HMRC rule change: Thousands of UK households urged to gift money to children in advance
UK households earning £100,000 are forecast to "bear the brunt of tax rises" in the Autumn Budget. It is feared that Chancellor Rachel Reeves will initiate HMRC tax raids on UK households in her Autumn Statement.
Sarah Coles, head of personal finance at Hargreaves Lansdown, has warned that "so-called Henrys (High Earners Not Rich Yet) could bear the brunt of tax rises".
Ms Coles also cautioned that they "already face significant income tax burdens, and those earning more than £100,000 fall off the cliff edge of government support for childcare too."
If the Government extends the income tax freeze beyond 2028, "it would mean more people pass over the threshold to pay 60 per cent, and more pass into the realms of 45 per cent tax too," Ms Coles stated.
Warnings have also been issued about increases in council tax and a tax on inheritance and pensions under new HMRC rules and shake-up previously confirmed by the Labour government, reports Birmingham Live.
A way to navigate the rule shake-up has also emerged, though. IHT changes might prompt those planning to leave money to Henrys to "do so sooner rather than later, to take advantage of gifting allowances or get the clock ticking on the seven years it takes for a larger gift to leave their estate," Ms Coles said.
The term 'Henrys' was coined way back in a 2003 article in Fortune, an American magazine. Emma Sterland, chief financial planning director of wealth managers Evelyn Partners, spoke out last year to highlight the other clouds on the Henrys' horizon.
"The pension tax reliefs may be under threat in the Budget, with higher-rate relief abolished and replaced by a lower flat rate," says Sterland. Join the North Wales Live WhatsApp community group where you can get the latest stories delivered straight to your phone
She continued: "Thousands of people are coming off heavily discounted fixed-rate mortgages at rates of 2 per cent or lower. Mortgage rates may be moving downwards but these borrowers will still be paying substantially more each month."
Giving them some good news, Andrew Montlake of mortgage brokers Coreco said: "There are specialist lenders who are prepared to advance 5.5 times income for "high net worth" customers who are earning above, say, £100,000. Some lenders will do special deals for accountants, doctors and lawyers."
He continued: "If you're on £300,000 a year or more, a private bank, like Investec, will start with a blank sheet of paper when it assesses how much it may be happy to lend you. But it may require that future bonuses be used to pay down the loan."
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How much they will give back is determined by their individual ages and the age of those with £35,000-plus of taxable income. For a household where a couple are both of state pension age, but below age 80, they will initially receive £100 each in winter fuel payment. But if one of them has a taxable income above £35,000, they will have the £100 clawed back from them through the tax system. If both have taxable incomes above £35,000, they will each have to pay back £100. A household where a couple are both 80 or over will initially get a £300 payment. But if one of them has taxable income in excess of the £35,000 threshold, he or she will lose their £150 share. If both have incomes above £35,000, they will each lose their £150. For a household where a married couple are both of state pension age but one is above the age of 80, they will start with a £300 payment. If the older pensioner has taxable income in excess of £35,000, they will lose £200 while their partner keeps £100. If it's the younger pensioner with more than £35,000 of taxable income, they will lose their £100 share. The definition of taxable income Lots of readers have raised queries about the £35,000 taxable income threshold. For a start, the threshold includes your personal allowance of £12,570; it is not on top of it. It also embraces your state pension which is taxable and any income or withdrawals from a private pension (a works scheme or one you have set up yourself such as a self-invested personal pension). Any withdrawal of tax-free cash from a pension is excluded. All interest from savings accounts is taken into account irrespective of whether it is below the annual tax-free personal savings allowance of £1,000 (£500 for higher-rate taxpayers). So, if you earn savings interest in this tax year of £700, every penny of it will form part of your taxable income. The same applies to dividends from shares or investments even though you may not pay tax on them because of the annual £500 tax-free dividend allowance. Income from a second property will also form part of your taxable income as will income from a job or self-employment. The Springthorpes will lose half of their £200 winter fuel payment because Brian's taxable income, comprising his state pension and company pension, is a 'tad' over £35,000. Janet's taxable income of £19,000 means she will keep her slice. 'Somehow Chancellor Rachel Reeves and her Parliamentary Secretary sidekick Torsten Bell classify me as a rich pensioner and so must hand back my payment,' says Brian. 'It's a joke, especially when you think that if our household income was evenly split, we'd keep our full £200.' It's a point that Graham Dickson, a 73-year-old retired finance director of a Christian charity, also makes. Like Brian, Graham, who lives near Banbury in Oxfordshire, has taxable income just above £35,000, while his wife Moira, also 73, has income below the threshold. So, they will get £200 of winter fuel payment but then lose £100 through tax. 'I'm not that bothered about losing my part of the payment,' says Graham. 'But I find it bizarre that while the winter fuel payment is household-based, the income assessment isn't. After all, we're living in – and heating – the same house.' On the other side of the household balance sheet, there is no leeway given to pensioners who are obliged by the courts to make regular maintenance payments to former partners and children. This can result in their disposable income – rather than taxable income – being far less than £35,000. The only good bit of news is that withdrawals from Individual Savings Accounts will not count towards your taxable income. Nor will any money you may inherit from loved ones or friends – or capital gains made from a sale of shares. Pension credit, attendance allowance and other tax-free benefits are also excluded – as is the winter fuel payment itself. Of course, the £35,000 threshold is unfair on pensioner couples where their taxable incomes vary widely – as is the case with the Springthorpes and Dicksons. A couple, both aged 82, would lose £150 of winter fuel payment if their respective taxable incomes were £12,000 and £38,000. But if their incomes were both £25,000, they would keep their entire £300 household payment. Uncertainty: In the past ten days, hundreds of readers have contacted Money Mail asking whether they will be a winter fuel payment winner or loser Pensioner cost-of-living payment Some readers say the Government is making its U-turn look more appealing than it is. They point to the fact that in the tax year ending April 5, 2024, they received household winter fuel payments of £600, only to get nothing last year – and now the promise of £300. It's a fair point, although winter fuel payments in 2023-2024 were boosted by the pensioner cost-of-living payment. This £300 was made by the former Conservative government in response to rising energy bills and soaring inflation. It was not intended to be paid again – and it wasn't. Readers' verdict: Almighty balls up Although Labour's U-turn on the winter fuel payment has been welcomed, most people who have contacted Money Mail on the issue in recent days say Ms Reeves should never have targeted pensioners in the first place. 'The decision to make the withdrawal of universal winter fuel payments her first major policy statement in office has proven to be a massive mistake,' says 72-year-old David Stanley, from Flitwick in Bedfordshire. 'In July last year, she said the move would save £1.5 billion. Now, with the latest changes, she's talking about a saving of £425 million. In the scale of overall government spending, it's peanuts, and I dread to think what the cost is of administering the new payment scheme.' He adds: 'Winter fuel payment was introduced 28 years ago by Labour as a universal benefit for pensioners to help them pay their fuel bills. Ms Reeves should never have tinkered with it. Politically, a huge error which will come back to bite Labour at the next election.' Well said that man.
