Author: Glenn

Make regular gifts from your income and avoid inheritance tax. If structured properly, surplus income gifts can support loved ones and stay outside your estate without the seven-year survival rule.

Wealthier individuals can benefit from a lesser-known but highly effective IHT exemption for gifts made out of surplus income. This is particularly useful for structured, recurring gifts such as grandparents helping with school fees or contributing to a child's living expenses.

These gifts may be fully exempt from inheritance tax if they meet three key conditions:

1. They form part of the transferor’s normal expenditure,
2. They are made out of the transferor’s income, and
3. The transferor retains enough income to maintain their usual standard of living.

If these criteria are met, the gifts are immediately exempt, they do not require the donor to survive seven years, as is the case with potentially exempt transfers (PETs).

It’s important to note that part of a gift may qualify under this exemption, while the remaining portion may be chargeable or exempt under another rule. However, these rules do not apply to certain types of transfers, including:

• Transfers on death or on the ending of a qualifying interest in possession in a trust,
• Certain deemed PETs under Finance Act 1986,
• Transfers made by close companies,
• Premiums on life insurance policies linked to annuities,
• Transfers of capital assets unless those assets were bought with income specifically for gifting.

The exemption does not override the gift with reservation rules, meaning if the donor retains a benefit from the gifted asset (e.g., continues to live in a gifted property rent-free), the gift may still be treated as part of their estate for IHT purposes.

To take advantage of the income-based exemption, careful consideration has to be given to ensure that these payments form part of the transferor’s normal expenditure and is made out of income and not out of capital. The transferor must also ensure that they are left with enough income for them to maintain their normal standard of living after giving any gifts. HMRC may request evidence such as bank statements, income records, and written intentions to support a claim for this exemption. 

Expecting lower profits 2024-25 compared to 2023-24? You can ask HMRC to reduce your 31 July 25 tax payment on account. Act early to manage cash flow. Use your online account or we can handle it for you.

Self-assessment taxpayers normally pay their income tax in three instalments each year. The first two payments on account are due on 31 January during the tax year and 31 July after the tax year ends. These are each based on 50% of the previous year’s net income tax liability.

This means that the 31 January 2025 (now passed) and upcoming 31 July 2025 payments are both based on your 2023–24 tax liability.

A final balancing payment is due on 31 January 2026, once your actual tax bill for 2024–25 has been confirmed through your submitted tax return.

If you expect your income or profits for 2024–25 to be lower than for 2023–24, you can ask HMRC to reduce your 31 July 2025 payment on account. This can be done through your HMRC online account or by submitting form SA303 by post. You must provide a reasonable estimate of your expected tax liability.

If we are your registered tax agent we can undertake this election for you.

There is no limit to how many times you can apply to adjust your payments. However, if you reduce your payments too far and underpay, HMRC may charge interest or penalties on the shortfall.

You are not required to make payments on account if:

• Your net Income Tax liability for 2023–24 was less than £1,000, or
• At least 80% of your 2023–24 tax liability was collected at source (e.g. through PAYE).

If your taxable profits are likely to increase in 2024–25, there’s no need to notify HMRC in advance, but you should be prepared for a higher balancing payment in January 2026.

Working capital refers to the day-to-day funds a business uses to manage its operations. It is the difference between current assets (such as cash, stock, and trade debtors) and current liabilities (such as trade creditors and short-term loans). Efficient working capital management is crucial for the smooth running of any business. But where does this money actually come from?

There are two main types of funding for working capital: internal and external.

Internal sources come from within the business. Profits retained after tax can be reinvested to support stock purchases, fund short-term customer credit, or settle supplier bills. Delaying payments to suppliers (without harming relationships) can also ease pressure on cash flow, as can encouraging faster customer payments. Managing stock levels carefully to avoid tying up funds in excess inventory is another way businesses internally finance working capital needs.

However, not all businesses have the luxury of strong retained profits or optimal cash flow. This is where external sources come into play.

Bank overdrafts are a common short-term solution. They offer flexible access to funds, often with interest charged only on the amount used. Overdrafts are useful for bridging short-term cash flow gaps but can become costly if used for extended periods.

Trade credit from suppliers is another widely used form of funding. By offering payment terms of 30 to 90 days, suppliers effectively finance part of a business’s working capital.

Invoice finance, including factoring and invoice discounting, allows businesses to release cash tied up in unpaid invoices. A lender advances a percentage of the invoice value upfront, improving cash flow while awaiting customer payment.

Short-term loans and revolving credit facilities are also available. These may come from banks or alternative lenders and can provide structured funding with fixed repayment schedules.

The right mix of funding depends on the nature of the business, the industry it operates in, and its financial health.

The UK government has officially concluded its involvement with NatWest Group, formerly known as the Royal Bank of Scotland (RBS), by selling its remaining shares. This move ends nearly 17 years of public ownership that began during the 2008 financial crisis.

In 2008 and 2009, the government injected £45.5 billion into RBS to stabilise the bank, which at the time was one of the largest in the world, with over 40 million customers and operations in more than 50 countries. This intervention was deemed necessary to protect the UK economy and financial system from collapse, safeguarding millions of savers, businesses, and jobs.

Economic Secretary to the Treasury, Emma Reynolds, highlighted that bringing NatWest fully back into private ownership is a significant milestone for the UK banking sector post-financial crisis. She noted that the current government halted a planned retail share sale, which could have cost taxpayers hundreds of millions, opting instead to sell shares at market value to prioritise taxpayer interests.

To date, £35 billion has been returned to the Exchequer through share sales, dividends, and fees. While this is approximately £10.5 billion less than the original support provided, the Office for Budget Responsibility has indicated that the cost of inaction would have been far greater, potentially devastating people's savings, mortgages, and livelihoods, and undermining confidence in the UK's financial system.

Employing family members can work well, but it does not mean you can skip the rules. HMRC expects full compliance on pay, tax, pensions, and working conditions—just as with any other employee.

When a new employee is added to the payroll it is the employers' responsibility to ensure they meet the employees’ rights and deduct the correct amount of tax from their salary. This includes any employees who are family members.

HMRC’s guidance is clear that if you hire family members you must:

• avoid special treatment in terms of pay, promotion and working conditions;
• make sure tax and National Insurance contributions are still paid;
• follow working time regulations for younger family members;
• have employer’s liability insurance that covers any young family members; and
• check if you need to provide them with a workplace pension scheme.

It is possible to employ young people if they are 13 or over but there are special rules about how long they can work and what jobs they can do. Young workers and apprentices have different minimum wage rates from adult workers for the National Minimum Wage.

There are different rules if you take on volunteers or voluntary staff, but the employer is responsible for health and safety and must give inductions and proper training for the 'job' at hand.