Martin Aitken & Co Ltd News & Developments

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Can the child benefit charge be fixed?

A critical review of how the government taxes child benefits has raised a major question mark over HMRC’s approach to collecting payments.

Child benefit tax, or the High-Income Child Benefit Charge (HICBC) to use its legal name, is a case study on how not to introduce and operate a tax. It was designed as a quick fix to political pressure for the withdrawal of child benefits from high earners during a period of austerity.

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Still confused by new NIC changes?

The changes to NICs announced in the Spring Statement in March came were anything but straightforward and there is still confusion surrounding who is affected by this increase. Here, we set the record straight.

In his Spring Statement – or was it a mini-Budget? – The Chancellor announced several changes to NICs aimed at reducing the impact of the 1.25 percentage point increase in the rates that took effect on the 6th April. The mechanism by which Mr Sunak did this was complicated by the last-minute nature of the change, two weeks before the start of the new tax year. Had the Chancellor made the adjustment in his Autumn Budget, matters would have been more straightforward.

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An unexpected first quarter

Despite the numerous shocks that occurred in the first quarter of 2022, the world’s share markets held up surprisingly well.

Cast your mind back to the start of the year. The world was coming to terms with the latest Omicron variant of Covid, which was supposedly proving less serious than its predecessors. The latest available UK inflation figure (for November 2021) was 5.1% and the Bank of England had delivered an early Christmas present of a 0.15% rise in interest rates to 0.25%. Across the Atlantic, US inflation was higher at 6.8%, but the US central bank, the Federal Reserve, had delayed its first increase in interest rates. Investment markets had enjoyed a generally good 2021, particularly in the US, and while interest rate rises were expected in 2022, the post-pandemic investment outlook was reasonably sunny.

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Repayment of student loans: Another freeze…and worse

The government is turning the financial screw-on student loans and is set to claw back £2.3 billion under the guise of high inflation.

These changes pose a significant and potentially expensive dilemma for those with student debt.

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Quantitative tightening: A reversal of fortunes?

One of the defining financial strategies of the last 13 years – quantitative easing – is about to go into reverse.

The Bank of England will slowly trim its £9 trillion portfolio throughout 2022, but only time will tell when it comes to the impact on personal investments.

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Protecting the normal minimum pension age

The normal minimum pension age (NMPA) will increase from 55 to 57 on 6th April 2028, although a protected pension age regime will be introduced.

This will allow those who meet the rules to take benefits based on their existing normal minimum pension age.

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Learning lessons from the UK dividends bounce back

New research shows that the UK dividend payments rebounded strongly in 2021 but still remains below their pre-pandemic level. The experience of the last two years holds important lessons for investors.

2020 was a grim year for anyone who relied on UK company dividends as a source of income. The total dividend payments from UK plc fell by 43%, taking them just about back to a 2011 level. Unsurprisingly, the Covid-19 pandemic was to blame, with companies rushing to preserve cash and the Bank of England forcing banks to stop dividend payments.

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Uncertainties removed on two key personal taxes

The future of two important personal taxes – inheritance and capital gains – has finally been clarified, simplifying aspects of year-end planning. The extended wait highlights the difficulty of changing useful revenue-raising measures in uncertain times.

Four years ago, in January 2018, when there seemed to be both appetite and scope for reformation of the tax system, the then Chancellor, Phillip Hammond, asked the Office of Tax Simplification to review inheritance tax (IHT). Of two reports submitted in November 2018 and July 2019, the second was the more interesting, making several proposals to reform and simplify the tax, including restructuring some of the current exemptions and scrapping the relief for lifetime gifts made within seven years of death.

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Not quite ‘as safe as houses’. The rising cost of bricks and mortar

House prices rose by around 10% in 2021 – their fastest pace in 15 years – but that is no guarantee of what may come in 2022. Relying on bricks and mortar to boost your finances may no longer be as attractive as it once was.

Just as inflation enjoyed an unexpected leap in 2021, so too did house prices. According to Nationwide, the average UK home rose in value by 10.4%, while Halifax put the increase at 9.8%. This has been the sharpest rise in house prices since 2004 although, as ever, the UK average figure hid significant regional differences. At the bottom rung of the property ladder, Halifax says that London prices rose by 4.2% - below inflation – while at the top, Wales saw prices rise by 15.8%. Nevertheless, the average London home still costs more than two and a half times its Welsh counterpart!

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Holding back the years: The new State Pension Age dilemma

The government has nearly finished its review of the next stage of State Pension Age increases. But changes to life expectancy figures pose a significant and potentially expensive dilemma.

A review of State Pension ages from the Department for Work and Pensions back in March 2017 stirred initial controversy. The report by John Cridland proposed that the move to a SPA of 68 should be phased in between 2037-2039. That was seven years earlier than had been legislated for in the Pensions Act 2007.

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Windfall tax on oil and gas profits could ease the cost of living crisis

Train ticket increases, rises to water charges and the incoming hike in energy prices.

These should be shelved, and the emphasis should be on the cost-of-living crisis paid for by a windfall tax on gas and oil firms’ profits, Scottish Labour has said.

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MPs call to fight fraud and economic crime

According to MPs, the strategy to tackle fraud and economic crime should be overhauled to prevent scammers acting with "impunity”.

The comments from the Treasury have been frank; “Ministers should consider creating a new government department and a new law enforcement agency to get to grips with the issue.” The committee also called for mandatory refunds in push-payment fraud cases. This is where victims transfer money to fraudsters, believing they are from official organisations.

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2021: Investment wrap-up

The world’s share markets generally produced solid returns in 2021, but UK stocks and fixed-interest investments suffered. Maintaining an international outlook in your portfolio can help underpin its value.

2021 was a good year for most investors in share-based funds, particularly those who had holdings linked to the US market.

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Focus on tax year-end planning

With Christmas and New Year behind us, tax year-end planning should now be on your radar.

The 2021/22 tax year will end on Tuesday 5th April. This year there is no Spring Budget and Easter arrives on 15th April, so no obstacles stand in the way of year-end tax planning. Nevertheless, the sooner you start the better, as some decisions cannot be made quickly. Among the areas to consider on this occasion are:

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Lessons from rising inflation & interest rates

As 2021 drew to a close, inflation finally forced the Bank of England’s hand. What will higher rates mean for you?

The November inflation figures, released in mid-December, once again exceeded the Bank of England’s expectations. At the start of November, the BoE had said that CPI inflation was “expected to peak at around 5% in April 2022”. Six weeks later, and the tune has changed: “Bank staff expect inflation to remain around 5% through the majority of the winter period, and to peak at around 6% in April 2022”.

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The pension annual allowance trap

Latest HMRC figures show that the annual allowance continues to help fill its depleted coffers.

The annual allowance is an important number in the pension world. It sets the maximum tax-efficient amount of total contributions in a tax year – from any source – that can be made to pension schemes for your benefit. If the allowance is exceeded, then any tax relief you receive on the excess is effectively clawed back by the annual allowance charge. However, the tax status of the benefits bought with the unrelieved contributions remains unchanged, meaning potentially that 75% is taxable when withdrawn.

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Placing a cost on retirement

How much income do you need for a comfortable retirement?

New research has put a post-pandemic price on the answer.

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Company Cars: heading downhill fast?

Recent data suggests the number of company car drivers continues to fall

Once upon a time, the aspiration of many an office worker was to climb the ladder to the height at which a company car became part of the remuneration package.

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Spring Budget 2021

Despite the many rumours beforehand, the Chancellor still managed to produce some surprises on Budget Day. He chose to spend big initially, with major investment incentives for companies in the next two years.

However, the widely anticipated corporation tax rise then kicks in with a vengeance – a one-off jump from 19% to 25%. Individual taxpayers did not escape either, with Mr Sunak reaching for the old stealth tax favourite of freezing tax bands, thresholds and allowances.

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Summer Statement 2020

Key highlights from the UK Chancellor's Summer Statement 2020.

  •  In his Summer Statement, the Chancellor confirmed that the Government is introducing a new Coronavirus Job Retention (CJRS) bonus to reward and incentivise employers who continue to employ their furloughed employees through to the end of January 2021. The bonus will be a one-off payment of £1,000 for every furloughed employee who remains continuously employed through to 31 January 2021.
  • A new Kickstart Scheme will cover employers’ costs for the first six-month for those taking on 16-24 year olds for a minimum of 25 hours per week at the NMW.
  • A £1,000 payment will be made to employers for each new trainee aged 16-24-year.
  • Employers who hire new apprentices will receive payments of up to £2,000.
  • There will be a temporary cut to Stamp Duty Land Tax on residential property in England, increasing the zero-rate band to £500,000 and saving purchasers up to £15,000.
  • In Scotland, starting point for land and buildings transaction tax is to rise temporarily from £145,000 to £250,000, although this reduced threshold will not apply to second homes purchases.
  • The rate of VAT will be cut temporarily from 20% to 5% for restaurant, food, accommodation and attractions businesses.
  • An ‘Eat Out to Help Out’ Scheme will offer 50% meal discounts, up to £10 per head during August.£1,000

Brief summary

Mr Sunak emphasised that we are only part way through the pandemic crisis and he will be coming back with further proposals later in the year – most notably in the planned Autumn Budget, when there will be a full major review of government spending (postponed from the pre-election timetable) as well as proposals for tax.

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