January 2024 Tax Newsletter

january 2024 newsletter

Happy New Year, and welcome to the January edition of Tax E-News. We hope that you find this informative. Please get in touch with us if you wish to discuss any matters in more detail.

New Year Resolutions To Save Tax

At this time of year, we think about New Year’s resolutions. It is also an excellent time to start planning your tax affairs before the end of the tax year on 5th April.

A prominent tax planning point would be to maximise your ISA allowances for the 2023/24 tax year (currently £20,000 each). You might also want to consider increasing your pension savings before April 5, 2024, as the unused annual pension allowance from 2020/21 lapses after three years.

Many of us got together with the family at Christmas, prompting us to think about making or updating our Will.

Time To Review Or Make A Will?

At the top of the New Year’s to-do list for many individuals is to make or update their Will. Many think this is something to leave until later in life, but it is essential to get things in place once wealth starts to be acquired or when children come along.

We prepare Wills for many clients and can review your Will to check that it is tax-efficient or prepare a new one.

Without a will, statutory rules dictate how your assets are distributed on death. Those statutory intestacy rules may not be tax efficient, and you might want to make specific provisions in your Will for your unmarried partner or the guardianship of your children.

People often think that if they die without making a Will, their spouse (or civil partner) will automatically inherit everything, but this is not necessarily the case. According to the laws of intestacy in England, for deaths occurring on or after 26th July 2023, the surviving spouse would inherit a statutory legacy of £322,000, all of the personal effects, and half of the remaining estate. The deceased’s surviving children (or their descendants) would split the remaining half of the estate equally. If those descendants are under 18, their inheritance is kept until they turn 18. Note that intestacy rules differ in Scotland, Wales, and Northern Ireland.

Passing On The Family Home

When considering the wording of your Will, you should note that the inheritance tax (IHT) nil rate band continues to be frozen at £325,000, subject to any announcements in the Spring Budget. There is an additional nil rate band of up to £175,000 for passing on the family home to direct descendants on death.

Where some of the nil bands are unused on the death of the first spouse, the balance is available on the death of the surviving spouse, potentially allowing a married couple (or civil partners) to pass on assets of up to £1 million at today’s rates without paying IHT.

The residence nil band is even available when you downsize to a cheaper property. For example, if a married couple lives in a large house worth £500,000 and downsizes to a flat worth £300,000, they could give away some of the proceeds during their lifetime and still benefit from inheritance tax relief based on the higher-valued property. They could even sell the house and move into a rental property or a care home and still benefit from this nil band.

Leaving Money In Your Will To Charity

If you leave at least 10% of your estate to charity, the Inheritance tax rate on the amount chargeable Is reduced from 40% over the nil rate bands to just 36%. This would reduce the amount passing to other beneficiaries and needs to be carefully considered. Still, in many cases, much of the gift to charity is paid for out of the tax savings.

Martin Lewis: don’t forget Lasting Powers of Attorney

“… in many ways, a Power of Attorney is more important than a will…” Martin Lewis

A Lasting Power of Attorney (LPA) is a way of giving someone you trust the legal authority to make decisions on your behalf if you can no longer make them yourself – or would prefer support with them.

It’s only possible to make LPAs while you are well, and we recommend that you consider making them simultaneously with your Will. We prepare LPAs for many clients and can provide specific advice for business owners, property investors, and high-net-worth clients.

Year-End Inheritance Tax Planning

Many were expecting an announcement from the Chancellor in the Autumn Statement about cuts to, or the possible abolition of, inheritance tax (IHT). Maybe he is saving that for his Spring Budget, but it is unlikely, as he has minimal fiscal headroom and may wish to focus on more popular pre-election announcements. Indeed, the next budget could come after the election, and there may be a new chancellor. In the meantime, it may be worth utilising the £3,000 gifts annual exemption for 2023/24 and, if available, the unused amount from 2022/23. Note that £3,000 is the overall exemption for the tax year, not the amount for each donee. More generous amounts can be given away by taking advantage of the exemption for regular gifts out of income.

Regular Gifts Out Of Your Income Can Save IHT

One tax planning opportunity that many thought the chancellor might restrict was the exemption from inheritance tax for regular gifts out of an individual’s surplus income. Inheritance tax is designed to tax transfers of capital, so if the donor can demonstrate that the gifts are made out of surplus income, then the transfers are not considered for IHT. The exemption applies where there is a regularity to the payments, such as a standing order to pay school fees or pension contributions on behalf of children or grandchildren. HMRC will also require proof that the payments are paid out of post-tax income and do not limit the donor’s normal lifestyle. Detailed records are required; we can help you with advice and proper documentation.

Pension Contributions On Behalf Of Others

Usually, an individual’s payments into a pension scheme are limited to their relevant earnings in a given tax year. This restriction does not apply where the contributions are less than £3,600 gross, allowing parents and grandparents to pay for children and grandchildren with limited income. Payments of £2,880 a year would attract a 25% uplift from the government, which could grow substantially by the time the child reaches retirement age (currently age 55, but increasing to 57 in 2028). The parent or grandparent may be able to justify that the payments qualify for the regular gifts out of income exemption from inheritance tax mentioned above if a standing order was set up for no more than £240 a month.

Update Payroll Software For The January NIC Cut

The chancellor’s announcement of a 2% cut in national insurance contributions (NICs) for employees applies to payments on or after 6th January 2024. That doesn’t allow much time to update payroll software, particularly with the Christmas holidays in between. Note that NIC is not calculated on a cumulative basis for employees other than directors, so where over-deductions are made, the error is not automatically corrected in later months.

If you outsource your payroll processing to us, as many clients do, we have already updated our payroll bureau software to prepare for the new rules.

Advisory Fuel Rate For Company Cars

The table below shows the HMRC advisory fuel rates from 1st December 2023. These are the suggested reimbursement rates for employees’ private mileage using their company car.

Where the employer does not pay for any fuel for the company car, these are the amounts that can be reimbursed for business journeys without taxing the employee.

Engine SizePetrolDieselLPG
1400cc or less14p (13p) 10p
1600cc or less 13p (12p) 
1401cc to 2000cc16p 12p
1601 to 2000cc 15p (14p)   
Over 2000cc26p (25p)20p (19p)18p (19p)
HMRC advisory fuel rates from 1st December 2023

The previous rate where there has been a change is shown in brackets. You can also continue to use the previous rates for up to one month from the date the new rates apply. Note that for hybrid cars you must use the petrol or diesel rate. For fully electric vehicles, the rate is 9p (10p) per mile.

Diary Of Main Tax Events

DateWhat’s Due
1 JanuaryPAYE & NIC deductions, and CIS return and tax for the month to 5/1/24 (due 22/1 if you pay electronically).
19 JanuaryThe deadline for filing the 2022/23 self-assessment tax return online, paying your outstanding tax for 2022/23, and making the first payment on account of the 2023/24 tax.
31 JanuaryCorporation tax for the year to 30/4/2023 unless quarterly instalments apply.
1 FebruaryPAYE & NIC deductions, and CIS return and tax for the month to 5/2/24 (due 22/2 if you pay electronically).
19 FebruaryPAYE & NIC deductions, and CIS return and tax for the month to 5/2/24 (due 22/2 if you pay electronically).
6 MarchSpring Budget
January/ February 2024

Closing

As we wrap up this newsletter, we’d like to extend our heartfelt wishes for a prosperous and fulfilling year. Remember, the beginning of a new year is ideal for reviewing and updating your financial strategies. Our doors are always open if you have any questions or need assistance.

We look forward to being a part of your financial journey in the year ahead, helping you navigate the complexities and opportunities that arise. Thank you for your continued trust in us.

We wish you a Happy New Year filled with success, health, and happiness!

About Graham

Accountant specialising in tax, property, and estate planning. A regular speaker at landlord, property Investor, and later life planning events.

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