Lowes Magazine Issue 129

PLANNING

inheritance tax purposes; and thirdly, pensions can be passed on to beneficiaries on death, either tax free or at the marginal rate of tax. In addition, any unused annual allowance from the previous three years can be carried forward. This means as much as £180,000 can be paid into a pension on or before 5th April 2024. If the individual has enough taxable earnings and remaining allowance available. A further change affecting the 2023-24 tax year, was the increase in the Money Purchase Annual Allowance. This restricted the amount that could be paid into a pension if the pension holder had withdrawn money from the pension. This was affecting people who had accessed their pension during the Covid pandemic or in the cost of living crisis and wanted to start paying back into their pension. The limit had been £4,000 but was increased to £10,000. Anyone who has accessed a pension and now wants to put money back in before the end of the tax year, can do so to that limit of £10,000. Good tax planning will always include maximising pensions contributions. Tax changes Two tax changes to highlight before the end of the tax year are in respect of dividend tax and capital gains tax. From 6th April, the dividend allowance, the amount an individual can keep free of tax from dividend payments is reducing from £1,000 to £500. This will affect anyone with taxable dividend income above £500, who will pay 8.75% if a basic rate taxpayer, 33.75% if a higher rate taxpayer and 39.35% if an additional rate taxpayer. The capital gains tax allowance is also being cut from 6th April 2024. This will halve the exemption from the current £6,000 to £3,000. Basic rate taxpayers pay 10% on eligible gains except for residential property which is charged at 18% (that is not their own home); higher and additional rate taxpayers pay 20% and 28% on residential property. If you have considerable assets you wish to dispose of which will attract CGT, it could be worthwhile selling them before the end of the tax year to benefit from the current £6,000 exemption rate. Finally, many tax reliefs/allowances have been frozen, which means more people will start to be drawn into paying more or higher rates of tax. This particularly affects income tax – it is estimated that as a result of the freezing of income tax rates, another three million more people will be paying higher rate tax by 2029. HMRC’s tax take from inheritance tax keeps on rising, netting the Treasury around £158 million a week. In November 2023, HMRC reported that £4.6 billion was collected from inheritance tax receipts in the first seven months of the year – £0.5 billion higher than the same period in 2022. But the inheritance tax nil rate band and residential nil rate band are now frozen until at least April 2028, which will draw even more people into the inheritance tax spotlight. It is ever more important, therefore, that careful estate planning is put in place to mitigate against unnecessary inheritance tax payments. If you are affected by any of these issues, your Lowes Adviser can help. Call us on 0191 281 8811 and we will arrange for an Adviser to contact you.

Contined...

The lifetime allowance will be fully removed from the pension tax rules from 6th April. This means people can continue to pay into their pension – subject to the annual allowance (see below) – without fear of facing potentially large tax bills in the future. However, the maximum tax free lump sum will remain at £268,275. It also means individuals will be able to take as much income as they want from their pension, although they will still be subject to income tax, and checks will only be made on lump sums taken. Two main new allowances are being created to facilitate this: • An individual ‘lump sum allowance’ set at £268,275 (25% of the current £1,073,100 lifetime allowance) – measuring the tax-free cash taken over someone’s lifetime. • An individual ‘lump sum and death benefit allowance’ set at £1,073,100 – which will include any tax-free lump sums someone takes while alive, plus any serious ill health lump sum and lump sums paid out when they die. There will be a third allowance – an overseas transfer allowance – also set at £1,073,100, measuring the value of pension benefits transferred to overseas pension schemes. Anyone who exceeds any of these allowances will see the excess taxed in the same way as income. Annual allowance In the 2023 Budget, the maximum amount anyone could save into a pension was increased from £40,000 to £60,000. Pensions offer significant tax advantages, firstly in that tax relief is given on cash paid in at the individual’s marginal rate of tax; secondly, pensions fall outside a person’s estate for

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