Should You Pass on Wealth Now to Avoid Inheritance Tax?

It seems that many wealthy individuals are choosing to pass on substantial amounts of their wealth now, just in case there are changes to inheritance tax (IHT) in Labour’s upcoming Budget on 30th October. Even high-profile figures, like TV presenter Anne Robinson, have reportedly passed on millions to their loved ones. But is this something you should consider?

First things first, it’s important to check the value of your estate and potential IHT exposure under the current rules. At the moment, each individual has a nil rate band of £325,000, with potentially an additional £175,000 against the value of the family home, provided it goes to direct descendants. This extra allowance is known as the residence nil rate band (RNRB).

There’s also an unlimited exemption for assets transferred to a surviving spouse or civil partner, and if the deceased spouse’s nil rate bands are unused, they can be passed on, potentially increasing the tax-free amount to £1 million for the second spouse. However, it’s not all straightforward—if your estate exceeds £2 million, the RNRB reduces by £1 for every £2 over that amount. For wealthier couples, the RNRB can be wiped out entirely, leaving just the combined nil rate bands of £650,000. The current IHT rate on the death estate is 40% after using up the nil rate band.

Fortunately, there’s still a 100% relief from IHT on business and farming assets transferred during lifetime or on death, although it’s uncertain whether these generous reliefs will continue under the new government.

Transfers During Lifetime

Under the current rules, there’s no IHT to pay if the donor survives for at least seven years after making a gift. These transfers are called potentially exempt transfers (PETs). If the donor dies within seven years, IHT may be payable. Remember, the gift needs to be outright with no continued use or enjoyment of the asset by the donor. For example, giving away your home but continuing to live there won’t work unless you meet other conditions, such as paying market rent.

There might also be capital gains tax (CGT) consequences for lifetime gifts, although it might be possible to hold over the gain, so no CGT is payable on the increase in value. Holdover relief is currently available for business assets and when transferring assets into a trust.

If you’re concerned about IHT and want to explore your options before Budget Day, please get in touch.

HMRC Checking on Workplace Nurseries

With the rising costs of childcare, workplace nurseries are becoming an increasingly attractive benefit for employees. When structured correctly, they can be tax-free, making them a great way for employers to attract and retain staff. Larger employers might offer an on-site nursery, but smaller employers often partner with local nurseries.

To qualify for tax exemption, there are two key requirements:

• Financing Responsibility: Employers must genuinely take on the financing of the childcare provision. Simply paying a fixed cost per employee’s child probably won’t meet this test.
• Management Responsibility: Employers should be closely involved in managing the childcare provision, such as participating in appointing and managing nursery staff.

HMRC has been keeping an eye on these arrangements to ensure they meet the tax exemption conditions. They’ve noticed that some schemes promoted by intermediaries might not fully involve employers, potentially jeopardising the tax exemption. If you have any concerns about your childcare arrangements, please do get in touch.

Back to School – Set Up a Tax-Free Childcare Account?

The Government’s Tax-Free Childcare Accounts offer a 25% subsidy towards childcare costs, which can be a real help for parents. The account can be used to pay for nursery fees, breakfast clubs, after-school clubs, and registered childminders.

The scheme tops up savings of up to £8,000 per child by 25%, meaning you could get an extra £2,000 a year from the Government for qualifying childcare. The scheme generally applies to children under 12, but for disabled children, the age limit is 16, and the savings cap is higher at £16,000 a year, with the Government adding up to £4,000.

Unlike childcare vouchers, which are still offered by some employers, Tax-Free Childcare Accounts are available to both employees and the self-employed. To be eligible, parents must generally be working and earning at least the National Minimum Wage or National Living Wage for an average of 16 hours a week. However, parents with an adjusted net income over £100,000 aren’t eligible.

Bear in mind that if your employer provides Childcare Vouchers, you can’t also set up a Tax-Free Childcare Account. If you’re unsure whether to stick with the vouchers or switch, we’re here to help you weigh up your options.

Hours Worked Reporting Delayed to 2026

It was proposed that from 2025/26, employers would need to provide more detailed information on employee hours worked via real-time information (RTI) PAYE reporting. However, this requirement has now been delayed until at least 2026/27.

Advisory Fuel Rates for Company Cars

Here’s a quick update on the HMRC advisory fuel rates from 1st September 2024. These are the suggested reimbursement rates for employees’ private mileage using their company car:

Engine Size	Petrol	Diesel	LPG
1400cc or less	13p	11p
1600cc or less		12p
1401cc to 2000cc	15p	13p
1601 to 2000cc		14p
Over 2000cc	24p	18p	21p

Please note, for hybrid cars, you should use the petrol or diesel rate. For fully electric vehicles, the rate is 7p per mile.

These rates can be used for up to a month from the date the new rates apply. Employers can also reclaim 20/120 of the amount as input VAT provided there’s a VAT invoice from the filling station.

Employees Using Their Own Cars

For employees using their own cars for business purposes, the tax-free reimbursement rate remains at 45 pence per mile (plus 5p per passenger) for the first 10,000 business miles, dropping to 25 pence a mile thereafter. For National Insurance contribution purposes, the employer can continue to reimburse at the 45p rate, as the 10,000-mile threshold doesn’t apply.

Diary of Main Tax Events: September/October 2024

Here’s a quick reminder of the key dates coming up:

• 1 September: Corporation tax for the year to 30/11/23, unless paying by quarterly instalments.
• 19 September: PAYE & NIC deductions, and CIS return and tax, for the month to 5/9/24 (due 22 September if you pay electronically).
• 1 October: Corporation tax for the year to 31/12/23, unless paying by quarterly instalments.
• 5 October: Deadline for notifying HMRC of chargeability for 2023/24 if you’re not within Self-Assessment and have income or gains on which tax is due.
• 19 October: PAYE & NIC deductions, and CIS return and tax, for the month to 5/10/24 (due 22 October if you pay electronically).

We hope this edition has been helpful! Do get in touch if you need any advice or further information on any of the topics covered.