Everyone wants to make their fair contribution, but it doesn’t make sense to be OVERpaying.
HMRC figures published yesterday show that receipts from IHT are at record levels – £7.1billion in tax year 2022/23, £1 billion more than the previous year. Tax raised by Income Tax, Capital Gains Tax and NIC’s in the same period is £440.9 billion – £47.0 billion higher than in the same period a year earlier. (HMRC tax receipts and National Insurance contributions for the UK (monthly bulletin) – GOV.UK (www.gov.uk))
This is probably due to a combination of covid, plus frozen or reducing allowances taken together with rising asset values – land and share prices increasing. If the IHT thresholds had risen in line with inflation, they would be worth 50% more. Capital gains tax allowances have halved from 6th April 2023 to £6000 per annum and will half again next tax year to £3,000.
Here are five easy steps to ensure you are paying the right amount of tax.
1. Use your allowances
For inheritance tax in lifetime, common allowances are:
- Your annual gift allowance of £3000
- Your additional gift allowance to relatives getting married -£5000 each year to children, £2,500 to a grandchild or great grandchild, £1,000 to anyone else
- Regular payments out of your surplus income each year are tax free
- Most gifts which you survive by seven years fall out of your tax calculations.
For capital gains tax:
- Consider taking profits sooner rather than later- the annual CGT allowance is just that – annual- so use it or lose it!
- Use your full allowances e.g. transfers between spouses are exempt and then each person can each use their annual allowances of £6,000 pa against gains, plus any accrued losses
- Consider delaying a gain e.g. by spreading sales over two or more tax years
2. Look at how your money is invested
If you are a couple, have you more invested in the name of the highest tax payer?
Are you invested in tax efficient investments- certain investments have favourable tax wrappers
3. Give money to charity
Gifts to charity are tax free and can be used in a will to reduce the rate at which you pay IHT on your remaining estate.
4. Spend some…
I surely don’t need to explain that one?!
5. Take advice.
Yes it will cost something, but the cost may be dwarfed by the amount of tax you might be overpaying. All of these allowances and exemptions have rules and qualifying conditions attached, which need careful consideration.
Have a long term strategy and keep it under review.
Our friendly experienced life planning team are all happy to help talk through IHT and other tax planning advice.