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Welcome...
To February's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Section.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
Please contact us for advice in your own specific circumstances. We're here to help!
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Government climbdown on inheritance tax for family firms
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Chancellor Rachel Reeves recently reversed part of a planned inheritance tax change affecting family-owned businesses and farms. The threshold at which 20% inheritance tax applies was raised from £1m to £2.5m (or £5m for married couples). She is facing mounting pressure to reconsider the policy entirely.
Campaigners argue that even with the higher threshold, the policy still threatens the survival of many family firms. Paul Andrews of Family Business United called for the tax raid to be scrapped entirely, describing the policy as an "ill-thought-out tax grab." He emphasised that family businesses are vital to local communities and economic growth.
Critics say the government should be supporting growth, not burdening family-run companies. The proposed changes to Business Property Relief (BPR) and Agricultural Property Relief (APR) were expected to raise up to £1.8bn for the Treasury. But new analysis by CBI Economics suggests the policy will instead cost the Treasury around £1.9bn by 2030.
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Government rejects call to raise pensioners' tax-free allowance
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A petition asked the Government to create a new tax code for people over state pension age and raise their personal allowance to £25,140. It passed 34,000 signatures, triggering an official Government response.
The Treasury said the proposal is too expensive and rejected the idea, calling it "costly and untargeted." The Government argues that significantly increasing the allowance for all pensioners would not be a focused use of public funds.
More pensioners will pay tax in coming years due to the frozen personal allowance of £12,570 until 2031, and the Triple Lock increasing state pensions, meaning more retirees will cross the tax threshold. An estimated 420,000 additional pensioners will pay income tax in 2025/26 compared to the previous year.
The State pension is rising close to the tax threshold - from April 2026, the full new state pension will rise to £12,547.60, just £22.40 below the tax-free allowance. This narrow gap means many more pensioners will become taxpayers as pensions continue to rise.
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Surge in Cash ISA Deposits
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Savers rushed to deposit money into cash ISAs in October, driven by speculation that the annual allowance might be cut. £4.2 bn was added in October - a 75% increase from September's £2.4 bn.
Of course, the allowance cut speculation did become reality. In the Budget, Chancellor Rachel Reeves confirmed the allowance will drop from £20,000 to £12,000 from April 2027, but only for people under 65. Savers aged 65 and over will continue to have access to the full £20,000 tax-free allowance.
HMRC wants to prevent savers from parking cash in a stocks & shares ISA purely to avoid this lower limit, so they are considering introducing a 20% levy on interest earned on cash held in such ISAs.
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Claims that the Chancellor's U-turns cost £3bn of headroom
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Chancellor Rachel Reeves is reported to have already used up to £3bn of the £22bn fiscal headroom she set out in her November Budget. The spending is linked to a series of U-turns and concessions made since the Budget was announced. Sir Mel Stride, the Conservative shadow chancellor, is urging Ms Reeves to clarify whether her March spring statement will effectively become a mini-Budget due to these changes.
A major U-turn involves scrapping the plan to end Covid-era business rate relief. Treasury sources estimate the cost at around £300m, focused mainly on pubs. Other sources claim the cost could be as high as £2.4bn, depending on whether support extends beyond pubs to shops, cafés, and other high-street businesses.
The Business Secretary, Peter Kyle, admitted that they did not know what the full impact of the Budget changes would be beforehand because the Government didn't have access to information about planned business rates revaluations set to hit the hospitality sector. This has led to the decision reversal.
Meanwhile, rejoining the EU's Erasmus scheme is estimated to have cost more than £500m, while changes to inheritance tax to exempt more family farms are expected to cost £200m.
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February Questions and Answers
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Q: I'm close to going over the capital gains tax limit. How can I avoid a bill?
A: It is important to remember that capital gains tax (CGT) is only payable when you realise the gain. That is to say, if your asset(s) worth has grown more than the annual allowance of £3,000, you pay CGT on the gain above that only if you sell the asset(s).
If you are planning to sell, you might be able to make a partial sale before the end of the tax year, so that your realised gain is below the CGT threshold. You could then make another partial sale in the next tax year. You could also transfer part of your assets into an investment that doesn't attract CGT, like an ISA.
Please get in touch so that we can review your specific situation.
Q: I'm going to become a higher-rate taxpayer, which means my savings will start to be taxed. How do I pay this to HMRC?
A: Congratulations on your earnings going up. You have highlighted that higher-rate taxpayers get a smaller Personal Savings Allowance (PSA) than lower-rate taxpayers (£500 versus £1,000). It is important to note that it is only the interest on your savings that gets taxed, and not the savings themselves. Your rate will be 40% (rising to 42% from April 2027).
Regarding paying this tax, you don't need to do anything. Banks report how much interest you earn to HMRC every year, then HMRC works out if you need to pay more tax. If you do, it will adjust your tax code in order to collect the extra tax over the next year through your employer's PAYE scheme, or it may ask you to complete a self-assessment tax return.
Q: My income is close to hitting the tax-free personal allowance. Is there any way to increase it?
A: With the personal allowance threshold remaining frozen, more people are finding their income is exceeding it and becoming liable for tax. HMRC does have several rules you should make yourself aware of which allow you to legally increase the amount of tax-free income you can earn. They include:
Marriage Allowance - worth £252 a year if one partner transfers their unused tax-free allowance to the other (who must be a basic-rate taxpayer)
Trading allowance - worth £1,000 a year. You can earn this amount from side-hustles and/or selling unwanted items online
Dividend Allowance - you can receive up to £500 in dividends per year, tax-free
Savings Allowance - if your annual income is £12,570 or less, you can earn up to £5,000 from savings without paying tax on the interest
Rent-a-room relief - you can earn up to £7,500 per year from renting a room in your home (you must also be living there).
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1st
- Corporation Tax payments are due for companies with a year-end of 30th April
19th
- For employers operating PAYE, this is the deadline to send an Employer Payment Summary (EPS) to claim any reduction on what you'll owe HMRC.
- It is also the deadline for employers operating PAYE to pay HMRC by post, for January.
22nd
- Deadline for employers operating PAYE to pay HMRC electronically, for January.
28th
- Corporation Tax Returns (CT600 form) are due for companies with a year-end of 28th February.
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