While we wait with bated breath to see what financial rabbits Rachel Reeves pulls out of her Budget hat, many people are taking steps for scenarios that may never happen.
Investment experts, such as Vanguard Investments chief James Norton, warn against “knee-jerk” reactions to budget speculation, warning that savers and investors “should not let the conversations cloud their judgments.”
However, in the midst of all the uncertainty, there are some changes coming that we already know about and that we can work to make the most of. So, as the White Rabbit from Alice in Wonderland would say, don’t be late for a very important appointment. Wealth and Personal Finance examines how you can plan for the future.
As the White Rabbit from Alice in Wonderland would say, don’t be late for a very important appointment.
1. Increase stamp duty since March 31
What is happening?
The nil rate threshold for stamp duty, which is the level below which no tax is paid when purchasing a property, will fall after a temporary increase.
What difference will it make?
The current nil rate threshold of £250,000 will return to the previous level of £125,000. The nil rate threshold for first-time buyers, currently £425,000, will return to the previous figure of £300,000.
That means that from March 31, a first-time buyer purchasing a property valued at £425,000 will pay £6,250 in stamp duty (at the moment they would pay nothing). Someone exchanging their first property for a £600,000 house would pay £20,000 in stamp duty, up from £17,500 today.
What can I do about it now?
Ensuring you complete property transactions before March 31 may be the only way to avoid rising stamp duty in most cases.
You can improve your chances by having your documents ready as quickly as possible and making sure you hire a trusted attorney. Being “mortgage ready” with a high credit score will also help, but success will depend partly on luck.
2. Relief for vacation rentals was eliminated starting in April.
What is happening?
Properties that are let short-term as furnished holiday lets (FHL) currently benefit from tax reliefs not available on other let properties, but these benefits will end.
What difference will it make?
Simon Thomas, managing director of accountancy firm Ridgefield Consulting, says landlords could lose thousands of pounds in a number of ways.
The owner of a furnished vacation rental can currently deduct 100 percent of the mortgage interest from rental costs, which will be reduced to a 20 percent credit.
A renter earning £24,000 a year, with £10,000 mortgage interest, would pay £7,600 in tax instead of £5,600 after the switch.
Those looking to invest in new furnished vacation rentals will also face higher upfront costs. Currently, full capital allowances can be claimed against the purchase of furniture required for FHLs, such as beds, sofas and appliances.
Once the new rules come into effect, FHL owners will only be able to claim like-for-like replacements for such items, rather than the initial purchase, which Thomas estimates will result in an extra £2,000 of tax owed if £5,000 is spent on furniture. new ones, assuming a 40 percent tax rate.
Those looking to invest in new furnished vacation rentals will also face higher upfront costs.
What can I do about it now?
It may be worth asking about what can be done before April, especially when it comes to claiming capital allowances. Some owners may also benefit from incorporating a vacation rental into a business structure rather than owning it themselves.
Others may want to sell quickly or pass their property on to a family member if the time seems right to do so.
“Everyone affected would be wise to consider their options now, plan ahead and take advantage of the tax reliefs currently available,” says Ben Handley, tax partner at accountancy firm BDO.
3. Changes in inheritance tax for non-owners
What is happening?
The “sheltered trust regime”, which means that assets in offshore trusts set up by people who are not domiciled in the UK are protected from inheritance tax (IHT), is ending.
Trusts with offshore assets will not qualify for IHT protection, regardless of when they were created.
what a difference will it?
Part of the reason why these trusts were valuable is that, even if homeless people returned to the UK, the assets in them did not become part of their estate for IHT reasons.
What can I do about it?
This is an incredibly complex area and we must wait until the Budget to see more about non-dom rules generally, but in some cases having a domicile outside the UK may be the most tax-efficient decision. Making gifts from the trust, as long as it survives seven years later, is one way to reduce liability.
There will be more details on the transitional rules on trusts that have already been created in the Budget.
4. The price of alcohol increases since February
What is happening?
The alcohol tax will increase and a “temporary easement” that reduced the price of wine will end on February 1.
What difference will it make?
Wines will be taxed based on their alcoholic strength. A consortium of wine sellers, including Laithwaite’s and Majestic, say this will increase the cost of 75 per cent of red wines, which tend to have higher alcohol content.
The Wine and Spirit Trade Association (WSTA) adds that the bureaucracy surrounding the different tax bands will also increase costs. Alcohol tax could also rise in the Budget – forecasts suggest it could rise by between two and six per cent.
What can I do about it now?
Many of us don’t need excuses to buy wine in advance for Christmas and save on taxes, but those who consider good wine as an investment should also keep the upcoming increases in mind.
Investing in fine wine could also be a way to avoid the expected increase in capital gains tax, as it is considered a “wasted asset” so is not subject to CGT on any gains.
However, wine investing is extremely volatile and you should not consider it unless you are willing to lose your money.
5. Tax form: October 31 or January 31
What is happening?
Frozen tax thresholds and increases in wages and pensions mean thousands more people will have to file a tax return this year.
The new state pension is worth £11,502 a year, thanks to the triple lock, which sees it rise each year up to the highest level of inflation, average wage growth or 2.5 per cent. This means that pensioners receiving only the state pension need to earn another £1,067 before having to pay income tax.
Frozen tax thresholds and increases in wages and pensions mean thousands more people will have to file a tax return this year.
Meanwhile, high interest rates on bank deposits mean many of us must pay taxes on our savings, which may require filing a tax return.
Many with less complex tax matters will also have received a ‘Simple Assessment’ telling them they need to pay tax. This year, 560,000 Simple Evaluations were sent, 140,000 of them to pensioners.
Tax returns are due by October 31 if you file a paper copy or January 31 if you file online. If you received a Simple Assessment letter, that tax is also due on January 31.
What can I do about it now?
If you think you might owe tax and it is not collected through PAYE, you can visit gov.uk and check if you need to complete a tax return at gov.uk/check-if-you-need-tax-return. If you do, be sure to submit it before the deadline and pay the necessary tax.
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