Stamp duty is to be axed for a year on properties costing less than £175,000 as part of a package of measures being unveiled to help the housing market.The level at which the 1% purchase tax has to be paid is to be increased from £125,000, from Wednesday morning.

Read the full story from BBC News here.

Since 10 October 2007, it has been possible for the Nil Rate Band (currently £312,000) to be passed to the spouse or civil partner if not fully utilised on the first death.When the first spouse/civil partner dies nothing needs to be done in terms of making a claim to transfer their unused Inheritance Tax Nil Rate Band. However, it would be prudent at this time to gather the relevant information and documents necessary, otherwise it could be difficult to make the claim in the future.

The actual claim to transfer the unused Nil Rate Band must be made by the personal representatives of the surviving spouse i.e. on the second death of a couple. They should complete HM Revenue and Customs form IHT216 and return this with form IHT200, within 24 months of the death of the second spouse or civil partner.

The types of documents and information that should be gathered in order to support a claim include:

• Death certificate of the first person to die;
• Marriage certificate or civil partnership certificate for the couple;
• Copy of the grant of representation of the first person to die;
• Any Deed of Variation executed to change the people who inherited the estate of the first person to die;
• Details of who benefited under the Will or intestacy of the first person to die and the values of their entitlements;
• Details of any assets of the first to die jointly owned with another;
• Details of any trusts in which the first to die held an interest that was part of their estate for Inheritance Tax;
• Details of any gifts or other transfers which the first to die made within seven years of their death that became chargeable on their death;
• Details of any exemptions and reliefs, other than the spouse or civil partner exemption, relied on when calculating the Inheritance Tax on the estate of the first person to die.

This is quite a list and where the individual died some years ago, it may be difficult to provide this information, in which case copies of some of the documents can be obtained from the following public records bodies:

• Copy grant of representation and copies of wills are available from www.hmcourts-service.gov.uk (England & Wales)
• Copy death and marriage certificates available from www.gro.gov.uk (England & Wales)

You could also contact the solicitor (if any) who handled the deceased’s estate and contact the executor’s or personal representatives of the deceased to try and supply HM Revenue and Customs with sufficient proof.

Comment

For any client where their children or other beneficiaries could save Inheritance Tax at 40% by being able to claim an uplift in the Nil Rate Band by virtue of the unused Nil Rate Band available on the first spouse’s/civil partner’s death, I strongly recommend that immediate action is taken to get the paperwork in order. A good idea is to complete the HM Revenue and Customs form IHT 216 now and putting this in a safe place with the documentation needed, even though it is not needed by HM Revenue and Customs until the surviving spouse/civil partner dies.

It goes without saying that a person’s death, particularly a family member, is deeply stressful and upsetting and this period is not conducive to having to sift through lots of paperwork to try and satisfy HM Revenue and Customs of a claim. This is definitely a task best addressed when all parties, the surviving spouse/civil party and their appointed executors, are all of a clear mind.

Following mounting pressure on the decision to scrap the 10% tax band from 6 April 2008 the Chancellor has announced that the personal allowance is to increase from £5,435 to £6,035 for the current tax year. Anyone earning up to £40,835 will gain £120 this year. He told MPs he would lower the level at which 40p tax is paid – so higher earners did not gain from the change.

The level at which 40p tax is paid will increase by £600 to £35,400, so the most well-off would not gain more. This will push 150,000 people into the higher 40p tax rate but the Treasury said that these people would still benefit from the extra £120 this year.

The Scottish Widows ‘techtalk’ editorial team have prepared a detailed Budget commentary which also includes an economic analysis.Issues affecting advisers include:

• Capital Gains Tax confirmed at 18% with no change to life bond taxation.
• Confirmation of transferability of IHT nil rate band between spouses and civil partners.
• Clarification of IHT rules for replacement interest in possession trust.
• Relaxation of trivial commutation rules for pensions.
• New allowances for income tax.

You can access the online guide by clicking here.

UPDATE: Winterthur has produced a summary with a focus on pensions which you can download by clicking here.

UPDATE 2: Vantis has produced a detailed guide which you can download by clicking here.

UPDATE 3: The PFS has produced one of the best summaries I have seen so far which you can download by clicking here.

Although the new tax year does not commence until 6 April, with the next Budget due on 12 March, there are already a number of changes which will take effect.

Some changes are quite dramatic, such as changes to Capital Gains Tax with the new 18% flat rate. There has been some softening for business owners who own a ‘material stake’ in their business for which the 10% tax rate will apply on gains up to £1m but there is still a lot of dissent over this issue. Perhaps there will be some changes in the Budget.

This, along with the changes to Inheritance Tax, awaits ratification within this year’s Finance Bill so there is ample opportunity for things to be changed.

In the meantime, the following lists some of the more important changes that will take effect or are currently planned.

• 10% Income Tax band: Cannot be used against earnings.
• Basic rate tax: Cut to 20%. This will reduce the amount of pension tax relief for all except higher rate taxpayers.
• Foreign dividends: For total foreign dividends of less than £5,000, 10% notional tax credits will generally apply.
• Income shifting: New rules apply to application of profits within partnerships and payment of company dividends (particularly targeted at husband and wife remuneration strategies).
• Upper earnings limit for National Insurance: £100 a week increase to £770.
• Capital Gains Tax: 18% flat rate, end of indexation and taper relief.
• Inheritance Tax nil rate band: Rises to £312,000.
• PEP and ISA rules converge:More on this to come.
• ISAs: Contribution limit rises to £7,200, mini/maxi distinction disappears.
• Small companies 2008 Corporation Tax rate: Rises to 21%.
• Mainstream 2008 corporation tax rate: Cut to 28%.

One or more of the above are likely to have an impact on the reports you are writing or clients you are working with. More detailed articles will follow shortly in the run up to the Budget.

The government has announced changes to capital gains tax (CGT), confirming that it will set a single 18% rate and cease taper relief from 1 April. But Chancellor Alistair Darling also said there would be a 10% rate on gains of up to £1m, to help entrepreneurs.

The original plans to raise the rate had met with fierce criticism from the Institute of Directors, the CBI and the Federation of Small Businesses. Small business owners, especially those who had hoped to sell their firms and use the proceeds in retirement, had been especially annoyed.

Uncertainty

Taper relief currently allows some higher rate taxpayers to pay as little as 10% CGT on profits from the sale of assets in any unlisted company or publicly-listed firm they work for, as long as they have held them for two years. It can also reduce the CGT liability for some basic rate taxpayers to 5%.

The changes would mean private equity bosses, some of whom have made fortunes from buying and selling companies, would no longer be able to pay just 10% on their profits.

Implications

When selecting suitable investment wrappers for a client, tax is a crucial consideration. ON the face of it this could spell trouble for investment bonds although each case has to be considreed on its merits. More on this to come soon.

The Annual Allowance is the maximum amount an individual can receive into their pension fund during the current tax year from all sources without a tax charge. For 2007/08 this amount is £225,000. However, when a contribution is made, the policy is automatically set up with an input period of 12 months and this contribution is assessed against the Annual Allowance in the tax year in which the input period ends (i.e. 08/09 and an annual allowance of £235,000).

Therefore if no previous contributions have been made, it may be prudent for an individual to receive a contribution of up to £225k and adjust the input period to end in the current tax year 2007/2008. This utilises the Annual Allowance for the current tax year, and preserves the maximum contribution ability for all future years. This provides the maximum amount of flexibility and contribution potential for future years for some of your best clients.

If the input period is not adjusted, then the amount that can be contributed in 2008/09 is reduced and this years allowance is not fully utilised.

If you are planning to change a client’s input period to maximise contributions, make sure that the provider is able to do this.