Monday 27 July 2015

Wealth planning, IHT planning, CGT planning

In last week's newsletter we looked at family wealth and how it can be distributed amongst the members of the family to reduce tax charges

Following the Summer Budget, any IHT planning should be revisited, particularly in relation to the family home. If there are investments which are expected to be exempt from CGT on sale, you should check that the right claims have been made at the relevant times to preserve that exemption.     

IHT planning
The promise in the Summer Budget of a £1 million IHT exemption is not going to be a reality until 2020 at the earliest. An additional home-related nil rate band of £100,000 per person will be introduced from 6 April 2017. That will be increasedby £25,000 each year until it reaches £175,000 per person in April 2020.

As both the normal nil rate band (NRB) of £325,000 (frozen until 2021), and the home-related NRB of £175,000 are transferrable to the surviving spouse or civil partner, it will be possible to transfer a total NRB of £500,000 on the first death.This leaves the survivor with a double helping of £500,000 NRB - reaching the magic figure of £1m. The transfer of the home-NRB to the survivor applies evenwhen the first death occurs before 6 April 2017 (new IHT 1984, s 8G) when the home-NRB comes into effect.

However, the home-NRB can only be set against the value of the deceased's home which is left their direct descendants i.e: children including step-children and adopted children, grandchildren or great-grandchildren. Where the donor wants to make provision for other relatives such as nephews, nieces, or perhaps siblings, their Will needs to be clear what assets or sums of money must pass to which individuals, in order to make maximum use of the home-NRB. This may require the couple's Wills to be redrafted.

The home must also have been a residence of the donor, not an investment property. If the deceased had more than one home the executors will be able to choose which home is to be set against the home-NRB.

Where the home has been sold before death, but on or after 8 July 2015, the value realised from that sale will be available to set against the home-NRB.However, we can't be sure how this ring-fence of proceeds will work in practice, as the legislation to implement this feature of the home-NRB will be included in Finance Bill 2016.    

We do know that the home-NRB won't be available to estates valued at over £2.35m, and it will be tapered down by £1 for every £2 of the estate value over £2m.

If your clients believe they can leave IHT planning to the next generation, as it can all be sorted out with a deed of variation to their Will, you should point out that the use of deeds of variation for tax purposes are under review. 


This is an extract from our tax tips newsletter dated 23 July 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>

Tuesday 21 July 2015

Small companies, Residential property, Incorporation

The Summer Budget turned out to be a disruptive storm that blew holes through the tax affairs of small companies and individual landlords. In last week's newsletter we outlined what you need to discuss with clients who own small companies or residential property. We also looked at some issues concerning incorporation. In future newsletters we will study the implications of the Budget for employers, home-owners and non-domiciled individuals.

Residential property

For many years HMRC has viewed the operation of a property letting business just like any other business - where expenses are wholly and exclusively incurred for the business they are deductible - including all finance costs. That approach will change from 6 April 2017.      

As landlords can deduct all the interest they pay from the rental income, thosewho pay income tax at 40% or 45% effectively get tax relief at those rates for their loan interest. The Budget changes are designed to ensure that landlords will only get tax relief for interest paid at 20%.

The change is introduced over four years, such that the percentage of loan interest disallowed in the tax computation will be:

·     2017/18:25%
·     2018/19:50%
·     2019/20:75%
·     2020/21 and subsequent years: 100%    

Up to 20% of the disallowed interest will be deducted from the tax due on the rental income. Where 20% of the interest exceeds the tax charge for the year, the excess will be carried forward to be relieved in a future year, so has the same effect as if 20% of the interest had created a loss for the letting business.      

These changes won't affect corporate landlords, owners of non-residential property or of properties that qualify as furnished holiday lettings.

A knee-jerk reaction would be to incorporate the lettings business, but that is not straight-forward, as we discuss below. However, individual landlords should review how sustainable their current level of borrowings are. 

The Budget also announced the 10% wear and tear allowance for fully furnished properties will be abolished from 6 April 2016. In its place all landlords will be able to deduct the actual costs of replacing furnishings in the property. This is good news for landlords who let partly-furnished properties, as they will be able to get atax deduction for the cost of replacing carpets, curtains and free-standing white goods.

This is an extract from our tax tips newsletter dated 16 July 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>

Tuesday 14 July 2015

Employment intermediaries, Share option gains, Tax free childcare scheme

Last week's Budget contained a few surprises which we will analyse as required in the future. Meanwhile there is a pressing deadline to worry about: 5 August - to submit the first quarterly report under the new employment intermediaries rules. Our newsletter also clarified the confusion created by share options and explained why there is good news for clients who operate childcare voucher schemes.

Employment intermediaries reporting

In our newsletter on 9 April 2015 we warned you about the new requirements to make quarterly reports under ITEPA 2003, s 44 (Agency workers). HMRC has reminded firms that the first quarterly reports are due in by 5 August 2015.  

The examples in the HMRC guidance on this new requirement all relate to employment businesses, but the legislation actually catches far more than just employment agencies. It covers any business that meets all of these conditions:
  • has a contract with an end-user client (not just another intermediary in the chain);
  • provides more than one worker's services to a client (single worker personal company is not caught);
  • provides the worker's services in the UK, or if the services are provided overseas the worker is resident in the UK; and
  • makes one or more payments for those services.
In summary these revised agency rules catch any business that supplies workers who will provide personal services to another business, who ought to be treated as employees of that business. However, the distinction needs to be made between the business who is contracting to provide the worker, and the final customer.

For example; a building firm that uses subcontractors to help with a project is unlikely to be within the scope of the agency rules. This is because the building firm is using the subcontractors to supply a service to its own customer, it is not supplying a worker to someone else's business. The customer of the subcontractor is the building firm; the subby is not providing a personal service to the person who commissioned the building project.

Some employment agencies are getting very jumpy about this and are asking contractors to sign declarations saying they work through a personal service company (PSC) and account for all the tax due on their remuneration receivable through that personal service company. They have possibly misunderstood the rules. As long as the worker is a director of his PSC, the worker's remuneration from the PSC will be employment income (dividends are not remuneration).

Our employment taxes experts will be happy to help you determine which of your clients need to make quarterly reports of their workers' details and payments under these new rules.
This is an extract from our tax tips newsletter dated 9 July 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>

Tuesday 7 July 2015

VAT FRS misunderstanding, Accelerated payment notices, RTI penalties

Last week we shared a cautionary tale about a taxpayer who misunderstood the requirements of the VAT flat rate scheme. We also looked at the facts surrounding Accelerated Payment Notices (APNs) as HMRC appear to be issuing them without due care or attention. Finally we offered further practical tips on dealing with RTI penalties.

Accelerated payment notices 
An accelerated payment notice (APN) allows HMRC to demand payment of disputed tax without concluding a tax enquiry, or waiting for the taxpayer's case to be decided by the courts. HMRC have recently been issuing APNs to taxpayers who used DOTAS registered tax schemes years ago, and who believed they had paid the right amount of tax. 

Many tax arrangements were registered under the disclosure of tax avoidance schemes (DOTAS) rules to minimise the risk of penalties for accidentally not disclosing. A DOTAS registered tax scheme is not necessarily “abusive”, and the tax scheme may well “work” in that the law allows the tax to be saved. 

HMRC has drawn up a list of DOTAS numbers for schemes whose users may receive an APN. This list is revised at intervals, so if your clients have declared a DOTAS number on a previous tax return, you need to keep an eye on that list.    

When an APN is issued the taxpayer has just 90 days to pay the tax demanded. He can't appeal against the APN, he can only object on the basis that one of the following conditions has not been met:
  • HMRC has issued a GAAR notice or a Follower Notice to the taxpayer; or·    
  • the taxpayer has used a tax scheme notifiable under DOTAS.
Unfortunately the HMRC department that issues the APNs doesn't appear to refer to the taxpayer's personal tax position first, so the APN may not take into account any losses available for off-set or tax already paid.    

If your client receives an APN you need to check the tax calculation carefully and quickly make a written representation to HMRC if you believe it to be wrong. Our tax investigation experts can advise you about other implications of the APN.

This is an extract from our tax tips newsletter dated 2 July 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>