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June Questions and Answers

Newsletter issue – June 2025

Q: I've reached that stage in my life where I need to think about my estate and the amount of inheritance tax that may be paid on it. I've heard that gifting money before I die is free of IHT. Can you please explain how this works?

A:Certainly. You can use the “gifts out of surplus income” rule to help reduce your IHT bill. Less than two percent of estates that have paid IHT have used this rule in the past three years, but this is likely to increase when pensions become subject to IHT from April 2027.

As you are probably aware, IHT is paid on your estate when you die, with some exceptions. For example, no tax is due if your estate is worth under £2 million and is left to your spouse or civil partner and if you leave your primary property to your children or grandchildren, no tax is paid on the first £500,000 worth. For every £2 your estate exceeds £2 million, the residence nil-rate band decreases by £1.

Another exception is that of gifting. Any gifts you make over seven years (a maximum of £3,000 per year) prior to your death incur no tax (unless it is part of a trust). Anything gifted less than seven years before you die may be subject to IHT on a sliding scale. However, these gifts must be proven to be part of the transferor’s normal expenditure (in other words, regular rather than one-off payments), paid out of their income (not capital like savings) and leave them with enough income to maintain their normal standard of living.

If you’d like to discuss the matter further, please get in touch with our team.

Q: I have a main job with a company (tax paid through PAYE) and a secondary 'side hustle'. How does this affect my tax status and how do I pay any extra tax owed?

A: Firstly, it is good that you understand any tax due from your side hustle will not be accounted for through your main job. Your main employer isn't necessarily going to know about it, and any income certainly won't be included on your payslip.

You should check if you need to tell HMRC about this additional income. A 'side hustle' could include things like selling items at car boot sales or auctions, doing 'odd jobs' for neighbours, or creating content for social media. You do not have to pay tax on earnings below £1,000 a year.

If you earn more than this, you will need to register for Self Assessment through HMRC's website. You should also maintain records of all sales, purchases, income and expenses to help you complete your tax returns.

You can, of course, engage with us to deal with HMRC on your behalf.

Q:I claimed the home working entitlement during the Covid 19 pandemic. I still work from home now - should I still be claiming this tax relief?

A: It depends on why you are still working from home. When we went into lockdown during the pandemic, those who were forced to work from home could claim tax relief for increased costs incurred whilst working from their homes. About 800,000 employees made this claim at the height of the pandemic.

Since 5 April 2022, you can only claim if you must work from home because your employer does not have an office or if you have to live a great distance from your office as part of your work. If you are simply working from home because your employer allows the hybrid working model, you should not be claiming this relief and HMRC is due to crack down on those incorrectly doing so.