All About Inheritance Tax Relief

IHT

The amount of revenue that the UK Government derives from Inheritance Tax is growing all the time with significantly more estates being liable to the Tax. If your estate is worth more than £325,000, your beneficiaries will be liable to pay a 40% taxation on the entire amount above that threshold.

As the Government becomes aware of the growing value of this tax, they are focusing more on removing options open to people to reduce this burden. Examples of this are the recent changes to trust legislation.

There are never the less a number of ways in which you can reduce the impact of IHT and it is worth trying to take advantage of as many of them as you can, to ensure you pass on as much of your estate as possible.

Small Tax Relief Measures

Gifting it away

One of the easiest ways to start minimising your tax burden is by giving away gifts to your loved ones during your lifetime. There are a number of gifts that you can make without incurring a tax liability. You are able to make as many small gifts of less than £250 as you like and in addition you can gift a further £3,000 per annum. You can also make unlimited gifts to certain organisations such as charities or political parties.

If you make larger gifts these may either be a chargeable life time transfer if the gift is to a discretionary trust or a potentially exempt transfer (PET). If the gift is a PET then there will be no tax liability providing you survive for at least 7 years from the date of the gift, however, if you die within 7 years, initially the gift will reduce your nil rate band. If the gifts in aggregate exceeded the Nil Rate Band, the excess may be subject to taper relief.

Taper relief has the effect of reduce the amount of tax payable if you die between 3 and 7 years after the gift is given. If you pass away 7 years or longer after the gift was given, the recipient and your estate do not pay IHT on the gift. Any gifts made within 3 years of your death will be subject to a 100% tax liability; however this taxable amount reduces from year 4 to year 7,translating to between 80% and 20% tax liability. Furthermore, any gifts of any value given to your spouse or civil partner are not subject to IHT.

There are other gifting allowances which include wedding gifts to your children, grandchildren or anyone else of £5,000, £2,500, and £1,000 without paying IHT. You can also give £250 to as many individuals as you want in a year without paying IHT, as long as those individuals do not fall within another exemption.

Charities

You can also endow or gift a charity, museum, university or community amateur sports club with any size gift as these are also IHT free. In fact, if you gift up to 10% of your estate, you can qualify for a 4% reduction in IHT.

Political Support

Gifts to a political party are exempt from tax as long as the party has 2 members in the House or 1 member and at least 150,000 votes in the previous general election.

Primary Residence

Your primary residence, if gifted to your spouse, is tax free. Gifted to anyone else, however, it is subject to the 7 year gift rule. However starting in 2017, £100,000 of the value of the home will be considered tax free within the calculations of the state. This amount increases to £175,000 in 2020 and follows the consumer price index thereafter. This increased benefit is gradually withdrawn for estates worth more than £2m.

The saying “you cannot take it with you” is one that is relevant when it comes to the burden of IHT. Giving away your estate is a selfless act and may enable you to bring your estate to a level below the threshold of tax. However, if you want other alternatives or have a much larger estate to provide for your spouse or children, there are two more favourable options.

Business IHT Relief

The first of the two is a direct Business relief which amounts to 50% or 100% IHT relief. Your estate can claim a 100% business relief from IHT on any unlisted company you own or have shares in. A listed business can result in a 50% relief if you control more than 50% of the outstanding voting shares. Your estate could also receive 50% relief for business-related land, buildings or machinery that you owned or that were held in a trust that benefitted the business. However ownership in investment companies, realty companies, non-profits or a business being sold or wound up do not qualify for relief.

Enterprise Investment Schemes (EIS)and Business Relief

One the best ways to mitigate your tax liability is to invest in an EIS or SEIS. Not only do you reduce the impact of IHT but you also get relief against income tax as well as your capital gains taxes on EIS qualifying shares. EIS is an Enterprise Investment Scheme, which encourages investment in small and medium sized trading companies that would otherwise find it difficult to raise capital funding through regular channels.

These shares must be ordinary shares without preferential rights upon winding up of the company, but you can invest an unlimited amount, saving up to £300,000 income tax in any given yearsubject to the limit of 30% income tax relief against the amount of your investment. This is an amazing tax liability mitigation tool. Not only do you receive a tax savings on your annual income but you can also receive 100% IHT relief as long as you have held the investment for a minimum of 2 years at the time of death. You can defer a Capital Gains Tax Liability into an EIS and if you still own the shares when you die, you will never have to pay the Capital Gains Tax.

In order to qualify for the EIS you must not own more than 30% of the shares of a company or be employed by that company. You must also pay for the shares in total to receive the benefits.

Start planning to mitigate your IHT risk by actively gifting parts of your estate and investing in a quality EIS.

Ten IHT Takeaways

1. IHT Tax in the UK is 40% of the estate over £325,000.

2. Primary Residences are exempt from Inheritance Tax on the first £100,000 starting in 2017.

3. Gifts over £3,000 are subject to IHT Tax if they were made within 7 years of a person’s death.

4. Over £3 Billion is collected in IHT annually; this rose by 25% over the last 4 years due, in most part, to rising house prices.

5. Estates passed to a spouse are not subject to IHT, but will be subject to IHT when the spouse (the original holder of the estate) passes away.

6. Shares in unlisted companies that you own or control qualify for 100% IHT relief after 2 years of ownership.

7. Listed companies that you own a controlling stake of voting shares are only eligible for a 50% IHT reduction.

8. EIS provides 100% IHT relief after only 2 years of holding the shares.

9. EIS provides a 30% income tax relief in addition to the IHT relief.

10. Profits from the sale of EIS qualifying shares benefit from 100% capital gains tax relief if you also elected to take the Income tax relief on the shares.

Trucker Tax Relief

In face of tighter enforcement measures that the IRS is expected to use to strengthen its tax collection and monitoring policies, tax problems have become, if possibly, more stressful to deal with. Among truck drivers, in particular, the need to immediately address tax problems is more pressing than it has been in previous years. However, given the present economic climate, dealing with tax problems can prove hard for truckers, truck drivers. This is where tax relief for truck drivers plays an integral role. The IRS provides tax relief for truckers, provided that they certain law mandated qualifications and criteria.

Available relief for drivers

Truck drivers have at their disposal the same kind of tax relief available to all citizens of the United States. The first of these relief services is back tax return assistance. Back taxes are taxes accumulated from years of unfiled returns, delayed filings, or missing records. If left unattended, back taxes can cause major problems for a truck driver because he or she is likely to be considered evading his or her responsibilities. If you have a good amount of unfiled returns in your hands, you can set your record straight through services offering tax relief for truckers. Our firm, Mike Habib, EA, offer such service basically helps our clients to reconstruct tax records and prepare past due tax returns.

Another tax relief for truck drivers is installment agreement, which can be especially helpful for truckers with excessive tax debts. This type of tax relief service would allow a truck driver who is indebted with the IRS to pay his or her owed taxes through small installment payments. The amount to be paid for each installment and the repayment schedule would be based on the truck driver’s current financial status. This setup, along with the amount and schedule, can be negotiated with the IRS given that the truck driver meets certain qualifications. If you are yet unfamiliar with this kind of tax relief for truck drivers, you can retain our tax professional services to help you explore it.

Truck drivers also have the option to get relief through offer in compromise or OIC. This is perhaps, the best kind of tax relief for truckers since it would allow them to pay less than what they actually owe the IRS in tax debt and back taxes. On the same note, OIC comes with the strictest qualifications, rules, and guidelines to ensure that only qualified truck drivers and tax payers in general are able to avail of it.

Related to offer in compromise is a tax problem resolution called penalty abatement. This is actually a step above OIC in that it opens the possibility of eliminating penalties on the tax debt if the taxpayer is able to present reasonable and justifiable cause explaining why he or she accumulated the tax debt in the first place. Some examples of reasonable and justifiable cause accepted by the IRS are family sickness, natural disasters, and other situations that are beyond a person’s control.

Regardless of the type of relief for truckers that you can avail of, what is important is that you try and avail of one. Tax problems are hard burdens to live with. They are among the many number of things that you cannot live normally with. By seeking tax relief, you free yourself of tons of headache and worries. More importantly, you would no longer fear the IRS tax letters coming in, the phone ringing, or the doorbell ringing.

Knowing the right one

Before you seek tax help for truck drivers, however, you must know what kind to of option is best suited for your situation. This is because every kind of financial situation requires a different approach in the same way that each kind of tax relief approach comes with requires different qualifications. It is best to present your case to a tax professional so he or she can advice you on which tax relief is most suitable to your position.

Claim Tax Relief Against Tools and Equipment on PAYE – No Receipts Needed

If you are working in the healthcare industry and are expected to provide your own tools, equipment or other supplies for work, you may be able to claim a considerably well sized tax rebate against the cost of buying, maintaining, and cleaning these items.

The majority of UK healthcare workers are unaware that they can claim tax relief under the PAYE system against the costs involved with providing such supplies for work – without the need to go onto Self Assessment.

What’s more, you can actually claim right back to April 2008, and best of all, you generally won’t even need to provide receipts or proof of purchase.

Why? Well, if you take the time to trawl through The Income Tax Act (2003), you’ll find that nurses and other healthcare workers, like all PAYE employees – being the majority of people in Britain – are allowed to claim tax relief (also known as tax deductions) against the cost of providing tools and equipment for work. These costs are often referred to as being “Allowable Expenses”.

There’s only one requirement – the items you buy for work need to have been purchased “wholly, exclusively and necessarily” as part of your work duties.

To illustrate this, if you’ve had to provide your own clothing, equipment or cleaning supplies, it’s almost certain that you can claim a tax refund against the expense.

How do I claim this tax refund?
If you have provided your own equipment and/or tools for work, there are a few options available when it comes to claiming a tax refund. Let’s run through the various options;

First up, the traditional method – submitting your original receipts and sales invoices to the tax office, and getting a specific amount of tax relief back in the process. HMRC will deduct the actual figures you’ve spent from your taxable income, and provide you with a tax refund to cover the difference.

Now, this option is fine if you happen to have kept hold of all your tool and equipment receipts – but it is unlikely for many that they will have a comprehensive file of all work related expenses back to April 2008.

Don’t panic though, because there’s another tax refund option available to nurses and other healthcare workers on PAYE – and it doesn’t require the digging out of a single receipt or purchase invoice.

This is because the tax office now allows nurses and other healthcare staff on PAYE to claim Flat Rate Expenses (often shortened to ‘FREs’). Flat Rate Expenses exist to refund the taxpayer with a fixed amount for each year that he or she has provided tools and equipment for their job. The amount is determined by the tax office, and is specific to your industry. There are hundreds of different rates, according to your industry and job type, including a great many categories for different nursing and healthcare roles, NHS and Private Sector alike.

The nursing rates are pre-determined in consultation with the likes of the NHS and the major trade unions, so you won’t need to provide receipts or proof of purchase. You won’t even necessarily need to be a member of the trade union to make a claim.

In essence, if you claim for nursing tax relief under Flat Rate Expenses, you’ll receive tax relief equal to the average amount a nurse in your job type will be expected to spend on providing their own supplies or equipment in a single year.

Flat Rate Expenses – a worked example
Jon works as a midwife and has been working for the NHS since April 2008. Like many nurses, Jon has to provide and launder his own uniform under the requirements of his nursing employment contract.

Jon can claim expenses of £100 per year on the grounds that he must launder his own uniform. As a nurse he is also eligible to claim tax relief against the cost of his Unison and Royal College of Midwives subscriptions, which will itself be well in excess of £1,000 over a four year claim.

If Jon is expected to supply any physical equipment or tools, such as a privately purchased stethoscope, he will be eligible for tax relief on the amounts incurred providing the cost was incurred wholly and exclusively in the pursuit of his work.

Jon will also benefit from having the tax relief applied automatically for each tax year going forwards. So he’ll get another load of tax relief next year, and the year after, as long as he stays working in the trade. Jon hasn’t had to provide any receipts, and it didn’t even matter that he’s worked for 3 different garages during the period.

So how do I claim tax relief on my tools and equipment?
To claim tax relief against your equipment and tools, check out the link below. It takes just a couple of minutes to apply, and could be worth hundreds, if not thousands of pounds, in tax relief.