Countries accounting for more than 60% of the world’s economic output and well over 50% of its population are scheduled to go to the polls this year, a unique period in political history, rather naively described by some observers as “the most democratic year in global history”.
Bangladesh got the ball rolling within a week of the new year’s arrival, Prime Minister Sheikh Hasina securing his fifth term in office. Further east, Taiwan held its general election on 13th January under China’s increasingly menacing glare. China recognises no claims to sovereignty by Taiwan, which explains why pre-election tensions remained so evident during the run up to the vote.
In mainland Europe, general elections are scheduled to be held this year in Portugal, Belgium, Croatia, Romania, Austria and the EU; later in 2024, India’s Narendra Modri is expected to be re-elected following the world’s largest plebiscite, while next up are El Salvador and Pakistan, both nations scheduled to hold elections in early February.
Closer to home, Prime Minister Sunak is expected to call an election in early autumn in order to avoid clashing with the US election, scheduled, appropriately enough, for Bonfire Night.
Few voters give Mr Sunak much chance of being re-elected as PM. Bookies have installed Labour as 1/8 favourites to form a new administration with Sir Keir Starmer at its helm; given the nation’s prevailing mood, the Conservatives are offered at a less-than-generous 13/2 to pull off a shock victory. You can’t help thinking that punters would show greater interest in General Election odds if Mr Sunak’s party were offered at a more realistic 100/1.
Historically, investment markets prefer predictable elections rather than close calls, so it seems reasonable to assume that at some point this year Sir Keir and his family will move into 10 Downing Street without, as far as we know, any wildly radical baggage of the sort that weighed down the Labour leader’s predecessor.
However, just in case Sir Keir is pressured into jettisoning a series of tax breaks as soon as he sets foot inside number 10, there could be enormous merit in taking advantage of them while they remain accessible.
For example, Chancellor Jeremy Hunt increased the annual pension allowance by a thumping 50% in his March 2023 budget. Mr Hunt raised the maximum amount you may add to your personal pension while still getting full tax relief from £40,000 to £60,000. Moreover, if you have not paid anything into a pension during the last three tax years, you can also carry forward up to £40,000 from each of these years. Theoretically, this takes the total you may add to your pension before 5th April to £180,000 (£40,000 x 3 + £60,000). You would also receive full tax relief on this total, making it a particularly generous arrangement, assuming you have the funds with which to top-up your personal pension.
As we mentioned in an earlier article, supplementing any missing National Insurance (NI) contributions could also prove especially fruitful over the longer-term provided you address matters before 5th April 2025. Ordinarily, tax payers are permitted to make up to six years of missing NI contributions, but those who act before the end of the 2024-25 tax year will be allowed to plug any gaps that occurred between April 2006 and April 2016.
Taxpayers wishing to make voluntary NI contributions must first contact HMRC ( 0300 200 3500) and ask for an 18-digit reference number to ensure their contributions are properly applied.
It’s also worth noting that there is a comparatively lengthy list of tax-free allowances available to most tax payers, although at least two of these are due to be halved (nothing to do with Sir Keir). The dividend allowance, currently £1,000 and the capital gains tax allowance presently set at £6,000, will remain in place until April when both will be reduced by 50%.
Fortunately, the taxman’s axe has not yet been wielded to a number of other tax breaks. Well, not directly, anyway.
Firstly, there is the governments Rent a Room Scheme, that’s allows you to receive a tax-free income of up to £7,500 annually by renting out furnished rooms in your house. There are no restrictions on the amount of your home that you can rent out. Whenever any equity release advice is being provided, this is one consideration our advisers point out to potential applicants.
Another for example is the annual personal allowance of £12,570, ie the amount tax payers may earn before they start paying tax. In effect, this threshold has been reduced over the past few years.
In 2020, the allowance was £12,500; it was increased by just £70 the following year and has remained at £12,570 for the three most recent tax years (2021-22; 2022-23 & 2023-24). However, as inflation soared during two of those years, the effect has been a reduction in the personal allowance in real terms, making it imperative that tax payers search for every tax break they can.
For instance, tax payers can claim a savings allowance of £1,000, while a further £1,000 property allowance can be applied against income generated from letting property or land. There is a further £1,000 trading allowance available to set against income generated from casual work such as gardening or selling products online.
Finally, although the debate regarding the fairness of inheritance tax (IHT) continues to rage, with some political commentators speculating that Mr Sunak may jettison it altogether before the election, savvier types disinclined to hold their breath may prefer to start making plans to give away some of their wealth.
In short, the initial £325,000 of an estate is currently deemed to be IHT-free, a figure that rises to £500,000 if the estate is worth less than £2 million and includes a family home which is left to a direct descendant, ie a child or grandchild. Other assets within the estate which push the value beyond this , including shares, property, cash and some other assets, could be subject to tax of up to 40%.
Before these savvier souls divest themselves of their wealth, however, exploring the role equity release can play in IHT planning could prove advantageous.
This tailored news article on equity release and inheritance tax working in tandem has been covered on the Equity Release Supermarket news page.
Equity Release Supermarket do not provide tax, legal or accounting advice. This article has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before entering in any transaction.