Our ...March 2017 Newsletter
We are rapidly approaching the end of the tax year and in this edition of our newsletter we have included some reminders to help you take advantage of the tax planning opportunities that still exist. We also have a brief introduction to the Government’s new Residence Nil Rate Band and a note about the Land Registry Property Alert service that can help to prevent property fraud. We hope you enjoy the articles and find them useful.
In this issue:
- £1m IHT relief?
- 5 Top Year End Tax Planning Tips
- Annual Pension Allowance – Reduction to £4,000 from April
- Protect Your Land and Property from Fraud
£1m IHT relief?
George Osborne’s announcement in 2015 introducing the Residence Nil Rate Band (RNRB) appeared to offer the opportunity for parents to pass up to £1m of their estate to their children free of IHT. In reality it is not that straightforward.
What is the RNRB
The RNRB will come into effect on 6th April 2017 whereby the first £100,000 of the net value of a property will be exempt from IHT if it is passed to a direct descendant (i.e. children, grandchildren, step-children, and foster or adopted children). The property must be the main residence of the deceased and in the case of more than one property in an estate, only one can attract the RNRB. This relief is in addition to the existing Nil Rate Band (NRB) of £325,000 and, like the NRB, is transferable on death to a spouse. If the deceased downsized to a smaller, lower value home, or sold or gave away their home after 7th July 2015, the proceeds of that can still qualify for the RNRB. However if the total estate exceeds £2million the RNRB will be tapered by £1 for every £2 the estate is valued over £2m even if the actual property earmarked for RNRB is worth much less than this.
The RNRB and Your Will
The RNRB will not apply to property held in certain trust structures so it is important to review your Will. For example if your property is left to a discretionary trust, the RNRB will not be available even if the only beneficiaries of the trust are your children (although there would potentially be two years to do a ‘deed of variation’). That said, Trusts will still be appropriate in many circumstances for example, to retain control over the ultimate beneficiaries of your assets in the case of divorce and re-marriage.
The RNRB threshold will rise by £25,000 each year to a maximum of £175,000 by 2020/21, so the full £1m nil rate band only becomes a reality in 2020 where the survivor of a married couple leaves their entire estate to their direct descendant(s), and where the estate is benefiting from the full £325,000 NRB and £175,000 from both deceased partners and the value of the property in question exceeds £350,000.
For more information or to discuss how the RNRB may affect your own circumstances, please get in touch with your usual JJFS contact or email email@example.com.
5 Top Year End Tax Planning Tips
We are fast approaching the end of another tax year but there is still time to take advantage of some of the tax mitigation opportunities before the 5th April deadline.
1. Savings income
You can receive £1,000 of savings free of income tax if you are a basic rate taxpayer and £500 if paying tax at the higher rate. If you or your partner have little or no earnings or pension income, you may also benefit from a 0% tax rate on up to a further £5,000 of savings income. Moving assets between you may make the best use of these limits, minimising tax on your savings income. Similarly, £5,000* of dividend income is tax free regardless of your tax status, so reorganising your shareholdings may help save tax.
* Reducing to £2,000 on 6th April 2018.
2. Company car
If you have a company car, is it still worth having? The tax on all cars will increase in 2017/18, with further substantial increases over the next three tax years. Switching to a company car with very low CO2 emissions will save you and your company tax and NICs, as well as reducing other costs.
3. Capital gains tax
Transferring assets between married couples or civil partners before their disposal may save capital gains tax (CGT) where one partner has an unused annual exempt amount, have not fully used their basic rate tax band, or have capital losses available. It’s generally an advantage to leave as much time as possible between the transfer of the assets and their subsequent sale.
4. Pensions tax relief
Effective tax relief on pension contributions can be as high as 60% where the personal allowance is being withdrawn, and can be even higher if tax credits are being withdrawn. Pension payments also attract higher rates of relief if, for example, they stop the loss of child benefit or result in some of the dividends no longer being subject to higher rate tax.
5. ISA allowances
The maximum investment limit of £15,240 for 2016/17 applies across all three types of individual saving account (ISA): cash, stocks and shares and innovative finance. In each tax year money can be invested in one type of account or split between the three. The limit will increase to £20,000 for 2017/18. ISAs are free of UK tax on investment income and capital gains, and there is a wide choice of investments. Please get in touch with your usual JJFS contact if you would like to discuss any of the tax-saving measures above, or email us on firstname.lastname@example.org.
Annual Pension Allowance – Reduction to £4,000 from April (for those in Flexi Access Drawdown)
From April this year the annual money purchase allowance will reduce to £4,000 (down from £10,000) if you are accessing your pension benefits under flexi access. Taking your 25% tax free lump sum does not trigger a reduction from the usual annual allowance of £40,000.
For more information or if you think you may be affected, please get in touch with your usual JJFS contact or email email@example.com.
Protect Your Land and Property from Fraud
The Land Registry offer a free property alert service to help home owners detect fraudulent activity on their property. Property fraud is where fraudsters try to “steal” a property by selling or mortgaging without the owner’s knowledge. Properties more at risk include those that are not mortgaged, properties that are empty or are rented out and particularly if you have had your identity stolen. The alert service will send you an email if certain activity occurs on your monitored property such as an application to change the register or a new mortgage application is taken out, allowing you to take action if necessary. You can monitor up to 10 properties. The service itself won’t prevent fraud happening but it does enable you to review activity against your property and take action if necessary.
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