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George Osborne fulfilled an election promise in the recent Budget to lift main family homes worth up to £1million out of inheritance tax if they are left to children or grandchildren.

However, the way it works is more complicated than it sounds so people are understandably thinking about where this leaves them in terms of inheritance planning.

In line with these changes, the Government is also still working out the details of an ‘inheritance tax credit’, so people who own an expensive home and want to sell it before they die can still benefit from the changes.

This is to avoid elderly people skewing the housing market by staying put rather than moving to a smaller property or into a care home.

The tax overhaul of last April produced the pension freedom reforms giving over-55s greater control over how they save, spend and invest their retirement pots.

People are stashing more into their pensions and trying hard to preserve what is already in there, according to recent research among over-50s by Investec Wealth & Investment.  

How to make the best use of these changes

The good news is that you may not need to move house to benefit from the full inheritance allowance. The bad news is that the full allowance may not be £1 million depending on your circumstances.

If we look at what we know so far about the new ‘Main Residence Nil Rate Band’, the Chancellor was eager to stress that £1 million could now be passed onto your children tax free, but in practice a number of conditions must be met for that to happen.

Firstly, the £1million is made up of the £325,000 standard nil rate band for both husband and wife or civil partners, plus an additional Main Residence Nil Rate Band of £175,000 for both husband and wife.

The total of those allowances, assuming all are fully available, is £1 million. However, the MRNRB will be introduced in April 2017 at only £100,000 and increase in stages to £175,000 by April 2020. It will also be means-tested, with estates above £2 million losing £1 of their MRNRB for every £2 their estate exceeds £2 million. In practice, this means that to pass down £1 million to your children you must:

a) Be married or in a civil partnership
b) Own a house worth £350,000 or more
c) Have a total estate of less than £2million
d) Die after April 2020, or your spouse must die after that, because on first death any unused nil rate band is transferred to the surviving spouse.

The key point to all of this is that your property only needs to be worth £350,000 to fully utilise the MRNRB, so you may not need to move house after all. You could waste your MRNRB if the property is left to someone other than your children or spouse on death. With pensions as the alternative, it used to be the case that you had to die before age 75 having not touched your pension, in order to receive the fund tax free, any funds remaining on death were taxed at 55 per cent.

The new changes now mean that if you die before 75 any remaining pension funds, whether they have been used to provide benefits or not, can be passed tax free to nominated beneficiaries. If you die after 75, the pension fund will be exempt from inheritance tax, but your nominated beneficiaries will pay income tax at their own tax rate as they withdraw the funds. If you are a higher rate income tax payer and you believe your children to likely be basic rate when they take the funds, then living on other assets and leaving your pension to your children will probably be the most tax efficient way of passing on your estate. If you are a basic rate taxpayer and they are higher rate, then it will probably be better for you to take your pension at basic rate to fund your retirement and leave the other assets in your estate to your children. You can also take more than you need and gift the excess to your children over a number of years. Before making any life changing financial decisions, it is recommended that you should always consult your professional financial adviser. 

Need more help?

This feature aims to give some informal hints and tips. McPhersons Financial Solutions are offering businesses free advice so get in touch now to arrange your meeting. Simply email Peter Watters p.watters@mcphersons.co.uk or call our Head Office on 01424 730000 for a free consultation at McPhersons’ London, Bexhill or Hastings offices. www.mcphersonsfs.co.uk

Research suggests that due to the new National Living Wage around 3.7 million women will receive a pay rise by 2020.

The government outlined plans earlier this week for employers who do not meet the National Living Wage requirements. It was said that there would be tougher penalties if employers do not follow the rules.

In April 2016 the National Living Wage of £7.20 will come into effect but will only apply to workers who are over 25 years of age. The current minimum wage is £6.50 but this is due to rise next month to £6.70.

The Resolution Foundation report stated that 2.3 million male workers would also benefit, as most employees will see their earnings rise. The report also found that 6 million people will get a wage rise by the end of the decade.

The Chancellor George Osborne originally laid out plans for the wage in the Budget and has recently gained support because of the amount of employees that will benefit. The number of female workers who will benefit from the rise in 2016 totals to nearly 30% of the female workforce and as many women end up in low-paid jobs, they will welcome the new policy.

Official figures have shown that the UK economic growth for the second quarter of the year was unrevised at 0.7%. The figure that was released in July was increased because of a sharp rise in oil and gas production.

On Friday, the Office for National Statistics (ONS) did not change the reading for the three months to June. The figure was higher than the 0.4% growth recorded for the first quarter of the year.

The biggest contribution to trade in four years came from net trade boosting GDP by one percentage point in the second quarter as exports jumped. However, economists believe that this could be temporary because the strength of sterling means that British goods are more expensive abroad.

Business investment is on the rise as it rose 2.9% in comparison with the first three months of 2015. In the first quarter, household spending had a 0.9% rise whereas it only increased by 0.7% recently.

Last year the UK economy expanded by 3% and the Bank of England has forecast a 2.8% growth this year.

The Office for National Statistics (ONS) said that government borrowing was in surplus by £1.3 billion in July. Official figures have also shown that the UK government spent less last month than it received in taxes and other forms of income.

The figures show that this was the first July surplus since 2012 and this is due to higher amounts of income tax receipts. The ONS stated that the month of July is usually a month of higher tax receipts.

In July 2015, the government received £59.1 billion in income and this is about 4% higher than last year’s figure.

Public sector net debt excluding public sector banks is now at £1.5 trillion. This is 80.8% of gross domestic product (GDP), said the ONS. In addition to this, annual borrowing has continued to fall since hitting a peak in the financial year ending March 2010. This data is according to the ONS.

UK inflation rose in July with the Consumer Prices Index (CPI) measure rising to 0.1%. In June, the percentage stayed at 0% and the Office for National Statistics (ONS) stated that the main reason that inflation rose is because of the lower prices of clothing.

However, the Retail Prices Index measure of inflation has stayed the same at 1% and this will be used to calculate rail fare increases. The fares will remain the same until next year.

For the last six months, CPI has been almost flat and turned negative in April. This is the first time since 1960. CPI inflation strips out increases in energy, food, alcohol and tobacco. In addition to this, the underlying measure of CPI inflation rose to 1.2% in July, which is a five-month high. The ongoing supermarket price war could be the reason that CPI was held back, with a 2.7% year-on-year fall in the price of food and non-alcoholic drinks.

Taking all this into consideration, there has been question over when the Bank of England might raise interest rates. The Bank has a target inflation rate of 2%.

In the past two months, the drop in the price of oil has fallen by nearly a quarter, which is why analysts have said that the inflation rate could fall back again.

Some airport shops are keeping the extra money they earn when passengers show their boarding passes and are being urged to pass VAT savings on.

Customers show boarding passes so that retailers in the UK can avoid paying 20% VAT on purchases made by people who fly outside of the EU.

Buying without having to pay VAT is supposed to be for the benefit of travellers, said the treasury minister David Gauke. He also stated that it was not meant to provide a windfall gain for shops.

However, passengers do not legally have to show their boarding passes when they buy products at the airport. Passengers usually think that they have to show their passes but it is a request by shops so that they can avoid paying the VAT.

Boots is one of many retailers who operate in the UK airports and a spokesman said that the company did not claim back some VAT for non-EU passengers. This was to follow the rules that the government set out.

WH Smith on the other hand, said that having different pricing for travellers to EU and non-EU destinations would be impossible because it would mean distinguishing between each traveller.

Many shops were found to have some discounts in airports but still kept most of the savings.

Income and corporation tax receipts rose to record levels and as a result the UK government borrowing fell to £9.4 billion in June. This is down £0.8 billion from the year before. Income tax receipts rose to £11.5 billion and corporation tax brought in £1.7 billion, according to the Office for National Statistics (ONS). These figures are both record monthly highs.

For the month of June, the result was the lowest borrowing figure since 2008. Despite this, many expected this to drop further to £8.5 billion. However, across the financial year so far, borrowing has fallen by £6.1 billion to £25.1 billion.

Government finances also received a boost of £117 billion last month because of a fine that Lloyds Banking Group paid over its handling of payment protection insurance (PPI) complaints. Not only that, but the Office for Budget Responsibility (OBR) forecast that public borrowing would be £69.5 billion this year. This was revealed in the summer Budget earlier this month.

At the end of June this year, public sector net debt was £1.513 trillion, or 81.5% of annual UK economic output. This is up from 80.8% in May.

By 2019, the government is aiming to eliminate the budget deficit and run a £10 billion surplus in 2020 as well as in future years. In the summer Budget, the chancellor George Osborne stated that there would be £37 billion of spending cuts during this parliament.

The government’s spending review in November will set out £20 billion worth of departmental budget cuts over the next five years.

Chancellor George Osbourne delivered his sixth budget on Wednesday 8th July.

The chancellor outlined £12bn of welfare cuts, introduced new inheritance tax rules and vowed to crack down on tax avoidence.

Check out the Budget Summery Booklet from Mcphersons that tells you everything you need to know about the summer budget.

mcphersons

 

Budget summary booklet July 2015

Heathrow airport is in the running to have a third runway and this would create a total of 70,000 new jobs.

There are conditions that would be put in place if Heathrow does become the airport to have a third runway, and these include a ban of all night time flights between 11:30pm and 6:00am, there would be no fourth runway in future and there would be legally binding caps on noise and air quality.

Heathrow holds the strongest case for delivering strategic and economic benefits, the commission said. The expansion plan would cost £17 billion and create 250,000 more flights per year, which would mean that it would provide a £150 billion boost in Gross Domestic Product (GDP) over 60 years.

A decision needs to be made regarding whether the government will act on the recommendation made by the commission. The prime minister first established this in 2012 to examine the need for more airport capacity. Both Heathrow and Gatwick were shortlisted for a new runway.

The main concern with building a third runway at Heathrow is the noise and air pollution, which is why there would be a noise levy in place to compensate for the local communities. However, this would also mean demolishing 783 homes, which includes most of the neighbouring village of Harmondsworth.

Local people will not be left out of this decision, as there will be a community engagement board to make sure that everyone in the surrounding area can have their say.

It has been a long wait for this verdict, which started five years ago when the government cancelled plans for a new runway at Britain’s biggest airport. It is now expected to trigger a renewed political battle.

UK government borrowing has fallen in May due to a rise in income tax and VAT receipts, official figures have shown. The Office for National Statistics (ONS) said that the borrowing fell to £10.13 billion last month, which is down from £12.35 billion the year before. This was also the lowest borrowing figure in that month for eight years.

Excluding public sector banks, public sector net debt stands at £1.5 trillion, which is 80.8% of gross domestic product (GDP), according to the ONS.

Income tax receipts had not been this high during May for four years but it rose £0.5 billion, which is 5.3%, from a year before to £10.8 billion. VAT receipts however rose by £0.6 billion, which is 5.6%, to £10.7 billion. An estimation by the ONS stated that the total public sector borrowing in the financial year to March 2015 was £89.2 billion, or 4.9% of GDP. This figure was £9.3 billion lower than the previous year’s total despite it being higher than the previous estimate.

According to analysts, the drop in government borrowing during May is good news for the chancellor George Osborne at the start of the new fiscal year.