Wealth Management Update – Nov/Dec 2021 (Winter Special)

HMRC nets £254m in 2020 from Inheritance Tax investigations.

Taxpayers are exempt from Inheritance Tax (IHT) if the value of their estate is below a threshold of £325,000, or £650,000 under a joint allowance, or if the estate is left to a spouse, civil partner, a charity or a community amateur sports club.

In the wake of massive pandemic related spending, HMRC netted over £250m in revenue following over 3500 investigations into Inheritance Tax. The investigations are triggered by ‘red flags’ such as:

• An estate just falls below the £325,000 IHT threshold
• Gifts made by the deceased fall within the 7-year period before death
• Property appears to have been significantly undervalued, compared to similar property
• Invalid claims for IHT via exemptions such as Business Property Relief or Agricultural Relief.

Through considered Estate Planning with regular Will reviews and good record keeping, most of us should avoid IHT investigation traps. It might also be worth speaking with your adviser to discuss the use of Nil Rate Band (NRB) at first death rather than rely on a transferable allowance.

You can also download our Trust Guide Here.

 

Cop out?

It was difficult to avoid the media build-up surrounding the gathering of world leaders in Glasgow for COP26. As we shared with you in our build-up email ahead of the conference, we were confident that you would not be impressed with what was likely to come out of the conference. The truth is, too often, all we hear are words and no action, however, we did hope to be proved wrong.

Of course, with so many countries participating there will inevitably be an element of compromise, however, ultimately, the conference has not provided the much-needed decisive path to tackling climate change with all plans and pledges below the goals of the 2015 Paris agreement which aimed to keep global warming “well below” 2c.

Rather than wait on the world’s countries to make good on their pledges later down the line, we will be giving clients the opportunity to decide if they’d like their Investments to be part of the solution. Keep an eye out for our webinars in February/March explaining our sustainability portfolios and the manner in which they select them – our Attenborough Scale®, which we believe to be the future for sustainable investments.

 

The Politics of Political Donations

In a high-profile case that reached its conclusion in October this year, Arron Banks, a millionaire UKIP supporter lost his appeal case to exempt £1m in donations to his chosen political party from Inheritance Tax (IHT).

From donations made to UKIP between October 2014 and March 2015, HMRC claimed that Mr Banks owed just over £160,000 on the roughly £1m total donation – an assessment that Mr Banks did not agree with.

It is correct that if a donation is made to a political party that has either two MPs elected at the last general election, or one MP elected and a total of 150,000 votes, are exempt from the tax, however as HMRC pointed out, UKIP did not return a single MP to the House of Commons – leaving Mr Banks with an IHT liability.

Mr Banks’ counterargument to challenge HMRC centred around unlawful discrimination under the European Convention on Human Rights (ECHR), as well as breaching his, and UKIP’s, right to freedom of expression and freedom of assembly under the ECHR.

Lord Justice Henderson accepted that the law did discriminate against Mr Banks directly “on the basis that he was a supporter of a party that had secured no seats in the House of Commons at the 2010 general election”. But concluded that HMRC had justified the difference in treatment, meaning it was still lawful, and so dismissed the appeal.

Whilst it is unlikely the vast majority of us are considering donating such vast sums to any political party, Mr Banks’ case does highlight how something seemingly unrelated to IHT, such as choice of political party, can have a major influence on your IHT liability.

 

Autumn Budget

Chancellor Rishi Sunak laid out his budget to the Commons in late October. Within the budget he commented on inflation of 3.1% in September being “likely to rise further”. He revealed that the Office for Budget Responsibility now expected CPI to average 4% over next year. Mr Sunak added,

“demand for goods has increased more quickly than supply chains can meet” as economies around the world reopen, while global demand for energy has also “surged”.

“In the year to September, the global wholesale price of oil, coal and gas combined, has more than doubled. The pressures caused by supply chains and energy prices will take months to ease.”

“It would be irresponsible for anyone to pretend that we can solve this overnight. I am in regular communication with finance ministers around the world and it’s clear these are shared global problems, neither unique to the UK, nor possible for us to address on our own”.

We’ll be keeping a close eye on developments and updating you accordingly.

Hidden away on page 142 of the full 2021 Autumn budget is the intention to increase dividend tax rates by 1.25% in April next year. This will mean that the dividends that you receive on your Investments will likely be a little lower.

Next year the starting rate for savings will remain at £5000, ISA allowances will remain at £20,000, JISA’s will remain at £9000.

The big fanfare that the chancellor made about the reductions in alcohol duty, appear to be intentions for 2023, following a consultation period ending next January – so perhaps keep those plans for a big night out on ice a little longer!

Whilst Mr Sunak’s 1-hour+ speech to the commons had no mention of climate change, the Autumn budget ‘red book’ does state that net-zero might be a long term ambition:

“Taken together, this spending package, along with bold action on regulation and green finance, will keep the UK on track for its carbon budgets and 2030 Nationally Determined Contribution, and support the pathway to net zero by 2050. It does so in a way that creates green jobs across the country, attracts investment, and ensures energy security.”

However, Mr Sunak did include £21bn in funding for roads, a cut in domestic air passenger duty, and a freezing of the duty on fossil fuels used by cars for the 12th year in a row.

In general, there appeared to be little of Financial interest to the majority of our clients, and certainly, no changes to be made to the plans for this year and this year’s accounts. This is a shame but not unexpected, however, as always, we are looking closely at everything for you.

If you are worried about the effects of inflation on your “Cash Investments” do reach out to us and we would welcome a chat.

Also, did you see our Tax Webinar in March? If not, you can watch the Webinar here. Everything we said still stands.

 

UK House prices continue to rise

The last three months have seen a continuation in the rise of UK house prices, with the growth pace hitting a 15-year high.

The rise has been driven primarily by a shortage of housing stock combined with low lending rates. Figures reported by Halifax In November 2021 put the average price of a UK property at a record high of £273,000 with a rise in the average value of homes up 1% October-November, now sitting 8.2% higher than the same period in 2020.

Whilst the London market lags behind, nationally average property prices rose sharply as homebuyers continue to look for larger, less crowded locations to set up home. With October marking the end of the stamp duty holiday, many expected the trend to slow, however, to date that has not been the case.

Whilst the Omicron coronavirus variant brings uncertainty, if previous months are anything to judge by, the rise might just continue.

 

The decline of the bank branch 

The Financial Conduct Authority have released figures showing access to bank branches is decreasing – with 1 in 20 bank branches having closed in the last 3 months.

The impact on consumers as a whole means that 60.1% of the population is now within 2km of a bank branch, down from 61.8% last year. Access to no fee to withdraw cash within a 2km radius, which includes branches, ATMs, mobile banks, and post offices, has increased 0.1% to 95.5%, however, in rural areas this figure sits at just 77.3%.

With bank branch closures showing no signs of slowing, the risk to the most vulnerable people in need of cash or in-branch support of course increases. For those with no access to transport this presents further risk. The FCA report itself also didn’t take into account access to the actual account holding branch, for which the figures for the 2km distance would likely show more dramatic decrease.

 

The cost of a comfortable retirement rises

The Pensions and Lifetime Savings Association (PLSA) has warned that the cost of retirement has risen – seeing an increase in the cost of 4.9% since 2019.

The PLSA industry report predicts an extra £40,000 will be needed to fund a comfortable 20-year retirement. The PLSA breakdown their calculations into three tiers – minimum, moderate, and comfortable. At the top end, for a comfortable retirement, single people’s annual budget has increased by £600 to £33,600, while a couple’s budget rose by £2,000 to £49,700, roughly 4.9% more expensive than in 2019. The ‘comfortable’ tier would include luxuries such as routine beauty treatments, theatre trips, and three weeks per year of European holidays.

A large proportion of the increase relates to rising transport costs, which have seen a sector increase of 10% since 2019.

Nigel Peaple, the PLSA’s Director of Policy and Advocacy commented:

“It is important that the retirement living standards remain relevant by reflecting real-world price changes and real-world expectations about lifestyles in retirement. We hope the updated standards will encourage people to think about whether they are saving enough for the retirement lifestyle they want and, in particular, whether they are making the most of the employer contributions on offer in their workplace pension.”

“The lockdowns caused by the pandemic have given many workers a foretaste of being retired and made people think about the activities and experiences they truly value. The pandemic has emphasised the importance of economic security as well as social and cultural participation in retirement.”

 

Shop Safe Online

As well as being the season of goodwill, unfortunately, it is the time of year that fraudsters seek to exploit. One of the most prevalent methods to financially defraud is via a cyber-attack, of which the most common is affecting both individuals and organisations is Phishing.

Phishing attacks can take many forms, but they all share a common goal – getting you to share sensitive information such as login credentials, credit card information, or bank account details.

There are a few phishing attacks to be aware of:

Phishing: In this type of attack, hackers impersonate a real company to obtain your login credentials. You may receive an e-mail asking you to verify your account details with a link that takes you to an imposter login screen that delivers your information directly to the attackers.

Spear Phishing: Spear phishing is a more sophisticated phishing attack that includes customised information that makes the attacker seem like a legitimate source. They may use your name and phone number in the e-mail to trick you into thinking they have a connection to you, making you more likely to click a link or attachment that they provide.

Whaling: Whaling is a popular ploy aimed at getting you to transfer money or send sensitive information to an attacker via email by impersonating a real company executive. Using a fake domain that appears similar to a legitimate domain, they look like normal emails from a company and ask you for sensitive information (including usernames and passwords).

Shared Document Phishing: You may receive an e-mail that appears to come from a file-sharing site like SharePoint alerting you that a document has been shared with you. The link provided in these e-mails will take you to a fake login page that mimics the real login page and will steal your account credentials.

What You Can Do:

To best avoid these phishing schemes, you can observe the following email best practices:

• Do not click on links or attachments from senders that you do not recognise. Be especially wary of .zip or other compressed or executable file types.
• Do not provide sensitive personal information (like usernames and passwords) over email.
• Watch for email senders that use suspicious or misleading domain names.
• Inspect URLs carefully to make sure they’re legitimate and not imposter sites.
• Do not try to open any shared document that you’re not expecting to receive.
• Be especially cautious when opening attachments or clicking links if you receive an email containing a warning banner indicating that it originated from an external source.

Being mindful of the above should stand you in good stead.

 

IHT reform ruled out by treasury

In late November the government held its ‘Tax Administration and Maintenance Day’. A day in which they considered plans to create a more simple and effective tax system. However, upon consideration, Inheritance Tax reforms were rejected.

The plans discussed are part of the treasury’s 10-year plan, part of the Tax policies and consultation update launched in March this year. The plan centres around establishing a real-time and third-party tax administration system designed to make the taxpayer experience for individuals and businesses more straightforward.

HMRC’s Chief executive, Jium Harra said:

“As we continue our work to improve the tax system for UK taxpayers and clamp down on avoidance and evasion, we know that an open dialogue with our stakeholders is vital.

With thanks to the tax profession for their views, we can now announce the next steps for how we will simplify the legislative framework and raise standards in the tax advice market. We are also announcing new areas on which we are inviting views, including reforming Income Tax Self-Assessment registration for the self-employed. These announcements will contribute to creating a modern, trusted tax administration system.”

The Office of Tax Simplifications (OTS) had previously made a recommendation that the lifetime gift exemptions and scope of IHT relief be simplified as part of the HMRC review, however, these recommendations were mostly ruled out by the treasury during their Tax Administration and Maintenance Day.

The 11 OTS recommendations included increasing the £3000 annual gifting allowance exemption which has been frozen since 1980, if it would have risen with inflation it would now sit at over £13,000. Wedding gift exemptions have not changed since 1975 either. Furthermore, they recommended the reduction in the length of time it takes for gifts to leave the estate from seven to five years to improve record-keeping and forward planning.

Of all the recommendations the OTS made, just one related to IHT will be implemented – from January 1st 2022. 90% of non-taxpaying estates will not have to fill out IHT forms for deaths when probate or confirmation is required.

 

Top three cash ISAs

Please check the terms and conditions before opening any account. If in doubt consult with your financial adviser directly as the above are for information only.

Source: Moneysavingexpert.com 01.12.2021.