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What is “Making Tax Digital”?

Making Tax Digital (MTD) is a government initiative to modernise HMRC’s tax system, with the aim of making the whole process of administrating tax simpler and more efficient. All of your tax information will be in one place (your digital account) and you will be able to pay tax based on your business activity during the year and you can upload and update your tax account in real time.

Will it affect me?

If you own a business, you are self-employed or a landlord and you pay income tax, national insurance, VAT or corporation tax then it is quite likely you will be affected. This means you will be required to keep track of your tax affairs digitally using MTD compatible software, and to update HMRC at least quarterly via your digital tax account. Eventually this will abolish the annual tax return. This will be the law and there will be penalties for non- compliance.

What do I have to do?

You will need to open and log into your digital account. Everyone will be allocated one through the current Government Gateway. Then you will need to ensure your accounting software can update this account at least quarterly. For most businesses this means a move away from desktop and onto Cloud based accounting software. You are required to choose digital (Cloud) software to maintain your business records and to provide updates of information to HMRC. You will be prompted to send summary updates directly to HMRC – quarterly updates will need to be submitted within a month of quarter end, and an end of year activity report will be due within nine months of the end of the accounting year.

Your accountant can advise you on the software you will need and how to comply with the new quarterly reporting requirements.

When is all this happening?

MTD starts with unincorporated businesses for accounting periods commencing on or after 6 April 2018. There are various dates after this when other types of businesses have to comply.

What’s next?

Your accountant should contact you through 2017 to prepare you and get you ready for Digital Tax well in advance. In the meantime, if you want to discuss how this affects you and your business please contact us.

 

How can you strike a balance between retiring when you want to, receiving the income you need and not paying more tax than you have to? Peter Watters spoke to McPhersons Financial Solutions to find out more.

Drawdown could be an answer. mcphersons financial

What is drawdown?

For those currently aged 55 and over, drawdown is one of the main alternatives to an annuity. If you don’t need all of your pension to provide a secure income immediately, you can use drawdown to keep your pension invested while drawing an income as and when you want to. There is no maximum limit to the income you can withdraw; which you can stop, start or change at any time to meet your needs.  You also have the option to buy an annuity at any point in the future if you wish to.

It is the flexibility of drawdown which makes it appealing.

It offers the potential to increase your pension value through investment growth and the chance to protect your income from inflation. Your loved ones can also continue to withdraw the remaining pension after you die, as an income, or alternatively as a lump sum, and tax free in many cases.

The amount you draw down should depend on how your investments perform and how long you would like your pension to last. Drawdown is higher risk than an annuity; there are no guarantees and your income is not secure. If your investments perform poorly, you withdraw income too quickly or you live longer than expected, you could run out of money.

The tax advantage

The main tax advantage of drawdown is when you don’t need to use all of your pension pot to provide an income. There is no requirement to use your entire pension fund in one go or to draw it at its earliest point.

Partial, or phased, drawdown can be used to maximise this tax advantage; which simply means splitting your pension into parts and converting each part to drawdown at different times, as and when you need the income.

Each time you convert a part of your pension to drawdown you can usually take up to 25% of that amount as a tax-free lump sum up front.

For those who don’t need immediate income, it is possible to just withdraw the tax-free cash for the time being and leave the rest invested to provide a taxable income later on.

This is a strategy favoured by many who are already using drawdown. These investors have taken their tax-free cash and are keeping their pension fund invested for future growth.

You may wish to use this tax-free cash to add to other sources of income. This could be particularly useful if you reduce your working hours or perhaps take on part-time work during retirement. The tax-free cash can supplement your earnings, without increasing the tax you pay.

For example, if you earn £11,000 a year, and you move £30,000 of your pension into drawdown, you could take up to £7,500 (25%) as a tax-free lump sum up front; boosting your annual ‘income’ for that tax year to £18,500. Assuming you receive no other taxable income in that same tax year, the whole £18,500 would be tax free. The £22,500 remaining in drawdown could be left invested to draw a taxable income from in later tax years.

You can move more money into drawdown as many times as you like, until you have exhausted the tax-free cash part of your pension. You could repeat this process while you transition into full retirement, replacing any reduction in your earnings with tax free cash or taxable income from your pension.

It’s important to remember tax rules can change and benefits depend on individual circumstances.

Please get in touch now to arrange your free meeting on 01424 730000 or info@mcphersonsfs.co.uk. 

What you do with your pension is an important decision. Therefore, we strongly recommend you understand your options and check your chosen option is suitable for your circumstances: take appropriate advice or guidance if you are at all unsure.The government’s Pension Wise service can help. Pension Wise provides free impartial guidance on your retirement options.

 

 

 

Various rumours were swirling around Westminster in the days before Philip Hammond rose to deliver his first Budget – confirmed as the last time a major fiscal statement will be made in the spring.

The Chancellor, still scarcely nine months in the job, has a reputation as a cautious man and in advance many expected that much of today’s speech would be laying the ground for the Prime Minister to begin formal negotiations for the UK to leave the EU.

That said, the day before Mr Hammond stood up to address the Commons, the Organisation for Economic Co-operation and Development (OECD) upgraded Britain’s growth forecast, which inevitably raised questions about whether there was yet room for manoeuvre.

Would the Government prove willing to make money available to shore up struggling services or answer the growing criticism over business rates reforms? Would it be tax rises or surprise giveaways bothering the headline writers?

Economic overview

In his opening statement, the Chancellor said that the resilience of the UK economy had continued to defy expectations and the country had enjoyed robust growth. Indeed, he noted that last year Britain’s growth was behind only Germany’s among the world’s biggest economies.

Mr Hammond confirmed that the Office for Budget Responsibility (OBR) had raised its growth forecasts for the year, with the economy now projected to grow by two per cent in 2017, compared with the previous estimate of 1.4 per cent. The independent body suggests growth next year will be 1.6 per cent and in 2019, 1.7 per cent.

But he made clear that there was no place for complacency in the current climate, acknowledging that levels of debt were still too high (peaking at 88.8 per cent next year), productivity needs to be improved and many families up and down the country continued to feel the pinch almost a decade on from the financial crash.

OBR figures also suggest that inflation will peak at 2.4 per cent this year, with expectations that it will drop off as we approach the end of the decade.

Trying to strike a balance between prudence and positivity, the Chancellor told MPs that the Budget presented an opportunity to put money into public services while ensuring that the nation continued to live within its means. Crucially, he said, the tax and spending plans would form the bedrock of the EU negotiations ahead.

Business and enterprise

Following several weeks of sustained criticism over the burden that business rates changes would place on many enterprises, Mr Hammond announced a three-point plan which he said would amount to an additional £435million support.

Any firm losing existing rate relief will be guaranteed that their bill will not rise by more than £50 a month next year. In addition, there will be a £1,000 discount for pubs with a rateable value of less than £100,000 and the creation of a £300million fund which will enable local authorities to offer discretional relief.

The Chancellor made clear that a fair tax system was one of the best ways to make Britain a top destination for businesses. He reiterated the commitment made by his predecessor, George Osborne, to bring the Corporation Tax rate down to 17 per cent by 2020. A reduction to 19 per cent will take effect from next month.

Following concerns about the current timetable, he confirmed that quarterly reporting would be delayed for small businesses for a year (at a cost of £280million).

Transport and infrastructure

Acknowledging that congestion was an issue in large parts of the country, Mr Hammond said that some £690million would be made available to tackle traffic problems in urban areas and get local networks moving more freely.

The Chancellor also announced a £270million investment to keep Britain at the forefront of research into biotechnology, robotic systems and driverless cars.

An additional £200million will be ploughed into projects to help secure private sector investment in full-fibre broadband networks and £16million put aside for a 5G mobile technology hub.

Personal tax

Controversially, it was revealed that National Insurance contributions will rise for the self-employed.

Under proposals, Class 4 NICs will increase from nine per cent to 10 per cent next April and to 11 per cent in 2019.

Trying to defend what will undoubtedly be a contentious move, the Chancellor said that the “unfair discrepancy” in contributions between different groups of workers could no longer be justified. Critics have suggested the move has broken with a commitment in the 2015 manifesto.

In more positive news, the personal allowance will rise to £11,500 – the seventh consecutive increase.

The Chancellor reiterated the Government’s previous commitment to increase the allowance to £12,500 and the higher rate threshold to £50,000 by the end of the Parliament in 2020.

There was a boost for road users with confirmation that vehicle excise duty for hauliers and the HGV road user levy will both be frozen.

The Chancellor also announced there would be no change to the previous planned duties on alcohol and tobacco. There will, however, be a new minimum excise duty on cigarettes based on a £7.35 packet price.

Pensions and savings

In what is likely to be an unpopular move, Mr Hammond confirmed that the tax-free dividend allowance for shareholders would be cut from £5,000 to £2,000 as of April 2018.

The Treasury said that the change would “ensure that support for investors is more effectively targeted”, but critics fear it will could further hurt entrepreneurs.

Public spending

Mr Hammond had faced some pressure from his own MPs to plough more revenue into public services.

In an attempt to address criticism that institutions were buckling beneath the strain, the Chancellor confirmed an extra £260million for improving school buildings and funding for an additional 110 free schools (on top of the 500 previously announced). There has been some controversy, however, that some of these are set to be selective.

In an attempt to address the mounting crisis in social care, Mr Hammond announced there would be an extra £2billion in funding over the course of the next three years.  A Green Paper will be published later this year with a view to drawing up a long-term funding plan.

Tax evasion, avoidance and aggressive tax planning

The Chancellor said that a fair tax system required people to pay their dues and a series of measures to curb abuses of the system are expected to raise an additional £820million for the Treasury.

A raft of measures to tackle non-compliance were announced, including preventing businesses converting capital losses into trading losses, curbing abuse of foreign pension schemes, introducing UK VAT on roaming telecoms services and imposing new financial penalties for professionals who help facilitate a tax avoidance arrangement that is later defeated by HM Revenue & Customs.

Summary

In his closing remarks, Mr Hammond struck an optimistic tone. Whatever the uncertainties surrounding Brexit, he told MPs that the UK should be confident that our best days lie ahead of us.

It would be fair to say that the Budget was not strewn with giveaways, but the Chancellor did try and take the sting out of some of the main criticisms levelled at the Government in recent months – including its handling of business rates reform and the sluggish response to a mounting care crisis.

That said he is also likely to have stirred up fresh controversies and the decision to increase National Insurance for the self-employed is perhaps evidence that in the current climate tough choices will still have to be made.

To discuss how any of the above changes will affect you and your business, please contact McPhersons on 01424 730000 or email info@mcphersons.co.uk

 

Business in Hastings got in touch with digital experts, McPhersons Chartered Accountants to learn more about digital tax and the impact this could have on you and your business. 

What is ‘Making Tax Digital’?

In 2015, HMRC issued a paper, ‘Making Tax Digital’, which proposes that by 2020 they will have moved to a fully digital tax system. This is not just about software, it signals the end of the traditional tax return.

By 2018 businesses, the self-employed and landlords will need to use software or apps to keep business records and to provide financial information to HMRC on a quarterly basis.

Digital accounts will give small businesses greater certainty and control over their tax position. Those who pay more than one type of tax (corporation tax, VAT, PAYE) will be able to take a single view of their total liabilities across all taxes. There will also be the option to pay tax as you go to help manage your cashflow.

Will it apply to everyone? 
  • The gross turnover or property income threshold of £10,000 is currently being discussed and it is likely that only the smallest unincorporated businesses may be exempt. It will not apply to employees or pensioners unless they have additional income of £10,000 through property or through self-employment
  • Deferring may be possible by one year for gross turnover or income of over £10,000 but below a threshold to be determined.
  • A very small minority who genuinely cannot use digital tools will not have to comply. More details on this are promised.
How do I convert my business to digital? 

Digital record keeping will normally mean using a ‘cloud’ or an online accounting package which records income and expenditure as near to real time as possible. McPhersons will be supporting their clients with this transition with software such as Quickbooks Online, live bank feeds and apps such as Receipt Bank as well as assisting with the transition to cloud accounting.

For some clients this will be a huge change. There will be no more handing over a bag of receipts at the end of the year! Even the use of spreadsheets to record transactions will be superseded by cloud accounting. For those who do their own accounts and tax returns, the more involved system could result in them paying more tax than they need to.

What third party information will be included in my digital tax account?

HMRC already has access to third party information and this will be used more effectively and in real time – i.e. not just looking back historically but looking at live data. For example, collating information from employers, pension providers, banks and building societies. Going forward it may also include income from dividends, peer to peer lending and property and savings income.

How will making tax digital work?

HMRC is currently building its own system alongside software providers like Quickbooks, Xero and Sage. Businesses will need to ensure the software they choose is compatible with HMRC.

McPhersons already offer their clients access to licensed software with all these packages with Quickbooks being the preferred choice for many of their clients. Accountants are going to have a key role in helping their clients make the transition and McPhersons have already gone through the move from desktop to cloud with many of their clients.

How can McPhersons help me convert from desktop to the cloud?

McPhersons are cloud accounting specialists and are trained in a variety of cloud accounting software. If you are not yet on the cloud, they will advise the best solution for your business.

What are the benefits of digital accounting?

There are ways to get the most out of on-line/digital accounting and these include:

  1. Utilising ‘bank feeds’ which can automate much of the bookkeeping work – automatically posting entries to avoid you keying them in.
  2. Expense tracking – taking photos of your expenses and sending these direct to your accounts software which then posts it.
  3. Automated invoicing.
  4. Digital payslips for payroll.
  5. Always having up to date information to enable business and tax planning.
What will it cost my business to convert?

The cost to businesses of introducing digital accounting as well as the continuing costs of maintaining digital records and submitting quarterly updates are concerning.

Free software has been promised by HMRC but seems yet to materialise. However, McPhersons can offer a fixed fee and an affordable monthly payment solution that fits your business model whether you are a sole trader, partnership or limited company. This would cover all the work that is required.

There is a view that reporting online could lead to mistakes and fines.

HMRC is attempting to reassure people that they can report online with confidence and are also being more lenient when mistakes are made. The consultation proposes a graduated model with each non-deliberate failure to submit information on time attracting penalty points. Only once the points reach a set level would a penalty be charged.

They are also willing to share more information with software developers about the triggers of tax investigations. Developers can then adapt their software to warn taxpayers to make amendments before final submission of information.

Tax is a complex issue and most businesses will retain their accountant to ensure they are not paying more tax than they have to.

How will I pay my tax going forward?

You will be able to view your current tax position at any time and can choose whether to pay in a single payment or pay as you go. Voluntary Pay As You Go will apply to those unincorporated businesses, sole traders and landlords, in respect of their Income Tax/National Insurance Contributions/Capital Gain Tax, from 1 April 2018, to VAT from April 2019 and to incorporated businesses, in respect of their corporation tax affairs, from 2020.

Contact McPhersons on 01424 730000 or info@mcphersons.co.uk and we will get you fully prepared for the important changes ahead.

 

 

HMRC tax investigations are on the increase.

£34 billion – the estimated tax gap between what HMRC should collect and what it does collect.

£26 Billion – the additional amount of annual tax income that HMRC are targeting to achieve through compliance activity.

£80 Million – spent to develop strategic risk database that automatically generates tax enquiries.

HMRC are proactively targeting individuals and businesses using sophisticated software that has been specifically developed to search trends, indicators and behaviours and analyse in minutes. Data that doesn’t cross match can automatically initiate an enquiry. This software combined with wider powers and increased targets means that your chances of being investigated are rising. 

What does this mean to you? 

Tax investigations are time consuming, stressful and costly. Investigations can last for many months. During this time you could find yourself incurring accountancy fees as well as having to deal with costly business disruption and probing questions. Even if you’re found to owe nothing you will still have to pay your professional representation fees.

What can you do to remove the risk? 

For a modest annual fee you can safeguard yourself from the cost of the professional fees associated with a tax investigation.

How does a fee protection service work? 

In the unfortunate event that you are selected for investigation you can relax safe in the knowledge that there will be no professional fees to pay.

The service covers up to the equivalent of £100,000 towards accountant/tax advisors’ professional fees resulting from an HMRC Enquiry.

At McPhersons, we encourage all clients to take up our fee protection service. For a modest, interest free, monthly fee, they benefit from professional representation on all

matters relating to the investigation, ensuring that the enquiry runs as smoothly as possible and providing them with peace of mind. We also deal with the insurers on their behalf. Benefits include:

  • McPhersons have the expertise and experience in dealing with HMRC
  • Peace of mind that the experts are dealing with HMRC on your behalf
  • Dealing with HMRC on your own could make matters worse
  • Early intervention can lead to early resolution
  • Additional tax due can be avoided or mitigated

Anyone can be selected for investigation, a business, director and individual tax payer. Contact us on 01424 730000 or info@mcphersons.co.uk for more information.

The problem with investing a lump sum amount in one go, is the timing of the stock market. If it is high then it will be a while before those investments increase further. Making smaller regular payments by drip-feeding money into your investments on a monthly basis can be a much better and highly effective strategy. Here we highlight some of the main benefits of investing smaller amounts on a regular basis.

Getting ‘pound cost averaging’ right

Investors are not happy when they experience falls in their values. However, short-term falls in share prices can actually provide opportunity and prove advantageous over the long-term for regular savers. By investing smaller amounts every month, investors average out the buy price of investments and benefit from a phenomenon known as ‘pound cost averaging’. This means your investment buys more units or shares when the price goes down, as per the table below and allows you to benefit from bigger returns if and when the share price recovers.

Month Amount Investment Share Price Number of Shares
1 £100 £5.00 20
2 £100 £4.00 25
3 £100 £2.50 40

Based on the table above, the average price purchased over the 3 months is £3.53 per share which is £300 investment divided by 85 shares. However, if you had invested the full £300 lump sum in one go during the first month, you would only have received 60 shares, which is £300 investment divided by £5.00. Of course had the market risen each month, your monthly investment would have bought fewer shares and actually have been worse off than if you’d invested a lump sum at that time. It is fair to say, investing is as much about timing as picking the right stock.

Benefits of regular savings

Some people believe that you need lots of money to start investing. In fact, drip-feeding money into investments over a longer period of time can build a very substantial sum. If you invested £250 per month for ten years, you would have a total of over £37,500 (based on a medium growth rate and a 1% charge).

Affordability – you can start investing from as little as £25 per month and it often costs no more in dealing charges

No fear – Instinctively you will watch the shares as the move up and down and probably want to buy quickly and more when shares are rising and less when they are falling. With smaller investing the money can be automatically taken from your bank account via direct debit and invested every month, regardless of price and movement, which removes the fear factor.

Flexibility – you can alter your investment choices and the amount you invest from month to month. You can even suspend payments for a period if you wish.

The sooner you start the more you will have invested on share platforms, you can choose to invest monthly into a wide selection of investments including, FTSE shares and eligible investment trusts. It’s easy to get started and you can set up a direct debit with some companies from just £25 per month and drip-feed money into your investments. You can also set up a regular savings instruction into Stocks & Shares ISAs, Fund & Share Accounts, SIPPs, Pensions or a Junior Stocks & Shares ISAs with many companies.

The value of your investment and the income from it can go down as well as up and you may not get back the original amount invested. Past performance is not a reliable indicator for future results. Levels, bases and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. Please contact us for further information or if you are in any doubt as to the suitability of an investment.

This guide and article are not advice. If you are unsure of that suitability of an investment for your circumstances please seek advice. Once held in a pension money is not usually accessible until age 55, which is rising to 58 in 2028. 

Need more help? This feature aims to give some informal hints. If you are unsure of the suitability of an investment for your circumstances please contact McPhersons Financial Solutions for a free meeting info@mcphersonsfs.co.uk or call 01424 730000.

 

 

The Chancellor of the Exchequer gave his Autumn Statement earlier this month. Check out the Mcphersons article for a recap on what was announced.

We have a look at how local businesses have reacted to the statement.

Graham Marley, Chief Executive at the Let’s Do Business Group, said he was ‘lukewarm’ about the Chancellor’s first Autumn Statement. He said: “It was a measured approach which lacked the bombshell moment often delivered by George Osborne, but is probably more appropriate for the economy at this time.

“The highlights for businesses are the extra funding to support export finance and £400m fund to support tech firms through Venture Capital.

Philip Johnson, Director of Locate East Sussex, was ‘concerned’ by Mr Hammond’s speech. He said: “We welcome the Chancellor’s investment into transport and housing and very much hope East Sussex is a beneficiary of this additional funding. However, more support is urgently needed to help job creation within the new communities that are being developed.

“It is important the investment to support 5G and broadband provision goes towards  improving coverage and reducing ‘not spots’ in rural areas, as well as making networks faster. The increase in Rural Rate Relief to 100% is good news for a rural communities although it is not clear yet whether this will be extended to all types of businesses or just villages with only one shop such as a convenience store or a pub.”

For weeks now, senior figures from the world of business have been at pains to point out just how important this year’s Autumn Statement will be.

The new Chancellor, Philip Hammond, stepped up to the despatch box to give his most significant speech since he took charge of the Treasury during the summer.

If his predecessor George Osborne, now watching from the backbenches, had come to be defined by his ongoing battle to balance the books in the wake of a financial crisis, the start of Mr Hammond’s tenure was always going to be overshadowed by one word. Brexit.

Businesses across the UK – and indeed overseas – were watching closely to see how the Government intends to steady the economy ahead of the UK beginning the formal process of leaving the European Union.

In his opening remarks, Mr Hammond laid out his stall.

“We will maintain our commitment to fiscal discipline, while recognising the need for investment to drive productivity,” he said.

Economic overview

The Chancellor will have been acutely aware, as he rose to address the Commons, that many headlines tomorrow would be dominated by the economic outlook and in particular the fall in growth forecasts.

He sought to extenuate the positives, pointing out that employment levels were at a record high, the deficit was falling as a share of GDP and that the economy had shown resilience in the wake of the summer’s referendum.

But he also acknowledged that the Brexit vote meant it was more imperative than ever to tackle any frailties in the nation’s finances, adding that the Government was committed to tackling these challenges head-on.

Growth is expected to be 2.4 per cent lower over the forecast period as a result of the uncertainty arising from the referendum result.

The Office for Budget Responsibility (OBR) has calculated that growth will be 2.1 per cent this year, falling to 1.4 per cent in 2017.

“That is lower than we would like, but still higher than many of our European neighbours,” said Mr Hammond.

Borrowing, meanwhile, will be 3.5 per cent this year, dropping to 0.7 per cent by 2021-22.

While acknowledging that the Government no longer expected to balance the books by the end of the decade, the Chancellor announced three new fiscal rules: to achieve a surplus in the next Parliament and reduce borrowing to two per cent by the end of this one, to get net debt falling by 2020 and to ensure welfare spending is kept within a cap set by the Government.

Business and enterprise

The Chancellor was unequivocal that he wanted the UK to retain its reputation as a top destination for businesses.

He reiterated his predecessor’s commitment to reduce Corporation Tax to 17 per cent, although speculation that he may announce a further reduction (perhaps to 15 per cent) proved to be wide of the mark.

There was news of a two per cent reduction in the transitional relief cap, which will be overseen by the Communities Secretary, and Rural Rate Relief will increase to 100 per cent. This will be worth up to £2,900 for eligible firms.

Conversely, employers will have to make preparations for another increase in the National Living Wage next year. The statutory wage floor will increase from £7.20 an hour to £7.50 as of April 2017.

As part of efforts to make the UK a “world leader” in 5G broadband, ministers will also be offering 100 per cent business rates relief on new fibre infrastructure from April next year.

Finally £400million will be pumped into venture capital funds, via the British Business Bank, to help unlock £1billion in finance for expanding businesses.

Transport and infrastructure

Mr Hammond said that the Government was committed to high-value investment in the nation’s infrastructure and that all of the UK would feel the benefit, acknowledging that too much onus had been placed on London in the past.

At the core of proposals are plans for a new national productivity investment fund, a £23billion pot which will be used to fund innovation and infrastructure.

There was also a commitment that investment in research and development will increase by £2billion annually by 2020, a £1billion digital infrastructure fund (with an emphasis on improved broadband) and the promise of a £1.1billion in additional spending on England’s transport network.

Property

As had been widely trailed before the speech, Mr Hammond confirmed that he would be banning fees charged by letting agents to tenants.

The move, which had actually been Labour policy at the last General Election, was designed to address the fact that fees were continuing to spiral upwards despite the efforts to regulate them. It had nonetheless attracted criticism in some quarters as another “assault” on landlords.

Mr Hammond admitted that a large section of the population continued to struggle to get a foot on the property ladder and said that the Government would shortly be publishing a new white paper to address some of the pressing issues relating to housing.

The Chancellor also confirmed plans for a £2.3billion Housing Infrastructure Fund, which will lay the ground for the construction of 100,000 new homes. In addition, there will be a £1.4billion investment to deliver 40,000 additional affordable homes.

As part of ongoing efforts to increase home ownership, there will be a “large-scale regional pilot” of Right to Buy for housing association tenants.

Personal tax

There was welcome news for many taxpayers in the form of an increase to the personal allowance. This will rise from its current level of £11,000 to £11,500 from April 2017. And Mr Hammond said that the Government remained committed to raising it still further (to £12,500) by the end of this Parliament.

Meanwhile, the 40p rate will increase to £50,000 over the course of the same period.

As regards National Insurance (NI), from next April the employee and employer thresholds will be aligned at £157 a week.

There was good news for the nation’s motorists, with the announcement that the Treasury would be cancelling the proposed rise in fuel duty for the seventh year running. On average this is calculated to save car drivers £130 a year and van drivers £350.

However, insurance premium tax will rise to 12 per cent (up from 10 per cent) which some have suggested is likely to wipe out any savings arising from the crackdown on fraudulent whiplash claims.

Tax savings relating to salary sacrifice and benefits in kind are also to come to an end, although exceptions will be made for pensions, childcare, cycling and ultra-low emission vehicles.

Pensions and savings

There were comparatively few announcements on pensions, although Mr Hammond did confirm that the Government would usher in a ban on pension cold-calling.

The Chancellor said that the Government was also committed to helping the nation’s savers and set out plans for a three-year investment bond, offering a 2.2 per cent interest rate on deposits of up to £3,000.

Tax evasion, avoidance and aggressive tax planning

Mr Hammond said the Government had a proud record of tackling tax avoidance and evasion and that the tax gap was one of the lowest in the world.

As part of the ongoing drive to ensure that businesses pay their fair share, he outlined plans for a new penalty for those who enable tax avoidance, which HMRC later challenges and defeats.

Overall it is calculated that the various anti-tax avoidance measures will raise in the region of £2billion over the forecast period.

End of the Autumn Statement

One of the biggest surprises was the news that this year’s Autumn Statement would be the last.

Next year will be the last time that the Budget takes place in the spring. After that it will be moved to the autumn, and while there will be a Spring Statement, this will be used principally to respond to OBR forecasts rather than as a platform for any major announcements.

Mr Hammond said that having just one financial announcement each year would bring the UK in line with the IMF’s best practice.

Summary

Ahead of today’s speech, the Chancellor seemed to play down the prospect of any dramatic new policy announcements, instead placing emphasis on a tax and spending plan which would prioritise prudence and stability.

Certainly this wasn’t a delivery sprinkled with giveaways and perhaps the biggest surprise – given that the media had been briefed in advance about many of the headline announcements – was that Mr Hammond’s first Autumn Statement would also be his last.

The decision to condense all the major tax and spending plans into one annual summary is partly designed to give businesses greater stability and this may well be welcomed in the current climate.

Mr Hammond is unlikely to get away from the fact that uncertainty surrounding Britain’s departure from the EU is calculated to have created a £122billion black hole in the national finances.

 

We would all like to have substantial income so that we can stop or cut down on the amount of time we spend at work or even retire altogether. But what if you are facing a pension shortfall or need to meet an unexpected expense. Equity release may be an option to consider, as it allows you to unlock some of the wealth accumulated in your property without having to downsize. However, before you consider taking this option, there are key aspects of it which you must consider.

There are two main types of equity release scheme:

Lifetime mortgage – which is a loan secured on your home, it is repaid by selling your home when you die or go into long-term care.

Home reversion – Where you sell all or part of your home to a scheme provider in return for regular income or a cash lump sum, or both, and continue to live in your home for as long as you wish. To qualify for equity release you have to be usually 55 or over and own your own home. If you do have an outstanding mortgage and want to take out equity release, you will need to settle your mortgage first, which will affect the amount you then have access to for other purposes. You will receive tax-free cash as a lump sum, a regular income, or both, to use as you wish and you can continue to live in your own home. Remember though that it is still your responsibility to maintain the home.

Your equity release questions answered:

Q: Is there a minimum amount I have to take?
A: There could be a minimum amount you have to take, it will depend on the scheme and provider. But you may not have to take it all at once. Drawdown loans can be taken in smaller amounts over time.

Q: What happens to my partner if I die?
A: The scheme should be in both your names then the arrangements will continue. If you are using equity release to increase your income, make sure you consider the situation should you or your partner die. If the property and scheme were in your sole name, the property would have to be sold and your partner would have to move out, unless they could repay the lifetime mortgage in full.

Q: Does equity release reduce the amount of Inheritance Tax (IHT) due on my estate?
A: Equity release will reduce the value of your estate when you die, which may reduce a potential IHT liability. If you are considering using an equity release scheme as part of your planning for IHT, you should obtain professional financial advice.

Q: Is a sale-and-rent-back scheme the same as a home reversion?
A: No, because if you rent you may have to leave your home after the end of the fixed term in your tenancy agreement, which may only last a few years and you may have to pay a much higher rent than under a home reversion plan, and the rent could go up.

Q: What happens if we need long-term care?
A: Your equity release scheme will usually continue unchanged if care is provided in your own home or just one of you moves to a residential or nursing home. If you both move into a care home, the scheme will usually end and the property will be sold. Releasing equity from your home is a very big lifetime commitment, so ensure you have included your family in any decision you make. Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, it is crucial to obtain a personalised illustration from a professionally qualified adviser because equity release is not right for everyone and it may affect your entitlement to state benefits and will reduce the value of your estate.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE. Need more help? This feature aims to give some informal hints and McPhersons Financial Solutions are offering free advice so get in touch now to arrange your meeting.

Inheritance tax can cost loved ones hundreds of thousands in the event of your death, yet it’s possible to legally avoid some if not all of it. Here are some ways to reduce your Inheritance Tax Bill. 

What is Inheritance Tax (IHT)? 

When you die, the Government assesses the value of your estate (property, cash etc.) and deducts any debts owing by you. If the remaining amount exceeds the threshold  (£325,000 until 2018), you must pay tax at 40% on the extra amount. This is reduced to 36% if you donate at least 10% to charity. 

What about Assets left to my spouse?

If your spouse is UK domiciled, any assets left to them are exempt from IHT. In addition, your partner’s IHT allowance is increased by the amount you didn’t leave to others. This means a couple can leave £650,000 tax free. Being UK domiciled will mean all overseas assets are subject to IHT. 

How can I reduce my Inheritance Tax bill?

GIFTING – Money you give away before you die is normally counted as part of your estate. However, it is not counted if you live for 7 years after giving the gift.

This is why it is important to plan as early as possible. However, gifts to charities are inheritance tax free.

REDUCED CHARGE ON GIFTS WITHIN 7 YEARS OF DEATH 

Years before death 0-3 3-4 4-5 5-6 6-7
% of death charge 100 80 60 40 20

ANNUAL GIFT EXEMPTION – The first £3,000 gifted each year is ignored. If you don’t use it, it can be carried into the next year (no more than this though).

THE £250 ‘PRESENTS’ – You can give £250 to as many people as you like and this is not counted in the £3,000 referred to above. For example, if you have 10 grandchildren, you can give each of them £250 each year and this would be exempt from inheritance tax.

GIFTS ON CONSIDERATION OF MARRIAGE – Each parent can gift £5,000, grandparents/bride/groom £2,500 and anyone else £1,000. However, it is not a wedding gift, it must be conditional, for example, “If you marry my daughter, I’ll give you £5,000!” 

GIFTS FROM INCOME – This is referring to gifts from pensions or other earnings. You can’t give it all away though, you must show that giving it away does not affect your lifestyle.

GET ADVICE FROM AN ACCOUNTANT/TAX ADVISOR – This is the most effective way of finding the best solution for you. After all, you’ve already paid tax at the time of earning your money, why should you pay more than you have to on what you leave your beneficiaries?

What is the £1 million homes allowance?

This is based on parents or grandparents passing on a home that’s worth up to £1million (or £500,000 for singles). It will be phased in gradually between 2017 and 2020, starting at £100,000 from April 2017, rising by £25,000 each year until it reaches £175,000 in 2020.

CALCULATION FOR COUPLE

£175,000 x 2 = £350,000 plus £325,000 x 2 = £650,000

£650,000 + £350,000 = £1,000,000

Need more help? This feature aims to give some informal hints and McPhersons are offering free advice so get in touch now to arrange your meeting info@mcphersons.co.uk or call 01424 730000.