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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.

 

The Government has hinted that millions of people may soon have to work until they are well into their mid-70’s before even qualifying for their state pensions, as details of a review into the State Pension age were published.

Happy couple on the beach of sea

The new report looks set to forecast a gloomy future for many workers who will have to continue to work on long past the currant retirement age to enjoy the benefits previous generations were able to access.

The current state pension age is 65 for men and 60 for women and is due to rise for both to 66 by 2020.  It is due to increase to 67 between 2026 and 2028.

The government said the review, required under existing legislation, would consider changes in life expectancy as well as wider changes in society and “make sure that the state pension is sustainable and affordable for future generations” It said it would also consider whether “the current system of a universal state pension age” rising in line with life expectancy was “optimal in the long run”.  This suggests the review will look at whether the retirement age should rise even if life expectancy slows

The review is due to report in time for any changes to be considered by George Osborne by May 2017.

UK interest rates will stay unchanged at 0.5% after the Bank of England rate-setters voted 8-1 for no change.

Ian McCafferty, who is one of four external members of the Monetary Policy Committee (MPC), was outvoted by other members but has voted for a quarter-point rise at the past four meetings.

The nine rate-setters on the MPC have predicted that inflation would stay below 1% until the second half of 2016 and will be slightly positive in November despite it standing at -0.1% in October, as measured by the Consumer Prices Index (CPI).

The European Central Bank worked towards boosting the Eurozone economy last week when it cut its overnight deposit rate and extended its €60 billion stimulus programme by six months.

The current members of the MPC have not been part of the committee when rates have been previously raised or cut but the Federal Reserve in the US is expected to raise rates at its policy meeting some time next week.

Chancellor George Osborne announced the spending plans for the next four years in the Spending Review and the current state of the economy in the Autumn Statement.

According to the Office for Budget Responsibility, public finances are set to be £27 billion better off by 2020.

It was revealed that the government is expected to borrow £8 billion less than forecast due to it hoping to secure £10.1 billion budget surplus by 2020.

The statement brings disappointing news for transport, energy, business and the environment as resource budgets will fall by 37%, 22%, 17% and 15% respectively.

In terms of policing in England and Wales, there are not any plans to make any cuts but the government aims for a rise in spending by £900 million by 2020.

From April 2017 there will be a two-child limit on child tax credit claims and the family element of tax credits will be scrapped for new claimants.

Healthcare is vital for any country and so the health budget will rise to £120 billion by 2020-21, which now stands at £101 billion. The NHS in England will receive an upfront cash injection of £3.8 billion next year as part of £8 billion added funding between next year and 2020-21.

The education budget will rise by £10 billion by 2020 and there will be a new 30-hour free childcare subsidy for parents of three and four-year-olds but this will be limited to parents working more than 16 hours each week.

From April 2016, there will be a 3% surcharge on stamp duty for buy-to-let properties and second homes however, there are plans to hand £2.3 billion to private developers to build 400,000 new homes in England.

State pension will rise by £3.35 a week to £119.30 next year and each individual and small business will have their own digital tax account by the end of the decade.

Transportation could be on the mend with capital funding of transport projects set to rise by 50% by 2020 and £250 million to make sure motorways and other roads in Kent are supported.

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.

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.

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.

The chief executive for Airbus has said that it does not plan on pulling manufacturing out of the UK if the country leaves the European Union (EU). With the vote steadily getting closer, Fabrice Bregier said that the aircraft manufacturer is dedicated to its 16,000 employees that are based in the UK. In addition to this, he said that British factories would not be relocated.

Airbus is the world’s second-largest aircraft manufacturer and employs 6,000 people at its site at Broughton in north Wales. It assembles the wings for all the Airbus aircraft. In Filton, which is near Bristol, several thousand more people are employed and design wings and test landing gear.

Despite what Bregier has said, last month the UK chief executive Paul Kahn stated that if the UK voted to leave the EU, the company would have to reconsider future investment in the UK. Once the referendum is over, a judgment would be made about what the consequences would be for the competitiveness of the business, Bregier said on Tuesday.

On Monday evening, ministers tabled an amendment to the EU referendum bill and decided that the plebiscite on 5th May would be ruled out. This would have been the same day as the Scottish, Welsh and Northern Irish assembly elections as well as local elections.

As a result of this decision, it is more likely that the referendum will take place either next autumn or during 2017. This all depends on the prime minister’s ability to negotiate concessions from his European counterparts.

Many want the referendum to be over and dealt with and businesses have repeated concerns about the level of uncertainty caused by the timing of the referendum. It could potentially harm the economy as investment decisions are delayed as a result. Kahn stated last month that the UK must compete for international investment.

Also see: Airbus warns on UK referendum vote

The chancellor has stated that he will attempt to bind future governments to maintaining a budget surplus at times when the economy is growing. George Osborne made his annual Mansion House speech and outlined his plan to make sure that governments run a surplus. In January, Osborne first proposed the changed to the fiscal policy.

The government plans to sell its stake in the Royal Bank of Scotland, the chancellor confirmed in his speech. Since the financial crisis, concerns over the national debt have doubled. However, the plan would legally prevent future governments from spending more than they receive in tax revenue whilst the economy is growing.

National debt refers to the amount of money owed by the UK government and has been built up over many years by different governments. During April this year, the national debt stood at £1.48 trillion, which is the equivalent of 80.4% of the UK’s annual economic output, the Office for Nation Statistics (ONS) announced. Back in 2008, the debt was about £600 billion, or 42% of economic output.

An independent watchdog called the Office for Budget Responsibility (OBR) will be responsible for policing the new rules. As well as this, the OBR is set to have the power to decide when the government should be able to spend more than it is taking in revenue.

A vote by the House of Commons will be taken concerning Osborne’s proposal and is due to take place later on this year.

Britain’s biggest energy firms escaped being hit by Labour’s price freeze and have been ordered to cut their bills. The new Energy Secretary Amber Rudd has written to the six energy firms asking them to ease the pressures that they have put on families.

Since Labour threatened to freeze prices if Ed Miliband became the prime minister, gas and electricity bills increased and since he was defeated in the general election, the prices have not lowered at all. The promise by Labour involved an 18-month freeze, which also allowed energy companies to argue that they could not reduce tariffs too much before the election. This was because they could have been forced to keep them at the new low level.

This also meant that the big six energy companies were able to keep prices artificially high, which in turn, dramatically boosted their profits. The new Conservative government has said that energy firms must take action to reduce their charges. This is a result from the companies who saw their wholesale costs drop by 30%, yet they only reduced bills by 1.3% last winter.

Amber Rudd has written to British Gas, npower, EDF, e.on, Scottish Power and SSE to tell them that they should stop keeping their prices artificially high. In one year, the energy firms’ average profits have increased by 32% to £120 per household, according to the regulator Ofgem. This means that the energy firms are seeing an all-time high on their part.

The consumer group Which? estimated that the average family has lost out on £145 a year because the providers have failed to pass on lower costs. The Competition & Markets Authority has decided to start an inquiry into whether the companies have rigged the market by delaying price cuts. The Authority holds particular concern over the 60% of households who are on standard contracts because they pay more than those on non-standard tariffs. Loyal customers are also missing out on up to £234 over one year because they did not switch providers.