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CLIENT PRIVATE
Year End Tax Planning Tips
Can Trusts Reduce Inheritance Tax?
Guide to Making Tax Digital
Contents
3 Welcome to our Spring Newsletter
4 Your Guide to End of Year Tax Planning 2024/25
6 Offshore Investment Bonds: A Planning Opportunity for Internationally Mobile Clients
8 How Trusts Could Help you Save on your Inheritance Tax Bill
10 Are you Ready for Making Tax Digital?
12 Meet the Team
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With Spring now in the air, it can mean only one thing – we’re approaching the end of another tax year. And whilst not all tax planning is time sensitive, now is a great time to take stock and reflect on your tax affairs. W hether it’s checking if you’re making the most of allowances available for the current tax year, or understanding how the changes announced in the Autumn Budget adversely affected your tax position – there’s plenty that’s important to consider before the 5 April rolls around once again. For anyone looking to leave the UK, on a temporary or permanent basis, David Collins, our expert in overseas and non-dom taxes takes a look at the tax benefits of holding your investments in an offshore bond. And, looking ahead, there are significant changes on the horizon with Making Tax
Digital. Kate Cowell explores what the changes mean, who will be affected and what steps you should take now to make sure your tax affairs and records are in order for a smooth transition. As always, everyone’s circumstances are different so it’s important to take advice that’s bespoke to you. And as our team have expertise across a wide range of topics we’re here to support both your personal and business finances now and in the future.
So, we’re delving into some of these topics in this Spring edition of our newsletter.
Simon Hurren explores whether trusts can save you inheritance tax. And with many family businesses facing changes to inheritance taxes this could help. There’s a detailed breakdown of the different elements of tax planning to consider before the end of the tax year. Perhaps an increase in your income will make pension contributions more important this year.
I hope you enjoy reading this latest issue.
Here’s to longer days and warmer weather ahead!
PRIVATE CLIENT | SCRUTTON BLAND | 3
Your Guide to End of Year Tax Planning
As we approach the end of the 2024/25 tax year, we’re presented with a window of opportunity to review your personal affairs and consider using any tax planning to utilise tax allowances before they are lost.
Income tax Every individual is entitled to a set of tax allowances in each tax year, including tax free personal allowance, dividends allowance and trading allowance. And it’s in your best interests to maximise your use of these to reduce your annual Income Tax liability. This year, the rates of Income Tax remain the same going into the new tax year and therefore taxpayers with an income of between £100,001 and £125,140 suffer an effective rate of 60% due to the loss of the personal allowance. Your personal allowance is tapered by £1 for every £2 that your income exceeds £100,000. If you then include the National Insurance Contributions (NIC) payable on this income, the effective rate increases will be 62%, with an additional rate of 2% applied for Class 1 NIC for employees and Class 4 NIC for those who are owners of unincorporated businesses. Therefore, it’s important to consider ways in which you can reduce your taxable income and mitigate your annual tax bill.
How to optimise your tax position
There is a limit to the amount you can invest into your pension fund in each tax year, known as the pension annual allowance. Currently an individual can contribute £60,000 within the year into their pension without incurring an income tax charge. This includes contributions into an Occupational Pension Scheme and a Self-Invested Personal Pension. You can also utilise any unused pension annual allowances from the previous three tax years (2021/22 onwards) for 2024/25. However, this annual tax-free pension allowance will be reduced if the sum of your taxable income and employers pension contributions exceeds £240,000. So, it’s important to review your pension annual allowance for the year to make sure you don’t exceed your annual allowance and suffer a tax charge. ISA allowances The 2024/25 ISA savings limit remains at £20,000 for individuals and £40,000 for married couples. These limits apply per tax year and cannot be carried forward. If you have not utilised your ISA savings limit for the 2024/25 tax year, then you should consider whether you can optimise your investments by taking advantage of the tax-free wrapper available. Unused allowances are not carried forward to future tax years so it’s a case of use it or lose it.
Pension contributions Both an effective way to avoid the higher rates of income tax and to positively impact your long-term financial position. A contribution to your pension will attract a 20% top-up payment from HM Revenue and Customs within the pension scheme, whilst your Income Tax bands increase by the gross contribution. This can be a very effective way to reduce the impact of the effective 60% tax rate.
As an example
Mark receives an annual taxable income of £110,000 and is therefore paying an effective rate of tax of 60% on £10,000 of his income. If Mark made a gross contribution of £10,000 to his pension fund, the point at which his personal allowance is tapered would be increased to £110,000 and he would therefore not be subject to 60% tax. To make a gross contribution of £10,000 Mark would need to actually pay £8,000 into his pension (basic rate tax would then be reclaimed by the pension), Mark would save tax personally of £4,000 and the cost to Mark is therefore £4,000 whilst increasing his pension pot by £10,000.
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Gift Aid Gift aid donations work in a similar way to pension contributions in that they extend your tax bands. So, a higher rate or additional rate taxpayer’s annual tax liability can be reduced by 20% or 25% of the grossed-up charitable donation. These payments can also help to reinstate your personal allowance alongside personal pension contributions. Gift Aid also allows the charity to claim an additional 25p from HM Revenue and Customs for every £1 you donate.
And with rumours circulating that the Labour Government are open to lowering or abolishing the annual ISA tax-free allowance, now’s the time to make sure you’ve considered whether utilising your ISA allowance is beneficial to your circumstances. Tax efficient investments Some qualifying investments benefit from income tax relief on the amount invested. And the below summarises the benefits of making such investments. But these won’t be suitable for everyone, so it’s important to seek out financial advice on what best suits your circumstances.
The HICBC still remains chargeable on the higher earning partner, irrespective of whether they are the Child Benefit recipient. So, where couples run their finances independently, and one party doesn’t know the other claims Child Benefit, this can cause particular problems. If you are in receipt of Child Benefit, you should ensure that you check the projected taxable income of you and your partner to avoid any unexpected tax charges in your Self-Assessment Tax Return. Pension contributions can be a useful way of lowering your adjusted net income to below the HICBC threshold. Capital Gains Tax The annual exemption available to most individuals in the 2024/25 tax year is £3,000 and should be utilised wherever possible before the 5 April. Given the annual exemption has been reduced by 50%, it’s likely more individuals will be due to pay Capital Gains Tax on disposals made within this current tax year. Therefore, if you’ve made total Capital Gains over the £3,000 annual exemption, you’ll be required to report and pay Capital Gains Tax through a Self-Assessment Tax Return by the 2024/25 self-assessment deadline of 31 January 2026. FIG Regime The FIG Regime comes into effect from 6 April 2025 to abolish the non-domiciled status from the UK Tax system. You can read more about the impact of these changes here:
Tax planning to consider ahead of 2025/26
Venture Capital Trusts (VCTs)
Remuneration planning Recent tax changes continue to make profit extraction strategies for shareholders in family companies a complex matter. There is an increased need for bespoke planning as there are numerous factors that can impact the best strategy. So, it’s important to review your remuneration planning before the end of the tax year to be sure you’ve maximised allowances. Jointly held assets If your marginal rate of income tax is different to your spouse’s, then it may be appropriate to consider whether any of your assets should be held jointly, or in your spouse’s sole name to reduce the overall tax liability. If an asset is jointly held between spouses, the income generated is then shared equally between each individual. A transfer of an asset can be made between spouses under the no gain/no loss rules which means such transfer can also be made without any Capital Gains Tax implications. High Income Child Benefit Charge From 6 April 2024, the income thresholds for the High Income Child Benefit Charge (HICBC) increased, opening the possibility of receiving Child Benefit payment in many more households. The HICBC now applies where the adjusted net income is over £60,000 (previously £50,000). Adjusted net income is broadly your taxable income after you have deducted personal pension contributions and Gift Aid payments. Child Benefit is clawed back at a rate of 1% for every £200 of income above £60,000. Therefore, if your income exceeds £80,000, the full amount is clawed back and all financial benefit of receiving payment is lost.
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Investments of up to £200,000 per year qualify for Income Tax Relief at 30%.
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There is no Capital Gains Tax payable on any profit made when selling the investment.
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Dividends from VCT investments are received tax-free.
Enterprise Investment Scheme (EIS)
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Annual investments of up to £1 million in qualifying companies attract Income Tax Relief at 30% (or up to £2 million if at least £1 million is invested in knowledge intensive companies). There is no Capital Gains Tax payable on any profit made when selling the investment if the investment is held for over three years.
•
Seed Enterprise Investment Scheme (SEIS)
Non-Doms and Non-Residents: April 2025 Changes Explained
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Investments of up to £100,000 per tax year can be made in start-up companies that qualify for the SEIS.
But if these rules will impact your tax position and you have not yet reviewed your current arrangements, please reach out to our tax team to discuss your personal situation in more detail. Get in touch We can provide support with all of the above topics to help mitigate your tax position both for the short and long-term with specialised advice on your affairs. Contact Simon or one of the team by calling 0330 058 6559 or by emailing hello@scruttonbland.co.uk
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Income tax relief is available at 50% on SEIS investments.
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Any profit made on an SEIS investment is exempt from Capital Gains Tax if the investment is held for over three years.
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Offshore Investment Bonds: A Planning Opportunity for Internationally Mobile Clients
For individuals who move overseas, and particularly those who intend to return to the UK, there are options available that are worth exploring to help reduce your UK tax
exposure, particularly for the period where you are a non-UK resident. I n this article, David Collins, Senior Tax Adviser, explores how Offshore Investment Bonds (OIBs) can be one of these effective tax planning tools. And that despite their potential benefits, many people are unfamiliar with how they work and the opportunities they offer.
What is an Offshore Investment Bond (OIB)? An Offshore Investment Bond is a tax-efficient investment wrapper. Unlike direct equity or fund investments, growth within an OIB is not subject to UK tax while it remains invested. Instead, tax is deferred until a chargeable event occurs, such as a withdrawal exceeding the cumulative 5% annual allowance, or the full surrender of the bond. This also allows capital of 5% of the initial amount invested to be drawn down on an annual basis with the tax deferred until a chargeable event occurs in the future.
Why should Non-Residents use OIBs? One of the standout advantages of OIBs, for individuals who are leaving the UK on a temporary basis, is Time Apportionment Relief (TAR). For non-UK residents, an OIB can be an attractive vehicle because investment growth is not subject to UK tax during the period of non-residence. Making it particularly useful for individuals moving abroad for a period and looking to reinvest their gains without incurring immediate tax charges. It also removes any UK tax filing requirements for individuals who have no other income in the UK. When an individual then returns to the UK and becomes tax-resident again, they do not pay UK tax on the proportion of investment gains that accrued while they were non-resident. This can be a powerful planning tool for those who spend several years abroad, allowing them to benefit from tax-free growth outside the UK tax net.
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Inheritance Tax planning considerations OBIs can also play a role in Inheritance Tax (IHT) planning. A key benefit of both onshore and offshore bonds is that gifting an offshore bond does not trigger an immediate Capital Gains Tax (CGT) liability. The transfer is treated as a gift of a life policy rather than a disposal of individual investments. This can provide flexibility for wealth transfer strategies, particularly for those seeking to pass on assets during their lifetime without crystallising CGT. The gift is still treated as a Potentially Exempt Transfer (PET) and only outside of an individual’s estate after 7 years. Whilst this can be efficient for IHT purposes, the recipient of the gift would be subject to income tax and capital gains tax when drawing from the bond in the future. So it’s important to consider the overall position and seek advice before making such a gift.
Planning considerations in light of potential CGT rises Given the recent increases to the CGT rate announced in the Autumn Budget, individuals with significant investment holdings should make it a priority to review their structures. Offshore bonds can allow tax deferral and, in some cases, a lower effective tax rate when gains are ultimately realised. And for those considering a move overseas, structuring investments through an OIB before departure could help manage your long-term tax exposure. So, if you’re considering a move abroad—or a return to the UK—seeking professional advice on how OIBs fit into your broader tax strategy is essential. By discussing your individual circumstances with an experienced adviser, you can then decide if an OIB is the right investment vehicle for you.
To speak to David or one of the team, call us on 0330 058 6559 or email hello@scruttonbland.co.uk
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How Trusts Could Help you Save on your Inheritance Tax Bill Following on from the changes to Inheritance Tax in the Autumn Budget and the ripple effect across our clients, Simon Hurren looks at the pros and cons of using Trusts to mitigate Inheritance Tax costs.
Firstly, it’s important to understand what a Trust is. Simply put, a Trust holds assets for either individually named beneficiaries or potentially a class of beneficiaries, such as ‘all of my future grandchildren’. Trustees manage the Trust assets in the best interest of the beneficiaries and where the Trust is discretionary (i.e. the Trustees can decide when and how much to appoint to any of the beneficiaries) the Trustees retain control over the assets and the amount of benefit the beneficiaries have, depending on the original intention of the Trust. The person who sets up the Trust can also be a Trustee. So why use a Trust? Trusts are a fantastic tool for asset protection. And this can be particularly important where the beneficiaries may not yet be of an age where you are happy for them to have access to the full asset (would you be happy for your 18-year- old child or grandchild to have £1 million outright?). However, you’d like them to benefit from the assets, whether that’s a property to live in or to benefit from the income generated.
Trusts can also help to protect assets should the beneficiaries get divorced. The rules and case law is complex in this area so it’s important to take advice on the structure of the Trust and how this could be used should the beneficiaries get divorced in the future. But Trusts offer potential protection that would not be there if the asset was otherwise owned directly by the beneficiary. From an Inheritance Tax perspective, any transfers into Trust are outside of your Estate after 7 years. This therefore allows you to start the 7 year clock whilst retaining some control over the assets. There can be an immediate charge to Inheritance Tax where the value of the initial transfer exceeds your available nil rate band so advice should be taken before any transfers are made. Discretionary Trusts fall into the relevant property regime and are subject to Inheritance Tax charges every 10 years (sometimes referred to as the 10-year charge). The calculations for this are complex but the maximum amount of IHT payable on the 10-year anniversary is 6% which is substantially lower than the full rate of IHT of 40%.
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Business assets and agricultural assets With the recent reductions announced to Agricultural Property Relief (APR) and Business Property Relief (BPR), to 100% on the first £1 million of assets and 50% thereafter, Trusts can again be a useful tool to help mitigate IHT. HMRC have released a consultation on how these changes will impact Trusts (released February 2025) and whilst the rules are not final, we can see that the intention is for a Trust to have a £1 million threshold. This will be available to the Trust on the 10 year anniversary and it’s proposed that it will ‘refresh’ every 10 years. Therefore, if a Trust holds agricultural and business assets below £1million no IHT would be due on the 10 year anniversary and at the next 10 year anniversary the full £1 million would still be available (i.e. it’s not reduced by the amount of the threshold used at the previous 10 year anniversary). Whilst it’s proposed that a Trust will have it’s own £1 million threshold, there will be anti- avoidance provisions in place to prevent you from setting up multiple Trusts.
We will of course need to wait until the consultation has finished and the legislation is finalised, but it’s interesting to see how Trusts could be particularly beneficial for those holding farming or business assets to maximise the relief available. The downsides of a Trust The main thing to be aware of is that once assets are transferred into Trust, the settlor (the individual who has transferred the assets) cannot continue to benefit from the assets held within the Trust, otherwise this will be a settlor interested Trust and subject to various anti-avoidance provisions. Most of which would essentially unravel the potential benefits of creating a Trust in the first place. It’s also worth bearing in mind that a Trust is a separate entity and therefore there’ll be additional administration to consider. Any trust, whether it is generating taxable income or not, must be registered with HMRC. Should the Trust receive the income or realise capital gains then tax returns will need to be filed. Likewise, a separate bank account will be required.
In summary, Trusts can be a very useful tool when it comes to protecting your assets and assisting with Estate planning. But as always they should form part of a wider IHT planning strategy and care should be taken before creating one as they can be very difficult and costly to unwind in the future. Our team have knowledge and experience of dealing with multiple trust cases and we’re here to help guide you to determine whether a Trust may be beneficial to your circumstances. Contact Simon or one of the team on 0330 058 6559 or email hello@scruttonbland.co.uk
PRIVATE CLIENT | SCRUTTON BLAND | 9
Are you Ready for Making Tax Digital? The implementation of Making Tax Digital for Income Tax (MTD for ITSA) has been on the horizon for a number of years, with the intention to ‘create a tax system fit for the digital age’.
And, after the successful roll out of Making Tax Digital for VAT in 2019, HM Revenue and Customs are now, despite a number of initial delays, pressing ahead with the digital reporting of income received by businesses and landlords. In this article Kate Cowell, Associate Tax Adviser, explains who meets the criteria for the changes, why it’s essential to understand if you’re affected and what steps you can take now to make sure you’re ready.
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Who will it affect? MTD for ITSA will apply to all self-employed individuals and landlords with gross ‘Qualifying Income’ above the relevant threshold if:
How will my income be reported to HMRC? With MTD a quarterly update of your income and expenses will need to be digitally submitted to HMRC. Instead of the previous annual only submissions.
• you’re an individual registered for Self -Assessment
The quarterly submissions will be on a cumulative basis, with the deadline for each being just over a month after the reporting period.
• you get income from self-employment or property, or both
• your qualifying income is more than £50,000 (reducing to £30,000 for 2027 – see below)
A separate submission will be required for each trade or property business. So, for example if you are self-employed and have rental income, eight submissions will be required each year.
What counts as Qualifying Income? Qualifying income is assessed on a combined basis, so if you have any of the following sources of income these will be added together:
Quarter
Period covered (Calendar Quarter) 6 April to 5 July or (1 April to 30 June)
Filing deadline
• Rental income, before expenses (including jointly let properties)
1
7 August
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Self-Employment (turnover)
2
6 April to 5 October or (1 April to 30 September) 6 April to 5 January or (1 April to 31 December) 6 April to 5 April or (1 April to 31 March)
7 November
• Disguised investment management fees or income based carried interest
3
7 February
• Trust income: If you are a beneficiary of a bare trust or a direct beneficiary (income bypasses the trustees) of an interest in possession trust, that receives property or trading income. For example, if you’re in receipt of income from a joint property and your half share of the rent received is £12,000, and you also receive gross self-employment income of £40,000 – your Qualifying Income would be £52,000.
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7 May
At the end of the tax year, after the fourth and final quarterly submission is made, a ‘Digital Tax Return’ will be submitted. The Digital Tax Return is similar to the current Self-Assessment Tax Return and the submission deadline will continue to be the 31 January following the tax year. There are no changes to the tax payment due dates, which will remain at 31 January following the tax year along with payments on account being due in January and July. What do I need to do now? Whilst the changes are not coming in just yet, it’s important that you’re prepared so that you can meet the reporting requirements of MTD. Your focus at this stage should be on having up to date digital records. So, if you’re not already doing this, now would be a good time to assess the options available to you to implement and maintain these records. Everyone has different needs dependent on the complexity and frequency of their income and expenses. But we can advise on a variety of record keeping solutions; for some it may be preparing a simple spreadsheet. For others it might be helping to choose a bespoke platform to support you as self-employed or as a landlord.
Tax Year assessed
Qualifying income threshold
MTD for ITSA begins
First tax year using MTD for ITSA
2024/25
£50,000
By 6 April 2026 2026/27
2025/26
£30,000
By 6 April 2027 2027/28
Partnership income is not currently within the scope of MTD for ITSA, but this will be introduced at a later date.
What does this mean for those affected? The reporting of your income via Making Tax Digital for Income Tax will become mandatory in phases, starting from 6 April 2026. The initial phase will introduce individuals who have qualifying income of more than £50,000, followed by individuals whose qualifying income is more than £30,000 from 6 April 2027. The government’s intention is to reduce this threshold to £20,000 in the future. Qualifying income will initially be determined by the income reported on your 2024/25 Tax Return. So, if your qualifying income is £50,000 or over than you must start using MTD for ITSA by 6 April 2026.
Either way we’re here to help. Please give Kate or one of the team a call on 0330 058 6559 or email hello@scruttonbland.co.uk
PRIVATE CLIENT | SCRUTTON BLAND | 1 1
Meet the Team From creating tax-efficient solutions to protecting your assets, growing your wealth and preparing your finances for later in life - our Private Client Team have the combined expertise to take care of the financial decisions that matter to you. Get in touch with a member of our team to see how we can help you.
Graham Doubtfire Private Client Tax Partner
Sam Mudd Senior Tax Adviser samantha.mudd@ scruttonbland.co.uk 01206 417269
Kate Cowell Associate Tax Adviser kate.cowell@ scruttonbland.co.uk 01206 417270
graham.doubtfire@ scruttonbland.co.uk 01206 417267
Paul Harris Private Client Tax Partner paul.harris@ scruttonbland.co.uk 01473 945824
David Collins Senior Tax Adviser david.collins@ scruttonbland.co.uk 01206 417268
Chris Hall Associate Tax Adviser chris.hall@ scruttonbland.co.uk 01473 945828
Simon Hurren Private Client Tax Partner simon.hurren@ scruttonbland.co.uk 01473 945822
Sterling Mayes Tax Adviser sterling.mayes@ scruttonbland.co.uk 01206 417271
In 2024, Scrutton Bland became part of Sumer – a collaboration of the best regional accountancy practices with a shared vision to champion local small to medium-sized enterprises. By bringing together the best in business services, Sumer retains the value that community-based practices offer and combines this with the scale, breadth of expertise and technologies that only a national organisation can muster.
To find out more about Sumer, visit our website: www.sumer.co.uk
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