Welcome to the July 2017 newsletter from Chamberlains

Last month I wrote about Inheritance Tax (IHT), and it had such a good response that a follow-up would probably be useful – to focus on ways to avoid it.  And then I’ll give a few pointers to help with cashflow.

Finally, I’ll give a reminder about our fee protection service which helps with enquiries from HMRC.



There’s an argument that your children should make their own way in life and that they shouldn’t expect to inherit anything – in which case why not have 100% IHT?  Everything you leave just goes to the State, minus presumably personal things – so lifetime taxes can be reduced for us all.  But of course, this is rather beyond what most of us think – even 40% IHT still seems high.


The counter argument is that you’ve paid tax on everything in your lifetime, so why should it be taxed again when you die?  Iniquitous, they cry!  But this isn’t quite right either – the bulk of most people’s wealth lies in their home, which has normally just increased in value without them doing anything or paying any tax on this growth.

Be that as it may, most people want to minimize the tax on what they leave to their families or other recipients – so you may like to look at some of the options below.  There are three groups: lifetime gifts, types of assets left, and choice of who to leave it to.


  1. Lifetime gifts
    1. Potentially Exempt Transfers (“PETs”) – I covered these in some detail last month. Basically, you can give away what you like, so long as you survive another 7 years.  After three years, there can be a tapering, so that the full amount of tax isn’t payable – but it’s complicated (see last month).  Two more warnings – there can be penalties if you give something away but continue to use it yourself, for example your home, and if you give away a non-monetary asset there can be capital gains tax to pay if the asset is worth more than when you acquired it.
    2. Annual gifts of £3,000 are allowed each tax year, with £6,000 if you missed the previous year. This is one gift of £3,000, not £3,000 per recipient!
    3. “Small” gifts – You can give as many gifts of up to £250 per person as you want during the tax year, so long as you haven’t used another exemption on the same person.Each tax year, you can also give away:
    4. wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for your own child)
    5. normal gifts out of your income – you must be able to maintain your standard of living after making the gift. In fact this is a fairly broad category, well beyond HMRC’s examples of Christmas or birthday presents.
    6. payments to help with another person’s living costs, such as an elderly relative or a child under 18
    7. gifts to charities and political parties
  2. Exempt assets
    Some assets are wholly or partly exempt, notably Business and Agricultural assets, either of which can be passed on while the owner is still alive or as part of the will.  The family home now also gets some relief, but this is only starting in the current tax year so no-one is absolutely sure of the full details.  It’s being phased in between now and 2021.  It gets added to the normal £325,000 nil rate band (“NRB” – the IHT exempt amount of your estate), so long as the house (or its value if it was sold pre-death) goes to your direct descendants.  In 2021 it will reach £175,000 so for both spouses the NRB will be the much-promised £1,000,000, being two lots of £325,000 and £175,000.Business Relief – you can get this at 50% or even 100% on some of an estate’s business assets.  The deceased needs to have owned the business or assets for at least 2 years before they died.  100% Business Relief is available on a business or interest in a business or on shares in an unlisted trading company.  This is reduced to 50% for land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled, or shares controlling more than 50%.There are a few exclusions, notably companies which mainly deal with securities, stocks or shares, land or buildings, or in making or holding investments.

    This was originally designed to allow family businesses to continue, but it got extended much wider.  Planning point:  general unlisted shares are allowed, not just those of your family company.  This includes investments in AIM companies, so long as they’re not property-based.  These are companies which are traded on the Alternative Investment Market – typically smaller than those on the full Stock Exchange and probably more risky.  However, some investment advisers arrange for portfolios of AIM shares to minimize the risk – I know some people who could help with this.  Some also deal in the less well known NEX Exchange Growth Market, which is also allowed.

    Agricultural Relief – this is basically for farmers, a specialist area in which I have no experience, so I won’t say much about it.  You can’t just be a “hobby farmer” with half a dozen sheep in your excessively large back garden – it’s intended for “proper farms”.  But for these there’s 100% relief – for land, buildings, crops (including trees), milk quotas etc.

    Like Business Relief, the background idea is that the farm can continue to operate after the death of its owner, without having to be sold off to pay IHT.

  3. Who gets it?
    This can affect the amount of tax.  As most people realise, a husband or wife receives their spouse’s assets with no tax.  This is in line with the lifetime treatment of transfers between spouses (and civil partners) – no capital gains tax is charged.  The unused nil rate band is also passed to the survivor. Children don’t benefit from this, except for the family home, as mentioned above.If you leave assets to charities they don’t count as part of your estate.  For example, if a single person leaves £335,000, £10,000 would normally be taxed at 40%, (ie. the amount over the NRB of £325,000) so total assets left after tax will be £331,000.  However, if the £10,000 is left to charity, there will be no tax to pay – so the total assets will stay at £335,000.Unexpectedly, if the assets are worth more and if more is left to charity (at least 10% of the total estate) the IHT magically reduces from 40% to 36%!  If someone leaves a large-ish amount to charity, it can sometimes be worthwhile for the heirs to top up the legacies to charity to 10% – less IHT will be payable, so they may end up with more funds, even after the extra paid to charities.  The solicitor should liaise with the accountant to ensure the best choice.



As Mr Micawber said, “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

In other words, spending more than your income normally brings problems.   This applies for individuals and businesses – and even countries, hence the arguments for austerity.

As an accountant, I often help people to see what their income is.  This then lets them tailor their outgoings – how much can they afford to give away, or can they afford some hoped-for expenditure.

And as a businessman I need to be aware of it myself.  Every Monday morning I sit down with my partner Chris and we review this simple summary to check what’s coming up in the next month:

Bank balances

Minus: Expected payments (salaries, rent, and all the other business expenses)

Plus: Amounts owed by clients

Plus: Work in the pipeline that we should be able to bill

And we also bear in mind larger periodical amounts, for example the quarterly VAT bill.  This gives us the assurance that everything is under control and sometimes helps to identify things that need special attention.

But sometimes people need to look further ahead, and spreadsheets are a wonderful tool for this.  They’re normally a monthly summary of expected receipts and payments, and the net result is added to the starting bank balance to predict end balance each month.  It can be as complicated or as simplified as you like.  The normal format is something like this:

£ £ £ £
Sales receipts 10,000 10,000 10,000 30,000
Other 0
Total receipts 10,000 10,000 10,000   30,000
Salaries 4,000 4,000 4,000 12,000
Other expenses 2,000 2,000 2,000 6,000
VAT 6,000 6,000
Total payments 6,000 6,000 12,000   24,000
Net receipts/payments 4,000 4,000 (2,000) 6,000
Bank balance – start of month 5,000 9,000 13,000 5,000
Bank balance – end of month 9,000 13,000 11,000 11,000


You can change the assumptions and go on for as many months as you like.  It’s a very useful model, so long as the assumptions are sensible.  For example, a sale doesn’t become relevant until it’s paid, so how long do people normally take to pay?  If you can speed up the process, cashflow will improve.   An individual might want to change the source of receipts to Salary, and their payments would be things like Mortgage, Household expenses, etc.  Nowadays, if you apply for most sorts of loan, the lender will want to see something like this or to have the information to be able to construct it themselves to ensure that you can afford the interest and repayments.  As you’d expect, we spreadsheet-loving accountants thrive on such things!  Please let me know if you’d like a hand…



I mentioned these last month, in connection with the service we offer to cover our fees for dealing with HMRC.  Clients pay Chamberlains a modest fee and we can then claim our fees from the scheme provider if HMRC needs to be fought off.   We’ve sent out details to some people, but if you feel you’ve missed out please let me know.  You can see more details here on our “micro-site”: http://chamberlainsaccountancy.clientweb.site/