Iain Wallis

Proven Tax Strategies for High Net Worth Individuals

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Landlord & Letting Show Coventry 26-27 November

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Finalist Logo GeneralWe will be exhibiting at the Landlord & Letting Show taking place at Hall 2, Stoneleigh Park, Coventry, on Wednesday 26th & Thursday 27th November 2014, and we hope you can join us! Maybe on day two help us celebrate as we are finalists in the prestigious Landlord & Letting Show Awards with the winners to be announced during the show.
It’s free to attend and the event aims to educate and inform property professionals by offering access to:
• A comprehensive product and services exhibition

• Free seminars covering a wide range of topics delivered by leading industry experts.

• There are two presentations from me entitled “5 Top Tax Tips to Legally Avoid Property Taxes” one on Wednesday at 11.30 and one on Thursday at 14.00. These are always full so be sure to be there in plenty of time

• Associations and Government Bodies
• Fantastic networking opportunities
• Information on the latest legislation
Visit the website at http:www.warwickshire.landlordshow.info to find out more and book free show tickets, then come along and visit us on stand 38.

Always happy to chat legal tax avoidance and share the love.

Be careful how you treat Grandma’s house

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Have you noticed how the recent rise in house prices has encouraged a spot of optimism and got everyone to talk up the value of their property? All well and good until someone inherits a property and then the value rather interestingly seems to head the opposite way, downwards!

Understandable maybe, because with the Inheritance Tax (IHT) nil rate band remaining frozen at £325,000 and the rising property market pushing middle England into the arena of Inheritance Tax; next of kin are keen to make sure they don’t hand over too much IHT to the tax man. Regardless of who you are HMRC will take a flat 40% of all your estate over £325,000. OUCH!

A note of caution though, in 2012/13 HMRC collected an extra £108 million of IHT by challenging and “adjusting” property valuations. They have the right to investigate valuations and over the last few years have been exercising this more aggressively than in the past. This trend is I’m sure going to continue given the improving state of the property market and HMRC coming under even more pressure to maximise revenues.

HMRC has four years from the end of the tax year in which someone dies to challenge an IHT calculation, longer if it can prove that executors did not ensure the calculation was correct or they had been perhaps ‘negligent’. This gives them plenty of time to check and compare similar properties with the Land Registry. So, take care! If you decide to sell granny’s house not long after the funeral for a price markedly higher than the value declared on the IHT form you could be heading for trouble. If you declare a value which seems low compared to what granny paid for it beware! Both will raise the suspicions of HMRC and could see you with a fine of up to 100% of the extra liability. The average amount of tax collected from this type of investigation in 2012/13 was £34,000 – imagine yourself as a beneficiary and having to find that amount of extra tax totally out of the blue!

As with all IHT planning, it’s all about being prepared. If you’re a beneficiary or an executor of an estate take steps as soon as you can to record the condition of the property i.e. by taking photographs and keep records of any repairs you undertake.

Whilst it will cost you in fees, these could possibly be reclaimed from the estate later, have a professional valuation undertaken by a Chartered Surveyor, who specialises in valuing land and buildings for people’s estates. Ask them to provide a realistic price of the property’s market value – the ‘open market’ value and ensure they take into account anything which might increase or decrease the value, such as:

a) If the property is in need of repair, ask the valuer to consider reducing the value to take this work into account.

b) There may be something about the property which makes it particular appealing to buyers i.e. an unusually large garden or access to other development land. If the property has features which make it more attractive then the valuation may need to increase.

It’s probably less likely that HMRC will challenge a valuation carried out by a Chartered Surveyor, compared to one say done by the local estate agent or by yourself, so it may be worth paying someone to give you that peace of mind.

It’s not all bad though, if you discover that the property had been over valued at the time of probate and sold for less, then you have up to four years from the death to claim the IHT overpayment back from HMRC.

If you need any help with IHT planning, or are interested in receiving further information or booking a strategic session with Iain, please contact Jacqueline on 0191 206 4080 or email admin@iainwallis.com.

Happy Valentines Day

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valentinesCongratulations to anyone who may be intending to ‘pop the question’ over a romantic candle lit meal this evening.

To those of you who consider yourself ‘unromantic’ or think it all to be ‘a bit of stuff and nonsense’ or ‘created by florists to make more money’, and yes I have some sympathy for that view, bear in mind there could be costly implications – and that’s not just the ring!!

Unmarried couples are not recognised as a legal entity and this becomes even more of an issue where children are involved. Legally, you become stuck in no-man’s land somewhere between land and complex trust law and in the event the relationship breaks down, you could find yourself in all sorts of problems and not just of the emotional type. Who gets the CD collection will be the least of your worries!

It’s far better to try and get things in order at the outset, to provide both of you with some degree of reassurance before it gets to the stage of arguing over what’s what:

 • The first, a Cohabitation Agreement deals with the ownership of assets and the distribution of these.

 • Second, a Declaration of Trust reflects the contribution of each individual to any assets such as property.

 • For those in business together, a Partnership Deed, which deals with each party’s interest in the business.

 • Finally a Will. Cohabitees are not entitled to automatically inherit from their partner’s estate. If you wish your partner to inherit, particularly any assets jointly owned, you need to have a Will in place.

 For further information or to book a strategic session with Iain, please contact Jacqueline on 0191 206 4080 or email admin@iainwallis.com.

 

2013/14 Tax Return Deadline …… “Use the White Space”

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So, you were too busy and missed the self-assessment deadline of 31 October 2013 and are now you are frantically trying to complete and submit online by 31 January to avoid the £100 penalty, interest and potential penalties.

Yep that deadline is approaching far faster than you appreciate but equally with every passing day goes the need to be stuck in some detox vortex where you are forced to have a green smoothie for breakfast and eat more greens than a rabbit does in an average year.

However, what to do when you and/or your accountant , (though hopefully not your accountant but you’d be surprised ) can’t decide what or how to declare a complex transaction or one which may be open to a different interpretation by HMRC?

The law states “you must provide any additional information you think HMRC will need to check your tax bill” and this is where the ‘white space’ comes into its own. That said there is a degree of crystal ball gazing as who knows what HMRC think some days

Here are a few situations where I’d suggest you use the white space:

1. To back up a complicated entry on a tax return, for example, a capital gains tax calculation on the sale of your home where you have used part of it for business.

2. Where you’re claiming Principal Private Residence Relief on a property that’s been let out but used to be your main home.

3. Where you aren’t sure of a figure for example, where the tax rules require you to make a judgement, say, on the amount of a business expense to claim

In the majority of cases, not using the white space to explain a questionable tax return won’t cause you any trouble, but should HMRC question your tax return and thinks you haven’t declared information you ought to have, the result may be a penalty charge or a greater penalty if it turns out you made a mistake. Remember that the law does not require perfection, more that you take reasonable care when preparing the return.

As a reminder, you are responsible for the entries on your tax return, even where your accountant completes it for you. So, please don’t just check the figures; make sure the white space entry is completed if appropriate.

If you are struggling with the deadline approaching or are interested in receiving further information or booking a strategic session with Iain, please contact Jacqueline on 0191 206 4080 or email admin@iainwallis.com.

 

Autumn Statement 2013: the key bits. Analysis and comment to follow

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Personal Taxes and Tax Credits

 Personal Allowance, Rates of Tax, National Insurance Contributions for 2014/15

  As announced at Budget 2013, people born after 5 April 1948 will be entitled to a basic personal allowance of £10,000 for 2014 to 15. The ‘higher rate threshold’ (the sum of the basic personal allowance and the basic rate limit) will be £41,865. As the personal allowance will be £10,000 for 2014/15, this means that the basic rate limit will be £31,865 the rates of tax will be announced at Budget 2014.

For 2014/15, there are no changes to the percentage rate of contribution for Class 1, Class 1A, Class 1B and Class 4 National Insurance Contributions (NICs) but there are changes to all of the thresholds and limits. The weekly rates for Class 2 and Class 3 NICs will be increased. The Class 1 Upper Earnings Limit (UEL) and the Class 4 Upper Profits Limit for NICs will continue to be aligned with the point at which higher rate tax becomes payable £41,865.

 

Tax Credit, Child Benefit and Guardian’s Allowance: rates for 2014/15

 

Tax Credits – disability elements increased in line with CPI of 2.7%. Other rates are increased by 1%. The family element of child tax credit is not increased annually and remains at £545

Child Benefit – increased by 1%.

Guardian’s Allowance – increased in line with CPI of 2.7%.

 

Recognising marriage in the tax system

 From April 2015, a spouse or civil partner who is not liable to Income Tax or not liable above the basic rate for a tax year will be entitled to transfer £1,000 of their personal allowance to their spouse or civil partner provided that the recipient of the transfer is not liable to Income Tax above the basic rate. The transferor’s personal allowance will be reduced by £1,000. The spouse or civil partner receiving the transferred allowance will be entitled to a reduced Income Tax liability of up to £200.

 Abolition of NICs for under 21s

 From 6 April 2015 employers will no longer be required to pay Class 1 secondary National Insurance Contributions (NICs) on earnings paid up to the Upper Earnings Limit (UEL) to any employee under the age of 21.

Capital Gains Tax (CGT ) Private Residence Relief – Final period rule

 The final period exemption applies to a property that has been a person’s private residence at some time even though they may not be living in the property at the time they dispose of it and they may be claiming private residence relief on another property at the same time. From 6 April 2014 the final period exemption will be reduced from 36 months to 18 months.

Income tax relief for qualifying loan interest

 From April 2014, the income tax relief for interest paid on loans to invest in close companies and employee-controlled companies will be extended to investments in such companies resident throughout the European Economic Area (EEA).

CGT Non residents and UK residential property

From April 2015 a capital gains tax charge will be introduced on future gains made by non-residents disposing of UK residential property. A consultation on how best to introduce this will be published in early 2014.

 CGT Annual Exempt Amount

The annual exempt amount will be £11,000 for the year 2014/15 and £11,100 for 2015/16 and subsequent years. The exemption for most trustees will be £5,000 and £5,500 respectively.

 

Tackling Tax Avoidance and Evasion

The government has announced 5 measures to help tackle tax avoidance which have effect from 5 December 2013.

 Changes to the debt cap provisions

 The measure comprises of 2 changes to improve the effectiveness of the World Wide Debt Cap (WWDC). The first change is to the grouping rules and the second change is to the regulation-making powers. It will have effect in respect of the change to the grouping rules for accounting periods starting on or after 5 December 2013 and the change to the regulation-making powers will have effect on or after the date that Finance Bill 2014 receives Royal Assent.

Controlled foreign companies (CFC): profit shifting

 The measure switches off the partial exemption rules for loan relationship credits of a CFC that arise from an arrangement with a main purpose of transferring profits from existing intra group lending out of the UK. It also amends the anti-avoidance rule relating to the transfer of external debt to the UK to ensure that the rule works as intended. The first part of the measure will apply to arrangements entered into on or after 5 December 2013 and the second part will have effect for accounting periods beginning on or after 5 December 2013.

Partnerships review: partnerships with mixed membership

 The first element of the partnerships review measure will affect mixed membership partnerships where partnership profits are allocated to a non-individual partner in circumstances where an individual member may benefit from those profits. The second element will affect cases where partnership losses are allocated to an individual partner, instead of a non-individual partner, to enable the individual to access certain loss reliefs. The changes will take effect from 6 April 2014 with the exception of anti-avoidance rules concerning tax-motivated profit allocations. These rules come into force from 5 December 2013 in order to protect against risks to tax revenue.

Avoidance schemes using total return swaps

 The measure blocks avoidance schemes where deductions are claimed for payments between companies in the same group under derivative contracts which are linked to company profits. It will apply from 5 December 2013 to schemes entered into on any date.

Double Taxation Relief (DTR): revenue protection

The measure will make two changes to the DTR rules to prevent avoidance. Both changes will have effect from 5 December 2013. It will have effect on non-trading credits for accounting periods beginning on or after 5 December 2013, with transitional provisions where accounting periods straddle this date. The amendment to the rules on refunded tax credits will take account of payments made by the foreign tax authority on or after 5 December 2013.

Further details of these 5 measures can be found in the Written Ministerial Statement, Tax Information and Impact Notes, Draft Finance Bill 2014 Legislation and Explanatory Notes.

Other measures included are found below.

Charities established for tax avoidance purposes

 Legislation will be introduced in Finance Bill 2014 to prevent a charity from being entitled to claim charity tax reliefs if one of the main purposes of establishing the charity is tax avoidance. The definition of a charity for tax purposes will be amended to exclude such charities.

 High risk promoters

 A new information disclosure and penalty regime for high risk promoters of avoidance schemes will be introduced. Objective criteria for identifying high risk promoters and a higher standard of reasonable excuse and reasonable care that will then apply to them will also be introduced. Clients of these promoters will also have certain obligations including identifying themselves to HMRC.

 Accelerated tax payment in avoidance cases

 Legislation will be included in Finance Bill 2014 to require payment of the tax in dispute in a tax avoidance enquiry when an ‘avoidance follower penalty notice’ is issued. This will take effect from Royal Assent which is expected mid July 2014.

At present taxpayers (in most cases) can hold on to the disputed tax while the dispute is being investigated. This can take a number of years, and there is evidence that some taxpayers enter into avoidance schemes primarily for the cash flow benefit.

The government will also consult on possible wider criteria for issuing a payment notice in avoidance enquiries.

 

Fuel Duty Main Rate Freeze

 The increase due in September 2014 has been cancelled and there will be no further increase in the current Parliament.

Inheritance Tax Online

 HMRC will be investing in a new online service to support the administration of Inheritance Tax. This will do away with the need to complete paper versions of forms and enable people to proceed with their application for probate and submit Inheritance Tax accounts online. It will also improve the customer experience as well as HMRC’s ability to perform compliance activities. It is anticipated that the new online service will become available in 2016.

Why Tax Avoidance is still legal

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“No man in this country is under the smallest obligation, moral or other, so as to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores. The Inland Revenue is not slow – and quite rightly – to take every advantage which is open to it under the taxing statutes for the purpose of depleting the taxpayer’s pocket. And the taxpayer is, in like manner, entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue.”

This delicious quote from the judgment of Lord Clyde (Ayrshire Pullman v CIR (1929) 14TC 754)  has always been the foundation on which accountants like me, who help their clients with legal tax avoidance have built their arguments.

 

Parliament has rejected this judgement by enacting the general anti-abuse rule or GAAR. Taxation it is argued is not to be treated as a game where taxpayers can indulge in any ingenious scheme in order to eliminate or reduce their tax liability.

So watch out Jimmy Carr!

 

But what does it mean for those of us who do arrange their affairs to avoid tax but not in such an aggressive way?

Well the good news is that those who feared that it would be a charter for HMRC to crush and penalise anything it didn’t like have not materialised. Instead we have a reasoned argument that making the most of the rules is just fine but taking steps which are artificial, abnormal or simply to escape tax will be caught by GAAR. The downside is that what you consider to be fair and reasonable may not be quite the same as that of your local Tax Inspector!

So what does that mean in the property world:

  •   Giving assets to your spouse or children to reduce tax while it may avoid tax isn’t abusing the rules
  •  Switching the capital gains tax relief between main residences is allowed; that will no doubt keep a few MP’s happy

That said few of us are engaged in the aggressive tax planning used by the likes of Jimmy Carr so in the real world nothing really changes.

Or as the neighbours might say plus ca change J

 If you would like a strategic session to review your affairs please email Iain@iainwallis.com

 

Taxability 2013/14: Over 65 proven legal ways to save tax

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Do you really want to give the taxman £521,700?

 

It’s a lot of money, isn’t it? But, even before the current economic crisis, that’s how much someone earning £30,000 a year would have paid in taxes over their lifetime. While if you are lucky enough to earn more than £30,000, your lifetime tax bills will probably have been even higher.

However, because of the economic crisis, as the country starts to pay the billions to balance the Government books, your tax bills will almost certainly soar even higher still.

As a result, there is a tax bombshell about to explode.

 Of course we all have to pay our fair share of taxes. But there’s no reason why you should pay more than your fair share of that tax burden, is there?

Unfortunately, paying more than their fair share is precisely what many people do… often without even realising it.

So, because we don’t want you to be one of them, here’s our up to date easy-to-use tax-busting checklist.

In just a few pages it reveals 70 powerful ideas to shave many pounds – perhaps even many thousands of pounds – off your tax bills.

Just think, even if you can only shave 5% off your tax bills, if you earn £30,000 a year that tiny 5% saving adds up to an extra £26,085 in cash to spend and enjoy during your lifetime.

And if your earnings are much more than £30,000 per annum then your savings could well be disproportionately higher – quite possibly as much as a 50% reduction in the tax you have to pay.

 What could you do with that sort of money?

The TaxAbility checklist has been specifically designed to help you start to identify where and how to make these sorts of savings.

And it has been designed to take less than 25 minutes to complete. It could be the most profitable 25 minutes you’ll spend this year.

Once you’ve filled it in we strongly recommend that you discuss all of your “no” answers with your Chartered Accountant.

Of course, if you don’t have a Chartered Accountant, or you would simply like someone to give you a fresh perspective on your options, we would be delighted to help you.

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Iain Wallis – Proven Tax Strategies For High Net Worth Individuals

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