How do I pay less Tax

Welcome to the October Edition of Pay Less Tax!

We hope you find this month’s updates both informative and insightful. If anything catches your interest or if you’d like to discuss any of the topics in more detail, don’t hesitate to get in touch.

October 2024 Edition

Possible Capital Gains Tax (CGT) Changes in the October Budget

There’s been a lot of buzz about potential CGT changes in the upcoming Budget. Some commentators are predicting that CGT rates may be aligned with income tax rates—potentially a throwback to when Gordon Brown was Chancellor. Rachel Reeves, a known admirer of Gordon Brown, might also reintroduce taper relief!

That said, we’re all hoping that Business Asset Disposal Relief (BADR), or a similar incentive, will remain to encourage entrepreneurship. It’s possible the conditions to qualify for this relief may tighten further, so it’s worth keeping an eye out for announcements.

Other potential changes to CGT could include additional restrictions on private residence relief and amendments to holdover relief for assets transferred into and out of trusts. A more controversial change that’s been floated is removing the CGT uplift to probate value on death. This would mean beneficiaries inherit the deceased’s original CGT base cost rather than the market value at the date of death—a suggestion once made by the now-defunct Office of Tax Simplification (OTS).

Should You Consider Bringing Forward Asset Disposals Before Budget Day?

CGT changes typically take effect from April 6th, but we’ve seen mid-year adjustments in the past. This uncertainty has prompted some taxpayers to bring forward asset disposals to lock in the current rates.

Remember, the disposal date for CGT is the date of unconditional exchange of contracts. There could be anti-forestalling legislation to counter attempts to artificially accelerate disposal dates. While there’s still time to sell listed investments before 30th October, other assets, such as businesses or properties, may take longer to sell—unless you already have a buyer lined up.

Beware of “Bed and Breakfast” Anti-Avoidance Rules

If you’re planning to realise gains before potential rate hikes and then repurchase the same investments, be aware of the “bed and breakfast” rule. If you buy back the same shares within 30 days of selling them, the sale and repurchase are effectively matched, potentially negating your desired gain.

For instance, if you sell 1,000 shares in Company A for £4.50 a share, making a gain of £2,500, this could be tax-free if your 2024/25 CGT exemption is unused. But if you repurchase the same shares at £4.45 a share within 30 days, you’d create a £50 loss instead, and the base cost would stay at the original £2 a share.

To avoid this, consider having your spouse purchase the shares or buying them within an ISA or pension fund—also known as “bed and spousing.”

Rumours of Pension Changes in the October Budget

Pension tax relief is rumoured to be a prime target for changes in the Budget. Recently, the lifetime allowance charge was abolished, and the annual allowance was increased to £60,000. But with Rachel Reeves indicating that these were too generous, we might see these changes rolled back or further restricted.

Possible pension changes to watch for include:

• Limiting pension tax relief to the basic rate or a flat rate of 30%;
• Capping or abolishing the 25% tax-free lump sum;
• Freezing or reducing the £1,073,100 lump sum and death benefit allowance;
• Making undrawn pension funds subject to inheritance tax; and
• Limiting employer contributions made through salary sacrifice.

Pension changes typically take effect from April 6th, but as always, we advise reviewing your pension planning strategy now, in case changes are implemented earlier.

Consider Withdrawing Pension Funds Before the Budget

Current rules allow many pension scheme members over 55 to withdraw up to 25% of their pension savings tax-free. This is currently capped at £268,275, but rumours suggest that this may be reduced to £100,000.

In recent weeks, we’ve seen a surge in withdrawals as people seek to take advantage of the current limit. Be aware that pension lump sum “recycling” is subject to anti-avoidance rules. If you withdraw more than £7,500 and then increase your pension contributions by over 30% of the withdrawn amount, the lump sum could be taxed at 40% as an unauthorised payment.

Check Your State Pension Entitlement

The State Pension is set to rise to around £12,000 a year for 2025/26. With annuity rates as they are, it would cost over £300,000 to purchase an index-linked annuity starting at £12,000 annually. It’s worth checking your National Insurance record to ensure you’re on track to receive the full pension.

If you’re missing qualifying years, you might consider topping up with voluntary Class 3 contributions, or Class 2 contributions if you’re self-employed. Typically, you can go back six years, but until April 2025, you have the chance to fill in gaps going back to 2006/07. The sooner you act, the better!

“Nudge” Letters from HMRC

HMRC has increased the use of “nudge” letters to taxpayers suggesting potential errors or omissions. While HMRC calls these a compliance tool, they can feel more like a direct marketing campaign. If you receive one of these letters, don’t panic—get in touch with us and we’ll help you address it.

Watch Out for Scam Letters Claiming to Be from HMRC

We’ve also heard reports of scam letters and emails claiming to be from HMRC. These typically ask for personal information that could be used by fraudsters. If you have any doubts about a communication’s authenticity, contact us before responding.

Key Tax Dates to Note: October/November 2024

1 October:
Corporation tax due for year ending 31/12/23 (unless paying by quarterly instalments).

5 October:
Deadline to notify HMRC of chargeability for 2023/24 if not already within Self-Assessment.

19 October:
PAYE & NIC deductions, and CIS return and tax, for the month ending 5/10/24 (due 22 October if you pay electronically).

1 November:
Corporation tax due for year ending 31/01/2024 (unless quarterly instalments apply).

19 November:
PAYE & NIC deductions, and CIS return and tax, for the month ending 5/11/24 (due 22 November if you pay electronically).

If you have any questions or would like to discuss anything in this edition further, please reach out to us. Until next time!