Following the political commotion over the past few months, along with continued investment market volatility, we now look forward to the festive season to add some cheer. However, for many it will be a difficult period with increasing costs, but we hope 2023 will bring some calmer times for all and peace to people in Ukraine and other areas of the world.
We wish you and your families all the best over the holiday period and look forward to continuing to help and advise you into 2023 and beyond.
Protecting your family from Inheritance Tax (IHT)
In our Autumn Statement summary, we discussed how the Chancellor’s Statement was less of a direct tax and more a ‘stealth’ tax move by the Government, targeted at freezing or reducing tax allowances while prices and assets rise in value.
Two of those allowances affected are the Nil Rate Band (NRB) and Residence Nil Rate Band (RNRB), which are the allowances available to each person when passing on assets from your estate, before paying Inheritance Tax (IHT).
The NRB has remained at its current rate of £325,000 per person since 2009 while the RNRB has now peaked at £175,000, with both remaining at this level until 2027/28. Since 2009, if the NRB were to have increased by inflation each year, the allowance could have risen by circa £82,000, saving estates up to £32,800 in IHT. This, coupled with the value of estates generally rising, creates a larger exposure of estates to the 40% IHT.
Please note that transfers between spouses is exempt from Inheritance Tax and any unused allowances can be transferred to a spouse.
At this time of year we appreciate the loved ones around us and now more than ever, so it is important to start thinking about how we can pass on as much of our hard-earned wealth as possible. So, what can you do about it?
The most common option is to start making gifts. You can utilise gift allowances each year and any gifts above that amount could be outside your estate after seven years. You can make the gifts outright or potentially use a Trust to retain control of the investment and distributions. While this is a useful option, should you need this money in future, you cannot request it back.
There are a number of alternative options and these include:
- Specialist Trusts which provide the added benefit of being able to access your money while still qualifying for the seven-year rule
- Tax-efficient schemes which accelerate the time it takes for the money to be outside your estate to just two years and you retain access to the investment*
- Maximising your pension holdings which are generally deemed outside your estate for IHT purposes
- Covering the potential Inheritance Tax bill with insurance a product to provide your beneficiaries with a potentially IHT free lump sum on your death
*Please note these investments are higher risk products and should only be accessed by experienced investors
It is important to discuss these options with your adviser to ensure you can afford to make new gifts or investments. If you would like to discuss estate planning, please contact us and we will be happy to help.
National Insurance contributions – Maximise your State Pension income
“After 5th April 2023, the number of extra years you can purchase becomes restricted to the last six tax years, so checking now is key”
If you are looking to maximise your income in retirement, a good place to start is with your State Pension. The amount of State Pension you receive is based on your record of National Insurance Contributions (NICs) and the amount of ‘qualifying years’ you have built up.
When working, you accrue qualifying years if:
- You are employed and earn at least £123 a week (£6,396 per annum)
- You are self-employed and have profits of over £129 a week (£6,725 per annum)
If your State Pension Age is after 6th April 2016, a minimum of 10 ‘qualifying years’ is required to receive the minimum State Pension entitlement and 35 years to receive the full State Pension, which is currently £185.15 per week. For those who reached State Pension Age on or before 5 April 2016, you need a maximum of 30 years for the full State Pension entitlement.
If you have not made enough contributions you will not get the full State Pension, however it may be possible to pay voluntary contributions to boost the amount you get, even if you have already retired.
For the employed, the cost of topping up your National Insurance record is £824.20 per year in the 2022/23 tax year, which has been subsidised by the Government and is therefore particularly good value for money. This will differ for the previous two tax years.
For those that are self-employed the cost to fill in gaps on your National Insurance record is £163.80 per year.
Based on 2022/23 rates, each additional qualifying year works out to be an extra £5.29 a week (or £275.08 a year) in State Pension. This means it would only take three years for you to get back your initial investment.
If you lived for 20 years, you would receive over £5,500 extra income for an initial cost of £824.20. For many, this can seem like an easy decision, especially if you are near your State Pension Age and your State Pension forecast is less than the full entitlement.
Until 5th April 2023, you can buy National Insurance (NI) years to fill gaps going back to April 2006, if you are a man born after 5 April 1951 or a woman born after 5 April 1953. After 5th April 2023, the number of extra years you can purchase becomes restricted to the last six tax years, so checking now is key, especially if you are at or near your State Pension Age.
The quickest and easiest way to check your national insurance record is online through the government website below:
www.gov.uk/check-national-insurance-record
This will let you know what you have paid, up the start of the current tax year, and if you can pay voluntary contributions to fill any gaps and how much this will cost.
Before paying any voluntary contributions, it is a good idea to request a State Pension forecast to get information on your State Pension entitlement. You can apply online through the government website https://www.gov.uk/check-state-pension. Alternatively, you can:
- Fill in a BR19 application formand send it by post
- Call the Future Pension Centreon 0800 731 0175 who will post the forecast to you
If you already have, or are forecast to receive, the full state pension then there is no need to need pay additional voluntary contributions.
If you are considering purchasing additional contributions or would like to discuss your options further, please contact us and we will be more than happy to help and support you.
Check your tax with the official HMRC app
The HMRC app is an easy way for a person to find information about their tax, National Insurance, tax credits and benefits on the move.
In the 12 months up to October 2022, HMRC received almost 3 million calls from people asking for information that is now readily available on the app, with more than 340,000 using it to access employment and income information since July 2022.
Downloading the free and easy to use HMRC app allows secure access to information about personal tax affairs, avoiding the need to call HMRC.
New functions and capability mean that customers can access their income and employment history, salary information, National Insurance number or tax code via the app, whenever they need it. The information can be downloaded and printed – so there is no need to call HMRC to ask for it to be sent in the post. This means that using the app rather than calling the helpline makes the process much quicker.
App users will need a user ID and password, so they can access their personal information. If customers need to set one up, the app will guide them through the process.
Customers who don’t have a Government Gateway user ID and password will need two forms of evidence to prove their identity. This can include their UK passport and UK driving licence.
App users can also benefit from other functions on the app. These include:
- Check payments from their employer
- Registering for Self Assessment
- Making a Self Assessment payment
- Reporting tax credits changes and completing renewals
- Accessing their Help to Save account
- Using HMRC’s tax calculator to work out their take home pay after Income Tax and National Insurance deductions
- Tracking forms and letters thy have sent to HMRC
- Claiming a refund if they have paid too much tax
- Updating their address
Self Assessment clock is ticking
Time is running out to complete Self Assessment tax returns, ahead of the deadline on 31 January 2023.
Self Assessment customers have until 31 January 2023 to submit their online return for the 2021/22 tax year.
More than 66,000 taxpayers beat the clock and filed their tax return on 6 April – the first day of the new tax year. HMRC is encouraging others to complete their return as soon as they can, so they know what they owe and can budget to make the payment by 31 January 2023. This also means that if a repayment is due it can be claimed back sooner.
Anyone can check if they need to complete a tax return by using this free online tool. Those new to Self Assessment for the 2021/22 tax year may include:
- Those who are newly self-employed and earned more than £1,000
- A new partner in a business partnership
- Those who have received any untaxed income
- Those claiming Child Benefit but they or their partner have an income above £50,000
Self-employed workers must also register for Class 2 National Insurance contributions.
Update on interest rate rises
On 3 November the Bank of England raised its interest rate (Bank Rate) by 0.75 percentage points. In total, since December last year, they have increased their interest rate from 0.1% to 3%. This interest rate influences all other rates in the UK, including those you might have for a loan, mortgage or savings account. The Bank Rate is more widely known as ‘the base rate’ or just ‘the interest rate’.
The Bank of England have raised interest rates because inflation is too high and this is one of the most successful ways of bringing inflation down. However, this means the individuals and companies face higher borrowing costs. We provided a detailed analysis of the ways this can affect your finances and your financial planning in our Autumn Newsletter – click here for the full article: www.headleyfs.com/news/headley-autumn-newsletter-2022/
How the Bank Rate has changed over time:
How high will interest rates go?
The Bank of England maintains that it will continue to raise interest rates if necessary, to make sure inflation comes down. However, inflation in the US appears to be cooling and this may start to influence the Bank of England’s decisions when looking forward to 2023. The next decision is on Thursday 15 December 2022.
And finally…
Before we go, we wish you good health and happiness over the festive period and thank you for you for choosing Headley.
As you know, we replace sending Christmas cards with contributions to our two chosen charities for this year, The Kings Arms, a local youth support centre, and Stamp Out Suicide. So far this year we have raised £4,562, but are keen to increase this before the end of the year.
If you’d like to join us in donating to these great causes, you can do so quickly and easily via our GoFundMe pages below:
We look forward to continuing to work with you in 2023 and help you enjoy life enriched
Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax relief depends upon individual circumstances and tax rules may change. This newsletter is provided strictly for general consideration only and is based on our understanding of current law and HM Revenue & Customs practice. No action must be taken, or refrained from, based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.
The Financial Conduct Authority does not regulate taxation advice, estate planning, inheritance tax planning, wills or trusts.
Sources for some of this newsletter – Threesixty, The Bank of England, Money Helper, Gov.uk
