This year’s budget did not bring a great deal for advisors to get their teeth into. There are some points that will certainly affect millions of taxpayers though, so we have summarised the key points below.
There are also steps that taxpayers should consider taking before the end of the tax year, when various new rules and rates will come into effect.
- The tax-free dividend allowance (the band on which dividends could be received free of income tax) is to be reduced from £5,000 to £2,000 from April 2018. Having only been introduced in April 2017 the allowance is already being reduced which will affect all taxpayers receiving dividends, including business owners and investors.
- There will be a 1 year delay for quarterly reporting under the Making Tax Digital (MTD) rules for businesses that have a turnover below the VAT threshold (£85,000 for 2017-18). This will be good news for those businesses but unfortunately there do not appear to be any changes to these controversial proposals for other businesses. Plus, the so-called pilot scheme will not have run its full course, so there is no chance of everyone learning lessons from the process.
End of Year Planning
- Residential property rental. From April 2017 the phasing in of restrictions on relief for interest costs for higher rate taxpayers will begin. Initially 25% of such costs will be affected, however this will rise 25% each tax year until all higher rate relief on finance interest is blocked.
- If pension contributions or pension scheme planning might be desired, setting up and contributing to a pension scheme before the end of the tax year (if one is not already in place) could ‘bank’ allowances for the year under the carry-back rules. Those with existing pension schemes have until the end of this year to use up any unused annual allowance from 2013-14.
- If possible, consider declaring dividends where the tax free allowance of £5,000 has not been used up yet.
- Consider new deemed domicile rules if non-UK domiciled. From April 2017 deemed domicile rules may apply to individuals who have been resident for 17 of the previous 20 years. Previously these only applied to inheritance tax but the new rules extend to income tax and capital gains tax meaning those affected will have to report their worldwide income and gains on an arising basis.
A series of articles highlighting key areas that affect taxpayers and practitioners involved with inheritance tax and estates and identifying opportunities to mitigate inheritance tax.
Inheritance Tax & Estate Tax Planning
Inheritance tax and estate planning is an important tool to ensure that wealth is preserved for future generations.
The nature of the planning undertaken will depend on the type and value of assets in the estate as well as the overall objectives such as who is to benefit from the assets, degree of control and distribution of income.
Examples of inheritance tax and estate planning opportunities include:
- Business Property Relief – up to 100% relief for the value of qualifying business interests, shareholdings and assets
- Agricultural Property Relief – up to 100% relief for the value of qualifying land/property used for agricultural purposes
- Woodlands Relief – up to 100% relief against the value of timber on the land, although a charge may subsequently arise if the timber is later sold
- Gifts to charity
- Making full use of allowances such as the annual allowance and gifts on marriage
- Regular gifts out of income
- Outright gifts to individuals/trusts
- Trusts for vulnerable persons
Non-UK Domicile Tax Planning
Non-UK domiciled persons are usually only subject to inheritance tax on their UK situs assets, however where a person has been resident in the UK for 17 out of the last 20 tax years they are automatically deemed to be domiciled in the UK, potentially bringing their worldwide assets within the scope of UK inheritance tax.
However, where a person sets up an offshore trust to hold overseas assets whilst non-UK domiciled/deemed domiciled, the trust will be treated as excluded property and should remain outside the UK inheritance tax net.
In certain cases, it may be possible to restructure the ownership of assets to allow assets that would otherwise be treated as UK situs to qualify as excluded property. Although care will need to be taken, particularly where the recent changes to the stamp duty land tax rules are in point.
Inheritance tax and estate planning is a complex area and advice should be sought before any planning is undertaken.
Anti-Avoidance & Other Considerations
Where inheritance tax planning is to be utilised care should be taken to ensure that the planning does not fall foul of anti-avoidance legislation such as the rules for gifts with reservation of benefit, associated operations, pre-owned asset tax etc.
It will also be necessary to consider the potential impact of the proposed planning on other taxes such as capital gains tax, VAT, SDLT and relevant anti-avoidance rules such as the settlement provisions and transfer of assets abroad.
A further key consideration will be the commercial and practical aspects of the planning – in our experience bespoke advice that is tailored to the individual’s precise circumstances is more likely to achieve the desired result than one size fits all schemes.