Author Archive: Muhammad Zia

UK landlords selling up to stay ahead of possible Capital Gains Tax increase

Concerns about a potential rise in Capital Gains Tax (CGT) in the upcoming Autumn Budget may be prompting more landlords to put their properties on the market, according to recent data from property portal Rightmove.

The data indicates a notable rise in the proportion of homes formerly rented out that are now being listed for sale.

Currently, CGT on residential property sales is 18 per cent for basic rate taxpayers and 24 per cent for those in the higher rate tax band, with a £3,000 tax-free allowance.

However, there is speculation that the Treasury might align these rates with income tax rates in the forthcoming budget.

Rightmove’s data shows that nearly 18 per cent of homes on the market were once rental properties, up from 14 per cent a year ago and significantly higher than the 8 per cent recorded in 2010.

This increase is particularly pronounced in London and Scotland, where former rental homes now make up a significant portion of properties for sale.

If you’re a landlord in the UK, you may want to consider the following:

  1. Check your tax situation – Now’s a good time to review your tax position ahead of the Budget. If the tax rate is set to rise, it could be wise to consult with a tax advisor to understand how this might affect you.
  2. Think about timing – If you’re thinking of selling any rental properties, you might want to do it sooner rather than later. Selling before any potential tax increase could help you save money.
  3. Explore your options – Selling might not always be the best move. Consider other options like reorganising your property portfolio or waiting to see what happens with the tax changes.
  4. Stay updated – Keep an eye on Government announcements and Budget updates on and before 30 October. This will help you stay ahead of any changes and adjust your plans accordingly.
  5. Get professional advice – Talk to a financial advisor or accountant to get tailored advice and make sure you’re making the best decisions for your situation.

If you need any advice on how an increase in CGT could impact you, please contact our team.

How to avoid Lifetime ISA withdrawal penalties from HMRC 

Lifetime ISAs (LISAs) have become a popular way to save for a first home or retirement, offering a 25 per cent Government bonus on contributions.  

However, if you withdraw money for anything other than these specific purposes, you could face penalties from HM Revenue & Customs (HMRC). 

A freedom of information (FOI) request has revealed that in the 2022-23 tax year, the average penalty for the top 25 unauthorised withdrawals was £11,000.  

Over 15,000 savers had to hand back £1,000 or more in penalties, while more than 6,000 paid over £2,000 and 851 paid over £5,000. 

With the total value of LISA penalties reaching over £75 million in 2023-24, up 40 per cent from the previous year, it is clear that many savers are feeling the sting of these charges.  

So, how can you avoid becoming part of these statistics? 

What are the LISA rules? 

The 25 per cent withdrawal penalty is in place to ensure that LISAs are used for their intended purposes: buying a first home (worth £450,000 or less) or saving for retirement, which you can access tax-free from age 60.  

Any other withdrawals, unless due to terminal illness, will incur the charge.  

The penalty removes some of your own savings, making it more imposing than it first appears. 

Plan your savings carefully 

If you are considering using a LISA to buy a first home, it is vital to be aware of the £450,000 property price cap.  

House prices have risen considerably, particularly in the south of England, where many properties exceed this threshold.  

In London, for example, average house prices in areas like Barnet (£592,597), Camden (£858,303), and Hackney (£563,111) are far beyond the cap. 

Even outside the capital, areas such as Cambridge (£487,493), Oxford (£475,247), and Guildford (£516,489) have average property prices above the LISA limit, meaning you could be forced to either buy below the cap or face the penalty if you exceed it. 

Build an emergency fund 

One of the key reasons savers tap into their LISA early is due to unexpected financial pressures, whether that is an emergency or a change in circumstances.  

To avoid being tempted to withdraw from your LISA and incur a penalty, an emergency savings fund should be created that you can access when needed.  

This way, your LISA can remain untouched until it is time to use it for its intended purpose. 

Think long-term with your retirement savings 

If your goal is to use your LISA for retirement savings, make sure it forms part of a broader retirement strategy.  

Since you won’t be able to access the funds without penalty until age 60, other accessible savings or pension schemes should be available to you that allow for flexibility.  

That way, you can keep your LISA intact for the long haul without risking penalties. 

Keep track of your contributions 

You can contribute up to £4,000 per year to a LISA, with a maximum Government bonus of £1,000 annually.  

Staying on top of these limits can help you optimise your savings while making sure you are not relying too heavily on them, which could lead to early withdrawals and penalties. 

Stay informed 

Keep yourself up to date with any changes to LISA rules or allowances.  

The ever-changing property market can affect your plans for using your LISA, so staying informed will help you in the long run and give you a better chance of avoiding penalties.   

If you are looking for advice on how to manage your LISA and avoid penalties, contact our team today for expert guidance. 

What pension tax reforms could we see in the October Budget?  

For months, there was speculation that the upcoming Budget could bring major changes to pension tax relief, specifically a move towards a flat rate of tax relief for pension contributions.  

While nothing has yet been confirmed, reports in The Guardian suggest that these plans have now been dropped, leaving many wondering what this means for the future of pension policy. 

Why would pension tax reforms be abandoned? 

If the flat-rate tax relief proposal is indeed scrapped as suggested by reports in The Guardian, it could be due to the impact it would have had on public sector workers, many of whom benefit from generous defined benefit (DB) pension schemes.  

These schemes, which are largely unavailable in the private sector, offer guaranteed retirement income.  

A change to the tax relief system would result in higher tax bills for many workers. 

What does this mean for taxpayers? 

While the flat rate of tax relief looks to have been shelved, it does not mean pensions are completely off the table.  

The Government may still look for other ways to reform the system or raise revenue from pensions.  

For now, however, higher earners will continue to enjoy tax relief at 40 or 45 per cent, and those in defined benefit schemes look likely to be safe from additional tax charges to their contributions.  

The Chancellor might still consider smaller changes that affect the way pensions are taxed or the contribution limits. 

For example, the annual allowance, which is currently set at £60,000, could be reduced, especially for higher earners.  

This is the maximum amount an individual can contribute to their pension with tax relief each year.  

Reducing this limit would raise revenue for the Treasury and might still be seen as a way to target wealthier individuals without causing widespread disruption. 

Another possible area for reform could be the 25 per cent tax-free lump sum, which allows retirees to withdraw a portion of their pension pot without paying any tax.  

Reducing or capping this benefit could be an alternative way to generate tax revenue without directly increasing income tax or National Insurance. 

What about employer contributions? 

There have also been discussions about increasing mandatory employer pension contributions.  

Currently, employers are required to contribute at least three per cent to their employees’ pensions.  

If the Government follows Australia’s example, where employers contribute as much as 12 per cent, businesses could face significant cost increases.  

While this policy is not expected in this Budget, it remains a possibility for future reform. 

A move towards UK investment? 

Labour has expressed interest in encouraging pension funds to invest more in the UK economy.  

While there’s no specific policy announcement yet, there has been talk of requiring a portion of pension funds to be invested in UK assets.  

This could be part of a broader effort to boost domestic investment and stimulate economic growth, but it raises questions about whether such a mandate would be in the best interests of pension savers. 

Pension fund managers will need to weigh the potential risks and rewards of being required to invest in specific UK assets, particularly if they involve higher-risk investments. 

What to watch for next 

Chancellor Rachel Reeves has until 25 October to submit her final resolution on changing the Government’s fiscal rules ahead of the Budget, so we will likely know more about her final plans for pensions by then.  

Even though it looks probable that major pension tax reforms have been shelved for now, the Government’s need to raise revenue remains.  

Pensions are an attractive target for future changes, and individuals and businesses need to stay informed about any potential reforms. 

If you are a higher earner or a business owner concerned about how future changes could impact your pension contributions, now is a good time to review your pension strategy.  

Speak with our team to ensure you are prepared for any potential changes in pension policy. 

 

Rotherham Taylor’s Charity Quiz Raises Over £1,200 for Parkinson’s UK

We’re pleased to announce that we raised more than £1,200 for Parkinson’s UK with a charity quiz night that brought the local community together.

The event, held at Fulwood and Broughton Cricket Club, was attended by 12 teams, including friends, families, clients, and business contacts of Rotherham Taylor.

The atmosphere was filled with excitement as participants competed in a series of brain-teasing rounds, culminating in a thrilling tiebreaker that determined the winners.

After a closely contested evening, the ‘Thursday Club’ team, led by Sarah Cuerden, emerged victorious followed by Emma Woan’s ‘Emma’s Boys’ team.

Speaking about the success of the event, Rebecca Bradshaw, Director, said: “We are delighted to have raised over £1,200 for Parkinson’s UK – our charity of the year for 2024. Congratulations to the ‘Thursday Club’ for their win after a nail-biting final round!”

The venue for the quiz was generously donated by the cricket club, and the event’s success was also bolstered by an array of raffle prizes provided by local businesses.

Rotherham Taylor has expressed its gratitude for the generous support of:

  • DD Cooling Ltd
  • Leonard Curtis
  • Nori Financial
  • Morrisons
  • Costa Coffee
  • Louise Williamson Beauty
  • Escape Entertainment
  • Preston North End
  • St Helens Rugby Football Club
  • Harvester Buckshaw
  • OOSC

“We are thrilled with the community’s support for this worthwhile cause and look forward to hosting more events to bring people together for charity in the future,” added Rebecca.

To find out more about Rotherham Taylors’ charity and community goals, please click here.

Fiscal drag and tax thresholds: What does it mean for you

As the Government seeks to plug certain gaps in the public purse, we are unlikely to see any change in Income Tax thresholds – despite wages and the State Pension rising.

Under the previous Government, tax thresholds were frozen until March 2028, and it remains to be seen whether this will change under the Labour Party.

This means that more people are set to be pulled into paying Income Tax on their income for the first time or pulled into a higher tax bracket – known as fiscal drag.

How does fiscal drag impact you?

The major effect of fiscal drag is that it reduces the financial benefit of any wage increase because more of your income will be subject to tax.

This leaves many individuals, whether they are employees, self-employed or company directors, no better off than if they had not received a pay increase.

It is sometimes known as a “stealth tax” because no changes are actually being made to taxation rates or thresholds.

Mitigating the impact of fiscal drag

How can you plan around fiscal drag? If you have the flexibility to restructure your income, you may consider:

  • Dividends – Regardless of which tax band you are in, Dividends are taxed at a lower rate than Income Tax paid on your salary.
  • Salary sacrifice – Many businesses allow employees (including directors) to sacrifice a portion of their salary in exchange for a benefit (a company car, private healthcare, etc.), effectively reducing taxable income.
  • Investing in an ISA – Income or interest from an ISA is tax-free, helping you to save money for the future and minimising your tax liabilities.
  • Pay into your pension – You may choose to pay more money into your pension, either to reduce your taxable income or minimise future tax liabilities, with a yearly tax-free limit of £60,000 or 100 per cent of your income, whichever is lower.
  • Marriage allowance – If you or your spouse earn less than the Personal Allowance, you may be eligible to transfer £1,260 of the allowance to your partner, potentially saving up to £252 in tax.

In addition to the marriage allowance, you should ensure you are utilising all available tax reliefs, such as the personal savings allowance.

This prevents you paying tax on savings interest depending on your Income Tax band:

  • Basic rate – £1,000
  • Higher rate – £500

Unfortunately, there is no personal savings allowance for those in the Additional rate tax band.

Make sure to use your tax-free Personal Allowance of £12,570 before considering another tax-efficient way of receiving income.

High earners

You should also watch out if you are a Higher or Additional rate taxpayer, i.e. you earn between £50,271 and £125,140, or over £125,140 respectively.

Wage increases could pull you into a higher tax band and begin to erode your Personal Allowance if you choose to take the majority of your earnings as salary, or your business cannot pay dividends.

Remember that your Personal Allowance decreases by £1 for every £2 you earn over £100,000 – meaning that you effectively have no Personal Allowance if you earn £125,140 per year or more.

You will also be taxed at either 33.75 per cent (Higher) or 39.35 per cent (Additional) on any dividends you receive.

As a high earner, you could be significantly impacted by fiscal drag, so it is particularly important to plan ahead to avoid paying more tax than you need to.

Please contact our team today to find out how to reduce the effect of fiscal drag on your income.

With Income Tax unlikely to change, is it worth altering your dividend-based salary strategy?

For business owners and directors, dividends may form a critical element of your salary strategy and tax planning, keeping your tax liabilities to a minimum.

To extract profit tax-efficiently from your business, you may use a combination of:

  • Salary – Typically set at or around the Personal Allowance of £12,570 to minimise Income Tax and National Insurance Contributions (NICs).
  • Dividends – Paid to owner/director-shareholders and not subject to NICs.
  • Pension contributions – You can claim tax relief on private pension contributions of up to 100 per cent of your yearly earnings.
  • Director’s loans – You or a close family member receives money from your company, which may be tax-free for you as an individual, depending on how it is repaid.

Dividends can be an excellent choice for business owners because they are taxed at a lower rate than earnings subject to Income Tax.

The tax is levied depending on your Income Tax band:

  • 8.75 per cent for those in the Basic rate tax band
  • 33.75 per cent for those in the Higher rate tax band
  • 39.35 per cent for those in the Additional rate tax band

For this reason, many business owners choose to take a relatively low salary in addition to dividends, to stay in the Basic rate band and minimise tax on dividend payments.

Could dividend taxes change?

Dividends have been a growing target for HMRC in recent years, with the tax-free allowance falling steadily from £5,000 in 2016/17 to £500 in 2024/25.

Having pledged to avoid raising taxes on income, the Government may seek to levy further tax on wealth in the Autumn Budget instead, which could incorporate dividends.

The Government has various options, including:

  • Removing the tax-free dividend allowance
  • Raising the rates of tax on dividends.

Should you change your strategy?

If you have a typical tax-efficient profit extraction strategy, with a low salary and dividends, then this is likely to remain the best approach to optimising your tax liabilities – but this is highly dependent on whether tax rates on dividends remain the same.

If tax rates remain unchanged, any dividends will still be subject to a lower rate of tax than if they were taken as salary, even without a tax-free allowance.

However, a rise in rates could result in a significantly higher tax liability.

In this situation, you may consider another method of profit extraction, such as making additional pension contributions if you have not used your full tax-free pension allowance.

For advice on managing profit extraction, salary and dividends, please contact our team today.

Labour pledges to avoid raising taxes ‘on working people’

As the Autumn Budget approaches, the Government has pledged that it will “make the tax system fairer” and avoid raising taxes on working people and certain businesses.

The Government has said that it will not raise:

  • Income Tax
  • National Insurance (NI)
  • Corporation Tax
  • VAT

While Corporation Tax is not levied on individuals, the fact that the Government is not changing it may be good news for consumers.

Freezing VAT and Corporation Tax should keep a handle on price rises as businesses will not need to pass on additional costs to clients or customers.

This is a significant announcement, given that the Government seeks to make up a substantial shortfall in public finances.

What does this mean for businesses?

The budget is likely to be good news for businesses, particularly regarding VAT and Corporation Tax.

With no additional taxes to be paid in these areas, businesses may have more room to reinvest in growth – a priority for the Government, particularly in sectors such as sustainable technology.

However, some business owners may still call for the 2023/24 reductions in NI to be extended to employer NI contributions, which seems unlikely under the current Government.

How will this impact individuals?

The pledge will come as a relief to individuals who pay only Income Tax and NI, which includes most workers whose only income source is a regular salary or hourly pay.

However, individuals with additional assets such as property, private pensions, dividends or investments may reap less of a benefit.

With the Government seeking to levy additional income through taxes, these individuals will likely face an increased tax burden on their wealth through a rise in Capital Gains Tax (CGT), for example.

It is, therefore, important for those with high-value assets to engage promptly with proactive tax planning.

Want to optimise tax liabilities on your assets? Contact us today.

How to protect your business from Kittel VAT risks

Taxpayers have a fundamental right to reclaim input tax, also referred to as input VAT.

However, HMRC has the authority to refuse this right under certain conditions if they can demonstrate that the taxpayer was aware, or should have been aware, that their transactions were linked to fraud.

There has been a noticeable rise in businesses from various sectors over the last year receiving notifications from HMRC denying the recovery of input tax based on these grounds.

For businesses, the risks linked to Kittel VAT include denied VAT recovery, hefty fines, reputational damage, and increased scrutiny from tax authorities.

To protect your business, here are key strategies to avoid such risks:

  1. Conduct due diligence – Always verify the VAT registration and reputation of suppliers and partners to ensure they are legitimate.
  2. Monitor transactions – Regularly review transactions for irregularities or signs of fraud to catch issues early.
  3. Educate your team – Train your finance and procurement teams on the risks of VAT fraud, ensuring they can spot warning signs.
  4. Maintain clear records – Keep thorough documentation of all transactions as evidence of your due diligence.
  5. Consult professionals – Seek advice from VAT specialists to navigate complex regulations and strengthen your compliance.

By implementing these steps, your business can avoid costly fines, penalties, and reputational damage.

For tailored guidance, please contact our team.