Tax Systems Share Discussion Threads

[papy02] 06/12/2024 17:05

Does anyone know:

If your taxable income is just under the 40% threshold, plus you have bank-interest that takes you over it, does the interest tip you into 40% tax?:

a) If the interest is <£1k so within your taxfree interest allowance as a BR (20%)taxpayer, so would not be taxable if you remain a BR taxpayer, but could if you become higher rate (only £500 taxfree interest allowance).

b) If the interest exceeds £1k: is the the total interest that is considered to see if you are in the 40% band or just the excess over £1k (or over £500 as the reduced taxfree interest allowance for higher rate taxpayers)

As interest is the top slice of income, it would be the only thing affected afaiaa (Marriage Allowance not being used anyway).

Asking for a friend (no, really!)

[florenceorbis] 27/11/2024 21:00

HMRC hikes interest rate for late tax payments - what it means for your tax bill

Buried in the Autumn Budget was a 1.5% hike to the interest rate charged on late tax payments. Experts say it is unfair and represents a “hidden tax rise”. We explain how it works, and how to avoid it



By Ruth Emery

MoneyWeek


The interest rate charged on late tax payments will rise to 4% above the Bank of England base rate, the government has announced.

The news was buried in a raft of revenue-raising measures in last month’s Autumn Budget. The hike will come into effect next April, meaning that if interest rates remain at 4.75%, taxpayers face a penalty of 8.75% on late payments.

This is an increase from the current level of 2.5% above base rate (giving a total rate of 7.25%).


HMRC says the rise in late payment interest is a way of encouraging taxpayers to pay what they owe more quickly, for example people who have submitted a tax return and are late paying their tax bill.


However, Robert Salter, director at the accountancy firm Blick Rothenberg, tells MoneyWeek that the change feels like a “hidden tax rise”.

He points to the fact that while the late payment interest rate is going up, there is “no equivalent change in the repayment supplement which HMRC pays to those taxpayers who have overpaid taxes and are entitled to a refund”.

The repayment interest rate is 3.75% (it is usually 1% lower than base rate). This means that from April, assuming there is no change in the base rate, the late payment rate charged to taxpayers will be more than double (8.75%) the rate paid by HMRC to taxpayers (3.75%).

Sian Marsden, associate director at accountants RSM, comments: “There is an increasing number of taxpayers sat waiting endlessly for HMRC to process overpayments of tax, with no means of chasing and HMRC advising that some repayments could take over a year to process.

"Surely if HMRC is about to get a bigger bite of the cherry, the taxpayer should also be compensated for suffering ongoing delays?”
How the late tax payment charge works

Let’s say you have a £100,000 bill arising as of 31 January 2025 after filing your self-assessment tax return.

According to RSM, the current 7.25% interest rate means daily interest will accrue of £19.86 for each day it remains unpaid.

As of 6 April 2025, this will increase to £23.97 per day.

If you only started paying the tax bill in May, and it took six months (180 days) to pay off, you would fork out £4,314.60 in interest, assuming the rate is 8.75%.

If the interest rate remained at 7.25%, the total interest would be lower at £3,574.80.


How to avoid the charge

Taxpayers that are struggling to pay what they owe to HMRC sometimes enter a Time to Pay arrangement. These are monthly payments that cover all outstanding amounts overdue, including penalties and interest.

However, with a higher interest rate coming in next April, it may not be the best option for some taxpayers to agree a Time to Pay arrangement, according to Marsden.

“Some may seek financial advice to see if there are better options and interest rates available, especially if they are able to obtain lending from a bank at a lower rate than HMRC’s. Maybe this was one of the intentions behind the increase, but HMRC should be seeking to support taxpayers; the increase in the interest rate seems to contradict this.

“Those in the worst financial straits, unable to secure more affordable debt, could be worst hit.”

She adds that the most important thing for any taxpayer who is unlikely to be able to meet a tax bill is to engage with HMRC as soon as possible.

“The 31 January deadline is approaching quickly, so filing tax returns early can mean that conversations start quickly where taxpayers are unable to pay the full debt immediately. This will stop HMRC taking further action to collect debts and could mean that current interest rates are locked in (although this is not guaranteed).”

MoneyWeek has approached HMRC to find out if this is the case.


Is the interest rate hike fair?

It wasn’t that long ago that the late tax payment interest rate was set at 2.6%. This was when the base rate was just 0.1%.

So, to jump to an expected 8.75% charge next April is a lot more severe.

Salter reckons the taxpayers who are “most likely to be caught by the increased interest charge are the most honest taxpayers, who are trying to settle their taxes and are simply having to pay this – often with the formal agreement of HMRC – over a period of time”.

According to Andy Chamberlain, policy director at the Association of Independent Professionals and the Self-Employed (IPSE), “the real concern is that by increasing the HMRC interest rate further, the government might be strong-arming taxpayers into accepting charges that they really should be disputing”.

He explains: “Should HMRC decide you underpaid tax four years ago, the interest will accrue from then on, not when HMRC raised the inquiry or started their investigation.

“If the taxpayer disputes the charge, it could take further years to resolve, and the total interest bill will be significant - even more so now that it’s been hiked to almost double figures.”


Will higher interest incentivise tax avoiders to pay what they owe?

Salter questions whether the change will have any effect on “delinquent taxpayers” who choose not to settle the taxes they legitimately owe to HMRC.

“If individuals are clearly breaking the law – and those who can but don’t pay their taxes are acting in an unlawful manner - simply increasing the interest that they need to pay won’t, in my honest opinion, really change that behaviour,” he comments.

[cwa1] 31/10/2024 11:05

zangdook, that would certainly be useful but I doubt it and will wait 'till I see the fine print before I believe it!

Anyone got anything authoratative on this point?

[zangdook] 31/10/2024 06:07

She said "in all circumstances" AIM shares will be at 20% IHT. Does that mean there will no longer be a requirement to hold for two years?

[the grumpy old men] 30/10/2024 20:14

UK Government confirms rise in oil and gas headline tax and investment in clean energy

Chancellor Rachel Reeves also confirmed £2bn ($2.6bn) for 11 green hydrogen projects, which are “amongst the first commercial-scale projects anywhere in the world”.


Ed Pearcey October 30, 2024
Power Technology


Rachel Reeves, the UK’s Chancellor of the Exchequer, has delivered the first Labour Party Budget Statement for 14 years, and confirmed the anticipated rise in oil and gas industry headline tax rate.

The headline tax rate will rise in a few days to 78%, among the highest in the world.

She also extended the tax’s application by an additional year, running until 31 March 2030.

In September, the UK Offshore Energies Association (OEUK), the trade association supporting companies in the offshore power generation industry, published a letter highlighting the risks of Labour’s ‘windfall tax’ for the industry.

The letter, signed by more than 40 companies, explained that the windfall tax will put thousands of jobs at risk, affect companies that are critical to the UK Government’s industrial strategy and hinder continued progress toward net-zero targets.



A collaboration between the new government and the oil and gas industry is essential, argued the OEUK, for the government to realise the benefits of a homegrown energy transition that supports jobs, skills and companies in the UK.

Reeves said on Wednesday the changes will make sure the “oil and gas industry can protect jobs and support our energy security”.

Keir Starmer’s party came to power in a huge landslide victory, and promised to toughen the Energy Profits Levy (EPL), also known as the windfall tax, which was first introduced in 2022 following a huge rise in crude oil prices.

However, prices have largely normalised since Russia’s invasion of Ukraine, leading many industry players to call for an end to the tax.

The tax and allowance changes are aimed at discouraging new exploration within the UK’s oil and gas fields but are also likely to gradually reduce returns for companies operating in the sector, many of whom have been there for years and have invested hundreds of millions of pounds.

The Chancellor also confirmed £2bn for 11 green hydrogen projects, which she said would be “amongst the first commercial-scale projects anywhere in the world” and would total 125MW of capacity.

The projects have been on hold for almost a year while awaiting confirmation of the funding.

The government also announced be a new, multi-year carbon capture and storage investment, as well as £3.4bn to increase energy efficiency in homes.

However, investment and development details for Great British Energy, a body to be “owned by the British people and deliver power back to the British people”, are yet to be announced.

But the government expects to allocate £100bn in capital spending on the project over the next five years.

Before the election, Labour said the body will partner with industry and trade unions to deliver clean power by co-investing in leading technologies, providing more than £8bn over the next parliament.




PowerTechnology

[the grumpy old men] 30/10/2024 20:04

Howard Mustoe
The Independent.

Rachel Reeves has unveiled huge tax hikes of £40bn in her Budget as Labour bids to fix the nation’s finances.

Key policies include a hike in employers’ national insurance contributions, a rise in stamp duty for second homes and a freeze on fuel duty.

Capital gains tax will also rise – to 18 per cent for the lower rate and 24 for the higher – while the chancellor also unveiled a reform of inheritance tax.

After months spent warning the public of “tough choices” ahead, Ms Reeves promised to “invest, invest, invest” in order to “fix public services” and announced a £22.6bn increase in the day-to-day NHS health budget.

But Tory criticisms were echoed by independent expert Paul Johnson of the Institue for Fiscal Studies, who said Ms Reeves had taken a “huge gamble”.

[geckotheglorious] 18/10/2024 16:30

Gov’t guidance urges public not to withdraw tax-free cash over Budget rumours

The government’s guidance service and the FCA have updated their websites to urge people not to act rashly over their 25% tax-free pension lump sums amid rumours of changes in the upcoming Budget.

The government’s money guidance service, MoneyHelper, last week updated its website to encourage the public to be cautious before making hasty decisions.

The move follows many providers reporting a big uptick in pension withdrawals, particularly from tax-free lump sums, because of Budget rumours.

A post on MoneyHelper reads: ‘The Labour government is set to announce its first Budget at the end of the month and, as usual, there are rumours about potential changes.

‘One of these rumours is that the 25% tax-free pension lump sum might be at risk. But nothing has officially been announced or confirmed, so there’s no need to make any quick decisions about your pension right now.

‘Importantly, this is a rumour. We’ll only find out if anything is changing (and what any start date would be) when the Budget takes place.’

The post then lists four reasons why people should not withdraw money at this stage, including tax-free growth inside a pension pot, having less money to live on in retirement, and not being able to withdraw the cash before the Budget.

The post ends by urging people to consider taking financial advice before taking money from their pension.

Advisers have reported a big jump in calls from clients worried they could lose their tax-free lump sum, capped at £268,275.

MoneyHelper provides guidance on money and pensions. It is linked to other government-backed guidance services, including Pension Wise, which has a call line for support.

[geckotheglorious] 18/10/2024 16:00

Anyone know what CGT is on green belt land, Brown belt land, and agricultural land please.

Is there a difference in rates charged?

Or do they follow the same rates as Stocks/Bonds?

Thanks in advance.

[jeffian] 18/10/2024 15:33

"The report suggests that if someone gave away more than £325,000 in gifts, but dies within seven years, then recipients could pay inheritance tax."

Surely that's what happens at the moment, subject to 'taper relief'? If the journalist means they are thinking of doing away with taper relief, why not say so?

[goatherd] 18/10/2024 11:55

Any tax is popular with those who do not pay it.

Especially as it means they are less likely to have the taxes they do pay, increase.

[the grumpy old men] 18/10/2024 08:35

Autumn Budget: Chancellor Rachel Reeves preparing inheritance tax raid

By: Chris Dorrell

Economics Reporter

Rachel Reeves is reportedly preparing an inheritance tax raid, as the Chancellor seeks to hike taxes and cut spending by as much as £40bn in October’s Budget.

Although the BBC reported initially that the government has not settled on the details, the various reliefs on inheritance tax are likely to be in the firing line.

Currently there is a 40 per cent flat rate on inheritance tax which applies on any estate worth more than £325,000.

However, there are a range of tax reliefs which means the effective rate can often much lower. Two of the most prominent inheritance tax reliefs allow for family businesses and agricultural land to be passed on tax free.

Research from the Centre for Analysis of Taxation, published yesterday, suggests that these reliefs help create big discrepancies in the effective tax rates paid by different estates.

According to their research, one in six estates worth over £10m pay an effective tax rate of less than four per cent while a quarter pay close to the 40 per cent headline rate.

The BBC also reported that rules around gifts made during someone’s life could be subject to change. The report suggests that if someone gave away more than £325,000 in gifts, but dies within seven years, then recipients could pay inheritance tax.

Its unclear how much these measures would raise or how many more people would end up paying the tax, the BBC reported.

Just four per cent of estates pay inheritance tax at the moment, although this is likely to increase on the back of increasing asset prices.

The news comes as reports suggest that the Chancellor could be looking to make £40bn worth of tax rises and spending cuts in the Budget.

A spokesman for the Treasury: “We do not comment on speculation around tax changes outside of fiscal events.”

[geckotheglorious] 07/10/2024 16:38

"HMRC warning to anyone who uses eBay or Vinted - you have hours left to act"

Presumably this is "AS A BUSINESS" rather than one off sales here and there?

If it isnt, if it's for everyone, they can get farked.

[grupo guitarlumber] 22/8/2024 19:36

How Inheritance Tax works: thresholds, rules and allowances

Contents

Overview

Passing on a home

Rules on giving gifts

When someone living outside the UK dies

Overview

Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who’s died.

There’s normally no Inheritance Tax to pay if either:

the value of your estate is below the £325,000 threshold


you leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club

You may still need to report the estate’s value even if it’s below the threshold.

If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren your threshold can increase to £500,000.

If you’re married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die.

Inheritance Tax rates

The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.


Example

Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000).

The estate can pay Inheritance Tax at a reduced rate of 36% on some assets if you leave 10% or more of the ‘net value’ to charity in your will. (The net value is the estate’s total value minus any debts.)
Reliefs and exemptions

Some gifts you give while you’re alive may be taxed after your death. Depending on when you gave the gift, ‘taper relief’ might mean the Inheritance Tax charged on the gift is less than 40%.

Other reliefs, such as Business Relief, allow some assets to be passed on free of Inheritance Tax or with a reduced bill.

Contact the Inheritance Tax helpline about Agricultural Relief if your estate includes a farm or woodland.
Who pays the tax to HMRC

Funds from your estate are used to pay Inheritance Tax to HM Revenue and Customs (HMRC). This is done by the person dealing with the estate (called the ‘executor&rsquo;, if there’s a will).

Your beneficiaries (the people who inherit your estate) do not normally pay tax on things they inherit. They may have related taxes to pay, for example if they get rental income from a house left to them in a will.

People you give gifts to might have to pay Inheritance Tax, but only if you give away more than £325,000 and die within 7 years.

éééééééééééééééééééééééééééééééééééééééééééééééééééééééééééééééééééééééééééééééééééé


When someone living outside the UK dies

If your permanent home (‘domicile&rsquo;) is abroad, Inheritance Tax is only paid on your UK assets, for example property or bank accounts you have in the UK.

It’s not paid on ‘excluded assets’ like:

foreign currency accounts with a bank or the Post Office
overseas pensions
holdings in authorised unit trusts and open-ended investment companies

There are different rules if you have assets in a trust or government gilts, or you’re a member of visiting armed forces.

Contact the Inheritance Tax helpline if you’re not sure whether your assets are excluded.
When you will not count as living abroad

HMRC will treat you as being domiciled in the UK if you either:

lived in the UK for 15 of the last 20 years
had your permanent home in the UK at any time in the last 3 years of your life

Double-taxation treaties

Your executor might be able to reclaim tax through a double-taxation treaty if Inheritance Tax is charged on the same assets by the UK and the country where you lived.

[mcunliffe1] 12/8/2024 16:45

Oh dear. I'll keep that from the b-i-l goatherd. But, thanks for the heads-up.

[goatherd] 12/8/2024 16:21

My family had assets in Ireland, dependant on probate. My solicitor said to the Irish guy "could we make a big effort and get this sorted by the twentieth anniversary of the death". The Irish guy laughed and said "sure".

They didn't succeed.

[alphorn] 12/8/2024 15:56

Hi MC - quite common now, especially post big 'B'!

I have not seen it used to evade taxes, which is what is happening here.

[mcunliffe1] 12/8/2024 15:51

A past boss of mine had two passports Alp.

For business purposes he sometimes needed to travel to both Israel and to places such as Egypt. Back in the late 70's that was sometimes an issue if, attempting to enter some Arab countries they saw an Israeli entry/exit stamp.

He ultimately moved in later years to Netherlands and then over to the USA.

I know some people currently are keen to establish an Eire passport based upon parent/grandparent nationality if only to permit unfettered travel to the Schengen area.

[alphorn] 12/8/2024 15:29

I am always fascinated why people do something, on the face of it, very strange.

I have just worked out why someone took out a second country passport for no apparent reason.

Let's say country A high tax and country B low tax.
The individual is married and lives in country A for 95% of the time.
On the rare trips leaving country A they use country passport A which is recorded and use the same passport to return.
Country B is used to park some income and assets. They do a tax return in country B as they pretend to be 100% resident. Unlikely to be questioned.
In country A not declared.

Obviously illegal but shows how it appears possible to be primary resident in two countries at the same time by using the two passports.

Now I understand.

[mcunliffe1] 31/7/2024 10:18

misca2: thanks for that link and timely reminder.

This is a topic I wrote to my m.p. about in March this year. He passed it to the Treasury and Nigel Huddleston responded.

My concern lay with the Marriage Tax Allowance transfer where 10% (£1257) could be passed from one spouse to the other. If the giftor is in full receipt of the new State Pension a tax bill of approx. £38 would apply.


The response stated:

...then HMRC may issue them with a Simple Assessment to explain what tax they owe and how to pay it, well in advance of the payment needing to be made.


Now, my concern on that aspect lies in the worry that as the pensioner has never previously had to complete a self-assessment or indeed, communicate to HMRC for any reason whatsoever, it cannot be assumed that HMRC hold the accurate postal address details of the person they now deem to owe tax.

I can see this will be a disaster that plays out over the next 12 months.

They were warned 😉

[packman8] 19/7/2024 06:40

Thanks for reply flyfisher. There is not a large sum involved and there is no IHT to pay and just had her state pension.