For many directors, taking significant profits as pension contributions could be the most efficient way of paying themselves and cutting their overall tax bill. These contributions are treated as allowable business expenses, meaning they can be deducted from the company's taxable profits, reducing its corporation tax liability. By making pension contributions, the company can effectively redirect profits into a tax-efficient retirement savings vehicle.

Example Calculation:
Let's consider a scenario where a UK company, XYZ Ltd, makes a pension contribution of £10,000 on behalf of its director, who is also an employee of the company.
Company Pension Contribution: £10,000
Corporation Tax Rate: 19% (for simplicity)
Corporation Tax Saving = Pension Contribution * Corporation Tax Rate
= £10,000 * 19%= £1,900
In this example, the company saves £1,900 in corporation tax by making the pension contribution.

It's important to note that pension contributions are subject to annual allowance limits and other regulations set by HM Revenue & Customs (HMRC):

As an individual, for the 2023/24 tax year you have a lifetime allowance, on the total amount you can hold for all your pension funds, of £1,073,100. Of note from 6 April 2024 the lifetime allowance will be scrapped. There is also an annual allowance for pension contributions which currently stands at £40,000, or 100% of your qualifying earnings depending on which is lower.

The total for personal and employer contributions reduces by £1 for every £2 of an individual’s ‘adjusted income’ over £240,000 and can impact if your ‘threshold income’ from all sources is over £200,000.

The concept of carry forward allows you to make use of any annual allowance that you haven't used in the 3 prior tax years. This only applies if you were a member of a registered pension scheme during that time frame.

If you have unused allowances from 2020/21, 2021/22, an/or 2022/23 then these can be applied potentially in the 2023/24 tax year. Breaching the rules by paying in too much, on the other hand, results in an annual allowance charge, at your marginal rate of tax.

After the age of 55, you can access your entire pension pot. This is for you to do with it as you please. Be warned though as withdrawals have income tax implications and could result in you moving into a higher tax band.

Trivial benefits are a type of benefit that UK companies can provide to their employees without incurring tax liabilities or National Insurance contributions (NICs). These benefits are considered to be of minimal value and are exempt from taxation under certain conditions. Here's how trivial benefits work and an example calculation:

Trivial Benefits for Employees/Director:

• Trivial benefits are defined as gifts, rewards, or perks that are of a trivial nature and are not provided in consideration of employment services.
• To qualify as a trivial benefit, the following conditions must be met:
  - The cost of providing the benefit does not exceed £50 per employee (including VAT).
  - The benefit is not a cash payment or a cash voucher.
  - The benefit is not provided as a reward for employment services or performance-related reasons.
• Trivial benefits can include gifts such as a box of chocolates, a bouquet of flowers, or a meal out. If you can’t find anything suitable to spend your company’s money on by the end of the tax year, it could instead buy you retail vouchers of £50 each to take maximum advantage of the exemption. The benefit is treated as arising at the time your company purchases the vouchers, not when you redeem them. Don’t buy six vouchers from the same place at the same time, HMRC might argue that this is a single benefit. Buy them at separate times and choose online retailers which offer a wide range of goods to buy.

Tax Savings for the Company:

• Trivial benefits are not subject to income tax or NICs for the employee.
• The cost of providing trivial benefits is deductible as a business expense for the company, reducing its taxable profits and corporation tax liability.

Tax Savings for the Director:

• Directors who are also employees of the company can receive trivial benefits without incurring income tax or NICs.
• The director can enjoy personal benefits without additional tax liabilities, provided the total cost of the benefits does not exceed £300 in a tax year.
• Trivial benefits can be a tax-efficient way for directors to receive small perks or rewards from the company without triggering tax consequences.

Example Calculation:

Let's consider a scenario where a UK company, ABC Ltd, provides a trivial benefit to its director, who is also an employee of the company.

Trivial Benefit Provided: Meal vouchers for a director's dinner worth £50 (including VAT).
Tax Saving for the Director = Value of Trivial Benefit= £50
In this example, the director receives meal vouchers worth £50 without incurring any income tax or NICs. Additionally, the company can deduct the cost of providing the trivial benefit as a business expense, reducing its taxable profits.

Trivial benefits offer a tax-efficient way for UK companies to provide small perks or rewards to their employees and directors. However, it's essential to ensure compliance with HM Revenue & Customs (HMRC) guidelines and regulations regarding the provision of trivial benefits. 

Benefit-in-Kind (BIK) tax is a tax on non-cash benefits that employees receive from their employers in addition to their salary or wages. These benefits are considered to be part of the employee's overall remuneration package and are subject to tax and National Insurance contributions (NICs) in the UK. Here's how BIK tax works and strategies to potentially avoid paying it:

1. How BIK Tax Works:
   • BIK tax applies to perks or benefits provided to employees by their employers that are not considered cash payments, such as company cars, private medical insurance, accommodation, and low-interest or interest-free loans.
   • The taxable value of the benefit is determined based on its cash equivalent value, which is often calculated using specific HM Revenue & Customs (HMRC) rules and guidelines.
   • The cash equivalent value of the benefit is added to the employee's taxable income, and income tax and NICs are calculated based on the total taxable income.
2. Strategies to Avoid Paying BIK Tax: While it's not always possible to completely avoid BIK tax, there are some strategies that employees and employers can consider to minimize its impact:
   a. Choose Tax-Efficient Benefits: Some benefits are taxed more favorably than others or are exempt from BIK tax altogether. For example, certain types of pension contributions, childcare vouchers, and Cycle to Work schemes may offer tax advantages for employees.
   b. Salary Sacrifice Schemes: Employees may be able to enter into salary sacrifice arrangements with their employers, where they agree to give up part of their salary in exchange for non-cash benefits. Salary sacrifice arrangements can reduce both the employee's and employer's tax liabilities.
   c. Use of Allowances and Exemptions: HMRC provides certain allowances and exemptions for specific benefits, which can help reduce the taxable value of those benefits. For example, there are specific rules for calculating the taxable value of company cars and accommodation provided by an employer.
   d. Flexible Benefit Packages: Employers can offer flexible benefit packages that allow employees to choose from a range of benefits based on their individual preferences and circumstances. This can help employees select benefits that minimize their tax liabilities.
   e. Review Benefit Provision: Employers should periodically review the benefits they provide to employees to ensure they are tax-efficient and compliant with HMRC regulations. This may involve restructuring benefit packages or replacing certain benefits with more tax-efficient alternatives.
   f. Seek Professional Advice: Tax laws and regulations regarding BIK tax are complex and subject to change. Employers and employees should seek advice from us to ensure compliance with HMRC rules and to explore tax-efficient benefit options.

While it may not be possible to completely avoid BIK tax, careful planning and consideration of tax-efficient benefit options can help minimize its impact for both employers and employees. 

1. Enhanced Capital Allowances (ECAs):
   • When a UK company purchases new electric cars with zero CO2 emissions, they qualify for Enhanced Capital Allowances (ECAs).
   • Enhanced Capital Allowances allow the company to deduct the full cost of the electric cars from its taxable profits in the year of purchase, providing a significant tax incentive.
   • This means that the entire cost of purchasing the electric cars can be offset against the company's profits, reducing its corporation tax liability.
   • Essentially, ECAs encourage investment in environmentally friendly vehicles by providing accelerated tax relief.
2. Writing Down Allowance (WDA):
   • If the electric cars purchased emit no more than 50g/km of CO2, they are classified as plant and machinery, making them eligible for a Writing Down Allowance (WDA).
   • The Writing Down Allowance for such cars is typically 18% of the remaining balance each year.
   • For electric cars emitting more than 50g/km of CO2, the Writing Down Allowance is reduced to 16%.
   • While not as generous as ECAs, WDAs still provide tax relief by allowing the company to gradually deduct the cost of the electric cars from its taxable profits over time.
3. Tax-Free Reimbursement for Charging:
   • If the company reimburses its employees for the cost of charging the company electric car from their home, this reimbursement is not subject to taxation.
   • This means that employees can charge the company electric car at home without incurring any tax liabilities, providing a convenient and tax-efficient perk.
   • It encourages the use of electric cars by removing tax barriers associated with charging them at home, further promoting environmentally friendly practices.
4. Savings for the Company:

• By taking advantage of ECAs or WDAs, the company can significantly reduce its taxable profits, leading to lower corporation tax liabilities.
• Additionally, providing tax-free reimbursement for charging encourages employees to use electric cars, which can contribute to cost savings for the company, such as reduced fuel expenses and lower carbon emissions.
• Overall, investing in electric cars not only provides tax benefits but also supports sustainability efforts and may enhance the company's reputation as an environmentally responsible organization.

When a UK company provides an electric car to its director, it falls under the category of a company car, which is considered a Benefit-in-Kind (BIK). Here's how it works and an example calculation:

1. Company Car Benefit-in-Kind (BIK):
   • A company car provided to an employee, including a director, is considered a taxable perk known as a Benefit-in-Kind.
   • The value of the benefit is calculated based on several factors, including the car's list price, its CO2 emissions, and its fuel type.
   • For electric cars, the BIK rate is typically lower than for petrol or diesel cars due to their lower emissions. This makes electric cars more tax-efficient as company vehicles.
   • The BIK value is added to the director's taxable income, increasing their income tax liability.
2. Tax Implications for the Director:
   • The director will pay income tax on the BIK value of the electric car provided by the company.
   • The BIK value is calculated using a percentage of the car's list price, which depends on its CO2 emissions and fuel type.
   • However, for electric cars, the BIK rate is typically much lower, resulting in lower income tax liabilities for the director compared to petrol or diesel cars.
   • Directors can also enjoy tax savings by choosing electric cars due to their lower BIK rates and potential exemptions from road tax and congestion charges.
3. Example Calculation:
   Let's consider a scenario where a UK company, XYZ Ltd, provides an electric car to its director, Mr. Smith. The electric car has a list price of £30,000, and Mr. Smith is a higher-rate taxpayer.
   • BIK Value Calculation:
     • Assuming the BIK rate for the electric car is 1%.
     • BIK Value = List Price of Car × BIK Rate = £30,000 × 1% = £300 per year
   • Income Tax Liability for Mr. Smith:
     • Assuming Mr. Smith is a higher-rate taxpayer with a tax rate of 40%.
     • Income Tax = BIK Value × Tax Rate = £300 × 40% = £120 per year
     • In this example, Mr. Smith would pay £120 per year in income tax on the benefit of having the electric car provided by the company. The company can also claim tax relief on the cost of providing the car as a business expense.

Providing electric cars as company vehicles can offer tax advantages for both the company and its directors due to lower BIK rates and environmental benefits. However, it's essential to consider individual circumstances and consult with a tax advisor for personalized advice.

Protecting a large pension:

For the 2023/24 tax year you have a lifetime allowance, on the total amount you can hold for all your pension funds, of £1,073,100. Of note from 6 April 2024 the lifetime allowance will be scrapped. There is also an annual allowance for pension contributions which currently stands at £40,000, or 100% of your qualifying earnings depending on which is lower.

Third party pension contributions:

• A third party pension contribution is a contribution made on behalf of a scheme member by a party other than the member or their employer (or former employer). This could be another individual, a company or other legal entity - for example, a trust. Third party pension contributions are normally made by individuals on behalf of family members - typically for the contributor's spouse, children or grandchildren
• Tax relief on the contributions are based on the recipient member, not the party making the contribution
• Third party pension contributions are gifts and can therefore have IHT implications - but there are some exemptions
• Normally it’s not possible to establish a scheme and pay into it for someone else - the member usually has to establish the scheme. But where the member is a minor, their legal guardian would have to set up the scheme
• A company can, in theory, make a third party pension contribution for an individual who isn't an employee. But in practice, this would be very unusual. It's unlikely that the company's articles of association would allow it to make pension contributions for someone who isn't an employee or former employee. Also, it's unlikely that such contributions would be allowed as a valid business expense and, therefore, the contributions wouldn't be deductible for tax purposes
• Third party contributions can be paid from a trust, if the trust provides for pension contributions to be made

Tax treatment of third party pension contributions

Where a third party pension contribution is made to a registered pension scheme, it's treated as if the scheme member had made the contribution. So it’s the member who gets the tax relief, not the contributor.

The usual tax relief limits apply - relief on contributions up to the greater of 100% of relevant UK earnings or £3,600 - and the contribution counts towards the recipient's annual allowance (and, if applicable, their money purchase annual allowance).

As the tax relief available on third party pension contributions is always based on the tax status of the scheme member:

• a third party contribution to a scheme which operates relief at source (for example, a SIPP or personal pension) will be paid net of basic rate tax and,
• if the scheme member is a higher rate tax payer, they can claim any higher rate tax relief due on the third party contribution.

Example - Tom pays £16,000 into his adult grandson's SIPP in May 2023.

Tom personally gets no tax relief on the contribution. The £16,000 is treated as a contribution net of basic rate tax (20% in 2023/24). The provider adds £4,000 basic rate tax relief to the contribution, which means the grandson benefits from a gross contribution of £20,000.

His grandson was a higher rate taxpayer, so he was able to claim higher rate relief (an additional £4,000) through his self-assessment tax return, even though the contribution was paid by his grandfather.

IHT implications of making third party pension contributions

When an individual makes a third party pension contribution on behalf of another individual, this is an outright gift and, as such, may be considered as a potentially exempt transfer for IHT purposes - unless it's covered by an IHT exemption; typically, one of the following:

• Spousal exemption - gifts between spouses and civil partners are generally free of IHT, provided that the recipient is UK domiciled or deemed domicile. If the recipient is non-UK domiciled, the exemption is limited
• Annual exemption - gifts up to £3,000 each tax year. The annual exemption can be carried forward for one tax year only, meaning that an individual could potentially make an exempt third party contribution of up to £6,000
• Normal expenditure out of income - for this exemption to apply, gifts must form part of normal expenditure and be made out of income. There should be a regular pattern of gifting and the donor must be left with enough income to maintain their usual standard of living

Pension Drawdown: 

If you are 55 or over, you may be able to start drawing down pension benefits now from a personal pension such as a SIPP, even if you are still working. You may take up to 25 per cent tax-free with the rest taxed at your marginal rate. Anyone who is entitled to flexible drawdown and who is considering retiring overseas should seek advice on potential additional tax savings available to them.

Don’t overlook pension contributions: 

The rules around how much you can pay into a pension are complex but the standard annual allowance is £40,000 per person in the current tax year. The standard allowance can be reduced if you earn above a certain limit or have taken pension benefits previously. Pension contributions are paid net of basic rate Income Tax and your pension provider collects the tax relief from HM Revenue & Customs (HMRC).Basic-rate tax relief is currently 20%. So, if you contribute £80 a month, £100 will be invested automatically in your plan – that’s an additional £20 at no extra cost to you. If you’re a higher-rate or additional-rate taxpayer, you can claim the extra relief from HMRC on your yearly tax return or by asking your tax office to adjust your tax code. The value of any tax relief depends on your individual circumstances. It’s essentially free money, so don’t miss out.

Take your pension to the ‘max’: 

Carry forward allows you to make use of any annual allowance that you may not have used during the three previous tax years, provided that you were a member of a registered pension scheme. This may be particularly useful if you are self-employed and your earnings change significantly each year, or if you’re looking to make large pension contributions. To use carry forward, you must make the maximum allowable contribution in the current tax year (£40,000 in 2023/24), and you can then use unused annual allowances from the three previous tax years, starting with the tax year three years ago. You can’t receive tax relief on contributions in excess of your earnings in a tax year, and you only receive higher-rate tax relief to the extent that you have paid it.

It's important to note that pension contributions are subject to annual allowance limits and other regulations set by HM Revenue & Customs (HMRC):

As an individual, for the 2023/24 tax year you have a lifetime allowance, on the total amount you can hold for all your pension funds, of £1,073,100. Of note from 6 April 2024 the lifetime allowance will be scrapped. There is also an annual allowance for pension contributions which currently stands at £40,000, or 100% of your qualifying earnings depending on which is lower.

The total for personal and employer contributions reduces by £1 for every £2 of an individual’s ‘adjusted income’ over £240,000 and can impact if your ‘threshold income’ from all sources is over £200,000.

The concept of carry forward allows you to make use of any annual allowance that you haven't used in the 3 prior tax years. This only applies if you were a member of a registered pension scheme during that time frame.

If you have unused allowances from 2020/21, 2021/22, an/or 2022/23 then these can be applied potentially in the 2023/24 tax year. Breaching the rules by paying in too much, on the other hand, results in an annual allowance charge, at your marginal rate of tax.

After the age of 55, you can access your entire pension pot. This is for you to do with it as you please. Be warned though as withdrawals have income tax implications and could result in you moving into a higher tax band.

Take advantage of Share Schemes: 

If your company offers a share scheme, such as a share incentive plan (SIP) or a share-save (SAYE) there are usually price discounts and tax incentives for taking part:

Invest in an Enterprise Investment Scheme (EIS)

• Maximum investment £1,000,000 (£2,000,000 if amount over £1,000,000 invested in knowledge intensive companies) (CGT deferral unlimited)
• Rate of tax relief 30%. Can be carried back to preceding tax year.
• EIS investment must be held for at least 3 years.
• The eventual gain on EIS shares may be exempt from Capital Gains Tax
• Capital Gains can be deferred where disposal proceeds are reinvested in an EIS within 12 months
  before or 36 months after the disposal.
• A loss on the shares on which EIS relief has been given may be relieved against income tax or capital
  gains tax, subject to income tax relief already received.
• Potential Inheritance Tax relief on the value of the EIS investment if held on death.
• You could consider moving investment funds into an EIS before the end of the tax year to reduce taxable income and enjoy 30% income tax relief. Investments are risky and an IFA needs to be involved.

Venture Capital Trust investment

• Maximum investment  £200,000
• Rate of tax relief up to 30%. Can be carried back to preceding tax year.
• VCT investment must be held for at least 5 years.
• Dividends exempt from income tax
• The gain on VCT shares may be exempt from Capital Gains Tax
• Investments are risky and an IFA needs to be involved.

Seed Enterprise Investment Schemes

Although investing in an SEIS can carry more risk than an EIS or VCT, there is substantial tax relief available to offset a large part of potential losses.

• Maximum investment  £100,000
• Rate of income tax relief 50%. Can be carried back to preceding tax year.
• SEIS investment must be held for at least 3 years.
• The gain on SEIS shares may be exempt from Capital Gains Tax
• Up to 50% of Capital Gain could be exempt from tax if the disposal proceeds are reinvested in SEIS within the same tax year and the individual is entitled to Income Tax relief on the investment.
• A loss on the shares on which SEIS relief has been given may be relieved against Income Tax or Capital Gains Tax, subject to Income Tax relief already received.
  
• You could consider moving investment funds into SEIS before the end of the tax year to reduce taxable
  income and enjoy 50% income tax relief. Investments are risky and an IFA needs to be involved.
  
  

Community Investments

Investing in an accredited Community Development Finance Institution (CDFI) through share purchase, or lending, can make you eligible for community investment tax relief. CDFIs are established with the purpose of providing financial support to both profit-making, and non-profit, organisations in underprivileged areas.

Under this relief, you can receive 5% of your investment as tax relief in the year of investment and for the following 4 years, amounting to a total relief of 25%. Certain conditions need to be met, with the most crucial one being that you must hold the investment for a minimum of 5 years. If you incur losses, you can offset them against your other income in the year they occur.

Your personal car, or motor vehicle, is exempt from CGT. This means you can invest in classic cars and if they rise in value then any gains made from a sale mean you aren't subject to taxation. Of note however, if you incur losses from the sale of these assets, they can't be offset against gains made elsewhere.

Reducing other Investment income:

Savings income (other than dividends) can include:
• Interest on bank and building society accounts, private loans. All bank interest is now paid gross
• Interest on gilts,
• Income distributions from authorised unit trusts,
• Income element of purchased life annuity,
• Chargeable event gains on life policies,
• Accrued income charges on sale/purchase of interest bearing securities, and
• Profits from deeply discounted securities.

The possible options to reduce the taxable investment income include:
• Change to capital growth investments instead of those generating income.
• Change investments to more tax efficient investments such as ISA’s, existing Child Trust fund or Junior ISA, and Bonds.
• Change to more risky tax efficient investments, such as Seed Enterprise Investment Schemes (SEIS), Enterprise  Investment Schemes (EIS) and Venture Capital Trusts (VCT).  Anyone interested in risky tax efficient investments should talk to an Independent Financial Advisor (IFA) first as there are strict rules about these sorts of investments and who is a suitable investor.
• Consider other options, such as transferring some investments into a spouse’s name, or in trust for children. Would the savings be better offset against borrowings?

Move other investment income between spouses
Again holding investments in the name of the spouse paying tax at the lowest marginal rate could provide an annual tax saving. Care is needed if age allowance or married couple’s allowance is available as it may be more efficient to preserve these.

ISAs:

Have you used your maximum annual investment of £20,000? The tax-efficient ISA allowance for the current tax year is £20,000 per person. Therefore, a married couple could put away £40,000 before the 5th April. There is no Capital Gains Tax (CGT) and no tax on UK income and no need to declare this on your tax return. Use it or lose it. If you do not make use of your ISA allowances, they cannot be carried forward to the new tax year.

• Junior ISAs or Child Trust Fund: A Junior ISA is a long-term savings account set up by a parent or guardian with a Junior ISA provider, specifically for their child’s future. Only the child can access the money, and only once they turn 18. There are two types available: a Cash Junior ISA and a Stocks & Shares Junior ISA. The current annual subscription limit for Junior ISAs is up to £9,000 for the 2023/24 tax year. The fund builds up free of tax on investment income and capital gains until your child reaches 18, when the funds can either be withdrawn or rolled over into an adult ISA.
• Lifetimes ISAs: start planning ahead for a first property or retirement; introducde in April 2017, you must be aged between 18 and 40 to open a Lifetime ISA. The Government will provide a bonus of 25 per cent on the money you invest up to a maximum of £1,000 per year. You can save up to £4,000 a year, and can continue to pay into it until you reach 50.

Of note, there are different types of ISA for you to consider for your individual circumstances and what you're trying to achieve. These are detailed below.

It is also very important to consider the implications of saving into various types of ISAs. We recommended you seek advice from an Independent Financial Advisor, or Financial Planner, prior to making any investment decisions.

Bonds:

• Life Assurance Bonds: Insurance backed bonds allow five per cent of the original capital to be withdrawn each year tax-free. Although you need to consider commissions, management costs and basic rate tax charges within the bond, the five per cent tax-free withdrawal is still attractive to anyone whose level of income means they will lose their personal allowance and pay 45 per cent income tax.
• Offshore bonds: As with UK bonds, five per cent of the original capital invested can be withdrawn each year tax-free. Although they are taxed in full when disposed of they provide a useful way of deferring tax.

Crystalise losses on share investments

If shares have fallen in value then it may be worth individuals crystallising the losses by disposing of their interests before 6th April 2023.

• The Capital Gains annual exemption cannot be carried forward and so it can be worth reviewing investments to see if the exemption can be utilised.
• Individuals looking to crystallise losses cannot re-purchase their shares within 30 days of the disposal. However couples, or civil partners, could re-acquire the shares much sooner, where the sale is made by one spouse and re-purchased by the other.
• It may also be possible to claim income tax relief on capital losses where the shares disposed of (or became valueless), were in a ‘qualifying trading company’ and were subscribed for by the individual.

Tidying-up your Investments: Have you realised investments and bond gains or closed deposit accounts where funds may be attracting negligible rates of interest?

• Do you have an up to date will and is it tax efficient?
• One way to reduce the value of an estate for Inheritance Tax purposes is to give funds and assets away. Care is needed if you wish for the funds or assets to be treated as immediately outside of your estate, as you will normally still be taken into account for up to 7 years after the gift. 
• Have you used your maximum gift allowances and considered any gifts you can make out of income? Unfortunately, too many families are still getting a tax shock when their parents or grandparents die, as the government received a whopping £5.2 billion in Inheritance Tax in the last tax year (HMRC, 2020). Although the tax-free threshold of £325,000 per person may seem generous, the rate at which Inheritance Tax (IHT) is paid on the rest of your estate – 40% – is not.
• Switch your assets: Inheritance Tax (IHT) must be paid on the value of any estate above £325,000. However certain assets including business and agricultural as well as shares in private trading companies qualify for 100 per cent relief from IHT. The Resident Nil Rate Band (RNRB) was introduced in 2017 and applies to a residence passed, on death, to a direct descendant. It is being introduced in stages – £150,000 in the current tax year, rising to £175,000 by 2020. From April 2020 you will have a nil rate band of £325,000 plus RNRB of £175,000, – which, in total, provides an IHT allowance of £500,000 per person, so a married couple could have a £1million allowance. Furnished Holiday Lets could in some circumstances qualify for Business Property Relief if significant extra services are provided (although care is needed, as it can be very difficult to achieve this relief and so will very much depend upon the exact circumstances). Some residential landlords may see it as attractive to change to a furnished holiday let to avoid the changes to interest relief and not be worried about the Inheritance Tax implications. 
• Charitable and personal gifts: If you leave at least 10 per cent of your net estate to charity a reduced rate of 36 per cent rather than 40 per cent applies and could save your family money. Gifts to a spouse can be made now to use up his or her nil rate band and could help you to reduce the value of the part of your estate above the £325,000 band. Other gifts may be free of IHT but it is important to seek advice first.
• Passing on your pension: Following the change to pension rules in 2015, if you have not already done so, you should revisit your current plans and update your Will to ensure that your family receives the full benefit of any remaining pension fund when you die.
• Trust Funds: There are many ways that a formal trust fund can protect and maximise your family’s future assets. There have been a number of changes to the treatment of trust funds recently which are complex and could affect some people.
• Small gifts are exempt from Inheritance Tax (IHT). Take advantage of exemptions. You can give away up to £3,000 a year, which is known as your ‘annual allowance’, and this will be immediately exempt from IHT. This exemption can be carried forward for one tax year if unused and so it is possible for a married couple to gift away as much as £12,000 using the annual exemption, on the basis neither of them has used the exemption already in the current or previous tax year. In addition, lifetime gifts to any person that do not exceed £250 in a tax year are exempt. Furthermore, lifetime gifts in consideration of marriage are also exempt – for example, parents can gift £5,000, grandparents can gift £2,500 and gifts of up to £1,000 can be paid from others. For instance, you could contribute towards a child’s Junior ISA. You could also pay £2,880 into a child’s pension this tax year, and this will be grossed up to £3,600 by basic rate tax relief. But bear in mind that, under current pension rules, the child won’t be able to access the money until they are 55. You should also ensure you set up a Will– or if you already have one, ensure you review it regularly. This can also help you avoid falling into Inheritance Tax traps by, for example, setting up trusts for your beneficiaries 
• Leave the family home to a direct descendant. An additional Nil Rate Band of £175,000 is available for family homes left to direct descendants, including adopted, step and foster children. Any unused band can be transferred to a spouse or civil partner. This nil rate band will reduce for estates worth more than £2 million. It may be possible for this Nil Rate band to still be available where individuals no longer own the residence or have downsized, providing certain conditions are met.
• Business owners have long benefited from Inheritance Tax (IHT) savings and now private investors can too with ‘Business Property Relief’ (BPR). This is one of several tax incentives available to support investment into small UK companies. Unlike gifts and Trust arrangements which usually only achieve IHT savings after 7 years, a BPR investment is effective after just 2 years. Investments that qualify for BPR can be passed on free from inheritance tax upon the death of the investor, provided the shares have been owned for at least two years at that time.

You need to consider your assets and investments carefully every year. This is with a view to ascertaining if actions, and disposals today, would work best for you by making use of existing tax rates, and reliefs. This is especially so given the CGT annual allowance is set to reduce in the 2024/25 tax year to £3,000. Every individual has an annual CGT allowance which currently enables them to make gains on investments of up to £6,000 free of tax. If unused, the allowance can’t be carried forward into the next tax year, so it’s advisable to use this tax-free allowance each year in order to reduce the risk of incurring a significant CGT bill in future years. 

This highlights the need for careful planning to make best use of the annual exemption and could include the transfer of assets between you and your spouse, for example. 

If you consider the tax bands and rates, if one spouse is a higher rate taxpayer, and the other hasn't used their basic rate band to its entirety, then assets could potentially be transferred. This means you could then access the 10% basic-rate (if the asset is not a residential property), rather than being subject to the 20% higher/additional-rate.

Where you've sold a residential property, remember that the gains must be reported and paid to HMRC within 60 days of the sale. If you own more than 1 home, you may need to consider electing one of them as a principal private residence (PPR). Any gains on the sale of your PPR are usually exempt from CGT. Remember, you have 2 years in which to make an election.

If you are separating, or are in the process of divorce, then there will likely be the consideration of the transfer of assets. For the purposes of CGT this works on a no gain/no loss basis. The legislation was updated on 6 April 2023 whereby separating couples now have up to 3 years from the end of the tax year of separation in which to transfer assets, and benefit from the nil gain, nil loss, treatment. Previously assets could only pass between separated spouses and not be subject to CGT in the year of permanent separation.

Any investment in cryptocurrencies that results in gains means CGT is likely to apply. The government don't treat crypto as money. This mean you will be taxed on the realised profits when you either:

• Trade for other cryptocurrency or;
• Convert the cryptocurrency into pounds sterling

Also, purchasing assets using cryptocurrency can also trigger a CGT liability. As an example purchasing an asset such as art with cryptocurrency for £60,000 when your crypto originally cost you £50,000 will mean there is a CGT charge on the £10,000 of crypto gain.

Business Asset Disposal Relief

If you have sold a business, or you're selling a business asset, then Business Asset Disposal Relief (BADR) may apply. Where this is the case, CGT is charged at 10% on any gains you make from the qualifying business assets. This is particularly significant for higher-rate tax payers as the CGT liability could be halved from 20% to 10%. 

BADR is subject to a lifetime limit of £1m per person and applies to a sale for businesses trading as the following:

• Sole trader
• Partnership
• Limited company
  
• Joint venture
• Trust

If you own a business then you should review your BADR position regularly, the rules are sophisticated and it's easy to deviate away from them. You'll therefore need to plan carefully prior to any sale to ensure you're fully compliant with the legislation.

It may also be worth considering transferring shares between spouses, or civil partners, if you're in a family business.

Move other investment income between spouses

Holding investments in the name of the spouse paying tax at the lowest marginal rate could provide an annual tax saving. Care is needed if age allowance or married couple’s allowance is available as it may be more efficient to preserve these.


Move rental income between spouses

Holding rental property in the name of the spouse paying tax at the lowest marginal rate could provide  an annual tax saving. Care is needed if age allowance or married couple’s allowance is available as it may be more efficient to preserve these.

For some couples it may be worth holding the property jointly, as distributions will be taxed in proportion to their respective entitlement.



Move unused Married Couple’s Allowance (MCA)

Married Couple’s Allowance (MCA)
• Available to married couples and civil partners, where at least one born before 6 April 1935 and living together.
• After 5 Dec 2005 given to spouse with higher income, unless claimed otherwise.
o Lower income spouse can claim one half of MCA
o Both can jointly transfer full MCA.
• MCA is given in full in year of separation or death of either spouse.

Income limits

• If married before 5 Dec 2005 then MCA is reduced by half of the excess of husband’s income over a certain limit.
• The minimum MCA is currently £3,630.
• If married after 5 Dec 2005 the MCA reduction is governed by the spouse with the higher income.



Move unused Personal Allowance (Married transfer)

• Where both in couple are no more than basic rate taxpayers – one can transfer up to £1,260 of their personal allowance to the other.
• Couples entitled to MCA can not make the claim.
• Election must be made by transferor within 4 years of end of tax year.
• Election continues while conditions met, or until withdrawn, unless made after tax year in which
case only that year applies.

New Property Returns for residential property

From 6th April 2020 there were some significant changes for residential property disposals.

Where a residential property is disposed of after 5 April 2020 and a chargeable gain arises, the client will be required to complete a Residential Property Return to HMRC within 60 days of completion (30 days if sale completed prior to 27 October 2021) and pay over the Capital Gains Tax at the same time.

No property return is required if the disposal results in:
• A no gain/no loss disposal, or
• A disposal where no tax is due, such as;
o the gain is covered by main residence relief,
o the gain is below the capital gains tax exemption,
o A capital loss arises on the sale of the property, or
o Capital losses arising prior to sale of the property wipe out the gain on the property sale

If there is a gain and a Property Return is required;

If capital losses have been made elsewhere before the completion date of the property sale (but not between completion and the filing of the Property Return) then it can be set off against the gain when working out the tax to pay across.

If the capital loss wipes out the gain, then no Return is required. You would still need to declare the disposal on your normal Self-assessment return. A reasonable estimate of the capital gains tax is due and evidence to back up that estimate should be kept.

If the reasonable estimate proves to be understated, then the balancing payment is due 31st January following the end of the tax year the disposal is made. No interest will be charged on the balance.

The penalty regime will be the same as it is for self-assessment, but without the £10 daily filing penalties (Sch55 FA 2009):
• £100 initial late filing penalty
• Further penalty if six months late: 5% of the capital gains tax due or £300 – whichever is greater
and
• Further penalty if 12 months late: 5% of capital gains tax due or £300 – whichever is greater

The usual trigger point for capital gains tax on property is the exchange of contracts date and not the completion date.

Non-resident disposals are already subject to this new regime.

Stamp duty

Stamp duty is a payment to HMRC when you purchase a property, or land, in England and Northern Ireland. How much Stamp Duty Land Tax (SDLT) you owe, if at all, depends on the price paid and your individual circumstances as the buyer.

Changes that came into effect on 23 September 2022 will remain in force until 31 March 2025. This means if you're a first time buyer, you won't need to pay SDLT on the first £425,000 of the property you purchase, provided the property is worth £625,000 or less. Previously this was £300,000.

For existing homeowners, SDLT kicks in at £250,000, up from a prior level of £125,000.

Property Investments and the calculation of taxable income

If you have a buy-to-let property and you're a higher, or additional-rate taxpayer then you'll only be able to claim relief on the interest you've paid at the basic rate. It means your property income for tax purposes will no longer be fully reduced by any mortgage interest you pay.

You need to review this carefully, the implication being your taxable income could then exceed thresholds and that could then reduce your personal allowance (see the earlier section on income tax), thereby giving rise to a greater tax liability. 

If you have a spouse, or civil partner, and one of you is a basic-rate tax payer where the other is a higher-rate taxpayer, it may be advisable for the partner earning less income to be the recipient of taxable rents. This will be particularly pertinent if there is a loan on the property given interest relief is restricted.

Strategies such as the above are applicable if you're purchasing a second property for the first time. However, if the higher earner owns the property then options could include transferring up to 50% to the lower earner. This shouldn't trigger a capital gains charge, however, a SDLT charge would be incurred on the value of any borrowing taken on by the new owner if this is above the tax free threshold.

Be sure to take advice prior to any asset transfers because perceived tax efficiency could easily be reversed in the event other taxes are triggered by the transfer. This is why tax advice and strategy should be based on your whole circumstances and not just one single area of legislation. 

In some circumstances if may be advantageous to hold your property portfolio in a limited company. So long as the loan interest doesn't exceed £2m per year then your company can deduct interest in full as an expense when calculating profits from your lettings. Furthermore the company will pay up to 25% corporation tax on the rental profits.

Making use of a limited company should be considered carefully because distribution of the profits via dividends will probably give rise to taxation, and whilst transferring the properties shouldn't result in a CGT liability (subject to satisfying certain criteria), you will likely incur a SDLT charge based on their market value.

A property letting company can't qualify typically for BADR from CGT unless the lettings in question are furnished holiday lettings. If you have a high level of income from other sources then it's worth taking advice on the long term benefits of running your property portfolio through a limited company, albeit this will come with an administrative burden of running a company.

Letting a room in your home, and furnished holiday lettings

Rent a room relief provides an allowance to cover rents of up to £7,500 a year. This means you can rent out a room in your main residence for up to £144 a week and not be subject to income tax. The allowance is split between couples and if your income exceeds £7,500 then normal income tax rates apply. If you claim the allowance then deducting expenses is not applicable. 

Furnished holiday lets provide various tax benefits including:

• Claiming capital allowances on part of the purchase price paid and development costs for refurbishment
• If shared ownership, you can flexibly distribute profits, whatever the ownership percentage split, between you to help reduce your tax liability
• Claim CGT reliefs should you sell the property including BADR, Business Asset Rollover Relief, and Gift Hold-over Relief
• Claim business expenses for commercial use against your revenue such as utility bills, refuse collection, interest on associated loans, letting agency fees, advertising, cleaning products, maintenance costs, and cleaning costs

The conditions are that the property must be available for let for 210 days in the tax year (or relevant 12 month period). It must also be actually let for 105 days and each let period has to be less than 31 days.

Selling the family home

From 6 April 2020;
• The final period of exemption for Private Residence Relief has been reduced to 9 months from the 18 months. This can impact on anyone that has had a period of absence from their home at any time during the period they have owned the property. The rules for anyone in care homes, moving into care homes or classed as disabled will remain at 36-month exemption.
• Lettings relief is restricted and only available to those that lived in the property at the same time as the tenant. This will impact on anyone that has rented out their home at any time, either prior to or after they have lived in it.
• Make some revisions to job related accommodation by extending it to serving members of the armed forces, who are required to live away from home.
• Legislate two extra statutory concessions, ESC – D21 Late claims in dual residence cases and D49 short delay in owner occupiers taking up residence.
• Allow couples and civil partners to inherit each other’s history, where one individual transfers all or part interest in a residential property to their spouse or civil partner.

If you earn £100,000 or more, your tax-free personal allowance falls by £1 for every £2 you earn over £100,000. So if you earn £121,200 or more, you won’t receive a tax-free personal allowance at all. The additional rate Income Tax (45%) is also charged on earnings over £150,000.

Pension contributions and other tax planning options, such as putting income producing assets into a lower-rate tax-paying spouse’s name, could be used to reduce this. As well, you can use your Spouse’s Personal Allowance.

• Gift Aid donations: Gift Aid donations will also reduce an individual’s income level when calculating adjusted net income for the personal allowance. The donation will also increase the basic rate and higher rate bands, so income is taxed at lower rates. Individuals could consider donating assets to charity (e.g shares, land and property) prior to the end of the tax year and obtain income tax relief on the gift. Any gains arising on the asset gifted will be exempt from CGT and the gift is not subject to IHT
  
  
• Avoid the Child Benefit trap: Whilst Child Benefit is tax free, where an individual or their partner are in receipt of Child Benefit, then an income tax charge can arise if either of their incomes exceeds £50,000. The charge is 1% for every £100 the individual’s income exceeds the £50,000 limit, until the full Child Benefit is repayable for incomes in excess of £60,000. Possible options include:
  • Be careful with timing of dividends out of own company,
  • Splitting income or arranging a couple’s investments so that their annual incomes are both below £50,000,
  • Payment of personal pension contributions can reduce the income on which they are assessed, and
  • Income taken as childcare vouchers is excluded from the calculation.
  
  The Government encourage individuals that are above the £60,000 income to stop claiming their child benefit. However if an individual’s circumstances change and their income falls, then the new Child Benefit claims can only be backdated by up to 12 weeks. Hence it could be too late if an individual is self-employed and not aware of the level of their profits until the end of the tax year.
  
  It can be more prudent to continue to claim Child Benefit each week and then should circumstances warrant repay the required Child Benefit under self-assessment. This will provide a cash flow advantage and ensure individuals do not miss out.
  
  
  
• Take advantage of Tax Free Childcare: 

The tax-free childcare scheme offers you up to £2,000 towards your childcare costs per year. The scheme can be used to help you pay for up to £10,000 of childcare per child each year, or £4,000 in cases of disability. This sum can go towards childminders, nurseries, childcare costs and potentially even some holiday camps, and the scheme is open to all workers including self-employed.

Eligibility for tax-free childcare is lost when one parent’s income is above £100,000. Pension and gift aid contributions are, however, deductible in calculating the £100,000 income figure. Following such a strategy could therefore result potentially in tax free childcare being retained.

The scheme runs until the September after your child turns 11, or age 16 if they're disabled, so it's definitely something to consider if you are below the £100,000 threshold.




• Thinking of emigrating? Plan carefully; keep track of your visits to the UK
  
• In the event of divorce – don’t forget tax