News

Increasing house prices raise inheritance tax risk. 

Soaring house prices coupled with certain thresholds being frozen in the most recent Budget have the potential to drag more estates into the inheritance tax net over the coming years. 

Back in March 2021, Chancellor Rishi Sunak confirmed the main inheritance tax thresholds will remain frozen at their 2021/22 levels “up to and including 2025/26”. 

Inheritance tax is usually charged at 40% on the value of your estate (your property, money and possessions) over the £325,000 nil-rate band. There’s an additional allowance of up to £175,000 if you pass on your family home to children or grandchildren. 

If you’re married, you can effectively combine your thresholds and transfer assets between each other tax-free. When one dies, the surviving spouse can inherit without any inheritance tax liability and you are able to utilise their unused thresholds on your death.

Freezing these thresholds until 5 April 2026, subject to any further political change, is expected to net the Treasury an extra £15 million from estates this year, rising to £70m in 2022/23, £165m in 2023/24, £290m in 2024/25, and £445m in 2025/26. If those projections are accurate, that’s an extra £985m in total over the course of the next four tax years after 2021/22. 

At the heart of this stealth tax grab is poor or non-existent estate planning and increasing house prices. According to The Times, there were 563,240 homes in Britain worth more than £1m in June 2021, while the Land Registry said the UK’s average house price stood at £250,772 in April 2021. 

Should house prices remain at these levels or increase further, most people should think about taking steps now to protect their estates and ensure as much of their wealth passes on to their beneficiaries as possible. 

The number of savers who breached the annual allowance and the lifetime allowance increased in 2018/19, according to government statistics.

Figures from HMRC show 34,220 people reported saving more in their pension pots than the £40,000 annual allowance in 2018/19, triggering total tax charges worth £817 million. 

The amount of people who exceeded their annual pension allowance in 2018/19 was 14% higher than the previous tax year, when 29,910 savers were caught. 

Savers who breach this allowance can either pay the tax charge via an accounting-for-tax (AFT) return, or via self-assessment tax returns on or before 31 January. 

The stamp duty land tax-free threshold in England and Northern Ireland reduced last month, as the tax holiday introduced in July 2020 began to be phased out. 

The first cliff edge for residential property buyers came and went on 30 June 2021, marking the end of a three-month extension announced on 3 March 2021. 

Buyers who completed their purchases before last month’s deadline avoided having to pay this property tax on the first £500,000 of the property price. 

The holiday enabled those who were able to complete their purchases before 30 June 2021 to save up to £15,000 on their stamp duty land tax bills, although others were not so fortunate.

VAT is a business tax on the supply of goods and services. It is charged at varying rates depending on what is being supplied, who it is being supplied to and where it is being supplied to. 

But with Brexit, temporary rate changes due to COVID-19, the rollout of Making Tax Digital for VAT and new rules relating to the reverse charge and subcontractors, this is a complex time for a business grappling to ensure VAT compliance. With penalties in place for non-compliance, it’s important to seek professional help to aid with navigating any tricky issues.

As a VAT-registered business, you will essentially act as a collecting agent for HMRC. Your business can recover the VAT it incurs on purchases (known as input VAT), but in return must charge VAT on sales (output VAT). 

The difference between the input VAT incurred and the output VAT charged is either paid over to HMRC or refunded each time the business submits a VAT return.

If you’re self-employed, your business will rack up various running costs throughout 2021/22. Some of those you’re able to deduct as allowable expenses. 

By deducting these allowable expenses as part of calculating your business’s taxable profits, it’s possible for us to reduce your income tax bill in the process. 

For example, if your business has turnover of £50,000 in 2021/22, and you have £15,000 in allowable expenses, your taxable profit will be £35,000. This is what you will pay tax on. 

Money you take from your business to pay for private purchases, however, does not count as an allowable expense and cannot be deducted against your business’s profit. 

What’s ahead for companies, from rate rises to Making Tax Digital.

For the past 40 years or so, corporate tax rates have decreased steadily around the world. In 1980, the global average stood at around 40%, but by the end of 2020 it was closer to 24% as various countries aimed to encourage business investment.

Here in the UK, we’ve seen the main rate of corporation tax cut from 28% in 2010 to its current rate of 19%. Plans were originally in place to reduce it even further to 17% in 2020, but those were cancelled at the end of 2019.

Following the COVID-19 pandemic, as governments around the world look to cover the costs they’ve incurred, company tax rates could now be about to go in the opposite direction.

In Spring Budget 2021, Chancellor Rishi Sunak announced that the UK’s main rate would increase to 25% from April 2023, at the same time as a separate small-profits rate of 19% being introduced.