The Mysteries of the UK Tax System

Casting some light on the mysteries of the UK tax system and how in particular it affects certain transactions.

This is the start of a series of blogs in which I attempt to cast some light on the mysteries of the UK tax system and how in particular it affects certain transactions that will surprise some people, infuriate others but always with the aim to inform. If these blogs are useful, please leave a comment and let us know if there are any topics you would like us to talk about.

CGT on buy to let properties

It has been popular over the last 25 years for people to diversify their investments to include the buying and letting property. Things have got a whole lot more complicated and tax disadvantageous recently, examples being the restriction of tax relief on interest on loans to buy investment properties to the basic rate of income tax + the 3% stamp duty surcharge on purchase.

From April 2020 any gains you make on disposing of investment properties will need to be reported to HMRC within 30 days of disposal and an estimate of tax paid within that time span. At the moment if you sell something in the tax year ended 5th April you know you have got until the 31st January of the following year to pay capital gains tax if indeed you have made a gain. It probably suggests a trend with HMRC to try and collect tax earlier when the gain or profits are earned.

IHT and Isa’s

Nobody years ago thought that IHT would impact on them. That today is wrong and a person’s beneficiaries are sometimes shocked to discover the amount of IHT payable on quite modest estates.

As we know, we have a nil rate of IHT of £325,000 which hasn’t changed for many years and for any property above that at the date of death the executors will have to pay 40% over to HMRC. If you are married and your partner has predeceased you then the nil rate band is doubled to £650,000. Plus, if you gift your home to a relative then there is an additional relief being phased in. We can’t disguise the fact though that in the UK we have a very tough IHT regime, which doesn’t compare very favourably with other Western countries. In Canada for example where there is no IHT on death and Germany there are graduated rates of tax and not a starting rate of 40% as the UK has.

These days therefore a person’s house is likely to be well over the nil rate of £325,000 on death and everything else that a person owns (stocks and shares) get included in the estate on death and the probate value is included. Perhaps one thing that some people forget is that, encouraged by governments, people have been utilising the ISA allowance or changing investments from their ordinary portfolio into an ISA account over the years and a tidy sum has accumulated. Unfortunately the value of the ISA is included in a person’s estate on death. Although the gains and income that have accumulated in an ISA have been tax free, on death the capital value of the investments within the ISA get included in the person’s estate on death for the purposes of calculating IHT.

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