July CPD Newsbrief — Personal tax
Tax take from savers greater than taxes on alcohol, tobacco
Tax revenue collected from homeowners and savers will exceed taxes from tobacco and alcohol within two years by the end of 2016, according to Treasury estimates.
By the end of the 2015-16 financial year, inheritance tax (IHT), stamp duty land tax (SDLT) and stamp duty on shares are set to recoup £21.9bn in revenue, compared with £21bn from alcohol and tobacco, reports the Daily Telegraph. Senior government MPs have urged the chancellor to reform the tax system to offer more help for those who save and own their own homes. One way would be to raise the IHT threshold from £325,000 to £1m — a Conservative pledge from the last election opposed by the Liberal Democrats.
MPs and brokers have also called for a reform to the current stamp duty system since a rising UK housing market in some parts of the UK has pulled many more homes over the £125,000 threshold. Under the current system, homebuyers pay one per cent stamp duty for properties valued between £125,001 and £250,000. Homes priced between £250,001 and £500,000 are levied at three per cent of the total value, and above £500,001 the tax rises to four per cent of the total value.
MPs have called for this to be changed to a progressive tax, where the increased levy is only applied to the value between two price bands, i.e. one per cent taxed between £125,001 and £250,000, three per cent between £250,001 and £500,000 and so on.
HMRC will allow IHT trust flexibility
People putting money into multiple trusts will have to decide how they split their £325,000 inheritance tax (IHT) allowance under new rules proposed by HMRC. Under current rules, an individual can establish a number of trusts and as long as they are set up on different days each has its own £325,000 nil-rate band.
HMRC first consulted on changing the rules relating to ‘pilot’ trusts last August, so that the £325,000 nil-rate IHT allowance is split between the number of trusts, rather than each trust having its own £325,000 allowance. An updated consultation on the proposed rules, published in June, says respondents to the August consultation found the arbitrary split between trusts ‘unacceptable’. Instead, those using multiple trusts will be able to divide the nil-rate band between them as they choose. Married couples will be able to allocate their £650,000 allowance.
The new rules are set to come into force from April 2015, although once in place they will be applied from 6 June 2014. This is to avoid people taking advantage of the current rules to set up multiple trusts with their own nil-rate bands before the new rules come in. Trusts established before 6 June will continue to operate under the current rules.
IHT is charged at a marginal rate of 40 per cent above the nil-rate threshold. Amounts above the threshold that are put into trusts are subject to a 20 per cent ‘entry charge’, plus a six per cent charge every 10 years. Exit charges also apply when the assets are taken out of the trust. The HMRC consultation on the latest reforms closes on 29 August.
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