Self assessment tax advice

December 13, 2016 Posted by Wellden User

Self assessment returns – Don’t miss the deadline !

As you probably know under the self assessment regime as an individual you are responsible for ensuring that your tax liability is calculated, with any tax owing paid on time. We can provide self assessment tax advice if you need help.

The self assessment cycle

Tax returns are issued shortly after the end of the fiscal year. The fiscal year runs from 6 April to the following 5 April, so 2015/16 runs from 6 April 2015 to 5 April 2016.

Tax returns are issued to all those whom HMRC are aware need a return, including all those who are self employed or company directors. Those individuals who complete returns online are sent a notice advising them that a tax return is due. If a taxpayer is not issued with a tax return but has tax due they should notify HMRC who may then issue a return. A taxpayer has normally been required to file his tax return by 31 January following the end of the fiscal year. The 2015/16 return must be filed by 31 October 2016 if submitted in ‘paper’ format. Returns submitted after this date must be filed online otherwise penalties will apply.

Penalties

We provide our clients with self assessment tax advice, handling all the hassle and headaches along the way.

However, for those not so fortunate (i.e. our ‘non-clients’ the prospect of late filing penalties can sometimes loom large.

Late filing penalties apply for personal tax returns as follows:

£100* penalty immediately after the due date for filing (even if there is no tax to pay or the tax due has already been paid)

* Previously the penalty could not exceed the tax due, however this cap has been removed. This means that the full penalty of £100 will always be due if your return is filed late even if there is no tax outstanding. Generally if filing by ‘paper’ the deadline is 31 October and if filing online the deadline is 31 January.

Additional penalties can be charged as follows:

Over 3 months late – a £10 daily penalty up to a maximum of £900

Over 6 months late – an additional £300 or 5% of the tax due if higher

And over 12 months late – a further £300 or a further 5% of the tax due if higher. In particularly serious cases there is a penalty of up to 100% of the tax due.

Calculating the tax liability and ‘coding out’ an underpayment

The taxpayer does have the option to ask HMRC to compute their tax liability in advance of the tax being due in which case the return must be completed and filed by 31 October following the fiscal year. This is also the statutory deadline for making a return where you require HMRC to collect any underpayment of tax through your tax code, known as ‘coding out’. However if you file your return online HMRC will extend this to 30 December. Whether you or HMRC calculate the tax liability there will be only one assessment covering all your tax liabilities for the tax year.

Changes to the tax return

Corrections/Amendments

HMRC may correct a self assessment within nine months of the return being filed in order to correct any obvious errors or mistakes in the return. An individual may, by notice to HMRC, amend their self assessment at any time within 12 months of the filing date.

Enquiries

HMRC may enquire into any return by giving written notice. In most cases the time limit for HMRC is within 12 months following the filing date. If HMRC does not enquire into a return, it will be final and conclusive unless the taxpayer makes an overpayment relief claim or HMRC makes a discovery.

It should be emphasised that HMRC cannot query any entry on a tax return without starting an enquiry. The main purpose of an enquiry is to identify any errors on, or omissions from, a tax return which result in an understatement of tax due. Please note however that the opening of an enquiry does not mean that a return is incorrect. If there is an enquiry, we will also receive a letter from HMRC which will detail the information regarded as necessary by them to check the return. If such an eventuality arises we will contact you to discuss the contents of the letter.

Keeping records

HMRC wants to ensure that underlying records to the return exist if they decide to enquire into the return. Records are required of income, expenditure and reliefs claimed. For most types of income this means keeping the documentation given to the taxpayer by the person making the payment. If expenses are claimed records are required to support the claim.

Checklist of books and records required for HMRC enquiry

Employees and Directors

Details of payments made for business expenses (eg receipts, credit card statements)
Share options awarded or exercised
Deductions and reliefs
Documents you have signed or which have been provided to you by someone else:
Interest and dividends
Tax deduction certificates
Dividend vouchers
Gift aid payments
Personal pension plan certificates.

Personal financial records which support any claims based on amounts paid e.g. certificates of interest paid.

Business

Invoices, bank statements and paying-in slips
Invoices for purchases and other expenses
Details of personal drawings from cash and bank receipts

How we can help

We provide extensive self assessment tax advice and can prepare your tax return on your behalf. We will advise on the appropriate tax payments to make.

Furthermore if there is an enquiry into your tax return, we will assist you in answering any queries HMRC may have.

HMRC problems ? – For Wellden Turnbull read ‘The Stress Busters’

October 13, 2016 Posted by Wellden User

Whatever problems you are having with HMRC, we can remove the stress from the situation.

You may have never had an HMRC tax investigation, but given that the government continues to put HMRC under pressure to collect more tax revenues than ever before, even if you are amongst the most careful of Self-Employed MD/Owner you may come under HMRCs microscope at some point. HMRC problems, and the stress they cause will have a negative impact on you and your business.

We know that a detailed enquiry from the tax authorities, no matter what your situation is, can cause stress and anxiety. Furthermore any type of HMRC tax investigation can also take up a great deal of your time.

Some things you may not know about HMRC and tax investigations

HMRC have significantly increased the number of tax investigations they carry out.

HMRC’s “breakthrough” computer system, a new, powerful weapon against fraud, tax evasion and avoidance, will ensure that even the most determined are caught eventually. The system is called ‘Connect’, and was designed by defence contractor BAE Systems. Although it cost HMRC £45m back in 2010, it has already delivered £1.8bn of additional tax revenues.

Connect Computer Power

‘6 out of 10 tax enquiries use the Connect computer system.

Connect’ is a very appropriate name because HMRC has an unrivaled wealth of information about people living in Britain, due in part to its many connections with other databases, such as the Land Registry, Companies House and the Electoral Roll.

HMRC has more data than the British Library’.

The HMRC website is one of the world’s biggest websites at peak filing time. ‘Connect’ has access to such comprehensive data, allowing investigators to spot anomalies. It allows Tax Inspectors to build up literally dozens of connections for any one individual, creating a unique profile about that persons circumstances. It also makes it much easier for HMRC to check up on, and cross reference, an individuals’ tax returns.

Third Party Information

Did you know that HMRC also collects information from other organisations?

The tax authority’s access to Land Registry and DVLA data means it knows how much someone has spent on their house and can see vehicles registered to each address. So, if someone has bought a high value vehicle, but lives in a modest flat, that might not fit with that individual’s financial affairs. Maybe an individual owns some properties in their name, but has not declared any income, that would be a warning sign.

HMRC can easily build up a picture of a persons financial worth through the use of ‘Connect’.

Online Information

Remember, what goes ‘on the web’ stays ‘on the web!

HMRC also grabs seemingly harmless information from social networking sites such as Facebook, Twitter and LinkedIn. If someone is constantly putting up pictures of expensive holidays and flashy cars on Facebook, but is paying minimal tax, then that could trigger an investigation. HMRC also obtains information from less obvious sources, such as adverts on noticeboards, in newsagents or even stories in local newspapers. So, all media is a valuable source of information for HMRC

Concerted Advertising Campaigns

HMRC’s advertising campaigns are designed to make tax evaders feel rotten about cheating the Exchequer when times are hard.. Ad campaigns emphasise that “the net is closing in”, and warn tax cheats to declare all of their income “before it is too late”

There’s More….

Apart from powerful computing systems, and the ability to gather huge amounts of electronic information, the tax authorities also use these tactics:

Mystery Shoppers – Tax inspectors also now operate undercover, in disguise, and in teams to root out suspicious behaviour.

Informers and Tip Offs – Embittered divorcees and disgruntled former employees are among HMRC’s sources of useful information.

Overseas Property Owner – Higher-rate taxpayers with properties abroad are among those targeted by the 200-strong HMRC affluence unit. This affluence unit has been set a target of raising an extra £560m over the next four years.

Offshore Bank Accounts – As well as overseas property, other investigations involve commodity traders and people holding offshore accounts. In-line with the above, International borders are increasingly meaningless for tax authorities pursuit of outstanding taxes.

Property Raids – HMRC have the power to raid the homes of people they suspect of not paying tax. Raids last year were 165% up on the previous year.

Fake Numbers – The “chi squared” test is another tool sometimes used by tax inspectors to check the reliability of reported figures, including restaurants’ sales figures. This test, also known as ‘Benford’s Law’, is a means of testing the randomness of figures. If numbers are made up, or appear to have some honest anomalies, there is a very good chance that HMRC will spot it and investigate.

What could be worse ?

Maybe problems with HMRC have gone beyond the tax investigation stage. Perhaps your business is having problems when it comes to VAT, PAYE /Corporation Tax payments ?

If things have got so bad that you have been issued with an HMRC Distraint Order you clearly need help, and fast.

However all is not lost, so that’s where we come in.

We have extensive experience and expertise in helping businesses and individuals resolve these very difficult situations. We have helped many people in the past, and we can help you.

HMRC Distraint Order – You have been handed an EF1 Notice of Distraint leaflet.

The EF1 Notice will state that HMRC will seize your possessions. They will then arrange for them to be sold at public auction. The HMRC Distraint Order gives you two stark choices:

You sign the Distraint Notice and if payment is not made within five days your possessions will be removed.

You decide not to sign and HMRC will take the goods immediately.

These options may seem draconian, causing you a great deal of stress. However, this does not mean there are no other options open to you. We can often resolve these seemingly impossible situations.

If you are interested in learning more about our bookkeeping and accounting services or any aspect of business finance and payments, get in contact with the experienced team at Wellden Turnbull today.

Self-assessment tax returns – have you completed yours?

October 12, 2015 Posted by Wellden User

As Halloween quickly approaches, most people may be worried about ghosts and ghouls, realistically individuals should be more concerned about submitting their paper self-assessment tax return.

The deadline for submission of this year’s annual paper tax return is midnight on 31 October and businesses and individuals who use this method must submit their return and all supporting evidence to HM Revenue & Customs (HMRC).

Any paper returns submitted after this date could leave a taxpayer liable to fines or investigation from HMRC.

Those that miss the paper deadline will have a second chance to return their documents in the form of an online tax return in the new year, using their unique taxpayer reference (UTR) provided by HMRC.

For more information on how we can assist you with completing and submitting your self-assessment tax return, please contact us today.

Businesses urged not to be complacement over accelerated payment notices

October 2, 2015 Posted by Wellden User

Businesses are being urged not to be complacent if they receive Accelerated Payment Notices (APNs), after new figures reveal that the government has collected more than £1 billion through their use.

HM Revenue & Customs (HMRC) recently announced that it has collected more than a billion pound using APNs, since it was granted the new powers in 2014/15.

Under the accelerated payment rules, HMRC is able to make taxpayers pay disputed tax in advance, rather than waiting for the outcome of a tax tribunal ruling.

Once an APN is received taxpayers have 90 days to pay the outstanding tax, whether they feel it is due or not or face additional penalties. If the taxpayer wins the case the money is reimbursed to them with interest.

During the first year HMRC issued more than 10,000 notices to businesses or individuals who had used a disclosable scheme under the Disclosure of Tax Avoidance Schemes (DOTAS) rules.

Andrew Brown, Associate Director said: “Receiving an APN should not be taken lightly, as it can have a serious effect on the liquidity and reputation of you and your business.

“The fact that HMRC have collected more than £1 billion, shows that they are serious when it comes to potential tax avoidance.”

Earlier this year, it was revealed in HMRC’s annual report on tax avoidance, that of the £596m received from APNs during 2014/15, some £28m was refunded after legal challenges.

“While many of those targeted by these new powers may have legitimately avoided paying tax, there will be some individuals and business who have been unfairly targeted and this is evident in the number of refunds already issued by HMRC,” added Andrew. “Seeking professional advice sooner rather than later is critical.”

If you’ve had an issue with the Taxman or you’re subject to a tax investigation by HMRC, then contact us today for confidential help and advice.

Real Time Information submissions – no more automatic penalties

September 11, 2015 Posted by Wellden User

In June, HMRC issued the first in-year notices to employers with fewer than 50 employees who missed the deadline for sending PAYE information to HMRC.

Previously, PAYE late filing penalties only applied if the end of year return was late. However, under Real Time Information PAYE returns are now required ‘in year’ (generally at least monthly) and as a result tax law has changed to allow HMRC to charge automatic penalties for the late filing of these in year PAYE returns.

The new regime started on 6 October 2014 for employers with 50 or more employees with smaller employers being liable for the penalty from 6 March 2015. An employer who, during a tax month, fails to make a return on or before the filing date is liable to a penalty as follows:

1-9 employees – £100
10-49 employees – £200
50-249 employees – £300
250 or more employees – £400

However, the automatic nature of the penalties is not in line with the likely direction of HMRC’s general approach to many of its penalties, as outlined in a discussion document which it issued earlier this year. Rather than issue late filing penalties automatically when a deadline is missed, HMRC will take a more proportionate approach and concentrate on the more serious defaults. A more targeted approach means HMRC can focus ‘on those determined to bend or break the rules’.

This new approach will apply to all employers but HMRC will review the new approach by April 2016.

Please note, the deadlines for sending PAYE information stay the same, including the requirement to send PAYE information on or before the time that employees are actually paid or due to be paid. So it is important to ensure that PAYE matters are completed on a timely basis and we are happy to assist in this area.

Our payroll team can also assist you with setting-up your company’s auto-enrolment scheme. Contact us today for more information.

Want to avoid the settlements trap?!

September 11, 2015 Posted by Wellden User

Owner managed companies often seek to minimise the tax position of shareholder-directors by involving members of the same family and using personal reliefs and lower rate tax bands of each person. Income is therefore diverted from the higher rate taxpayer. However, anti-avoidance rules need to be considered as to whether a diversion is effective. This is particularly relevant for spouse scenarios such as husband and wife.

Where it is considered that arrangements have been made by one spouse which contain a gift element, often referred to as ‘an element of bounty’ then the ‘settlements’ rules may apply. A key purpose of these rules is to ensure that income alone or a right to income is not diverted from one spouse to the other. Genuine outright gifts of capital or a capital asset from which income then wholly belongs to the other spouse are not caught by the rules because of a specific exemption from the settlement rules.

Family company shares and the dividend income derived therefrom have frequently been the subject of challenge from HMRC on this matter. An example of a structure which will be challenged is the issue of a separate class of shares with very restricted rights to a spouse, with the other spouse owning the voting ordinary shares. An area of potential risk is the recurrent use of dividend waivers particularly where the level of profits is insufficient to pay a dividend to one spouse without the other waiving dividends. In a recent tax tribunal case dividend waivers executed by two appellant husbands in favour of their spouses constituted a settlement for income tax purposes. The dividends therefore became taxable on the husbands.

The basic facts were that two directors of a company each owned 40% of the shares in the company. Their wives each owned 10% of the shares. However equal dividends were paid to each of the shareholders by the two directors waiving part of their entitlements to dividends and thus allowing larger dividends to be paid to the wives. This had been done for a number of years from 2001 to 2010.

The arguments…

HMRC argued that the taxpayers had waived entitlement to dividends as part of a plan which constituted an arrangement with an intention to avoid tax by seeking equalisation of their dividend income. The appellants’ arguments included the contention that the waivers had been executed to maintain the company’s reserves and cash balances in order to accumulate sufficient of each to fund the purchase of the company’s own freehold property.

The Tribunal preferred the submissions of HMRC that had this been the case the aim could have been achieved by other means, such as voting a lower dividend per share. The Tribunal determined that the waivers would not have been made if the other shareholders were a third party and therefore there was ‘an element of bounty’ sufficient to create a settlement.

Basic tax planning is still an activity that many will seek to use to mitigate tax liabilities but care has to be taken in the current anti avoidance environment to avoid the traps. If we can be of assistance in reviewing your position please do not hesitate to contact us.

Owners of personal service companies could face stricter tax rules

August 7, 2015 Posted by Wellden User

Individuals who run a personal service company (PSC) could face higher tax bills in the future as HM Revenues & Customs (HMRC) looks to re-evaluate its tax rules.

The HMRC have put forward a proposal to amend Intermediaries Legislation, which could have a serious effect on freelancers. The legislation – often referred to as IR35 – was introduced in 2000 and aims to tackle ‘disguised employment’.

It requires individuals working through an intermediary to pay broadly the same tax and National Insurance Contributions as any other employee, where they would have been providing the same services directly. This mainly refers to personal service companies, which are enterprises where people provide their services usually through their own company.

In HMRC’s latest discussion document they say there is a “growing body of evidence which suggests there is significant non-compliance with the current rules.”

They point to the fact that the number of those paying tax under IR35 has remained fairly static, while the number of PSCs has increased dramatically from 200,000 PSCs in 2011-12 to 265,000 in 2012/13 – a number that is expected to continue to grow.

HMRC officials estimate that during 2015, the cost of non-compliance regarding IR35 will total a staggering £430m.

Accounting for change: audits and annual accounts

August 4, 2015 Posted by Wellden User

The threshold for compulsory filing of audited financial statements rose on 6 April 2015 to those businesses with a turnover of £10.2 million or more for periods commencing from 1 January 2016.

This is part of a new European Commission directive which allows member states to choose whether to significantly raise the existing threshold to reduce unnecessary and burdensome red tape. The UK chose to do so and the new threshold was written into the statute under the Companies, Partnership and Groups (Accounts and Reports) Regulations 2015.

This means that most small and medium-sized private limited companies are no longer required to have their accounts audited. There are exceptions, with the following limited companies still being required to carry out an audit even if they do not exceed the threshold:

a subsidiary company (unless it qualifies for an exception)
an authorised insurance company or company carrying out insurance market activity
a company involved in banking or issuing e-money
a Markets in Financial Instruments Directive (MiFID) investment firm or an Undertakings for Collective Investment in Transferable Securities (UCITS) management company
a corporate body whose shares have been traded on a regulated market in a European state.

In addition, an accounts audit will be required if shareholders who own at least 10% of shares (by number or value) request it. This can be an individual shareholder or a group of shareholders.

Many companies, however, are continuing to be audited by choice. This is because it is an excellent way to determine exactly where you stand at the point of audit and what changes if any need to be made to keep you on the right track.

An audit also provides a lot of the information you need to comply with your annual reporting requirements.

Whether you are legally obliged to have an audit or not, annual reporting requirements are not optional. They are required by law and failure to submit them to the deadline can result in harsh penalties.

Size matters…

The amount of information you have to submit depends on the size of your business. There are effectively 4 classifications of size: large, medium, small and micro-entity. The classification is determined by various thresholds for annual turnover, the balance sheet and average number of employees. It also depends on which body you are submitting them to.

Whilst companies that qualify as micro-entities, small or medium-sized business can submit abbreviated accounts for Companies House, all sizes of business must submit full statutory accounts to HMRC with their company tax returns.

What are full statutory accounts?

HMRC requires the following:

balance sheet detailing the value of everything the company owns and is owed on the last day of the financial year and must be signed by a director
profit and loss account showing the company’s sales, running costs and the profit or loss it has made over the financial year
notes about the accounts
director’s report.

What are abbreviated accounts?

Companies House will accept the following as abbreviated accounts:

balance sheet from your company’s statutory accounts, signed by a director
notes about the accounts.

Please note you will still have to prepare full accounts for your shareholders.

Keeping records

There is a mismatch between what HMRC and Companies House require when it comes to how long an organisation must keep certain kinds of data.

Companies Act 2006 states that accounting records need to be kept for 3 years from the date they are made. HMRC however, requires that records used to complete company tax returns must be kept for 6 years from the end of the accounting period to which the records relate.

To keep on the safe side and not risk prosecution for failing to keep adequate and accurate records, you should keep the following for at least 6 years:

record of goods and services bought and sold
record of income and expenditure
sales books
petty cash books
invoices and receipts
orders and delivery notes
contracts
till rolls
business bank account statements
VAT records
PAYE records for employees
record of assets and liabilities
statement of stock at the end of each financial year
record of dividend payments, if applicable.

Your records can be kept in digital format, paper based or a mix of both. What’s important is that they are organised in a way that means information is easy to find.

Penalties and deadlines

The one area where there is no confusion is when it comes to penalties. After the end of your financial year, you must prepare full statutory annual accounts, pay corporation tax and file a company tax return within the appropriate deadlines.

Action	Deadline
File annual accounts with Companies House	9 months after your company’s financial year ends
Pay corporation tax	9 months and 1 day after your company’s financial year ends
File a company tax return	12 months after your company’s financial year ends

If your accounting period is different to your financial year, your corporation tax and company tax return deadlines may be different.

To make matters more complicated, you don’t get a bill for corporation tax. It’s up to you to work out how much your company owes.

Missed the deadline for filing accounts at Companies House?

The penalty charges are as follows:

Time after the deadline	Penalty (for private limited companies)
Up to 1 month	£150
1 to 3 months	£375
3 to 6 months	£750
More than 6 months	£1,500

The penalty is doubled if your accounts are late 2 years in a row.

Missed the deadline for your company tax return?

Time after the deadline	Penalty
1 day late	£100
3 months late	Another £100
6 months late	HMRC will estimate your company’s tax bill and add a penalty of 10% the unpaid tax
12 months late	Another 10% of any unpaid tax

If your returns are late 3 times in a row, the £100 penalties are increased to £500 each.

If your return is more than 6 months late HMRC will do a ‘tax determination’ to tell you how much corporation tax they think you must pay. What’s more, you can’t appeal against it.

No hiding place

Now that anyone with internet access can immediately view your company data, your age, address and a veritable mine of other information, compliance and transparency is more important than ever.

Potential clients can see at a glance whether you consistently file late returns or whether any directors have been struck off to name just a fraction of data that is freely available. Any blips could be seen in a negative light. Could your business withstand the scrutiny?

An audit, particularly one carried out by an external, impartial professional can not only ensure you don’t miss deadlines but can also provide that extra level of reassurance for investors, lenders and new clients alike.

Contact us today to discuss how we can assist you with your audits.

New tax evasion plans revealed

July 21, 2015 Posted by Wellden User

HMRC has released further details about how it plans to crackdown on offshore tax evasion.

Treasury officials announced plans to create a new strict liability offence for offshore tax evasion following Budget 2015 in March. Strict liability refers to a criminal offence where proof of intent is not required to convict the suspected individual.

Under current laws, taxpayers can only be found guilty of tax evasion if HMRC is able to prove that the failure to pay was deliberate. Under the new rules, failure to declare income and gains will alone be sufficient to convict taxpayers.

Under the draft legislation:

the offence will only apply to income and capital gains tax
it will apply to all offshore income and gains
it will only be used if the amount of undeclared tax exceeds £5,000
the threshold will not roll over into multiple tax years
convicted people will face a maximum 6 month prison sentence.

HMRC is currently consulting stakeholders about the viability of the draft legislation.

The Chartered Institute of Taxation (CIOT) has warned that the use of strict liability will result in criminal convictions of people who did not intend to evade tax and merely made mistakes on their tax returns.

Patrick Stevens, tax policy at the CIOT, said:

“It is easy to see why this is attractive to the tax authorities. But UK and international taxation is a minefield of complexity and, while some taxpayers do actively seek to hide their income by intentionally failing to declare it, there are others who simply make mistakes in their financial affairs without intending to act wrongly.

“It is not reasonable for someone to be convicted, let alone imprisoned, for offshore tax evasion without an intention to evade tax being proved beyond reasonable doubt.”

We can file your personal tax return for you. Contact us for more information.

HMRC relaxes PAYE late filing penalties

June 18, 2015 Posted by Wellden User

HMRC will begin relaxing automatic late filing penalties for people who send PAYE information late, officials have indicated.

The revenue said it would take a ‘proportionate approach’ instead of issuing automatic penalties in the event that an employer reports PAYE information late.

Investigations will now be concentrated on ‘the more serious defaults on a risk-assessed basis’. The move will allow HMRC to focus on serious cases of non-compliance, and to invest resources in educating employers on compliance issues.

The decision reflects the conclusions of a policy document published by HMRC in February 2015. The report argues that small automated penalties are costly and resource intensive for the revenue to pursue, and detract from its ability to pursue serious compliance failures.

The news comes after a leaked HMRC memo revealed that the revenue would no longer be investigating each individual late filing of self-assessment returns. Officials will now waive the £100 late filing penalty if people provided a ‘reasonable excuse’ on appeal.

Colin Ben-Nathan, chairman of the Chartered Institute of Taxation’s Employment Taxes Sub-Committee, welcomed the announcement:

“The requirement on employers to send PAYE information in ‘real time’ has proved difficult for some employers to comply with, especially the smallest and those whose employees have unpredictable working hours. It has imposed new and sometimes onerous obligations on employers.

“HMRC are right to have taken a pragmatic approach so far to the levying of penalties, initially not imposing them at all for smaller firms and now promising to concentrate on the most serious defaults.”

We can manage your payroll for you. Contact us today for more information.

Families could miss out on IHT relief

June 3, 2015 Posted by Wellden User

Up to 3,000 families may miss out on the government’s proposed changes to inheritance tax (IHT), according to analysis by NFU Mutual.

The Conservatives outlined their plans to raise the IHT threshold to £1 million in their election manifesto. A ‘residence allowance’ of £175,000 would enable married couples to transfer a property of up to £1 million to their children without having to pay IHT.

The £175,000 residence allowance will enable homeowners to extend their current £325,000 IHT threshold to £500,000. Married couples can combine these to give an overall IHT threshold of £1 million.

However, NFU Mutual’s research has revealed that thousands of families could miss out on the tax break because the family home has already been sold.

Data from HMRC shows that thousands of ineligible estates without property must pay IHT bills each year.

The Chancellor is widely expected to officially announce the plans during his Summer Budget in July.

Sean McCann, chartered financial planner at NFU Mutual, said the plans will “stick in the craw” of those who have already sold their houses:

“These proposals are acknowledgement from the government that the existing inheritance tax threshold is far too low. However, it would be much fairer to apply an overall increase rather than tinker with the rules around who can benefit and who can’t.

“Under the new proposals, we could soon start to see more elderly people reluctantly house-sitting for the next generation or even upsizing to make the most of this potential tax break. The wider effects on the property market could be significant.”

Contact us today to discuss your IHT planning.