12 days of Taxmas
Unlike the song suggests, partridges build their nest on the ground and are more likely to be under the pear tree than in it. Building a nest egg for the future is important to generate sufficient income to support the lifestyle you might want in a secure retirement.
Pensions are a good way of making these savings and they offer some significant tax breaks:
A partridge in a pear tree
Maximise tax efficiency with your pensions allowance
Join us on our 12 days of Taxmas. A series of 12 short articles with tenuous links to a festive favourite song.
The contribution can give you income tax relief at your highest marginal rate.
The fund grows free of Income Tax and Capital Gains Tax.
You can extract 25% tax free on withdrawal which can be used to create a tax efficient income in retirement.
Most schemes are outside of your Estate for Inheritance Tax.
Having a SIPP also gives you flexibility over the assets in which you can invest your funds and the various flexible ways of accessing the funds in retirement make pensions a good home for your nest egg.
Doves have long been a symbol of love, fidelity and devotion, they mate for life, build homes together and so it is said share the responsibility for home making. A true reflection of love, romance and of course marriage.
Marriage is a partnership and just like doves couples often share property, investments and income. Not only does this create a good foundation for marriage, it has tax benefits too. Equalising income and assets and making best use of a couple’s allowances and lower tax bands is incredibly efficient yet simple tax planning.
It can be particularly useful in a family business, ensuring shareholdings are balanced means dividend payments are more equal, more tax relief can be available on a sale and shares can be transferred between spouses free from Capital Gains Tax.
The biggest tax savings are however on death. Sadly, not the most romantic of proposals but where a couple are married or in a civil partnership and one spouse dies, the surviving spouse inherits tax free. This is not the case for an unmarried couple which can mean an expensive tax bill.
Lets hope romance is still alive and well and buy that ring!
Two turtledoves
Keep it in the family
The third day of Taxmas brings three French hens which made us go all continental and consider the importance of where an individual resides for tax purposes.
The statutory residence test is intended to be realistic – do you (with or without your hens) live in France, the UK or somewhere else as a norm.
As the test forms part of the UK’s tax legislation there is of course more to it than that. Everything has been quantified and you need to monitor how many days are spent where, what ties you have in the country and so on. This enables HMRC to assess residency by fixed rules and can lead to surprise tax demands when they consider you UK resident despite your belief that you habitually live elsewhere.
Getting your residency position correct is of the utmost importance for people living in two countries at once. In order to benefit from double tax relief under the UKs many tax treaties, its vital to make sure you are paying tax in the right country in the right order. Getting it wrong can mean paying tax twice.
So many factors can influence an individual’s liability to tax in the UK under the statutory residence legislation. See our guidance to make sure you are aware of the law and what it means for you.
Three french hens
Find out more about the residence test
The 12 days of Taxmas continues with Four calling birds.
I don’t know about you, but given the choice I’d rather be serenaded by four calling birds than end up attracting the attention of HMRC. Whilst you might have been chipper before you opened that letter, without appropriate advice things can go downhill quickly.
HMRC are sending more and more ‘nudge’ letters in the post and Hayley Ives from our award winning Tax Resolutions team has the following advice:
Getting a letter out of the blue from HMRC is an unwelcome surprise being faced by many as a result of HMRC’s favoured “nudge letter” campaigns. Such letters are targeted at taxpayers with perceived issues to address and failure to act can result in HMRC conducting its own investigation and increased penalties. Sometimes, recipients might want to bury their heads in the sand in the hope that HMRC will forget to follow up, but this won’t happen and could make the situation worse. The best advice is therefore to promptly seek advice from a Tax Resolutions professional who will be able to explore the issues, advise on the most appropriate action and navigate you through the process, whilst ensuring HMRC doesn’t overstep the mark and considers mitigating factors.
See our recent spotlight for more information.
Four calling birds
Get help with VAT nudge letters
Christmas is the time of giving, and though we won’t all be buying gold rings, whether it’s a donation to charity or a gift to a loved one, the festive season is a great time to think about how we can help others.
While tax is not always at the forefront of our minds when making such gifts, there are not only associated benefits to consider which can make gifting even more attractive, but also some potential pitfalls to avoid to ensure that no unintended tax consequences arise.
The type of gift, the recipient and the timing of it will all influence what tax implications arise, whether it be income tax, Capital Gains Tax (CGT) or Inheritance Tax (IHT).
Making charitable donations, for example, will result in higher and additional rate taxpayers being able to benefit from more of their income being taxed at basic rate (20%), and will not have any inheritance tax implications. A gift of valuable jewellery to a family member, however, could result in both CGT and IHT implications.
Take a look at our gifting articles, as well as the gifting and inheritance tax pages of our ‘Your Life Builder’ tool for more information, and get in touch if you would like to discuss further.
Five gold rings
Make the most of gifting
On the sixth day of Taxmas my true love gave to me six geese a-laying.
If you’re lucky maybe you’ll get the goose that lays the golden egg or perhaps it’s a nest egg of different kind that you’re keen to pass on to the next generation. This time of year is all about children after all.
If you’re looking to preserve your family’s wealth and start succession planning you may want to consider a Trust or, as an alternative, The Family Investment Company (FIC) has become a popular choice. A combination of both is often the best structure offering both asset protection and tax efficiency.
We can guide you through the options and work with you to put in place a bespoke structure that meets your family’s needs.
Take a look at our latest articles on FICs and Trusts and the supporting your children page of our “Your Life Builder” tool for more information.
Six geese a-laying
Helping the next generation
The seven swans represent seven gifts that allow us to move on in life, as easily as a swan in water. Moving on requires change and that is often preceded by a period of reflection and planning. Many of us make new year’s resolutions which help to bring our plans to fruition.
A business owner may be planning to exit their business. If a company is solvent, a Members’ Voluntary Liquidation (MVL) may be the answer.
An MVL allows a director to wind down a business and release the funds it holds in a tax efficient way. This is because distributions declared by an MVL liquidator are subject to capital gains tax rather than income tax. Extra tax benefits may exist if shareholders qualify for Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief), then a shareholder can pay just 10% in capital gains tax on the first £1 million of gains.
The link below provides more information on the MVL process. Please get in touch if you would like to discuss further.
Seven swans a-swimming
How best to move on
On the eighth day of Taxmas we come across eight maids a-milking.
Maybe it’s just me, but in the current ‘gig’ economy, I start pondering the employment status of each maid and wondering if the farmer really is dealing with self-employed maids, employed maids or even maids trading through their own limited company correctly.
Whilst many had hoped that the changes which widened IR35 had been consigned to the scrap pile by Kwasi Kwarteng during his short-lived tenure as Chancellor, the subsequent reversal means they are here to stay.
With all this added complexity on IR35 it is easy to overlook the risk that attaches to self-employed engagements that remains unchanged and is an area HMRC are continuing to focus on. Is that self-employed contractor really self-employed or over the years has the relationship morphed into one of employee and employer?
Employment status matters in this day and age not only because of the tax treatment but also the rights attaching to the different categories of ‘workers’.
Making sure to get it right the first time is therefore critical if future difficulties are to be avoided.
Eight maids a-milking
The future workforce
Crowe’s 12 Days of Taxmas continues with nine ladies dancing.
Have you ever seen a group of people out celebrating and wondered what the occasion was? Perhaps a birthday? Or a retirement? How about a divorce party?! A tenuous link we know.
Whether you are celebrating or contemplative, when going through a divorce most people don’t even think about tax. However, it shouldn’t be overlooked as transfers of assets between separating spouses or civil partners are likely to have tax implications.
There has been an increase in divorce rates since the pandemic, and with law changes in April 2022 to allow no fault divorces, and tax changes coming into effect from April 2023, we would always recommend you seek advice to understand your tax position before passing on assets on divorce or separation.
Check out the divorce/separation page of our “Your Life Builder” tool, and our most recent article on the changes in legislation, and get in touch if you have any queries.
Nine ladies dancing
Thinking about divorce
On the tenth day of Taxmas we find ten (land)lords a-leaping; but why are they jumping up and down?
It may have something to do with all the tax changes that they are having to navigate these days. Or perhaps they have just received their tax bill due on 31 January. As if extra stamp duty land tax wasn’t bad enough when buying new properties, the changes to mortgage interest relief can mean landlords end up paying income tax on fictitious ‘taxable profits’ with no cash to pay the actual tax, once mortgage repayments are factored into consideration.
On top of this, extra regulation in the rental sector means landlords are facing more demands on ever shrinking returns. Making sure to hold property via a tax efficient structure is key to generating lasting long term returns – whether that be income in retirement or for something to pass on down the family.
Getting the decision right involves weighing up a number of different factors and this is something that should be considered periodically to make sure things are as tax efficient as they can be, especially when acquiring more properties.
Should you acquire property personally or via a company?
Ten (land)lords a-leaping
Rental property - ownership
Welcome to the penultimate day of Taxmas, day eleven with eleven pipers piping.
There is nothing more festive than a good Christmas tune and what a way to mark the beginning of the end. After a long month of piping away, I bet those pipes will soon need to be replaced.
Whilst I suspect the pipers haven’t given tax much thought, maybe they should have done.
For limited companies, up until 31 March 2023 they can claim a super deduction of 130% against their tax bill. For businesses looking at significant capital investment on plant, bringing the date forward can accelerate the point of tax relief and help with cashflow.
In addition to the super deduction, the annual investment allowance has been increased to £1 million. For some businesses, like our pipers, spending the money on new pipes could even eliminate their tax bill entirely for a whole year; Christmas presents like this don’t come from the tax man all the time so its vital to plan accordingly to make the most of them.
Eleven pipers piping
Super deduction and capital allowances
And on the last and twelth day of Christmas my true love gave to me: twelve drummers banging their drums with the three key points to any financial and tax planning for the future.
Firstly, think about what you are trying to achive and why.
Secondly, take advice and explore all the options. You may need to be open minded and understand that you may not be able to achieve what you want immediately without any adverse tax consequences. Use your advisers to help you make a detailed plan.
And finally, armed with your plan, take the necessary steps to put this into action. Don't cut corners as this could lead to unintended consequences in the future.
There is a common phrase that says "fail to plan, plan to fail". This equally applies to organising your finances. Seeking advice to help you plan before taking any action will help ensure that your plan achieves your aims.
Make making a plan with your advisers your New Years' Resolution.
Twelve drummers drumming
Life Builder - helping you plan ahead
