Sole traders, partners… have you heard about this big tax change?

If you run a business that pays tax via self-assessment, a new HMRC reform will probably affect you. Called the Basis Period Reform, it could impact how you report your profits to HMRC for the 2023/24 tax year onwards.  You might even end up paying more tax than you need to.

Why is the basis period reform being introduced?

HMRC says the basis period reform will “create a simpler, fairer and more transparent set of rules for allocating trading income to tax years”.

The issue is that under the previous system, two identical businesses with different accounting dates could have very different annual taxable profits.

The reform is designed to remove this difference and make things fairer.

What’s changing and when?

As of 6 April 2024, a new ‘tax year basis’ now applies to sole traders and partners who are subject to income tax. 

Under the tax year basis, these businesses will be taxed on the profits from a tax year (6 April to the following 5 April), no matter when their accounting period ends.

It will replace the ‘current year’ basis, where tax is calculated on the profits of the accounting period ending in that year. 

Who does this impact?

The reform applies to ‘trading businesses subject to income tax’ – which means sole traders and individual partners in a partnership. Companies are not affected and corporation tax rules are not changing.

Also, if you happen to do your accounts between 31 March and 5 April, you are also unaffected. Your accounting period is already the same as the tax year.

Property income is already reported on a tax year basis so should not be affected by the change.

What do sole traders and partners need to do?

If your business has a year-end other than 31 March to 5 April, you will need to apportion amounts from two sets of accounts to calculate your profits for every tax year from 2024/25 onwards. The current tax year is a ‘transitional’ phase in which we switch over from the current year basis of assessment to this new tax year basis.

How do I calculate profits for the new system?

You will need to look at two sets of accounts to calculate your taxable profits each year. The advice is to do this based on days. 

Here’s an example. A business whose year-end date is 31 December would need to apportion 270 days from the year ended 31 December 2024 (covering 5 April 2024 to 31 December 2024) and 95 days from the year ended 31 December 2025 (1 January 2025 to 5 April 2025).

The figures are used after adjusting for non-deductible expenses and capital allowances.

What if my accounts aren’t ready in time?

If your latest year’s accounts aren’t ready by the time you need to complete a self-assessment, you need to estimate the figure from the second set of accounts and file a provisional figure. That provisional figure will need to be corrected later.

HMRC doesn’t explain how to calculate that provisional figure – it will depend on your business, its size and complexity. You just need to ensure the estimate is reasonable and can be justified. Keep a record of how you came to the figure used.

Provisional figures are corrected by amending the original return as soon as the actual number is known. HMRC has said provisional figures can be corrected at any time up to the normal amendment deadline. For tax year 2024/25, this deadline is 31 January 2027.

How will it work in 2023/24?

The current tax year is a transitional year, where we swap over to the new tax year basis.

In 2023/24 businesses will be taxed on the profits of:

  • The 12 months starting with the end of the basis period for 2022/23 (the ‘standard’ part)
  • The period from the end of the standard part to 5 April 2024 (‘transition’ part)
  • For most businesses, the standard part will effectively be the profits under the current year basis. The transition part then takes you from the end of that period up to 5 April 2024.

What is Overlap Relief and can it help?

Overlap relief can reduce your taxable business profits. Overlap relief is based on ‘overlap profits’, which can arise if your business has not always had an accounting-period ending between 31 March and 5 April.

Overlap profits can arise in the first two or three years of a business or in any year where you change accounting date.

What’s spreading and could it be helpful?

Spreading is a way to reduce the tax impact of additional profits being brought into account due to these changes.

As above, overlap relief should be deducted from any transition part profits in 2023/24.  Additional profits after this are called ‘transition profits’, and can be spread over up to five tax years.

But in some instances spreading is not available, including:

  • If deducting overlap relief from the transition part profits results in a loss
  • Where there is an overall loss for 2023/24 (looking at the standard part, transition part plus overlap relief).

How does spreading work?

The general approach is for 20% of transition profits to be brought into account in 2023/24, and a further 20% in each of the following four tax years.

It’s also possible to bring in more transition profit in any one tax year. The business can choose any additional amount to bring into account. Any remaining transition profits are then spread equally over the remaining period.

This ability could be useful you are paying less tax than usual in any tax year. You might have had a large expense or lower income that year, for example.

Spreading must be noted on the self-assessment return, and the deadline is one year after the filing date for that return.

Where can I get help with all of this?

The new basis reform period can seem a bit daunting and it’s important to get it right so that you pay the correct amount of tax. We’re here to help. For specific advice for your business just get in touch.

Worried about basis period reforms and what it means for you? We’re here to help. As small business accountants in the Lune Valley, we can advise you on tax returns, accounting, payroll services and much more. Get in touch

What’s in the Spring Budget? Takeaways for small businesses…

On Wednesday 6 March 2024 Jeremy Hunt presented the Spring budget. He explained that while interest rates remain high to bring down inflation, his budget would help families manage the higher cost of living with permanent cuts in taxation. He described it as a ‘budget for long term growth.’

Mr Hunt announced that inflation is expected to fall below the government’s target of 2% in ‘just a few months’ time. Inflation in January 2024 was 4%.

Below, we explore the Budget developments that will affect small businesses.

Cuts to National Insurance

The main rate for employee national insurance will be cut from 10% to 8%. People earning £50,000 per year or more stand to save £754 annually as a result. For those earning £35K to £50K the saving is £449, and with incomes of £25k to £35K, people will save £249 per year.

Self-employed national insurance contributions will reduce from 8% to 6%, thought to mean an annual saving of £650 for 2 million people. 

VAT threshold increase

The VAT registration threshold will increase from £85,000 to £90,000 from April 1 2024 – the first increase in seven years. Hunt said: ‘This will bring tens of thousands of businesses out of paying VAT altogether and encourage many more to invest and grow.’

Full expensing for leased assets

Hunt announced his intention to publish draft legislation for full expensing to apply to leased assets. This is an extension of the full expensing tax scheme for investing in new plants and equipment, announced in the Autumn 2023 budget.

This is likely to be a welcome development, as leasing is often a more viable strategy than purchasing for small businesses.

Freeze on fuel duty

Fuel duty will remain its current level for another year. The levy should rise in line with inflation – but this has not happened since 2011. A 5p cut to fuel duty, introduced in 2022, was due to end this month but has been extended.

Recovery Loan Scheme extension

Hunt vowed to provide £200 million of funding to extend the Recovery Loan Scheme as it transitions to the Growth Guarantee Scheme. This is expected to help 11,000 SMEs access much-needed finance.

Capital Gains Tax change

The government plans to raise more money by reducing the higher rate of property Capital Gains Tax from 28% to 24%. Hunt is also abolishing multiple dwellings tax relief, which previously reduced stamp duty liability when buying more than one home in a single transaction.

Holiday lettings tax relief to end

In response to lobbying from MPs representing coastal towns, the tax benefits of running a furnished holiday let business will be abolished.

Increased maximum income for Child Benefit

Hunt says 500,00 families will gain almost £1,300 from an increase to the high income threshold for Child Benefit. The threshold will go up from £50,000 to £60,000.

The tapering limit will increase to £80,000 from the current £60,000.

There are also plans to change how child benefit is paid, by applying the threshold to households rather than individuals.


Free childcare hours for parents of children aged over nine months will continue for the next two years. Hunt says this will allow an extra 60,000 parents enter the workforce in the next four years.

Want to explore in more detail what the latest rules will mean for you or your business? As leading small business accountants in the Lune Valley we’re happy to advise. Get in touch with us today.

How does HMRC find out about undeclared income?

HMRC uses some clever tactics to keep an eye on UK taxpayers and their activities, by making the most of the data available.

Here we look at some of the ways HMRC gathers information – and why it’s so important to make sure you keep your tax affairs in order.  

General information powers

HMRC can legally request any information ‘reasonably required to check a taxpayer’s tax position’. It’s mainly used in an enquiry, but it is not limited to those – it can be applied to potential tax fraud situations too. 

HMRC can also ask third parties for information about taxpayers, such as banks or letting agents. Since 2021, HMRC can approach financial institutions without having first to seek your consent. 

Looking for unregistered businesses

HMRC actively searches for non-registered businesses and income that hasn’t been declared. It uses online search tools, reports from members of the public and information from other government departments to watch for potential tax evasion.

It also has Connect, a sophisticated software application which explores large volumes of information to detect patterns and inconsistencies. It’s thought to look at information including bank interest, credit card data and information from the Land Registry.

Other key sources of information include:

  • customer lists from websites selling luxury items or services
  • policyholder lists from insurance companies
  • letting agents’ books
  • mortgage providers
  • property websites
  • socia media

HMRC is said to use social media sites to identify people who appear to be living beyond their means – taking lots of luxury holidays and buying high end cars, or offering properties to let on a short or long term basis.

Targeting landlords and certain professions

HMRC has targeted commonly ‘non-compliant’ pockets of the economy for years, including tradespeople and – interestingly – solicitors and doctors. In more recent times, it has focused on Buy to Let income and money earned from second jobs.

Local authorities that require landlord licences have become a big asset to HMRC in identifying people who often own a portfolio of properties in a single town or city.

Small businesses are also under the microscope – especially where cash-in-hand could be involved. Around half the UK ‘tax gap’ originates from small and medium sized businesses.

Offering rewards

HMRC has a public hotline where people can report tax fraud of all kinds, which receives more than 100,000 tip-offs per year.  The informants are encouraged by the offer of financial rewards for a successful conviction.

Publicised wins

An example of HMRC’s successful detective work is the discovery of an escort agency operating from a multi-million pound property in London, after credit transactions were linked to the property. The owner admitted making more than £100,000 per year, tax free, for more than five years.

What to do if you’re worried

You will generally benefit from disclosing any wrongdoing to HMRC as soon as possible, rather than waiting for them to come to you. That way, you’re less likely to be prosecuted. Cooperating fully could also reduce any penalties you might face.

If you have received a letter saying that HMRC suspects you have been involved in tax fraud, there is some guidance here: It’s a good idea to seek professional advice in this situation.

Get tax advice and support

The safest way to make sure you’re not scrutinised by HMRC is to check that you are paying the correct tax. By working with a reputable accountant you can make sure that all your records are correct and you’re paying the right amount of tax when it’s due.

As Lune Valley tax specialists and accountants, we’re here to help you manage your tax, whether you’re a landlord, a small business owner or you have more than one source of income. For more information, contact us today.

Tax-efficient ways to draw profits from your business

Many of our SME clients want to take some or all of the profits from their business and use them personally. There are ways to reduce the amount of tax you pay on those profits, so that your business is operating as efficiently as possible.

Here are five options to consider in how to take the profit from your company.

1: Taking a small salary

Paying a small salary can be tax-efficient if the recipient is not using their personal allowance elsewhere. Paying a salary at least equal to the Lower Earnings Limit for National Insurance purposes (£533 per month for 2023/24) will make sure the year counts towards state pension qualification.

The ideal salary will depend on whether your company is eligible for the National Insurance Employment Allowance, which shelters you from National Insurance costs on salary.

In a case where the personal allowance is available in full, and Employment Allowance is not available – which is common where a sole employee is also the director – it makes sense to pay a salary equal to the Primary Threshold.  In 2023/24 this is £11,908.

If the Employment Allowance is available, an optimal salary equals the personal allowance, set at £12,570 for 2023/24.

2: Using dividends

Dividends are paid out of post-tax profits, which have already been subject to corporation tax.

All taxpayers benefit from a dividend allowance, set at £1,000 for 2023/24, so paying a dividend up to this amount is free from further tax.

Once you’ve taken an optimal salary and used your dividend allowance, if you want to take further profits it’s usually best to take dividends rather than additional salary. Dividend tax rates are lower and there is no National Insurance to pay on these.

Remember, dividends must be paid in proportion to shareholdings, and they can only be paid if you have sufficient profit to pay them. If you take dividends over the level of your profit, the difference is seen as a Directors Loan.

3: Making pension contributions

Your company can also make pension contributions on behalf of the director. The pension contributions can usually be deducted in full from pre-tax profits. As long as the contributions are within the available annual allowance and below the level of the lifetime allowance, there will be no tax charges on the recipient.

4. Paying rent

Many small businesses are based at home, and your company can pay rent for a room from the director. This is tax efficient, as the company benefits from deducting the rent from profits for corporation tax purposes.

Although the rental income to the director is taxable, they may be able to benefit from the property income allowance to receive £1,000 of rent tax-free. Another advantage of paying rent is that there is no National Insurance to pay.

5: Applying benefits-in-kind

Giving directors and family employees benefits-in-kind can be very tax efficient. A mobile phone, workplace parking or health insurance are tax-free to the employee and the company can deduct the cost from its taxable profit. Most benefits in kind are free of National Insurance.

Some benefits-in-kind can still be tax efficient even if a tax charge applies. It may be beneficial for the employee to have an electric company car, for example, rather than be given more salary to pay for the car.

The most beneficial approach in reducing your tax will depend on your specific circumstances. It’s a good idea to talk to an accountant for advice on how to manage your company’s finances in the most efficient way.

As Lune Valley accountants we help limited companies and sole traders with tax advice, company accounting and payroll services. Get in touch

The self-assessment deadline is looming- what are your options?

Self Assessment deadline image - tax bill and clock

January is never the most enjoyable month, as we recover from festive overindulgence and aim to turn over a new leaf. For many people it’s also Self Assessment time, as the tax deadline looms on 31 January.

It can be bad timing for some people, following Christmas so closely and putting additional pressure on their finances. But if you’re going to find it a struggle to pay your income tax by the 2024 deadline, don’t panic – there are options available.

What the 2024 Self Assessment deadline means

Taxpayers on self-assessment must pay any remaining tax due for 2022/2023 by midnight on 31 January 2024. As well as any outstanding tax for 2022/23, you may also need to pay your first ‘payment on account’ for the current tax year. This applies if your ‘balancing payment’ for 2022/23 is more than £1,000.

You will also need to pay any Class 4 and Class 2 National Insurance due for the same tax year.  As of 2022/23, you pay Class 2 NIC if your profits are above the Lower Profits Limit (£11,908 for the 2022/23 year).

If your profits are below the Small Profits Threshold (£6,725 in 2022/23) you can choose to pay voluntary Class 2 NIC. If your profits from self-employment are between the Small Profits Threshold and the Lower Profits Limit then there is no Class 2 NIC to pay. You will still be entitled to benefits.

What are the options if you can’t pay your Self Assessment tax?

When you complete your self-assessment, you will get a bill from HMRC. You can view this when you finish filing your return under ‘View your calculation.’

If you are finding it a challenge to raise the money due, don’t ignore the problem. It will be worse in the long run, and it’s possible to set up a payment plan with HMRC.   

Generally you can pay in instalments as long as you have filed your tax return, owe £30,000 or less and are within 60 days of the payment deadline. If you meet these conditions, you can set up the payment plan online.

What if I can’t set up a payment plan with HMRC?

If you’re unable to set up a plan online and need help to manage your bill, contact HMRC direct. Often they will agree a bespoke payment solution that works for both parties. These are called Time to Pay arrangements. Interest is applied to these plans, but they are fairly flexible and can be repaid early if it’s affordable.

To set up a plan, call the Self-Assessment Payment Helpline on 0300 200 3822. If you cannot pay another type of tax, such as corporation tax, call HMRC’s Payment Support Service on 0300 200 3835.

You will need your unique taxpayer reference and National Insurance number; your VAT registration number if applicable; your bank account details, and details of any missed payments.

HMRC will assess your monthly income and outgoings and any savings and investments you have to decide what you can afford to repay each month. Usually if you have savings or investments, you’ll be expected to use these to settle your tax bill.

How to avoid Self Assessment stress in the future

January isn’t great timing for a tax bill, but you don’t have to leave it until then to settle your tax. You can file your self-assessment from 6 April – as soon as the tax year ends.  You don’t have to pay the bill at that point, but you will at least know how much it will be.

Early filing also gives you time to do the return accurately and correct any errors if needed. Or, you could employ a friendly accountant to manage the whole process for you and avoid any unwanted surprises.

Worried about Self Assessment Tax Returns? Let us help. As small business accountants in the Lune Valley, we’re here to support you with tax returns, accounting, payroll services and much more. Call us today.

The Autumn Budget 2023 – National Insurance cuts and further growth to the national living wage.

On Wednesday November 22 Jeremy Hunt presented the Autumn budget. He set out his priorities as to avoid major spending, but to cut taxes and ‘reward hard work’ with numerous changes to business tax and allowances.

Mr Hunt announced that the UK economy is set to grow by 0.6% in the current year, according to forecasts from the Office for Budget Responsibility. It then expects the economy to grow by 0.7% next year. GDP is forecast to rise by 1.4% in 2025, 1.9% in 2026 and 2.0% in 2027.

Below, we explore the announcements from the Budget that will affect small businesses.

Inflation expected to fall

Inflation is expected to fall to 2.8% by the end of 2024 according to the spending watchdog, down from 11.1% last year when Hunt and Rishi Sunak took office.

National living wage up by more than £1 an hour

The national living wage will increase from April to £11.44, and will be extended to 21-year-olds.

Benefits will be increased by 6.7%, although there will be tougher requirements for unemployed people to look for work. The state pension will be increased by 8.5%.

Cuts to National Insurance

“High taxes discourage work”, said Mr Hunt, and that the combination of national insurance plus income tax means people pay a 32% marginal tax rate.

The main rate for employee national insurance will be cut from 12% to 10%, potentially benefiting 27 million people to the tune of c.£450 a year on average earnings.

This change will be brought in from 6 January 2024.

Class 2 National Insurance abolished

Class 2 national insurance, which is paid by the self-employed, will be stopped. This will save almost two million individuals £192 per year.

The self-employed also pay class 4 national insurance at 9%, which will reduce to 8%. Taken together, these measures will save self-employed workers £350.

Small business support

Mr Hunt said that as a one-time small business owner, he wants to support this sector.

Recognising that SMEs want bills paid on time, he said that firms bidding for government contracts can expect bills to be paid within 55 days at first, and then within 30 days.

The 75% business rates discount for hospitality, retail and leisure is being extended for another year, at a cost of £4.3bn.

Investment in strategic manufacturing

Hunt also announced plans to make available £4.5bn over five years to attract investment into certain manufacturing sectors. This will include money for electric cars and life sciences.

The investments are aimed at keeping the UK competitive in sectors where it leads, and drive innovation in others.

Full expensing made permanent

Hailing full expensing a success, Mr Hunt announced that it would be made permanent. Companies that invest in the UK will reduce their tax by up to 25p for every £1 spent on plants and machinery.

12 investment zones for the UK

Tax reliefs for freeports and investment zones are being extended from five years to 10 years. New investment zones will be created in the West Midlands, East Midlands and Greater Manchester. These could bring in private investment of £3bn and 65,000 jobs.

Want to explore in more detail what the latest rules will mean for you or your business? As leading small business accountants in the Lune Valley we’re happy to advise. Get in touch with us today.

Capital Gains Tax: asset transfers for couples – here’s how it works

There are some helpful tax breaks for couples – both those who are married and those in a civil partnership. An important one can be the ability to transfer assets between them without any impact to capital gains tax. Sometimes this can be useful for tax planning.

Capital gains – no gain, no loss

Married couples and civil partners can transfers assets from one to the other during the course of the marriage without having to pay Capital Gains Tax (CGT). This applies to all assets including second homes, business interests, shares and capital. It’s known as the ‘no gain, no loss’ relief.

The effect of this rule is that any gain that has accrued while the transferor has owned the asset is passed to the receiver, and there’s no charge at the point of transfer.

Gains do not crystallise until the asset is disposed of outside the marriage or civil partnership.

An example of how this works

Mark purchases a piece of art for £2,000. Five years later he transfers it to his wife Amy. By then, the art is worth £4,000. Amy sells the piece a decade later for £7,000.

When Mark passes the art to Amy, it is transferred at a value of £2,000 – which is Mark’s base cost with neither a gain nor a loss. There is no capital gains tax to pay on the increase in value from £2,000 to £4,000 while Mark owned the art.

When Amy sells the art, the full gain of £5,000 – from £2,000 to £7,000 – becomes chargeable. Amy is liable for the full gain – not just the increase in value since she acquired the art.

There are no other gains in Amy’s tax year, so the gain sits within her annual exempt amount of £6,000. If the painting had fallen in value, Amy owns the overall loss in a similar way.

How the spouse tax break this helps with tax planning

This ‘no gain, no loss’ rule opens up a number of tax planning opportunities:

  1. Make use of annual exempt amounts

Transferring an asset – or a share in one – can make best use of unused annual exempt amounts.

The annual exempt amount for 2023/24 is £6,000. Using this strategy can save the couple up to £1,200 in tax. Note that the annual exempt amount falls to £3,000 from April 2024.

  • Make use of a lower tax band

If a gain can’t be fully sheltered by the annual exempt amount, but the spouses/civil partners have different rates of tax, the taxable gain can be shared and taxed at the lowest rate of tax.

  • Change income allocation

Income from an asset owned jointly by spouses and civil partners is taxed 50:50, irrespective of who specifically owns what share.

But to make sure income is taxed at the lowest possible marginal rates, you can transfer a set share of the ownership under the CGT rules.

For example, asset shares could be transferred to be 80:20 in favour of the lower-earning partner. A Form 17 needs to be completed to confirm this transfer.

  • Business asset disposal relief

You may be able to qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) if you are a sole trader or business partner, and you’ve owned the business for at least two years.

The relief reduces the rate of CGT on selling certain business assets from 20% to 10%. Each spouse or civil partner has their own limit. Assets or shares can be transferred from one spouse to the other, before selling.

However, the business needs to be in that ownership structure for two years before disposal for this relief to apply. It’s important to plan ahead if you want to take advantage of this option.

Make sure you and your partner don’t pay more tax than you need to. As Lune Valley tax specialists and accountants we can help you assess the most tax-efficient way to manage your affairs. For more information, contact us today.

A quick guide to Capital Gains Tax

When you sell an asset, such as property, stocks or valuable possessions and you make a profit, Capital Gains Tax (CGT) may apply.   In this blog, we look at what Capital Gains Tax is, who needs to pay it and how you can navigate your tax obligations.

What is Capital Gains Tax?

Capital Gains Tax is a tax on the money you make when selling certain assets. These include:

  1. Property: Selling your main residence is usually exempt from Capital Gains Tax, but a second home or a buy-to-let property will tend to qualify for the tax.

  2. Shares: You might pay CGT when selling shares in a company – both those listed on the stock exchange and unlisted shares. But this does not apply if the shares are part of an Individual Savings Account (ISA) or Personal Equity Plan (PEPs).

  3. Personal Possessions: Valuable items like art, antiques and jewelry that have a value exceeding £6,000 may be eligible for CGT. Eligible items must have a long lifespan of more than 50 years – so selling cars or watches won’t expose you to tax.

  4. Business Assets: If you’re a business owner, Capital Gains Tax may apply when you sell or dispose of business assets. Typical assets are property, land, machinery and registered trade marks.

The tax is calculated based on the difference between the asset’s selling price or market value and its original purchase price. This is known as the ‘capital gain.’

Importantly, Capital Gains Tax is only payable on the gain, not the entire sale proceeds.

Who needs to pay Capital Gains Tax?

UK residents each have an annual tax-free allowance. You only need to pay CGT on total gains above this amount. In the 2023/2024 tax year, the Capital Gains Tax allowance is £6,000.

If you are married or in a civil partnership or own assets with another person, you can combine your exemptions to potentially double the tax-free gains.

Note that CGT allowances have decreased from £12,300 in 2022/23 to £6,000 this year, and are due to halve again next year (April 2024) to £3,000.

When is Capital Gains Tax not applicable?

You don’t need to pay CGT in certain situations, such as:

  • Making a gift of an asset to your spouse or civil partner
  • Giving an asset to charity
  • If you win a sum of money in a lottery or competition
  • If you make gains from ISAs or PEPs, UK government gilts or Premium Bonds.

What is Capital Gains Tax charged at?

The rate of tax you pay depends on your total taxable income for the tax year, as it is linked to your tax band.

As of 2023/2024, the CGT rate for higher or additional rate taxpayers is 28% for gains from residential property and 20% on other assets.

For a basic rate taxpayer, CGT on any gains within your basic rate Income Tax band is 18% for residential property and 10% on other assets.

How can I reduce my Capital Gains Tax?

There are a few options that may reduce the tax due on gains from disposing of your assets:

  1. Careful timing. Deciding when to sell or give away assets may be important, especially with the allowance set to reduce further next year.

  2. Using schemes and wrappers. Investment schemesand tax relief routes may help – seek advice on which might apply to you.

  3. Make use of any losses. If you make a loss on any investment, you may be able to offset this against your gains. You can also carry forward capital losses to future tax years.

  4. Tax free transfers. You can transfer assets to a spouse or civil partner, which can be helpful in sharing the gain, especially if your partner sits within a lower tax bracket.

  5. Manage your taxable income. Because the rate of CGT you pay links to your income tax band,it can help to reduce your income. Common ways to do this are to increase pension contributions or make charitable donations. 

Advice on managing Capital Gains Tax

If you need to pay CGT, make sure you maintain accurate records of all transactions, including original purchase costs, expenses and the selling price. Good records will help you calculate the correct tax liability.

Capital Gains Tax can be complicated, especially if you’re dealing with multiple assets. We’ll be pleased to advise you and help you keep CGT to a minimum. Get in touch to find out more.

Eight ways to reduce the inheritance tax on your estate

Inheritance Tax is increasingly important to our clients, led by the rapid rise in property prices over recent decades and the fact that the inheritance tax threshold has remained static since 2009.

How much is inheritance tax and will it apply to my estate?

Each individual in the UK qualifies for a Nil Rate Band of £325,000, which means that there’s no tax to pay on the first £325K within your estate. That threshold will remain the same until at least 2028, which means that every year more people will be exposed to inheritance tax at 40% on the wealth they leave behind.

But that doesn’t mean your estate will be liable. There are a number of allowances, reliefs and strategies to help you avoid or minimise that tax bill, so that more of your hard-earned assets stay in the family. Here are 8 ways to reduce your exposure…

1. Understand the allowances:

In addition to the £325,000 Nil Rate Band, there’s a further allowance for those who own their own home of up to £175,000.

To qualify, the person who died must have left their home, or a share of it, to their direct descendants – their children, stepchildren, adopted children or grandchildren.

This way, a homeowner’s estate could total up to £500,000 before inheritance tax applies.

2. Benefits for couples

For married couples and civil partners, there’s a useful tax perk. Spouses can inherit each other’s estate without incurring inheritance tax.

Furthermore, any unused tax-free allowance from the first partner’s estate can be transferred to the surviving partner, potentially doubling the tax-free threshold up to as much as £1 million.

3. Strategic gifting:

Why wait for the future to start distributing your wealth, when you can start making strategic gifts now?  Small gifts made during your lifetime are often exempt from inheritance tax. Use the annual gift exemption limit to gradually transfer assets to your beneficiaries while minimising your potential tax liabilities.

4. Explore trust options:

Trusts can be powerful tools for managing inheritance tax. By placing assets into irrevocable trusts, you can potentially remove them from your estate, thus reducing the taxable amount. Trusts require careful consideration and planning, so seek financial and tax advice before making any decisions.

5. Embrace business relief:

If you own a family business, business relief can be a crucial tool in tax planning. This relief can provide up to 100% exemption from inheritance tax on qualifying business assets. By keeping the business operational, you can not only protect your legacy but also benefit from significant tax savings.

6. Make charitable contributions:

If you have charitable inclinations, consider incorporating them into your estate plan. Leaving a portion of your assets to registered UK charities in your will can lead to a reduced inheritance tax rate – from 40% to 36%. This way, you can support causes you care about while potentially benefiting your loved ones financially.

7. Downsize thoughtfully:

If your current property is larger than your needs, downsizing could help. Selling a larger property and moving into a more suitable one could qualify you for downsizing relief, lowering your inheritance tax liability based on the property’s value.

8. Consider life insurance:

Placing life insurance policies in trust can ensure that the payout is excluded from your estate for tax purposes. A whole of life policy will pay out on your death at any age, passing money on to your loved ones. This way, the insurance proceeds can directly benefit your beneficiaries without being subject to inheritance tax.

While inheritance tax might seem daunting, employing these strategies can help you navigate it effectively. Every financial situation is unique, so always consult a knowledgeable financial or tax advisor before implementing any of these approaches.

But proactive planning, exploring your options and making informed decisions could safeguard your family’s financial future and pass on your legacy intact.

To discuss your own inheritance tax liability and how to mitigate it, get in touch with us today. As local tax specialists we can give you advice and support to protect your family’s future.

Avoid tax and pension scams – our tips and advice

Have you ever had a suspicious phone call or email claiming to be from HMRC?

Unfortunately, the number of fraudsters targeting small business owners, the self-employed and other individuals is rising all the time. According to the National Cyber Security Centre, HMRC was the third most spoofed government body in 2022, behind the NHS and TV Licensing.

In this month’s blog, we share tips and advice to protect you from being caught out.

1.     Avoid tax phishing scams

Always be sceptical of any contact from HMRC that asks you to share personal or financial details or requests you to immediately transfer money. HMRC will generally give you time to settle any funds owed.

If in doubt, contact HMRC directly, using a phone number listed on the government website.

2.     Check on the latest scams

There are many different types of scam in operation, from suggested rebates to requests to update you tax account details. Other threaten legal action for tax avoidance. Don’t act on anything until you have checked the details.

The HMRC website even lists the most common scams and requests that you report suspicious activity.  You can forward suspicious emails to and texts to 60599.

3.     Never share your login details

Never share your HMRC login details with anyone. These give access to your personal information and increasingly, fraudsters use people’s details to request tax claims paid to their own bank. This leads to innocent people having to pay back false claims made on their behalf.

Note that your accountant or tax agent do not need your HMRC login details and will never ask you to share them.

4.     Choose your tax agent or accountant carefully.

If you choose to appoint an agent for support, take time to check their credentials. Sometimes criminals pose as accountants and offer their services to make tax claims for you.

Check that they are qualified and accredited – this is usually stated on the company website. There is advice on choosing an agent on the HMRC website. Read customer reviews about the agent to ensure they are trustworthy and provide a good service.

5.     Watch out for pension scams

One of the most shocking types of fraud is where criminals cheat victims out of their pensions, leaving them without the funds they need for retirement.

Pension scammers try to persuade you to transfer your pension pot to them or to withdraw funds from it. Some might seem trustworthy, but it’s never worth the risk. Always get professional financial advice before accessing your pension fund or transferring it.

The Financial Conduct Authority (FCA) website highlights some scams to beware of.

Note that people aged between 44 and 66 are most at risk of falling victim to pension scams. Beware any contact out of the blue offering a free pension review, or help to access your pension before the normal minimum age. This is currently age 55.

6.     Beware of Tax avoidance schemes

Tax avoidance is bending the rules to reduce the amount of tax that someone pays. It deprives public services of the vital funding they need. If you are found to be using a tax avoidance scheme, you’ll have to pay the tax that is legally due, plus interest, plus you may have to pay a penalty.

There are many tax avoidance companies, and HMRC publishes details of schemes it believes are being used to avoid paying tax due.

If you’re using any of the schemes shown on the list, it’s best to withdraw from them and settle your tax affairs to prevent building up a large tax bill. HMRC offers advice and support for anyone in this situation, so don’t be afraid to contact them.

7.     Don’t pay to contact HMRC

You may come across ‘HMRC call connection’ services, advertised online. There’s no need to ever use these services – they are unnecessary and costly. Contact HMRC directly on its 0300 helpline numbers as listed on GOV.UK.

If you’re unsure about something and would like to discuss it, we’re happy to help. We support individuals and small businesses with tax management and all accounting services in the Lune Valley. Contact us today.