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Welcome...
To September'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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Could you be hit with an inheritance tax bill long after an estate is settled?
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Experts have highlighted several practical and policy concerns about the Government's planned inheritance tax (IHT) changes for pensions, set to take effect from April next year. They warn that the proposals do not account for lost or forgotten pensions, which are common. Lost pensions total £31bn, averaging £9,470 each, and the value of unclaimed pots has risen 60% since 2018 according to Pensions UK.
If a pension is found years after someone's death, the IHT bill for the entire estate may need to be recalculated, potentially reopening settled estates. Executors will not be liable for any tax due on pensions discovered after they have already received clearance from HMRC confirming that all inheritance tax due has been paid. Instead, HMRC would need to revisit the initial calculations, including any tapering of the residence nil-rate band, potentially landing beneficiaries with an additional tax bill years down the line.
The Chartered Institute of Taxation (CIOT) calls the proposals "highly unsatisfactory", warning of unfair tax bills, delays in settling estates, disputes between families, pension providers and executors, and an increased administrative and compliance burden for HMRC. The CIOT said that the new rules should be changed so that a pension discovered after an estate has been wound up should incur IHT at a flat rate, which would vary depending on the tax position when an estate was finalised.
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Preparing for the Autumn Budget
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The new Chancellor of The Exchequer, John Healey, has announced that he will deliver his first Budget on 28 October. There's also a new Prime Minister in Andy Burnham, so speculation is rife as to what tax rises may be announced. Both have stated that they will remain true to the set of fiscal rules set out by Mr Healey's predecessor, Rachel Reeves.
The Prime Minister has hinted he may "ask for a bit more in tax" to fund policy plans and as the fiscal rules and reduced headroom mean limited scope for borrowing, this does push the Chancellor toward tax rises. Economists expect increases similar to the £26bn rise in November 2025, or even £42bn if spending plans are very high.
Labour has committed not to raise income tax, VAT, employee NI, or onshore corporation tax - together 54% of the tax base. Stamp duty and council tax reform are also ruled out, and experts say large structural reforms are unrealistic before October. Economists predict a "dog's breakfast" of smaller measures rather than big reforms. Key candidates include capital gains tax, pension taxation, "sin taxes" and wealth taxes.
Experts strongly advise not making major financial decisions based on speculation. Instead, focus on actions based on current rules. Use your full £20k ISA allowance and maximise pension tax relief while it exists in its current form. Prepare for known upcoming changes such as the cash ISA allowance dropping to £12k for under 65s next year and pensions being included in estates for inheritance tax calculations.
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Inheritance tax case lost by HMRC; more families could benefit
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HMRC lost a major inheritance tax case, potentially affecting thousands of families who used historic home-loan inheritance planning schemes. The case involved Leslie Elborne's £1.8m home, where her family successfully overturned HMRC's attempt to levy inheritance tax. As a result, her estate avoids an estimated £700k inheritance tax bill.
In 2003, Elborne sold her home to a trust in exchange for a loan note. She then transferred the loan note to another trust for her children. She continued living in the home rent-free. Because she lived more than seven years after the transfer, the loan note fell outside her estate under the rules at the time.
The Court of Appeal ruled that HMRC's anti-avoidance arguments didn't apply, as the scheme pre-dated later rule changes and complied with the law then in force. This ruling sets a significant precedent for families involved in similar legacy home-loan schemes. It may lead to reduced or cancelled inheritance tax liabilities for many long-running disputes.
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HMRC issues a new scam warning as reports rise
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HMRC is alerting taxpayers to a rise in fraudulent messages impersonating the tax authority. It says it is receiving increased reports of scam emails claiming people are due a Self-Assessment tax refund for 2024-25. These emails pressure recipients to act urgently and provide personal or bank details.
HMRC stresses it will never send an email with an urgent deadline to claim a tax refund. To check a legitimate refund, taxpayers should log in securely via GOV.UK or the HMRC app. HMRC urges people to stop and think before sharing information or opening links/attachments in unexpected messages.
If unsure, do not click anything and report the message to HMRC. GOV.UK provides a list of genuine HMRC contact details to help verify messages.
Suspicious phone calls can be reported through HMRC's online service (requires email or sign-in).
Suspicious text messages should be forwarded to 60599 (network charges apply). HMRC will never notify you of a tax rebate or request personal/payment details by text message.
Suspicious emails can be forwarded to phishing@hmrc.gov.uk, then deleted to avoid accidental clicks.
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September Questions and Answers
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Q: I have three pension pots (each over £50k) that I will be able to take my 25% lump sums from soon. Is there a most tax efficient way to do this?
A: It is important to remember that your pension withdrawal strategy should be shaped by your spending needs and not just tax optimisation. Also, you do not need to take the full 25% tax-free cash (up to the value of £268,275) all at once.
It has no impact on tax efficiency how much you take from each pot (up to the limits mentioned above). But you could stagger the overall amount that you take to avoid pushing yourself into a higher income tax band.
From April 2027, anything left in your pension will be included in your estate for Inheritance Tax (IHT) purposes. If it is likely your beneficiaries will be liable for an IHT charge, they will also pay income tax at their marginal rate when they draw from those funds. However, if you move your tax-free cash into an ISA, it will only be liable to IHT.
Q: I'm the owner of my limited company and have been told that transferring shares to my spouse (who works in the business) can save tax. Can you explain how please?
A: Firstly, I will have to assume that you pay yourself a salary up to your Personal Allowance (£12,570) and take the rest of your income in the form of dividends. I will also assume that you are being taxed on those dividends at the higher rate of income tax.
If you transfer some shares to your partner, your family can use two sets of the personal allowance, dividend allowance, and possibly basic-rate dividend band (if the amount of dividends you take is now below the higher-rate threshold). This reduces the total tax paid on the same income pot, increasing the family take-home pay.
These shares must carry full voting, capital, and dividend rights. You cannot create "dividend-only" shares to funnel income to a partner as HMRC will treat the income as still belonging to the original owner if the shares lack genuine economic rights. Married couples can transfer shares at no gain, no loss for Capital Gains Tax (CGT) purposes. Any restructuring must be done properly, i.e. update Articles, notify Companies House and involve an accountant / solicitor.
There's an additional tax benefit should you sell the business. If both partners own shares, they each access CGT allowances and reliefs on the sale.
Q: I have a large life insurance policy that will put my estate over the threshold for Inheritance Tax. Is there anything I can do to mitigate this?
A: Whilst life insurance payouts themselves aren't taxed, they become part of your estate. If your estate exceeds £325k (or £650k for couples), the excess is taxed at 40%.
You can avoid IHT entirely on your life insurance policy by writing it into a trust to separate it from your estate. You appoint trustees, which can be done at any time, often free of charge for straightforward cases. They manage the policy for the benefit of the dependents you'd like the money to go to. You also avoid any probate delays in releasing the funds.
If you'd like to find out more about this, please get in touch with us.
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1st
- Corporation Tax payments are due for companies with a year-end of 30th November.
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 August.
22nd
- Deadline for employers operating PAYE to pay HMRC electronically, for August.
30th
- Corporation Tax Returns (CT600 form) are due for companies with a year-end of 30th September.
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