Latest news with #HM Revenue and Customs
The Guardian
3 days ago
- Business
- The Guardian
Claims about number of wealthy non-doms exiting UK may be overblown
Claims of an exodus of wealthy 'non-doms' in response to tax rises may be overblown, according to a report that suggests that the number leaving the country is in line with official forecasts. In April the chancellor, Rachel Reeves, scrapped the non-domiciled tax status, which allowed wealthy individuals with connections abroad to avoid paying full UK tax on their overseas earnings. Since then a wave of reports has suggested that changes to the status and other tax policies are triggering an exodus of high net worth individuals. However, early monthly payroll data from HM Revenue and Customs appears to indicate that the number of non-dom departures are in line with official predictions, according to sources cited by the Financial Times The Office for Budget Responsibility (OBR) forecast in January that 25% of non-doms with trusts would leave the UK in response to the abolition of the tax status, while 10% of those without trusts would leave. Official data suggests that this prediction was broadly correct, people briefed on the findings told the FT. Jeremy Hunt, the chancellor's Conservative predecessor, first announced moves to phase out the 225-year-old non-dom status that protected overseas earnings from being taxed in exchange for a flat annual fee. However, Labour took the proposals a step further by replacing them with a regime that will include overseas assets in the UK's 40% inheritance tax rate. Many non-doms earn income from work or their pensions in the UK, which means they appear in the PAYE (pay as you earn) figures in the payroll data that businesses send to the tax office each month. If they fall off PAYE figures, that suggests that they have left the country. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion The FT reported that some of those briefed on early HMRC data said payroll figures suggested that fewer people were leaving than projected by the OBR, while others said the departures were in line with forecasts. The numbers do not capture the movements of those non-doms who do not work in the UK, which could include some of the richest, but with a shortage of reliable data they will provide some relief to Reeves amid a debate about whether the policy could backfire. Payroll data is now a more helpful indicator of potential non-dom movement as more than 120 days have passed since the start of the tax year, which started on 6 April. It is likely that anyone who did not want to be considered as a UK tax resident would have left the country. HMRC has said previously that it will not have official data on how many non-doms who earn UK income have left until January 2027, when people submit self-assessment tax returns for the year 2025-26. A government spokesperson said: 'If you make your home in Britain, then you should pay your taxes here too. That is why we abolished the non-dom tax status to invest in our public services, including the NHS. 'But the UK remains a highly attractive place to live and invest. Our main capital gains tax rate is lower than any other G7 European country and our new residence-based regime is simpler and more attractive than the previous one, whilst it also addresses tax system unfairness so every long-term resident pays their taxes here.'
The Sun
5 days ago
- Business
- The Sun
Rachel Reeves to raid savings of workers who die before pension age as 100,000s face paying death tax for the first time
LABOUR has confirmed it will charge inheritance tax on workers' retirement pots even if they die before they reach the state pension age. Rachel Reeves announced in last year's budget that from April 2027 inheritance tax will be charged on pension pots for the first time. 1 Under the current rules pensions are usually passed on to loved ones tax-free. As part of the rule change pensions could be taxed at up to 40% if they are part of an estate that exceeds the inheritance tax threshold. Until recently it was not clear if the rule change would apply to the pensions of people who die before they turn 55 - the earliest date from which you can access your pension. But HM Revenue and Customs has now confirmed that death duties will still be charged even if a saver never spent any of their retirement savings. Experts have slammed the move and described it as "another huge blow" for pension savers. Currently retirees can withdraw money from their pension pots once they reach the age of 55. But the Government is pushing up this threshold to 57 in April 2028. Plus the exact age at which you can access your pot may vary depending on your pension provider. At the moment you can inherit a pension without paying tax if the deceased person passed away before they turned 75. Their pot must be worth less than £1.07million. Meanwhile, if the relative was 75 or older when they passed away then their family would have to pay income tax on it at their marginal rate. Someone who earns between £12,571 and £50,270 would pay income tax at 20%. A worker who earns between £50,270 and £150,000 would pay the tax at 40%. Those who are lucky to earn more than this would pay tax on the pot at 45%. What are the different types of pensions? WE round-up the main types of pension and how they differ: Personal pension or self-invested personal pension (SIPP) - This is probably the most flexible type of pension as you can choose your own provider and how much you invest. Workplace pension - The Government has made it compulsory for employers to automatically enrol you in your workplace pension unless you opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions are 8%, with employees paying 5% (1% in tax relief) and employers contributing 3%. Final salary pension - This is also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year upon retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore. New state pension - This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £203.85 a week and you'll need 35 years of National Insurance contributions to get this. You also need at least ten years' worth to qualify for anything at all. Basic state pension - If you reach the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £156.20 per week and you'll need 30 years of National Insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up National Insurance contributions under both the basic and new state pensions will get a combination of both schemes. The rule change means inheritance tax of up to 40% will be applied to unspent private pension pots. The Government hopes the tax raid will raise around £1.5billion a year by 2029-30. Labour has decided to go ahead with the reforms despite criticism from the pensions industry. The Investing and Saving Alliance (TISA), a lobby group, has urged the Chancellor to only charge inheritance tax on pension pots of more than £90,000. Meanwhile, experts have slammed the rule change as "particularly unfair". Former pensions minister Ros Altmann said: "This idea is another huge blow for defined contribution pensions." Sarah Coles, head of personal finance at Hargreaves Lansdown, said: "Even though a loved one never had any chance of drawing their pension without a horrible tax penalty, their pot will be drawn into the net when it comes to inheritance tax. "The same rules will apply to anyone who passes away after this date, but it will feel particularly unfair for those who had no chance to benefit from their efforts to do the right thing and save for a future they never got to enjoy." Death in service benefits that are paid by a registered pension scheme will not be subject to inheritance tax. These benefits are lump sum payments that are given to loved ones by the employer when the employee dies while still working. The plans form part of wider reforms to the pension system which aim to boost the Treasury's coffers. The Government last month confirmed that it will bring pensions into the scope of inheritance tax from April 6, 2027. The government estimates that of around 213,000 estates that will inherit pension wealth in 2027/28, around 10,500 will now be forced to pay inheritance tax. Meanwhile, approximately 38,500 will have to pay more death duties than they would have had to previously. As a result, the average inheritance tax bill is expected to increase by around £34,000. The changes could cause a huge shift in how people plan for retirement and spend their savings. Thousands of pensioners have taken matters into their own hands to try and beat the tax raid. Official figures showed that 672,000 retirees withdrew a record £5billion from their pots in the first three months of this year to try and beat the chancellor's tax raid. The Treasury has been approached for comment.
Daily Mail
10-08-2025
- Business
- Daily Mail
Private school parents who paid fees in advance to face fresh tax grab from HMRC
Parents with pupils in private school who pre-paid fees in advance of January's VAT hike are facing a fresh attack from the taxman. HM Revenue and Customs is set to probe so-called advance-fee schemes which swathes of parents used in a bid to avoid larger fees, it has emerged. Advance fee or payment schemes have been in used in private schools for years but they began to surge in popularity as early as December, 2023. They allow parents of students at private schools to pay upfront for tuition fees for future school years, often with a discount. The pre-paid funds act like a deposit and are used to cover most of the fees each year, instead of locking in a price. VAT had never before been charged on private school payments but Labour's manifesto revealed it would scrap the exemption for private schools, which saw them free of the 20 per cent tax. This came into force in January of this year in a bid to bolster the Treasury's dwindling coffers. Droves of families paid advanced fees for future school years before the change in January, hoping to avoid the VAT hike of up to 20 per cent. Parents with pupils at the top 50 private schools in the country pre-paid fees to the tune of £515million last a year – up from £121million the year before. This means that as much as £103million in tax may have been avoided in these top 50 schools alone. However, their efforts may have been in vain as the tax office prepares a fresh assault on these prepayments to ensure all private schools pay their 'fair share'. Official sources said HMRC will now 'carefully scrutinise' prepayments, the Telegraph reports. These fees paid in advance may still be liable for VAT because of the way the schools structured the schemes. The taxman is likely to target schools that use the advance fees like a deposit or those quickly set up such a scheme ahead of the VAT hike. Investigations could take several years to complete. Tax experts have warned VAT applies to the year fees are invoiced so there's a chance the prepayments didn't work in the way parents had hoped. It means parents who used these pre-paid fee schemes to mitigate the impact of the VAT hike could be liable for unpaid VAT. It could also not only spark lengthy legal battles between the tax office and private schools, but also between parents and schools over who is liable for the potential tax bill. Chancellor Rachel Reeves attempted to curb such schemes by applying VAT to pre-paid fees made from July 29 last year. But parents had already funnelled millions of pounds into the schemes to avoid the punitive tax measures. Alex Pugh, financial planner at wealth manager Saltus, said that many parents started to make strategic decisions including advance fee payments back in December 2023. He said: 'However, it seems that the efficacy of these schemes is now in doubt, as VAT may still be due on these prepayments. Two in five parents will make a change to their child's private education before term starts in September. 'As this number may well rise if it transpires that those who thought they'd avoided the VAT through pre-payments are still liable, professional advice is key. 'Should HMRC successfully unravel advance fee schemes, the financial pressures facing all private schools will be exacerbated. 'In an attempt to avoid the VAT liability parents may claim they were misled about the tax benefits of advance schemes, potentially sparking long-running, costly legal battles with schools. 'Such disputes could result in the schools themselves ultimately being liable. The full impact of this tax change cannot be avoided.' A government spokesman said: 'The Office for Budget Responsibility has already factored in the increased use of pre-payment schemes in its revenue forecasts. 'Removing tax breaks for private schools is expected to raise £1.8billion a year by 2029/30. 'This funding will help us recruit 6,500 new teachers and improve standards in state schools, which educate 94 per cent of children.'
