Archive for May, 2016

What was in the Budget

Wednesday, May 4th, 2016

Our government have selected their top-ten tax changes that come into effect from 6 April 2016. Just in case you need a refresher they are:

1.The personal allowance will increase to £11,000 and the higher rate threshold will increase to £43,000.

2.The marriage allowance, the tax free amount which people can transfer to their husband, wife or civil partner will increase to £1,100

3.People renting out a furnished room in their home won’t pay tax on the first £7,500 of this rent; up from £4,250 last year

4.Fuel duty remains frozen for the sixth year in a row

5.A new National Living Wage of £7.20 an hour for workers aged 25 and above was introduced from 1 April 2016

6.A new personal savings allowance of £1,000 (or £500 for higher rate taxpayers) is being introduced for the income that people earn on savings

7.Savers will now be able to take money out of an ISA and put it back in later in the year without losing ISA tax benefits

8.Employers will no longer pay employer National Insurance Contributions (NICs) for apprentices aged under 25 who are paid less than £43,000 a year

9.Businesses and charities will have their employer National Insurance bill cut by another £1,000 from April 2016, as the employment allowance rises from £2,000 to £3,000

10.Charities will be able to claim a 25% government top up through the Gift Aid Small Donations Scheme on up to £8,000 – a £3,000 increase.

Lifetime transfers of assets

Wednesday, May 4th, 2016

Married couples and civil partners can gift each other assets and there will be no Inheritance Tax (IHT) charge on the lifetime gift as long as the recipient is domiciled in the UK.

However, transfers to others that are not covered by the reliefs listed at the end of this article, are treated as potentially chargeable lifetime gifts or transfers (PETs). The gifts can be included in the estate of the donor if they were made less than 7 years before the date of death.

If the person making the gift gave away more than £325,000 in gifts in the last 7 years of their life, and this includes the gift to you, you may be required to pay any IHT directly attributable to the gift. Otherwise, IHT is paid by the estate.

IHT is payable at the following rates on PETs made between the date of the gift and date of death:

  • Less than 3 years –  40%
  • 3 to 4 years – 32%
  • 4 to 5 years – 24%
  • 5 to 6 years – 16%
  • 6 to 7 years – 8%

These rates may be reduced if the deceased qualified for a reduced rate of IHT.

Gifts that aren’t charged to IHT include:

Annual exemption

Up to £3,000 of gifts made each year. The £3,000 exemption from the previous year may also be available, if not used in that year.

The following allowances are generally in addition to this.

Wedding gifts

There’s no Inheritance Tax on a wedding or civil partnership gift worth up to:

  • £5,000 given to a child
  • £2,500 given to a grandchild or great-grandchild
  • £1,000 given to anyone else

The gift must be given on or shortly before the date of the wedding or civil partnership ceremony.

Gifts up to £250

There’s no Inheritance Tax on individual gifts worth up to £250. You can give as many people as you like up to £250 each in any one tax year.

You can’t give someone another £250 if you’ve given them a gift using a different exemption, e.g. the £3,000 annual exemption.

If you give someone more than £250 in a tax year, the whole amount counts – the first £250 is not exempt.

Regular gifts from the giver’s income

There’s no Inheritance Tax on gifts from the deceased’s income (after they paid tax) as long as the deceased had enough money to maintain their normal lifestyle. These gifts include:

  • Christmas, birthday and anniversary presents
  • life insurance policy premiums
  • regular payments into a savings account

Payments to help with living costs

There’s no Inheritance Tax on gifts to help with other people’s living costs if they’re made to, for example:

  • an ex-husband, ex-wife or former civil partner
  • a relative who’s dependent on them because of old age, illness or disability
  • a child (including adopted and step-child) under 18 or in full-time education


There’s no Inheritance Tax on gifts to charities, museums, universities or community amateur sports clubs.

Political parties

There’s no Inheritance Tax on gifts to political parties that have either:

  • 2 members elected to the House of Commons
  • 1 member elected to the House of Commons and received at least 150,000 votes in a general election.

Retirement age NI bonus

Wednesday, May 4th, 2016

When you reach the State Retirement Age (SRA) you stop paying Class 1 NIC contributions if you are employed, and Class 2 contributions if you are self-employed.

You will still have to pay Class 4 NIC, the most significant self-employed NIC charge, for the entire tax year during which you achieve the SRA. The next year you will be exempt.

If you are unsure when you will reach SRA, there is a free “check your SRA” on the GOV.UK website at

For the self-employed, reaching the SRA can influence your tax planning options. Ordinarily, if a sole trader is profitable, it may pay to consider incorporating the business as the combined Corporation Tax plus dividend tax may be less than the combined Income Tax and Class 2 and 4 NIC contributions. However, if you no longer have to pay the Class 2 and Class 4 NIC it may be more beneficial to continue as a self-employed person.

It is best not to generalise, there may still be good reasons for considering incorporation, but a rethink when you attain SRA may reduce your overall tax bill.

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