Latest news with #taxRelief
Wall Street Journal
23-05-2025
- Business
- Wall Street Journal
Video: Breaking Down the Last-Minute Changes to Trump's Tax Bill
Senate Republicans are split. Some are eyeing further spending cuts, while others are looking for bigger tax relief or gentler phaseouts of clean-energy incentives.
Times
21-05-2025
- Business
- Times
Is it time to gift shares before inheritance tax rules change?
Q: I plan to pass our family business on to my children. Is now the time to gift shares before inheritance tax rules change, or could it cause complications down the line? A: With inheritance tax (IHT) relief changes expected to take effect in April 2026, many business owners are wondering whether gifting shares now could reduce their family's future tax exposure. While the upcoming reforms will limit business relief (BR) for private trading companies by capping full relief at £1 million and reducing relief on the balance of value from 100 per cent to 50 per cent, acting in haste could lead to unintended financial and legal consequences. Before making any decisions, it is important to take a step back and consider whether gifting
Forbes
12-05-2025
- Business
- Forbes
GOP Will Extend Student Loan Forgiveness Tax Relief, But Only Narrowly
UNITED STATES - APRIL 9: Chairman Jason Smith, R-Mo., left, and ranking member Rep. Richard Neal, ... More D-Mass., conduct the Ways and Means Committee hearing on the "Trump Administration's 2025 Trade Policy Agenda," in Longworth building on Wednesday, April 9, 2025. U.S. Trade Representative Jamieson Greer testified. Smith unveiled a sweeping tax proposal that would narrowly extend certain student loan forgiveness tax benefits while allowing other provisions to expire. (Tom Williams/CQ-Roll Call, Inc via Getty Images) Republican House lawmakers on Friday unveiled legislation that would narrowly extend student loan forgiveness tax relief for borrowers and their families due to death and disability. But loan forgiveness for most borrowers under other programs would revert to being taxable again next year, as lawmakers allows key provisions of the tax code to expire at the end of the year. This could put millions of borrowers at risk of facing massive tax liability associated with debt cancellation. The legislation is just one piece of congressional Republicans' plans to enact much of President Donald Trump's legislative agenda through the budget reconciliation process, which would allow the GOP to pass a massive bill through narrow party-line votes in the House and the Senate. 'Pro-family, pro-worker tax provisions are the heart of President Trump's economic agenda that puts working families ahead of Washington and will create jobs, grow wages and investment, and help usher in a new golden age of prosperity,' said House Ways and Means Committee Chairman Jason Smith (MO-08) in a statement on Friday. Republican lawmakers want to extend and expand an array of tax cuts that are scheduled to expire at the end of 2025 without legislative action. To pay for the costs of those cuts, which could add trillions of dollars to the national debt, GOP lawmakers are proposing significant spending reductions, including major reforms to student loan forgiveness and repayment programs that could cut off debt relief and increase the monthly payment requirements for millions. Here's what the narrow student loan forgiveness tax relief extension would mean for borrowers. Historically, most forms of student loan forgiveness, discharge, and cancellation have been taxable events for borrowers. Lenders and loan servicers would issue a Form 1099-C for the tax year in which the student debt was forgiven, requiring borrowers to report the amount of cancelled debt as 'income' on their federal (and, if applicable, state) tax return. Borrowers would then be required to pay income taxes on that cancelled debt, as if they earned the amount of the forgiven balance in income. For large balances, this can lead to devastating tax consequences unless the borrower can qualify for an exemption, such as through insolvency. In 2017 during the first Trump administration, Republican lawmakers passed the Tax Cuts and Jobs Act which included the slew of tax cuts and benefits that current GOP lawmakers are hoping to extend beyond 2025. Included in that legislation was a temporary exemption for federal student loan forgiveness based on death and disability. While federal student loan borrowers are entitled a discharge upon their death, historically that discharge would have been taxable to the estate. The same was true for borrowers requesting relief through the Total and Permanent Disability discharge program. But the 2017 Tax Cuts and Jobs Act temporarily ended federal taxation on these forms of loan forgiveness until January 1, 2026. Then, in 2021 during the Biden administration, Democratic lawmakers passed the American Rescue Plan Act. Included in that legislation was a provision that broadly exempted all federal student loan forgiveness from taxation under federal law. This meant that borrowers receiving loan forgiveness under other programs – in particular, through income-driven repayment plans – have not had to face federal tax consequences. But this exemption is also set to expire at the end of 2025. 'If your loans are discharged on or after Jan. 1, 2021, and before Jan. 1, 2026, you won't get taxed by the federal government,' says Department of Education guidance on IDR student loan forgiveness. 'Any debt forgiven as a result of IDR forgiveness won't create a federal tax liability for you. The American Rescue Plan Act included a provision temporarily modifying the tax treatment of discharged student loan debt. Specifically, the law excludes from gross income qualifying student loans that are discharged on or after Jan. 1, 2021, and before Jan. 1, 2026. During this period, the amounts of forgiven student loan debt won't be subject to federal taxation.' In the proposed reconciliation legislation unveiled on Friday by GOP lawmakers on the House Ways and Means Committee, the tax relief on student loan forgiveness for TPD discharges and death would be extended. 'In the case of an individual, gross income does not include any amount which (but for this subsection) would be includible in gross income for such taxable year by reason of the discharge (in whole or in part) of any loan described in subparagraph (B)," if the student loan balance was 'otherwise discharged on account of death or total and permanent disability of the student," reads the legislative text. The exemption would cover both the federal TPD discharge program, as well as similar discharge programs for 'a private education loan as defined in section 140(a) of the Consumer Credit Protection Act." The extension of this tax relief would be critical not only for borrowers who may need to request TPD discharge relief in the coming years, but also for borrowers who have already been approved for student loan forgiveness under the program within the last two years. That's because the TPD discharge program has a three-year post-discharge monitoring period, and most borrowers (except for veterans) who are approved for relief under the TPD discharge program would not get hit with the tax consequences until after the three-year post-discharge monitoring period ends. 'You're considered to have received the discharge for federal tax purposes at the end of the post-discharge monitoring period,' says current Department of Education guidance. 'For example, say your discharge was approved in July 2022. If so, you would not be considered to have received the discharge for federal tax purposes until July 2025, at the end of your monitoring period. In this case, the IRS would not consider the discharged loan amount to be taxable income for federal tax purposes.' But borrowers approved for a TPD Discharge starting in 2023 would not end their monitoring period until 2026 or later, after the TPD discharge tax relief provisions would otherwise expire. So the extension of the tax exemption will provide critical relief to these borrowers. However, the GOP legislation would not extend the student loan forgiveness tax relief that is separately set to expire under the American Rescue Plan Act. As a result, starting on January 1, 2026, student loan forgiveness under IDR plans and a handful of other programs will revert to being taxable again, leading to potentially severe tax consequences for borrowers who reach their loan forgiveness threshold in the coming years. Profession-based student loan forgiveness, such as Public Service Loan Forgiveness (or PSLF) and Teacher Loan Forgiveness, should remain tax-free federally as it is always has been, barring any separate legislation by Congress. Most states will mirror the federal tax treatment of student loan forgiveness, but not all. Separately last month, the House Education and Workforce Committee unveiled reconciliation-related legislation that would reshape the federal student loan system. If enacted, the bill would repeal several existing income-driven repayment plans and push out student loan forgiveness thresholds to 30 years for many borrowers, while cutting off loan forgiveness entirely for others. The bill would also impose new restrictions on PSLF, and limit pathways to relief for borrowers whose school closed or engaged in misconduct. The Department of Education also initiated involuntary collections efforts against defaulted federal student loan borrowers last week, putting many at risk of wage garnishment and federal benefits offset. Some borrowers could be trapped in default as a result, with traditional student loan forgiveness pathways cut off. The Student Borrower Protection Center characterized the resumption of collections actions against borrowers in default as "cruel, unnecessary, and will further fan the flames of economic chaos for working families across this country.'
Telegraph
07-05-2025
- Business
- Telegraph
The ultimate inheritance tax break used by just 2pc of people
Have you been dragged into paying inheritance tax? Get in touch: money@ Families are missing out on a lucrative tax break which could cut their inheritance tax bills by tens of thousands of pounds, data suggests. The 'gifts out of surplus income' rule allows individuals to give away money without falling foul of the seven-year inheritance tax rule. However, just 480 estates benefited from the tax break in 2021-2022, figures shared by HM Revenue & Customs (HMRC) under Freedom of Information revealed. This represented just 1.7pc of the 27,800 estates which paid inheritance tax that year. In 2020-2021, 510 estates claimed the relief – or 1.9pc – compared to 500 the year before. As Labour gears up to levy inheritance taxes on pension pots from April 2027, experts said that the little-known relief could become much more popular. Inheritance tax is charged at 40pc on the value of an estate worth more than £325,000. Homeowners get an additional £175,000 allowance, and couples can share their allowance, raising the limit to £1m. Any gift made more than seven years before death is exempt from inheritance tax automatically. Taxpayers also have a £3,000 annual gift allowance – which is designed to cover events including birthdays and religious holidays. But the surplus income rules mean that if families can prove that there were regular payments – which did not have a negative effect on the giver's normal finances – then that money is also exempt. Giving an annual £10,000 gift towards mortgage repayments or private school fees, for seven years could reduce an inheritance tax bill by £26,8000, analysis by investment platform Interactive Investor found. Rachael Griffin, tax and financial planning expert at Quilter, which submitted the information request, said: 'Given the upcoming pension tax changes in 2027, we expect to see a sharp increase in the use of this exemption as more people look for ways to mitigate inheritance tax liabilities.' But Ms Griffin warned that claiming the exemption is not as simple as just handing over cash to relatives without keeping track. She said: 'However, good record-keeping is absolutely essential. HMRC requires clear documentation proving that gifts were made from surplus income rather than capital, and that they do not reduce the donor's standard of living.' Tom Selby, of online platform AJ Bell, said: 'It is inevitable and entirely logical that as the number of households being pulled into inheritance tax increases, the number of people aiming to take advantage of gift rules to minimise the tax bills faced by their beneficiaries will rise. 'There is already evidence of savers taking action ahead of this proposed change in 2027.' Rachel Reeves announced in her inaugural Budget last October that pensions would be subject to inheritance tax from April 2027. Steven Cameron, of pension provider Aegon, said: 'This approach can also be followed if an individual can show they have surplus income from their pension once in payment although this is likely to be feasible for only a very small number of individuals. Mr Cameron said anyone looking to take advantage of the tax relief should seek professional advice, as 'there are many rules to follow here'. The Office for Budget Responsibility expects that 9.7pc of estates will pay inheritance tax by 2029-2030 as a result of Ms Reeves's changes, up from 4pc currently. Bereaved families paid a record-breaking £8.2bn in inheritance tax last year, ahead of Labour's death duty raid on pensions. The receipts, paid in the year to March, marked a £750m increase on last year's record high, according to HMRC data. The Treasury estimates the levy will raise more than £14bn in 2029-30. The £325,000 nil-rate band, which was set in 2009, would be £510,9211 today, if it had risen with inflation. A Treasury spokesman said: 'We continue to incentivise pensions savings for their intended purpose – of funding retirement instead of them being openly used as a vehicle to transfer wealth – and more than 90pc of estates each year will continue to pay no inheritance tax after these and other changes.'
