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Three topics here to be aware of that have been quietly published or in the news in recent weeks:

Read more …. On Employee Ownership Trusts, Inheritance tax and possible changes to the tax treatment of pension scheme death benefits:

Spotlight on Employee Ownership Trusts

HMRC have published a consultation paper on the tax treatment employee benefit trusts and Employee ownership Trusts.

An Employee Ownership Trust (EOT) is a specific type of Employee Benefit trust whereby the Trustees own and control the company and exercise that control for the benefit of all employees.

There are favourable tax treatments associated with an EOT including the ability to pay tax free bonuses to employees of up to £3,600 per annum and for an owner selling to an EOT, proceeds are free from capital gains tax.

EOT’s are viewed as a positive means of supporting employee engagement, motivation, recruitment and retention but the government are concerned to ensure that the favourable tax treatment is only available to those who use EBTs and EOTs for the intended policy purposes. Key areas of focus relate to the constitution and operation of Trustee Boards; how bonus payments are awarded and HMRC clearance processes. Responses are invited before the end of September.

More information about employee ownership trusts and successful case studies can be found on the Employee Ownership Association website but specialist advice is most definitely  recommended if this is an option you might want to explore for your business so do get in touch and we can direct you to expert guidance.

Rishi Sunak in talks about abolishing Inheritance tax? 

There were numerous media reports about Downing Street supposedly holding talks about scrapping inheritance tax last week. Whether that was just a bit of posturing prior to the recent bi-elections remains to be seen but media commentators hailed the idea as a potential “game changer” especially in the south of England in so called “blue wall” seats.

Inheritance tax is estimated to raise £7.2 billion in 2023/24 according to forecasts from the Office of Budget Responsibility which represents just 0.7% of all tax receipts.

The data available on historic statistics confirms that in the tax year 2019 to 2020 just 3.76% of UK deaths resulted in an Inheritance Tax charge yet it is universally accepted to be one of the most unpopular taxes in the UK.

Changes to inheritance tax would have a hugely significant impact on financial planning for our clients not least in relation to Trust planning where the reporting regime has become onerous to say the least.

We watch this space with extreme interest and will of course keep you posted if anything more than press speculation comes to light!

Source:  The Independent

Pensions scheme death benefits 

Following the surprise announcement in the Spring 2023 budget that the pensions lifetime allowance was to be abolished, the Treasury have now published further consultation on proposals to change the tax treatment of death benefits from April 2024.

In simple terms currently, legislation provides that when a person dies under age 75, their pension benefits are tax-free, as long as those benefits were within the Lifetime Allowance; beyond age 75 they are taxed as pension income subject to the individuals marginal rate of income.

It is now being proposed that essentially the age 75 threshold will go and whilst certain lump death benefits will remain tax free – if an individual elect to leave funds within the pension scheme tax wrapper perhaps to draw down at a later date, it is being proposed that they would face income tax charges in the same way as those receiving pension death benefits on death after 75 do now.

Source: HMRC and HMRC newsletter July 2023

We will be keeping a close eye on all of these developments over the coming months and factoring any changes into ongoing client reviews where relevant but as always do contact us to talk through any queries or concerns.