To March’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Section.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
Please contact us for advice in your own specific circumstances. We’re here to help!
Practical implications of the dividend tax allowance
The new rules governing the taxation of dividends are set to take effect in relation to dividends received after 5 April 2016. The changes include:
– a £5,000 dividend nil rate (also known as the ‘dividend tax allowance’ (DTA)), which will effectively tax at the nil rate. – read more >>
Personal savings allowance update
From 6 April 2016, the personal savings allowance (PSA) will allow basic rate taxpayers to receive up to £1,000 of savings income tax-free. For higher rate taxpayers, this limit will be £500. HMRC have published guidance setting out details of what counts as savings income and how the allowance will be calculated, including some useful examples. – read more >>
Landlords’ replacement wear and tear allowance
Capital allowances are not available for expenditure on furniture and furnishings for use in dwelling houses. However, until 5 April 2016 (1 April 2016 for corporation tax) a deduction for wear and tear may be claimed. – read more >>
Employee bonus schemes in the spotlight
HMRC have recently published the latest addition to their tax avoidance guidance series, entitled Employee Bonus Schemes: Growth Securities Ownership Plan and other avoidance schemes. – read more >>
Accountants urge HMRC to simplify the tax relief claims process to halt the growing influence of refund agencies
One of the greatest criticisms of the British taxation system is its unnecessary complexity. Nowhere is this better illustrated than with the tax relief claims process. Try claiming a refund, and you’ll soon discover how difficult the process can be. – read more >>
March Key Tax Dates
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/3/2016
31 – Last minute tax planning for the 2015/16 tax year. Ensure you use up all exemptions to which you are entitled
March Questions and Answers
Q. What are the implications of selling my Scottish home? I own and live in a property in Scotland. What are the implications of me selling the house to a relative, who will buy it using a buy-to-let mortgage, and allow me to stay in it and pay rent to her as a tenant?
A. If the house has always been your main residence, there should be no capital gains tax implications for you. Depending on the purchase price, your relative may have to pay the Scottish land and buildings transaction tax (LBTT), which replaced the previous stamp duty land tax (SDLT) in Scotland from April 2015. With regards to the new lease allowing you to remain in the property as a tenant, there may be relief from LBTT under the sale and leaseback provisions. For further information on LBTT, see the Revenue Scotland website at here. And of course, your relative will have to declare and pay tax if applicable, on any rental income she receives from you.
Q. Should we register for VAT to reclaim input tax on the costs of conversion? My brother owns a commercial business unit, and we have decided to convert it into residential units. Although I will be project managing the conversion, I will not be charging my brother. As you can imagine, there will be a lot of expenditure on building materials, which are subject to VAT and potentially contractors who are VAT registered. Will it be advantageous to set up a VAT-registered business for the development so that we can claim back the VAT incurred?
A. Broadly, where an individual converts non-residential property into residential property they can zero rate the sale of the completed residential units. Where this is the case, it will be worthwhile registering for VAT as much of the input VAT incurred can be reclaimed. However, there are many rules and conditions that can apply in such circumstances. VAT Notice 708: buildings and construction should provide a useful reference tool. I would recommend that you read it in detail as it will help you satisfy yourself as to the correct liability of the supplies of goods and services being made by suppliers and contractors to you. The Notice can be found on the GOV.UK website at here.
Q. Is inheritance tax due on a gift? I have an elderly friend who has said he would like to give me a gift of £10,000 to help with my planned kitchen extension. Will there be any tax to pay on this very generous gift?
A. If you make a gift during your lifetime, there will not usually be any inheritance tax (IHT) to pay. Lifetime gifts are usually treated as potentially exempt transfers (PETs) and will only become chargeable to IHT if you die within seven years of making the gift.
However, if you make a gift to a company or to some types of trust, the gift is immediately chargeable and you may have to pay some tax in your lifetime – if the total value of those gifts exceeds the IHT threshold (currently £325,000).
Any money you give away during your lifetime that doesn’t fall under the exempt transfer rules may escape IHT as a potentially exempt transfer (PET). There are no limits on the amount of PETs you can make during your lifetime. Basically, for a PET to escape IHT completely you need to make sure that you survive for seven years after making the gift.
If you die within the seven year period, the PET will be partially chargeable depending on the number of years that have elapsed. The reduction is given in the form of taper relief. This is a sliding scale used to determine tax liabilities on gifts between three and seven years before death. The rates of taper relief are as follows:
– Between 0 to 3 years, the reduction is 0% and the actual tax rate is 40%
– 3 to 4 years, the reduction is 20% and the actual tax rate is 32%
– 4 to 5 years, the reduction is 40% and the actual tax rate is 24%
– 5 to 6 years, the reduction is 60% and the actual tax rate is 16%
– 6 to 7 years, the reduction is 80% and the actual tax rate is 8%
– More than 7 years, the reduction is 0% and the actual tax rate is 0%
Taper relief is only of real benefit if you can also fully use the nil rate band for other transfers. Taper amounts are set against the free slice first.
If you give £100,000 away during your lifetime and die four years later, leaving a further £350,000 in your will, the first £100,000 lifetime gift counts against your nil rate band first. So your estate will only have £225,000 (in 2015/16) left in nil rate band to set off against the remaining £350,000. This means that your executors will end up paying as much tax as if you had not made the gift at all.
Taper relief is worthwhile for those with large estates. Giving away £1 million and living for seven years takes the money right out of the IHT net. But if you only live for six years, the £1 million less the nil rate band is charged at only 8% tax instead of 40%. Obviously, anything that is transferred at death will be chargeable at the full 40% rate as the nil rate band will have been used up.
Many people use special life insurance policies to make sure that a potential liability to IHT is covered if they don’t live for the full seven years after making a PET. These types of policy are designed to fit in with the tax taper. The proceeds are usually written into trust so they are outside your estate when you die.