Author Archives: lee blackshaw

Budget 2025 – ATT representations (a good list)

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The Association of Taxation Technicians (“ATT”) issued simple and realistic suggestions for the Budget. We agree with all four:

1: Provide an enduring ‘opt-in’ to Self-Assessment
To simplify the position for taxpayers who would prefer to file tax returns despite not being obliged to under HMRC’s criteria.

2: Simplify tax compliance for those who do not need to be in Self-Assessment
Individuals with tax to pay, but who do not meet the requirements to file Self-Assessment returns, could be helped to meet their tax compliance obligations by:

  • Improving clarity over Simple Assessment responsibilities
  • Allowing them to view and verify bank interest records held by HMRC
  • Enabling operation of PAYE on State Pension payments, so tax can be collected at source from pensioners, simplifying the payment process for pensioners with state pension income over the personal allowance.

3: Simplify jointly-owned property rules
Align the income tax treatment of assets jointly owned by co-habiting spouses/civil partners with that applying to other joint owners. Removing the current differentiation in treatment would simplify the position, and result in consistent treatment of jointly-owned property across income tax and capital gains tax

4: Relax the rules on carrying back Gift Aid donations
Allow carry back of Gift Aid donations to the previous tax year via amendments to that year’s tax return. This would remove an unnecessary complication, increase flexibility, and tackle a potential obstacle to charitable giving

Further details can be found at this link: https://www.att.org.uk/sites/default/files/2025-10/ATT_Budget_Rep%202025_Self_Assessment_Simplification.pdf

Changing from a domicile to residence based IHT system

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Although the General Election creates tax uncertainty, it appears that the very “sticky” concept of domicile for Inheritance Tax (“IHT”) purposes will disappear.

The likely move to one of counting years of tax residence will provide welcome simplification.

The General Election also gives a chance for the professional bodies to comment. A useful summary update from the Chartered Institute of Taxation (“CIOT”) is as follows (with our highlights in bold):

“CIOT supports a change to a residence based test from a domicile based test however they consider that ten years residence for arrivers to the UK is too short a period for full exposure to IHT on their worldwide assets. They also feel that a ten year tail for leavers is too long and should be related to the length of residence in the UK.

Consideration will need to be given to treaties and treaty relief; in particular whether domicile in a tax treaty should be interpreted as residence.

There will be many transitional issues that will need careful thought including provisions surrounding different types of leavers and arrivers.

A key issue will be the issue of settlements and the CIOT supports the idea that their chargeability should be governed by the residence to the settlor. In respect of existing settlements, they support the grandfathering rules which were proposed at Budget 2024 to allow settlements existing before that date to retain their existing IHT treatment. They do not support grandfathering for assets settled on or after 6 March 2024 (budget day) unless made by Will.”

Reform inheritance tax (“IHT”)?

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Before each general election, the abolishment of IHT tends to feature in the media’s interest.

It is a misunderstood tax.

A summary of our thoughts on this, from 2019, is here: https://blackshawtax.com/2019/11/12/inheritance-tax-houses-common-errors/

A 2023 Tax Journal article from Heather Self is an excellent update of what reform should look like: https://www.taxjournal.com/articles/self-s-assessment-inheritance-tax-

Why do we have to pay tax? Are we overtaxed?

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These questions always seem to arrive as a pair.

Paying tax

The requirement to pay income tax (if we focus on just one tax) is a combination of Income Tax Act 2007, section 4 and (for this year) Finance Act 2022, section 1.

HMRC are given their collection and management powers under Taxes Management Act 1970, section 1.

Links to the legislation are here:

https://www.legislation.gov.uk/ukpga/2007/3/section/4

https://www.legislation.gov.uk/ukpga/2022/3/enacted

https://www.legislation.gov.uk/ukpga/1970/9/section/1

Overtaxed?

You may think so. Even if you are taxed less than the equivalent incomes in many other countries.

Here is an excellent blog by Dan Neidle on this topic: https://www.taxpolicy.org.uk/2022/10/10/employee-tax-comparison/

Scope of the UK trusts register widened

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The trusts register first applied to UK trusts with a tax liability. This was widened in October 2020 by anti-money laundring regulations to include most other UK trusts created by individuals during lifetime or on death.

There is a list of trusts exempt from reporting, such as charities, pensions, co-ownership of land and some older very small trusts.

For others the reporting deadline is 1 September 2022 for existing trusts and 90 days for trusts created after that date.

Information gathering for old and fairly dormant trusts may take some time, so the process is best started as soon as possible. The data requirements include details of the settlor, trustees, main beneficiaries and initial trust assets.

For non-UK trusts, with no UK resident trustee, the requirement to register only applies when the trust has a UK tax liability or acquires UK land.

Once registered annual updates are required.

We can help you complete and update the trust register for a fixed fee.

What might change on inheritance tax?

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Inheritance tax is often misunderstood1 and causes fear in many more than the 5% of estates which currently pay it.

What might change? The Office of Tax Simplification and an All Party Parliamentary Group have made suggestions. Here are some possible changes, based on those and my own thoughts:

The rate: A reduction from 40% to 20% (if your IHT plan is to spend your money, that is the most fun way to do so – and you’ll probably suffer 20% VAT on most items. So a similar 20% tax on not spending has some logic.)

Exemptions and zero rates With a lowered rate, widening the base of those who pay may make sense, if the overall rate can be made acceptable. Removal of the capital gains tax free uplift on death where no IHT is payable – but deferral of the tax on those death gains until the asset is sold by the recipient.

Reliefs A cap on relief for business and farming assets, to perhaps £1m per person (currently unlimited) and the spreading of the tax payable over 10 or 20 years, to prevent the need to sell the business or farm just to pay the tax. Removal of relief for AIM shares.

Gifts Reducing and simplifying the seven year gift period, removing minor multiple exemptions to one simple amount and reduced record keeping. A lower rate of tax (10%) on gifts.

Trusts Recognition that these can be part of a sensible plan to encourage gifts while protecting the gifted assets from being used unwisely by young beneficiaries. Simplification of the taxes on trusts.

What planning should take place now?

  • Consider making gifts now
  • Review assets qualifying for relief and consider trusts
  • Review and update your will
  • Consider life insurance level (often the easiest way to plan for IHT)

1 see https://blackshawtax.com/2019/11/12/inheritance-tax-houses-common-errors/

Crypto taxes

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I love technology but find crypto currencies and assets duller than football*. But it exists, and is taxed, so we need to know how and when.

A myth has built up that it somehow escapes tax or that HMRC cannot understand it.

At the time of writing (April 2021) many keen investors are showing enviable crypto gains. So perhaps we’ll see lots of selling at a profit (before the greater fool theory comes into play and we look at loss relief for those to who buy now?).

The latest HMRC manual update gives a good and fair summary of the position https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto20000

Any HMRC guidance comes with the warning that it may not reflect the legislation and parts are hidden (eg https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto100100). But the guidance is useful and demonstrates where you may face tax and penalty risks if you take a different view. Useful sections are:

Capital gains tax disposals https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto22100

Record keeping https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto10400

Why it isn’t tax free gambling https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto10450

A final thought: what if you don’t sell? Are you sure that the beneficiaries of your will can access the funds on your death, with correct passwords and two level authentication?

*To be fair to football fans I also like cycling but find the cycle to work tax rules equally dull

Taxing compensation payments

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A fairly common question is “If you win a compensation claim, is it taxable?” The answer is “well, it depends”.

Over 73 paragraphs in Wilkinson https://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07861.html the Judge explains that interest rate swap compensation for a property business is taxable as income. Paragraphs 24, 31 and 48(1) explain why. A key point is: what is the compensation replacing (eg business profit) and how would that have been taxed?

In paragraph 39 the Judge notes that the tax position can be described as “simple”, even though the taxpayer arguments are quite complex. Perhaps it is simple, and after victory against a big bank (rightly so) the taxpayer (now wrongly) feels they are on a winning streak and can beat HMRC by having the compensation tax free.

The case is similar to the HMRC victory in Gadhavi https://www.bailii.org/uk/cases/UKFTT/TC/2018/TC06762.pdf which is also an unbinding First Tier Tribunal case. Repeated cases may be a hint that one will head to the higher courts for a binding view, although both cases seem correctly decided.

Not all compensation is taxable. Some is exempt as a matter of policy (TCGA 1992, s51) or may be subject to relief, if used to restore the asset (TCGA 1992, s23) and some is subject to capital gains tax (based on the right to make the claim – but often effectively exempt under ESC D33).

Tax rules may differ for the actual compensation sum and interest paid on that amount.

Compensation offers should be checked, to see what is included, how it is described and any tax treatment noted in the offer. Note that there is a difference between tax formally deducted and the tax treatment taken into account under the Gourley principle but not an actual tax credit.

Tax advice, detailed and in writing, should be taken at the time of the offer and, despite the Judge’s comment in Wilkinson the analysis may not be simple. If there is any doubt the “white space” disclosure in a self-assessment tax return may provide an opportunity to provide protection from penalty risk should HMRC disagree.

Personal limited company financial risks highlighted by Covid19

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Government financial help in response to Covid19 was implemented quickly, is generous and will save jobs and businesses. It is right that the state stepped in at a time of national emergency.

Covid19 highlighted many financial risk areas for personal limited companies. Most of these also arise even in “normal” times. Although the risks are well known and common financial errors, it is worth repeating these now, for future risk management.

Some key risks are:

  1. Lack of personal savings for emergencies and company cash reserves for emergency cashflow
  2. Not fully understanding that the company is a separate legal entity to the owner (and that you are “self-employed” only in the loose sense of the term)
  3. Failing to send tax returns and pay taxes on time
  4. When saving tax and NIC by the use of low salary, dividends, company retained funds, alphabet shares or the ability to time profit extraction, not being honest about it (eg when demanding help* from the Government)
  5. Following your accountant’s advice on tax saving, but not on financial management
  6. If you would have defended your “dividends are dividends, not salary” to the death with HMRC, don’t immediate flip to equating it with earnings or self-employed profits, when that becomes more convenient
  7. If your company is paying dividends, do it properly (and check that you are doing it properly, before HMRC check)
  8. If you claim to be “paid in dividends” prepare for a battle with HMRC
  9. In reality, being a disguised employee of one large company
  10. Thinking salary must be a fixed monthly amount
  11. Thinking “every business owner does it that way” – they don’t
  12. Running a business, so that it is reliant on each month’s income to pay each month’s outgoings, with no safety net
  13. Seeking the cheapest advice, internet free advice or the lowest tax rate
  14. Lack of insurance and protection (life cover, critical illness and income protection, self-insurance via savings, pension contributions, shareholders’ agreement, a will and lasting power of attorney)
  15. Lack of “what if”, crisis planning and a business plan
  16. Not understanding that every time you do something to save tax (or NIC), it could open up a potential known (or unknown) future problem – especially where tax is driving the structure or plan, instead of the commercial and practical reasons

Several of these are not self-inflicted errors. Some employers attempt to save NIC and other employee costs, by forcing employees into freelance personal service companies. Some accountants push tax savings and “solutions” before financial guidance. Many IFAs charging structures are confusing and opaque.

But, running your own business is more fun, flexible and rewarding than being an employee. By not falling into the above traps, and barring pandemics, you also should have a sound financial future in running your limited company.

*I think there should be some Government help here – but it’s complex, as the underlying company income should form part of the calculation (due to the lack of transparent taxable profits, compared to a sole trader/partner). Honesty around the tax and NIC saved would also help formulate an argument for reasonable financial help.