

Of course, you also need to review who your beneficiaries are. Since you last wrote a will and completed pension beneficiary forms your children may have divorced their partners. There may be more grandchildren. You may have become disillusioned by the charity that once mattered so much to you. You may have new concerns and passions.

This brings us to another important point – the amounts you are leaving to your beneficiaries and how these will be met. Around 20 years ago, a couple writing their will left £500,000 in cash and investments for family. For charity, they left a house in Muswell Hill in north London, worth a similar amount.

When they died recently, a friend who was trustee of the estate found their cash pot for family members had fallen to nearer £250,000. Meanwhile, the house sold for £2mn, all of which went to charity. Was that their intention? Probably not. Many charities rely on legacies and enforce gifts to the letter, so think carefully about how you frame your will. Fixed-figure legacies and bequests of assets with growth potential to a charity require regular review.

Living legacy

When all this is done, you might just want to think about the larger – perhaps more philosophical – legacy question. What difference will your gifts make? And could you be making that difference now?
One of the biggest reasons holding people back from giving before death is concern about their own needs. Here lies uncertainty. How long will we live? What might our needs be? Do our children need help? And grandchildren – might more be on the way?

A good financial plan can reassure you that your needs – and those of your family – are covered. From here you can address further questions. For example, are there other people you want to educate apart from your children?

Imagining your death every five years can encourage you to revisit the issue of your larger legacy. As each half-decade passes, it may become clearer how much you can give. Your own expenditure might have dropped as foreign travel becomes more exhausting than fun. There may be greater clarity on your children’s and grandchildren’s needs.

Giving before you die enables you to see the changes your wealth can make. Family may need it more when they are younger – you can enjoy helping them and reduce your IHT bill simultaneously.
Giving to charity while still alive also means you can have more control over projects you fund. You can give gradually, measure the benefits and recalibrate. Not possible when you die!

Many of my clients get enormous pleasure from unleashing their legacy early. In this season of resolutions consider setting some time aside to consider the impact of your death. It may change the way you practise living.

Important information
Tax laws are subject to change and taxation will vary depending on individual circumstances.

Nathan Valbonesi is Senior Financial Planner and Associate Director of Investment and Wealth Advice (IWA) at Weatherbys Private Bank.

*Featured on the Financial Times website on 3rd January 2024: Put your owner probate to the test.

The post Try doing your own probate this year appeared first on Weatherbys Private Bank.

The two main giveaways were a 2-pence cut to National Insurance, and the making permanent of previous temporary measures enabling businesses to offset investment expenditure against pre-tax profits.

Both these measures ‘cost’ roughly £10 billion in terms of foregone revenue. But of course, the Chancellor would argue that they may well end up earning greater sums over time, should they succeed in stimulating growth.

Capital Economics estimate Number 11’s net generosity at £14.3 billion, when you consider what the Chancellor took away with his other hand. This is still a sizable figure – where does it come from, you might wonder?

The answer is the Office for Budgetary Responsibility (OBR)’s revised forecasts. These prescribed prophecies have great constraining power on fiscal policy, and the future sooth was said to be one of slightly higher inflation than previously thought.

Hence, in nominal terms, the Chancellor could spend more money while still allowing for debt to fall as a ratio to Gross Domestic Product (GDP).

And speaking of that denominator – the OBR foresaw slowing growth in the coming years, with a real increase of 0.7% in 2024, down from 1.8% before.

What does the Autumn Statement mean for my personal finances?

Though some had speculated there would be eye-catching changes made to inheritance tax, or even that it would be abolished as pre-election appetiser, in the end there were no fireworks. The Chancellor perhaps opted to keep things agreeably dull for the benefit of an increasingly vigilant bond market.

Nonetheless, the changes made to pensions – allowing for consolidation – might well make life easier for the serially employed. Likewise, the triply-locked state pension, up by 8.5% or an additional £900 per year, will make a difference for some.
And there were minor changes to ISA rules: savers will now be able to open accounts with multiple providers within a single tax year, for instance.

Overall, however, there was little to provoke a re-drafting of anyone’s financial plans.

What does the Autumn Statement mean for my investments?

Gilt yields rose slightly as the Chancellor spoke. This reflected a marginally higher outlook for interest rates, given the OBR’s figures for growth and inflation. Or, to be more precise, an expectation that interest rates would be held at this level for a little longer than had previously been envisioned.

As for currency movements, the pound lost a cent against the dollar, increasing the value of US assets. And remember, it is those US assets which dominate global equities – the UK stock market is but a fraction of the world’s corporate enterprise.
The Autumn Statement therefore remains not especially salient to investors, whatever its import for us as citizens.

Conclusion

If anything, the Chancellor’s inability to meaningfully splurge in the run-up to an election year tells us more than any of the detail. For the fiscal room to manoeuvre is so tight, still so constricted by the OBR’s dour prognosis, that – barring an astonishing growth spurt – we can all but rule out a radical loosening of the belt by a government of any hue in the next few years.

As such, this Autumn Statement perhaps augurs nothing more than a political sobering, after the extraordinary policies of the pandemic. In the UK and around the world, governments are going to have to go ‘cold turkey’.

Important information
Tax laws are subject to change and taxation will vary depending on individual circumstances. Investments can go up and down in value and you may not get back the full amount originally invested.

The post Autumn Statement 2023 response appeared first on Weatherbys Private Bank.

The figures assume school fees rise by 5% a year. This year fees rose by 5.6%. Though this is below the rate of inflation currently, Weatherbys’ research shows that over the school life of the leaving class of 2023 fees have risen by 1.4 times the average rate of inflation. The removal of the VAT-exempt status of private schools adds another potential 20% to bills.

Shirley Coe, Senior Private Banker at Weatherbys Private Bank, said: “Over the long term, private schools have traditionally raised fees beyond inflation, and parents need to be prepared for that. They also have to prepare for the very real threat that VAT will be added to the bill. And that’s on top of extras such as uniforms, sports activities, school trips or music lessons – we usually suggest parents earmark another 10% for these.”

She added: “Educating your children privately is a big commitment. It’s no use having your son or daughter about to skip off to school in their first uniform without you having a plan for how you’re going to meet the fees. Taking a child out of their school once they’re settled can be seriously disruptive. Parents need to know what they’re letting themselves in for financially before committing, and most will need to plan for it.

“Inflation is a serious challenge now to many families who have been given money up front or saved in advance for school fees. Generating an inflation-busting return of 10% on savings earmarked for schooling is aggressive and involves risk. Add in a potential extra 20% because of VAT and that will be enough to tip many families out of the private system.”

Clare Munro, Tax Adviser at Weatherbys Private Bank, said: “For many families private schooling will be possible only with the support of grandparents. They also need a realistic idea of the fees before agreeing to help – you very quickly lose a grasp of the costs once your own children have left school, and these numbers could be a shock. For grandparents there could be an opportunity to integrate some intelligent inheritance tax planning into the way they pass on the money, using trusts, family investment companies or bonds, but that requires careful planning and thinking ahead.

“The parents who feel the imposition of VAT most are likely to be those professionals paying fees out of income. Most will still have to pay mortgages, which may have risen substantially, and all their other living costs. School fees are an optional extra. You’re paying that over a long period and have to hope your employment is secure and salaries rise at the same rate as school fees do.”

To download your copy of Spotlight on: school fees, please click the button below.

Important information
The value of an investment and its income may increase or decrease, meaning that you may not get back the full amount originally invested.

Tax laws are subject to change and taxation will vary depending on individual circumstances.

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For starters, the threshold for taxpayers in England, Wales and Northern Ireland paying the top rate of tax of 45 per cent has been reduced from £150,000 to £125,140 from the 2023/24 tax year. This slightly odd figure coincides with the level at which taxpayers with income over £100,000 lose all of their personal allowance. This top rate of tax threshold is the same for Scottish taxpayers, but they will now pay a slightly higher rate of tax of 47 per cent.

Capital gains tax (CGT) and dividends allowances are also being cut. The annual exempt amount for CGT has fallen from £12,300 to £6,000 for the current tax year and will fall further to £3,000 from April 2024. The dividend allowance has been reduced from £2,000 to £1,000 and will fall by a further £500 from April 2024.

The conundrum for everyone is whether they can mitigate these tax rises in any way. We believe they can and below we have outlined some suggestions for those likely to become additional rate taxpayers as a result of the threshold reduction.

Contribute to your pensions

Making pension contributions reduces levels of taxable income. So, if your earnings exceed £125,140, you are now paying the highest rate of tax, and every £55 contributed to a pension will buy you £100 of investment. How you get the tax relief depends on whether you are employed or self-employed, but either way, you need to have enough ‘earned’ income (so not investment income) to cover the gross contribution.

For people with a SIPP, they will typically make contributions net of basic rate tax, which is then reclaimed by the fund. The higher rate relief comes via your self-assessment tax return. The abolition of the Lifetime Allowance Charge, a tax that was paid on contributions above the Lifetime Allowance (LTA) of £1,073,100, means that it will now be possible for many who had stopped making contributions to restart without penalty. The LTA will be scrapped in April 2024.

Make charity donations

The tax system rewards generosity with tax relief, so making charitable donations will reduce income taxed at additional rates. You don’t have to pay CGT on land, property or shares that you donate to charity. You can also pay less income tax by deducting the value of your donation from your overall taxable income. For cash gifts there is Gift Aid, which gives tax relief in a similar way to pension contributions.

Consider selling shares now

The CGT allowance, which has been reduced to £6,000 for 2023/24, will fall again in the next tax year to £3,000. If you hold stocks which are standing at a gain, it could be worth considering selling before the CGT allowance reduces further. However, investment and divestment decisions which alter your asset allocation should be driven by your goals and objectives rather than by tax breaks. There is a rule that prevents you from selling and repurchasing the same stock within 30 days, but there’s nothing to prevent you from getting back into the market via your ISA. You could even get your spouse to purchase the same stocks immediately to avoid time out of the market.

Defer tax with investment bonds

For the longer term, offshore investment bonds allow you to access cash in the form of capital payments to defer tax on growth. Bonds are non-income generating so there is nothing to report on your self-assessment tax return, and you can withdraw up to 5 per cent of the original bond value without a tax charge. The quid pro quo for these benefits is that, when the bond is surrendered or matures, the growth will be subject to income tax rather than CGT. However, the bond may be assigned to another party, perhaps a child or grandchild who has a lower tax rate, without triggering a charge.

Divide and conquer

By splitting investment portfolios between spouses or partners, you can use both CGT allowances and income tax lower rate bands. You could also consider a gift of investments outright to a non-earning spouse or partner, whose allowances would otherwise be wasted. 

Restructure company dividends

Another trap for high earners is the loss of their personal allowance once their annual income exceeds £100,000. Company owners might consider an alternate-year structure for dividends so as to pay less tax overall by retaining their personal allowance every other year. So, for example, in ‘even’ years the dividend would be small enough to keep total income below £100,000, but in ‘odd’ years the dividend would be increased to the sum required to fund spending levels for the current and following years. The impact on other shareholders needs some careful consideration and the strategy requires discipline to retain enough cash in each high-income year to subsidise the next one.

Keep it in the family

Consider a family investment company as a longer-term wealth accumulation structure. The corporation tax rate has increased to 25 per cent for the current financial year, but dividends received by a company are not subject to tax and so there is potential for a gross roll-up of income.

How Weatherbys can help

We help our clients navigate through the maze. With careful preparation and planning, you can make sure you don’t pay any more tax than you need to. This means saving and investing tax efficiently and making the most of the tax relief benefits of pensions.

Tax efficiency may feel like an administrative headache, but it doesn’t need to be. With expert help, it can make a significant difference to your long-term finances. If you are interested in finding out more about how Weatherbys can help you mitigate your tax liabilities, please get in touch or speak to your Private Banker.

Important Information
Tax laws are subject to change and taxation will vary depending on individual circumstances. Offshore bonds and family investment companies are not suitable for everyone, and you should seek professional financial advice before proceeding.

The post Mitigating the new tax hikes appeared first on Weatherbys Private Bank.

Media coverage has centred on the abolition of ‘Section 21’, which gives landlords the right to evict tenants on a no-fault basis with two months’ notice. However, if you look under the bonnet of the new regime, there are other reasons for landlords to pay attention to the changes. While the abolition of Section 21 makes headlines and is unsettling for landlords, they can still recover possession of the property in specific circumstances, including where they want to sell or if they or their family want to occupy it. So the reality may be more benign than the headlines indicate. That said, other measures, as outlined below, are set to impact residential landlords.

Private Rented Sector Database

Welsh and Scottish private-sector landlords are already required to register on a landlord database, and many English landlords are subject to selective licensing by local authorities. The new proposals will see the registration requirement extended to the rest of the UK. Landlords will be required to register their property on a government property registration portal before letting or marketing a property. Failure to do so will result in fines. Landlords will be allocated registration numbers for properties and these must appear in any advert for the property.

The exact information required to register is not yet known, neither is the extent to which the information will be publicly available – although the government says that it is sensitive to the privacy concerns of landlords. However, the database is expected to include information on property standards to help tenants make more informed decisions, and landlords will almost certainly be required to reveal their identities.

HMRC will undoubtedly be keeping a close eye on the new database. Despite running a campaign since 2013 to bring non-compliant landlords into the tax-paying fold, it is suspected that many private landlords either don’t declare their rental income or, if they do, under-declare it. Compulsory registration on the database should help HMRC clamp down on those landlords that fail to declare their full rental income.

Private Rented Sector Ombudsman

The new legislation will also see the launch of a Private Rented Sector Ombudsman. This will ensure that all tenants will have access to a redress service that is an improvement on the current court system in terms of cost and speed. Like the Private Rented Sector Database, all landlords will be expected to join and, like the Private Rented Sector Database, there will be a fee to do so. On that basis, you might expect landlords to be able to complain to the new Ombudsman about their tenants, but that isn’t the case despite landlords being asked to pay for it.

What happens next?

The Renters (Reform) Bill is only at the second stage of reading in the House of Commons and so the proposals could change between now and the bill becoming law. Nevertheless, the principles seem to have cross-party support and it’s hard to see any of the major elements being dropped. This will mean more administration for private sector landlords and, it seems, additional fees and regulations.

Despite the increasing burdens there remain advantages to holding rented property as part of a diversified asset portfolio. Assuming that landlords want to stay in business, it makes sense to review compliance in preparation for the new regime. Anyone who isn’t tax compliant needs to get up to speed, but otherwise, a review of matters including electrical and gas certificates, EPC status and deposit protection would be a sensible place to start.

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Some relied on the bank of grandparents to help fund their initial deposit. The grandchildren may not be on the doorstep clamouring for assistance with repayments, but their worried grandparents – watching in horror as interest rates rise remorselessly – are certainly feeling under pressure to offer it.

Clients are beginning to ask the best way to gift now money they had originally earmarked for inheritance on death.

With inheritance tax (IHT) allowances frozen and receipts from the levy hitting a record £7.1bn in the recent tax year, a growing number of estates are expected to be caught in the IHT trap. It can make sense even for some in their 50s and early 60s to start a carefully considered programme of early giving – whether your grandchildren need it now or later.

Trusts and family investment companies

For wealthy households looking to gift large sums, the most flexible option may be to set up a single discretionary trust that covers all grandchildren (and future grandchildren).

Payments from this trust can be used to fund anything from school fees to house deposits and mortgages. There are several benefits to this.

Capital and income from the trust are distributed at the discretion of the trustees (who may include the parents), so there is more control over the money. This may not prevent a grandchild’s house becoming embroiled in a messy divorce, for example, but it can help. We encourage grandparents setting up trusts to write detailed guidance on how they want the money to be spent.

The trust will be liable to tax on growth of assets, but this is only paid on actual sale of an asset or when it is distributed to beneficiaries. It is also possible to use “holdover” relief on the way out of the trust so that the gain is charged to the grandchildren using their tax allowances and lower-rate bands. Usefully, any growth is outside the grandparents’ estates from the start.

Trusts have their own IHT regime. Gifts into trust are considered chargeable lifetime transfers (CLTs) by HMRC. This means they are taxed at 20 per cent of the gift if paid by the trust, or 25 per cent if paid by the grandparents. Thereafter they are assessed for IHT at a maximum of six per cent of the fund every ten years or on distributions of capital from the fund between anniversaries. Yes, it’s complex!

This regime may still be preferable to paying 40 per cent IHT, but it can be avoided altogether if you have not fully used your nil-rate band. The IHT nil-rate band is currently £325,000, which means that a couple could put £650,000 into a trust without generating an IHT entry charge. Please note that the residence nil-rate band is for death transfers only and so does not form part of considerations here.

This is one of the least understood tax breaks. If you die within seven years, the gift into trust uses all or part of your nil-rate band, meaning that less is available for your estate. If the gift was greater than the available nil-rate band then it is also reassessed at death rates – in other words 40 per cent. The liability for the extra tax falls on the beneficiary, so in this case the trustees. Donors often take out insurance to protect their grandchildren and the trust from an unexpected bill should they die before the seven years are up.

Survive seven years and any tax liability is washed away. This is what I call the Dr Who of tax allowances – it regenerates, giving you each a fresh £325,000 nil-rate band and the chance to make another big contribution.

Another way to help may be through a family investment company, where you structure the shareholdings so your grandchildren have shares and receive dividends. This can be done in conjunction with a trust. Like all gifts, the growth in value of the shares is outside your estate from the start.

Of course, these structures are relatively complex and incur set-up and administration costs. Other methods of giving may be more appropriate.

Gifts directly to grandchildren are known as potentially exempt transfers (PETs). As with the CLT, if you die within seven years of making the gift then it counts towards your nil-rate band. With PETs and CLTs, the IHT liability on gifts beyond the nil-rate band tapers over the seven years and is washed away at the end. We always advise people to keep a list of their gifts so that in the event of their untimely demise someone can work out the tax positions of the estate and previous donees.

There are other small allowances that are IHT-free, like wedding gifts and birthday presents. But for many people with high incomes, like those on generous final salary pension schemes earning more than they need, the most effective way to help grandchildren (and anyone else) with mortgage payments is to gift the excess each month.

Your estate may have to prove to HMRC that the gift was from surplus income, but that should be straightforward if you keep records of income and expenditure. Gifts out of surplus income are completely free of IHT – no tapering and no Dr Who regeneration!

So, a widowed client who is a retired senior civil servant earning a six-figure pension that is some way beyond his current needs, recently agreed to help two of his grandchildren, paying each £1,000 a month. One is using the money to offset higher mortgage rates and living costs, the other to pay extra on their mortgage before their current deal ends in 2026.

This helps prevent surplus income from building further within his estate, adding to his IHT concerns. He also reviewed his will recently and, after discussion with his daughter who is financially secure, agreed that on his death his assets will pass directly to the grandchildren. Skipping a generation prevents the daughter and her husband inheriting his estate and adding to their own IHT estate.

No gifting should be made without you being confident that it is affordable. Don’t forget your own costs and potential outgoings have risen. It is worth reviewing these before making any family commitments. For instance, costs of care have risen by 11 per cent in the last year alone, according to the UK Care Guide, and funds set aside as provision for this may no longer be sufficient.

If the gifts are affordable, however, giving in a structured tax-efficient way now can be not just an opportunity to help loved ones through the current crisis but also a sensible way of reducing the amount that may be paid in IHT later.

Important information
Tax laws are subject to change and taxation will vary depending on individual circumstances.

Clare Munro is a tax adviser at Weatherbys Private Bank.

*Featured on the Financial Times website on 7th July 2023: Tax tactics for the Bank of Gran and Grandad.

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