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NIC Advantage for Retirement age Business People

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This month’s newsletter includes articles covering:

  • NIC advantage for retirement age business people
  • Lifetime gifts and Inheritance Tax
  • What was in the budget
  • Good news for farmers

Retirement age NI bonus

retirement age

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 https://www.gov.uk/state-pension-age.

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.

Lifetime transfers of assets

Inheritance Tax

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

Charities

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.

What was in the Budget?

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.

Good news for farmers

Under new rules, initially announced in the 2015 Budget, farmers will be able to average their profits for Income Tax purposes from two years to five years.

This change will help farmers with fluctuating profits better manage risk and level out the impact of tax on their farming profits. For example, they may avoid paying tax at higher income rates in one year, when in the next few years they may have significantly lower profits.

In recent times market conditions, driven by the impact of global volatility, make it difficult to budget for tax costs.

Chancellor George Osborne is reported as saying:

“A resilient and thriving food and farming industry is fundamental to the success of the UK economy. This government recognises the challenges our farmers face from volatile markets and we are absolutely committed to supporting them.

Today’s reforms will provide farmers with additional security to plan and invest for the future, allowing them to spread profits over a longer period of time. Over 29,000 farmers can benefit from the changes, saving an average of £950 a year.

The fairer tax system for famers is among a number of reforms to taxes, National Insurance allowances and others measures coming into effect today to back hard work, support savers and economic security at every stage of life.”

As well as having the new option to average tax over five years, farmers will also retain the choice to average profits over two years. The dual option, announced in December, follows industry feedback in consultation over how to deliver the extension to five years. It became evident that the two-year option was well understood and had provided significant relief to farmers dealing with financial pressures and should be retained.

Tax Diary May/June 2016

19 May 2016 – PAYE and NIC deductions due for month ended 5 May 2016. (If you pay your tax electronically the due date is 22 May 2016)

19 May 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2016.

19 May 2016 – CIS tax deducted for the month ended 5 May 2016 is payable by today.

31 May 2016 – Ensure all employees have been given their P60s for the 2015-16 tax year.

1 June 2016 – Due date for Corporation Tax due for the year ended 31 August 2015.

19 June 2016 – PAYE and NIC deductions due for month ended 5 June 2016. (If you pay your tax electronically the due date is 22 June 2016)

19 June 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2016.

19 June 2016 – CIS tax deducted for the month ended 5 June 2016 is payable by today.

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