How much of your estate will be taxed?

The present rate of Inheritance Tax (IHT) that is payable by your executors on your taxable estate is 40%.

The good news is that you can reduce the impact of this tax, which effectively reduces the amount of your hard-won assets that is received by your beneficiaries.

For example:

  • The first £325,000 is tax-free. This may increase to £500,000 if you leave your home to your children or grandchildren, and
  • If you leave your estate to your spouse, civil partner or charities there is normally no IHT to pay.

Additionally:

  • IHT is reduced to 36% if you leave more than 10% of your “net-value” estate to charity.
  • Chargeable gifts made within the last seven years may be bought into account for IHT but are subject to a decreasing rate of IHT based on a sliding scale over the seven year period.
  • Business assets relief may apply in which case those business assets would pass tax-free or be subject to a reduced rate. The same may also apply to agricultural property.

Ironically, you don’t have to die to determine how much tax your estate will pay. It is possible to organise your affairs to reduce the future IHT bill by careful planning.

If you are interested in considering the options available to ensure more not less of your estate passes to your family, please call to discuss your options.

Make hay while higher rate relief is available

For many years Chancellors have threatened to reduce the Income Tax relief that can be claimed for payments into a private pension scheme.

There have been reductions in the amount of contributions that can be made and the size of the pension fund that can be accumulated, but thus far, allowable contributions may still attract Income Tax relief at your highest rate (20%, 40% or 45%) subject to regional differences.

It is this higher rate tax relief that may now be subject to change.

Our present Chancellor, Rishi Sunak, has publicly declared that he wants to recoup some of the recent government COVID expenditure by increasing the Treasury’s tax take. As we have already suggested, one of the proposed weapons in his tax-increase arsenal is to remove or reduce the higher rate Income Tax relief on pension contributions.

For example, he could restrict tax relief to basic rate (20% subject to regional differences) or cap at a hybrid rate of say 33%.

As the next budget is just around the corner, likely to be February or March 2021, now may be a good time to consult with your pensions adviser and maximise your contributions for this year.

Tax Diary November/December 2020

1 November 2020 – Due date for Corporation Tax due for the year ended 31 January 2020.

19 November 2020 – PAYE and NIC deductions due for month ended 5 November 2020. (If you pay your tax electronically the due date is 22 November 2020.)

19 November 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2020.

19 November 2020 – CIS tax deducted for the month ended 5 November 2020 is payable by today.

1 December 2020 – Due date for Corporation Tax payable for the year ended 28 February 2020.

19 December 2020 – PAYE and NIC deductions due for month ended 5 December 2020. (If you pay your tax electronically the due date is 22 December 2020)

19 December 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2020.

19 December 2020 – CIS tax deducted for the month ended 5 December 2020 is payable by today.

30 December 2020 – Deadline for filing 2019-20 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2021-22.