Some timely tax planning tips with 5 April coming fast

March 22, 2013 By Iain

Here’s a few tax tips to ponder and take action upon before the end of the tax year:

Income Tax

Those property investors who do not trade through a limited company have no choice as to when to make up your accounts.

Letting income will always be that arising in each tax year to the 5th April.

In looking to save tax in any business approaching a year end, you would look to defer income and maybe bring forward expenditure.

Now with rental income it’s pretty hard to defer income as I would expect you receive your rental each month so not much planning opportunity there then so what about expendtiture. Well now we’re talking.

If you’ve some major repairs on the horizon, maybe a complete repaint and remember we are talking repairs here not capital expenditure, get in place a contract for the work to be undertaken. If you’ve contracted to have the work done then these costs can be brought into your letting accounts which a) may reduce the level of profit and save tax or b) turn a profit into a loss and again save tax.

Remember that loses can only be offset against other property income or carried forward in perpetuity to offset against profits.

As an aside tax losses are personal and so a) can not be transferred to anyone and b) go with you to the grave.

Capital Gains Tax

You may have in your portfolio a property that is sitting on a nice capital gain. Now may be a chance to offload that at a slightly below market price for a quick sale and a tax free gain. Each individual can currently make capital gains tax free of £10,600. So a property held jointly could show a gain in excess of £21,200 and if sold before 5th April 2012 not create a tax liability. I say in excess because you pay capital taxes on the net sale proceeds less the cost of acquisition.

Inheritance Tax

As with income tax and capital gains tax there is an exemption for inheritance tax. The annual exemption is currently £3,000 and thus the first £3,000 of any transfer of value will be exempt from Inheritance Tax. If the exemption is not used then this can be carried forward. So assuming no gifts were made last year, Mum and Dad could gift £6,000 to their children completely tax free. As an impoverished trainee accountant it was a relief I often brought to my parents attention, though this simple tax planning strategy always fell on deaf ears!

Further information on this topic can be obtained from Iain@iainwallis.com

Jimmy Carr K2 and Tax Avoidance

June 22, 2012 By Iain

The Jimmy Carr Debate

Leaving aside the moral debate about Jimmy Carr, K2 and tax avoidance let’s bring you some less controversial tax planning around the subject of death which will happen to all of us at some stage.

Estate planning is not simply about Inheritance Tax (IHT).

Bear in mind that in your eagerness to avoid IHT you may trigger a liability to Capital Gains Tax (CGT).

When planning to avoid Inheritance Tax (IHT) the general view and practical approach is to reduce the value of your estate that is subject to IHT. The easiest and simplest way to do this is to give away as much wealth as you can as soon as you can. Assuming that you survive for a further seven years, then the value of that gift will fall out or your estate and you have potentially saved 40% of its value.

Sounds good so far but be careful for the gift of an asset to a connected person, except your spouse, will be treated by the taxman as a deemed sale at market value. So maybe you have a holiday cottage in the beautiful county of Northumberland that you have owned for years and maybe paid £30,000 for in 1985 but no longer need, a simple gift to the children or grandchildren of the asset now worth £130,000 will create a capital gain of £100,000 (OK adjusted for acquisition and disposable costs and maybe some improvements). So a potential tax bill of 28% of the gain. Ouch!. Even worse were the donor not to survive the seven year period the estate could potentially be looking at a further 40% IHT. Double ouch!!

Deathbed Gifts

Forgive for the slightly morbid nature of deathbed planning but tucked away in the legislation is a wonderful rule the enables certain gifts to be ignored for CGT .In case you were not aware, gifts from a will are not subject to CGT.

Deathbed gifts, or to put it another way gifts made in contemplation of death, known as “donatio mortis causa” (DMC), count as transferred at the date of death.

For a gift to be considered as DMC three factors must be present at the time:

it must be made in contemplation of death but not necessarily expectation. For example, someone undergoing a serious operation might contemplate the possibility of death even though they hope and expect to survive

the gift must only become a permanent one where the person making the gift dies. In other words they have the right to take back the property in the event they survive

the assets in question must be passed to the beneficiary of the gift, a mere promise is not enough; there must be physical transfer. Transfer is effected by delivery of the actual property and must be made to the donee, or someone on their behalf. The donor must part with control and not merely physical possession of the property. For example, the delivery of title deeds (kept in a steel box, the key to which had been given by X to Y during her visits to the hospital during X’s illness) amounted to X’s parting with control over the house. Or A’s terminally ill father, B, told A to keep the keys to B’s car, which A used regularly was seen as effective delivery.

As always with estate planning it is a difficult and sometimes a very emotive subject, but bear in mind in trying to dodge the issue of estate planning could leave your beneficiaries with an unexpected double tax charge and the last thing you want is the taxman snapping at your heels having lost a loved one.

Tax Planning

As ever with tax planning seek professional advice as everyone’s circumstances are different.

Finally never forget that tax avoidance is legal. Any professional advisor not doing their utmost to provide their client with opportunities to legally reduce a tax liability has failed in their professional duties. It is for the client to decide with their moral compass whether they wish to pursue that route.

Stand up and be counted in response to an “irrelevant” Budget

March 22, 2012 By Iain

Unfortunately, despite the hype, this Budget is largely an irrelevance. That’s not to say it doesn’t contain its share of headline grabbing announcements – it certainly does! But welcome as some of those are, the reality is that we continue to face an economic growth crisis. And while 10% of the solution to that crisis may come from Budgets, for the other 90% we must look to business.

The simple truth is that it is businesses and not Budgets that offer us the best hope of putting things right by replacing the jobs, income and wealth lost, and generating the extra taxes needed to sort out public finances. Budget measures such as the cut in corporation tax will only ever help a bit. It is how businesses respond that really matters, since they are the real engine of growth. So for the good of us all job and wealth creating businesses must now stand up and be counted as a matter of the utmost urgency.

For business owners the sting in the tail from the Budget is the fact that the changes announced today look likely to give the taxman new powers to, in the words of one entrepreneur today, “bleed them dry”. The devil will of course be in the detail. But it does seem that many taxpayers will now face a more penal and less accommodating tax system, with many reliefs and legitimate forms of tax planning no longer available to them.

Astonishingly, the Chancellor even admitted that he would be taking “five times more money each and every year from the wealthiest”. And, worryingly, many of those he is taking five times more from are the very same business leaders we need on our side.

So, to ensure that this much tougher tax regime does not discourage business from becoming the engines of growth that society desperately needs them to be, we are today launching a 2012 Tax Minimisation Review initiative. Its aim is simple: to encourage and support growth by making sure that no-one pays a single penny more than their fair share of tax. And thanks to our sponsorship it is both free and freely available to any business owner who wants to create a better future.

If you do not want to pay a single penny more business and personal tax than you need to, you can claim a free 2012 Tax Minimisation Review by calling Sara on 0191 206 4080.

5 April 2012 Approaching fast: only 23 days left for tax free money!

March 13, 2012 By Iain

This is a reminder from a blog posted after the stampede to meet the 31 January deadline.

There’s every good reason to take action and not leave money in the HMRC coffers. Nothing untoward or complicated Barclays strategies, just honest sound tips to save tax and generate free money.

Here’s a few tax tips to ponder and take action upon before the end of the tax year:

Income Tax

Those property investors who do not trade through a limited company have no choice as to when to make up your accounts. Letting income will always be that arising in each tax year to the 5th April.

In looking to save tax in any business approaching a year end, you would look to defer income and maybe bring forward expenditure.

Remember that loses can only be offset against other property income or carried forward in perpetuity to offset against profits. As an aside tax losses are personal and so a) can not be transferred to anyone and b) go with you to the grave.

Capital Gains Tax

Inheritance Tax

We are talking tax free money here so please take action.

Upcoming Tax Strategy

February 17, 2012 By Iain

There may be a tax strategy coming into play to mitigate tax on income and chargeable gains in the 2011-12 tax year.

The key features are:

Shelter income or chargeable gains in the 2011-12 tax year.
The entry limit is £100,000.
Fees will vary according to what income is sheltered but indicative rates would be about 11%
There is no active participation and no ongoing involvement required.
There will be a very short window of opportunity for sophisticated high net worth individuals that are interested

If you wish to proceed you will have to act fast !

The closing date for registering interest NOT necessarily proceeding is midnight on 25 February 2012.

26 February – Full details of the planning will be made available only to registered individuals.

1 March – All application forms and fees to be submitted by 4PM.

If you have any further questions please contact me

Or if you wish to proceed.

Iain@Iainwallis.com

How to reduce your exposure to Inheritance Tax

February 16, 2012 By Iain

It’s a common misconception that Inheritance Tax is payable on death. That’s probably because the name of the tax falsely implies that the tax is related to death when the value of the deceased’s estate transfers through the generations.

The word transfers is in bold for a reason. Inheritance Tax is triggered by the transfer of value and a transfer of value occurs whenever you dispose of something and as a result your total net worth is reduced. Whether hard cash or an asset that has value the disposal of it will reduce your net wealth and this create a “transfer of value” which may get HMRC excited. Incidentally I transfer wealth to my landlord most Friday nights but as this is at arms length to an unconnected person it will not be classed as “a transfer of value”.

For most households the largest asset likely to trip the Inheritance Radar will be the main home, usually on death. Equally though holiday homes, investment properties, paintings, memorabilia, collections of coins, stamps, you’ve seen the antiques road show so you catch my drift as to where value could be and it all adds to your net wealth.

It might therefore be prudent to gift some of these possessions so that they no longer form part of your estate or current total worth. Sound idea but for this to work you need to completely remove any enjoyment or benefit from it.

If you retain the remotest interest then unfortunately it will still form part of your estate. You may have a superb railway nameplate from the City of Newcastle (2442 double bogey) worth a small fortune. If you give it to your son but keep it in your study, there has been no transfer of value.

Equally you may be a little reluctant to sign over the holiday cottage to your grand children because you still want to visit the Northumberland coast when you can on your terms. How about granting a long lease on the family home and then gifting it to the children?

All these will fail because of what we tax boffins call “reservation of title”

Well that’s it then, might as well roll over and die and let HMRC trouser 40% of my wealth.

Well it’s not all bad news

There are ways that married couples or those in a civil partnership can substantially reduce their exposure to inheritance tax, and therefore increase the amount inherited by the family, without adversely affecting current standards of living and without having to “give all of the family assets away now”!

This simple strategy is suitable for couples who own any class of investment assets including property, shares, and cash, which are exposed to inheritance tax, currently at 40%.

It enables an individual to transfer the value of an asset out of their estate to the next generation thus reducing the family’s IHT liability without triggering a capital gains tax charge.

Importantly control of the asset and access to any income generated by it will be retained by the couple.

Even better the planning does not require a trust structure and therefore there are no ongoing trustee costs or restrictions.

How Does it Work?

Well as that annoying rodent selling insurance says “Simples”

One individual transfers the asset at full market value to their spouse.
The consideration given by the spouse to the individual for the asset is a specially drafted debt instrument which is effectively an IOU.
The IOU is gifted to the next generation.

If having read this, you think that the best way to take this matter forward would be to arrange a (no obligation) meeting with myself or one of my colleagues either at my offices or at your home, to outline the options available to you, please feel free to contact me to arrange a meeting at Iain@Iainwallis.com