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Seven Tax Planning Thoughts – some before 5 April 2012

Below are several thoughts on tax some but not all related to the tax year end on 5 April 2012.

These comments are by their nature general and any action needs to take into account the wider commercial or family context. This is not investment advice. Please contact me for specific advice relating to your circumstances.

1. Use your Pension limits

Under the new rules from 6 April 2011 the maximum gross contribution per year is £50,000. There is a possibility however to mop up unused relief from the years 2008/09 to 2010/11 provided at least some other contributions were paid in those years.

The pension lifetime allowance reduces on 6 April 2012 from £1.8 million to £1.5 million. It is possible to elect by the end of year to retain the higher limit but this will block further contributions so this needs to reviewed carefully.

2. Accelerate Capital Expenditure in your business before 1 April 2012 for Companies and 6 April 2012 for sole traders / partnerships

The Annual Investment Allowance giving tax relief for 100% of capital expenditure for small businesses reduces from £100,000 to £25,000 in the new year. Consider therefore advancing fixed assets expenditure. It is often overlooked that the relevant date for qualifying expenditure is when the contractual obligation to pay arises rather than when the cash actually moves. Given the change it can often be beneficial to consider changing your business year-end to 31 March 2012.

3. Watch the High Marginal Rates of Tax

The withdrawal of the personal allowance for those with earnings above £100,000 has caught many individuals with lumpy income unaware. The personal allowance of £7,475 for 2011/12 tapers away at a rate of one pound for every extra two pound of income above the limit. If you have any control with your employer when a bonus is paid consider the possible marginal tax rate of up to 60% if your income is in the band between £100,000 to £114,950. Maybe ensure that all charitable contributions by the family are paid by the spouse who is a higher rate taxpayer. Could you consider executing a trust to allocate the income but not the capital to one or other spouse? Pension or gift aid contributions in the marginal rate above are of course very efficient.

4. Use your Inheritance Tax limits

The exemptions available for Inheritance Tax each year are lost if they are not used. The annual exemption is £3,000 and can only be carried forward for one year only. If you have regular income surplus to your annual spending requirements consider documenting and making annual gifts of a regular amount of income.

5. New Generous Tax Relief for investment in new Small Trading Businesses – Seed Enterprise Investment Scheme (SEIS)

The new enhanced EIS scheme starts from 6 April 2012.

  • Tax relief of 50% of the amount invested – regardless of the marginal rate of tax at which the individual is taxed.
  • Maximum of £100,000 investment per tax year per individual
  • Exemption from capital gains tax on sale of the shares.
  • Deferral of capital gains tax on any investments rolled over into SEIS shares meaning possible tax relief of up to 78% for 2012/13
  • Limit of £150,000 funds a company can raise under the scheme
  • Investee company must have been trading less than two years and have net assets less than £200,000
  • Maximum shareholding in each company per investor – 30%
  • There is clear substantial investment risk for these ventures but as part of a diverse portfolio.

6. Invest efficiently in a Business Property Renovation Allowance (BPRA) partnership with monies you would otherwise have paid in tax

Consider investing in a BPRA limited liability partnership in a hotel or a car park with a pre-arranged tenant.

Invest £100 – financed by cash down of £37 and a limited recourse loan organised by the partnership of £63. The total investment of £100 qualifies for one hundred percent capital allowances.

The deposit is thus covered by the tax refund when your tax return is submitted after 05 April 2012.

Minimum gross investment normally of £100,000.

7. Buy yourself a new smart phone on a company contract – tax exempt under new HMRC guidance

If a limited company provides an employee with a mobile phone on a business contract any private use has been exempt from income tax and national insurance for some time. HMRC have however recently changed their view and accepted that smart phones such as iPhones, Blackberries and android phones also now qualify for the exemption. This is clearly as the primary purpose of such devices is making phone calls rather than as a handheld computer. If tax or national insurance has been paid in the past on this incorrect basis it is possible now to make a back claim for a refund.

Please do get in touch if you want more detail or have any questions how this might apply to you. I am of course happy to help with your tax returns, give tax advice, offer help as a tax consultant/ advisor adviser, give tax advisory services as a tax adviser / accountant covering London and all points west – West End, Ealing, Mayfair, Knightsbridge, Chiswick, Fulham, Chelsea, Notting Hill, Belgravia, Bayswater, Kensington, Ladbroke Grove, Kingston, Marylebone, Barnes, Putney, Richmond, Wandsworth, Kew, Putney.

Top Ten Recent Tax changes for the New Tax Year

Topical headline tax changes for the new tax year some but not all announced in the budget

This is not comprehensive but hopefully all clients and friends will find at least two or three items below relevant or of interest. Please do ask if you have any questions.

1. Main Changes to Tax/ NIC Rates – personal and corporate

• From 6 April 2011 the tax free Personal Allowance for individuals is to increase to £7,475 but the amount charged at basic rate will decrease to £35,000

.• National Insurance for employees will increase from 06 April 2011 by 1% to 12% and 2% from 11% and 1%. For the self employed this increases to 9% and 2% instead of 8% and 1%. Employers NIC will increase to 13.8% from 12.8%

.• Company tax rate on profits below £300,000 to decrease to 20% from 21% from 01/04/2011.

2. New Restrictions on Furnished Holiday Lettings (FHL) relief

The important changes to the relief as suggested in the consultation will, subject to parliamentary review, be as follows

• From 6 April 2011 any loss can only be set against income from the same trade not other income as is common now.

• The day counts increase from April 2012 – for the property to qualify as an FHL business it will need to be available to let for 210 days per year and actually let for 105 days per year.

• Individuals whose businesses are treated within the FHL regime for one year will be allowed to elect for the same provisions to apply for the following two years regardless of the days count.

3. Mileage Allowances increase and new allowance for Charity Volunteers

From 6 April 2011 the car mileage allowance is to increase to 45 pence per business mile for the first 10,000 miles and remain at 25 pence per mile thereafter. An imaginative change is that volunteers for charity can now claim 5 pence per mile travelled on behalf of a charity where previously no relief was available as they were not employees.

4. New Enterprise Zones introduced – back to the future

In a reprise of an eighties idea twenty one new zones are to be (re) introduced in which businesses will qualify for relief from rates, relaxed planning regulations and enhanced capital allowances where the area focuses on manufacturing.

5. IR35 will not be scrapped

The IR35 rules re employed/ self employed status will remain but with changes to enforcement to allow greater clarity and certainty so they say.

6. Changes to Personal Tax Return penalties

It is not so widely known but for years up to 5 April 2010 the tax return late filing penalty was the lesser of £100 OR the tax due. If there was no tax due as for instance a refund was appropriate then the late filing penalty would be reduced to nil. From 31 January 2012 however if a personal tax return is filed late the penalty will always be £100. Further penalties apply as follows – over three months late – a daily penalty, over six months late – an additional £300 or five per cent of the tax due if this is higher, over twelve months late – a further £300 or a further five per cent of the tax due if this is higher.

7. Relief on Childcare Vouchers to be restricted to the basic rate of tax

Unless an employee or director joined a scheme before 6 April 2011 relief will be restricted under the childcare voucher scheme to the basic rate of tax. This is still likely to be beneficial for those who are paying for childcare and do not qualify for children’s tax credits. Presently we are finishing the development of a website to offer a toolkit of documents to enable the implementation of the scheme for a small employer.

8. Welcome certainty to come on residency status for individuals coming to or leaving the UK

Following certain court cases taken aggressively by HM Revenue and Customs the position on whether an individual was resident in the UK for tax purposes or not was very uncertain. It is therefore welcome that in the Budget the government announced that there will be consultation on a statutory test of residency probably to be introduced from April 2013.

9. More generous rules for Research & Development Tax Credit

The percentage uplift for qualifying research and development will increase from 75 to 100% of expenditure from 1 April 2011. The onerous restriction limiting any refund to the amount of PAYE tax and National Insurance paid in the period will be abolished.

10. Ten percent Capital Gains Tax limit to increase to £10M from £5M

From 6 April 2011 the lifetime limit on sales that qualify for 10% capital gains tax will increase to £10M. Entrepreneurs’ relief reduces the capital gains tax rate from the usual rate of 28% to 10% on the sale of the whole or part of a trading business or shares in a trading company. As tax law treats a furnished holiday let property as a business it may also apply on the sale of qualifying property.

Please do get in touch if you want more detail or have any questions how this might apply to you. I am of course happy to help with your tax returns, give tax advice, offer help as a tax consultant/ advisor, give tax advisory services as a tax adviser / accountant covering London and all points west – West End, Ealing, Mayfair, Knightsbridge, Chiswick, Fulham, Chelsea, Notting Hill, Belgravia, Bayswater, Kensington, Ladbroke Grove, Kingston, Marylebone, Barnes, Putney, Richmond, Wandsworth, Kew, Putney.

Capital Gains Tax (CGT) set to rise – Budget set for 22 June

The new Conservative Liberal government have announced in their coalition document that CGT is very likely to rise in the first budget of the new government. The current historic low rate is 18%.

” The new government has already said it will seek to raise capital gains tax on non-business investments to 40%…”

What seems less widely known is that there are strategies that can be put in place now to effectively “bank” the benefit of the lower tax rate under the current more generous regime.

If you have investments with inherent capital gains then please do get in touch if you want any help to implement this planning.

End of Year Tax Planning

We are fast approaching the end of the current tax year (5 April 2010) and now is an ideal time to review your financial affairs to ensure that they are as tax efficient as possible. This is particularly important as the new tax year (2010/11) will see already announced tax and NIC increases and possibly a change in Government, which could bring in yet more changes.

Below, I have set out some planning points to consider and I am happy to provide further details by telephone. Any action you do take needs, as always, to take into account the wider effects of the planning as well as any tax advantage gained.

Tax increases and restricted allowances

As you are probably aware, the top rate of income tax will rise to 50% from 6 April 2010. This only applies to individuals with taxable income in excess of £150,000 and the new high charge only affects income over that level. Therefore for many the relevant highest tax rate will remain at 40%.

The tax-free personal allowance stays at £6,475 for 2010/11 and so, unusually, is not going to be increased for the new tax year. Furthermore, for those with income over £100,000 the personal allowance will taper away and an individual with an income above £112,950 will receive no personal allowance at all. Due to the interaction of the thresholds and tax rates, the marginal rate of tax will be as high as 60% for those affected. Therefore, it is important to consider how you currently receive income and whether there are any better methods that would work for you. You may also want to consider accelerating income into this tax year before the tax rises occur. We can discuss this further if that would be of help to you.

Married couples and civil partners

Married couples and civil partners have a few additional planning opportunities. Where possible, you should ensure that you both utilise your personal allowances and tax bands. With the advent of the 50% tax charge and the restricted personal allowance it is worth reviewing the balance of your joint income to see if any tax savings are possible.

Where you have made capital disposals in the current tax year you should also try to ensure that both of your capital gains tax annual exemptions are used effectively (£10,100 each for 2009/10).

If you intend to make capital disposals in the near future it is worth considering whether to spread these over two tax years to make sure that your capital gains tax annual exemption is fully used up against any gains.

The current rate of capital gains tax is 18% (or even 10% if specific reliefs are available). Even though it did not happen as predicted in the recent Budget there has been talk that the rate of capital gains tax may increase to lessen the gap between it and the top rate of income tax. However, there are currently no firm plans being proposed for this to happen. If you are likely to make a significant capital gain in the near future do let me know so I can provide further details on various options that could help reduce your tax bill.

Gift aid donations should be made by the spouse or civil partner who is the highest rate taxpayer as they are able to obtain higher rate tax relief for the payments. Basic rate taxpayers just receive basic rate relief.

Pension contributions

It is possible to make contributions to a personal pension and contribute up to £3,600 per year (gross), without any evidence of earnings. This could therefore be useful for a non-working spouse, children or for someone with only unearned income.

There are also important pension contribution changes coming in from April 2011, which will restrict higher rate relief for some, but are also already taking some effect. Now is an ideal time to review your overall pension strategy.

Tax-favoured investments

Investments in venture capital trusts (VCTs) or the enterprise investment scheme (EIS) can be useful tax planning tools where they are appropriate for your investment strategy. Where qualifying investments are made, you can obtain generous tax relief. However, these are high-risk investments and, as with any form of investment, financial planning advice should be sought from a qualified individual before making any decisions.

Inheritance tax

The inheritance tax (IHT) annual exemption is £3,000 and can be carried forward for one year. Therefore, if you have not made any gifts in the past two tax years you will have an exempt amount of £6,000.

In addition, there are some other useful IHT exemptions to remember, such as the small gifts exemption of £250 to each individual and gifts out of surplus income, which, if they qualify as such, are free from IHT. Where outright gifts are made and the donor survives seven years, the gift would not be subject to IHT in any event.

Tax Refunds on Holidays Lets within Europe

Do you own property in Europe….Has it made a loss in any tax year since 2006/07?

Did you know that under new HMRC guidelines you may be able to claim these losses against other income often leading to substantial tax refunds?

The conditions are:

• The property must be situated in the European Economic Area
• It must be let furnished not empty
• Available for Letting at least for 140 days a year
• Must be actually let for at least 60 days in the year
• Not normally occupied by any one tenant for more than 31 days at a time.

Further benefits of the relief are as follows:-

• Losses can offset against general income eg salary, self employed profits
• Entrepreneur’s Relief is usually available on the sale of such properties meaning an effective rate of capital gains tax of 10% not 18%
• Roll- over or Hold Over available to defer gain on sale
• Capital Allowances available on equipment used in the property
• Pension contributions can be paid if the property is profit making
• Possibly qualify for Business Property Relief thus exempting the property from IHT on death or gift to others


HMRC have said that the cut off date to claim back these losses for 2006/07 is 31 July 2009.

Please get in touch if you need any help.

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