Tag Archives: tax

Dividend Allowance Changes

Podcast: Listen Now

The new dividend tax regime was introduced by former Chancellor of the Exchequer George Osborne. This has only been in place since April 2016, but it is already to be amended in April 2018, following announcements in the Spring 2017 Budget.

Before April 2016, a basic rate taxpayer paid no tax on their dividend income. Only higher rate or additional rate taxpayers paid tax on their dividend income at an effective rate of 25% or 30.6% respectively.

Since April 2016 the first £5,000 of dividends has not attracted any tax liability and dividend income above £5,00 has been taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

In the recent Budget the new Chancellor announced that the tax-free dividend allowance of £5,000 will be reduced by £3,000  to just £2,000 for dividends paid on or after April 2018

So what will this mean to you?

Since April 2016, if you have no other income, you can earn up to £16,000 in dividends (£5,000 dividend allowance + £11,000 personal allowance) and pay no tax. Above this you have to pay divided tax.

But from April 2018, you will only be able to earn up to £13.500 in dividends (£2,000 dividend allowance + £11,500 personal allowance) and pay no tax, subject to the Autumn Budget.

This will mean shareholders will be worse off by £225 a year if they are basic rate taxpayers, £975 a year if they pay higher rate tax or £1,143 a year if they are liable at the additional rate. FOr a couple who share the running of their company, this is doubled to £450, £1,950 or £2,286 depending on the tax rate.

What should you be planning?

Provided your company has sufficient distributable profits, directors should consider accelerating dividend payments before 6 April 2018 to benefit from the current dividend tax-free allowance of £5,000 before it reduces.

If you would like more information on this subject, please get in touch on 01872 271655 or email neil.brittain@kelsallsteele.co.uk

Self-employment Business start-ups – FAQ

Self Employment FAQ

Starting-up in business, becoming self-employed, can be a bit of a daunting process, especially if you are not sure of some of the steps you need to go through. There are a few ‘hoops’ you need to jump through so we have put together a few basic pointers for those who are thinking of making that move in self-employment.

We can help you at every step of the way, so please feel free to contact us if there is anything you would like further information on or help with.

  1. Do I need to tell HMRC?
    • You will need to register as self-employed with HMRC and the easiest way to do this is online at gov.uk. Tell them as soon as possible after your self-employment begins.
  2. What will they ask me?
    • Your National Insurance number, address, date of birth and details of the business including nature of the business, date it began trading and your business address. If you have previously registered as self-employed you would have had a 10 digit unique taxpayer reference number. They will ask for this if you have it.
  3. Do I need to register for VAT?
    • You only need to register for VAT when your sales exceed £83,000 in a rolling 12 month period. However, you may wish to voluntarily register to enable you to claim back the input VAT on your expenses. This does mean you have to charge output VAT on your sales so it’s only advisable to voluntarily register if this will not affect your competitiveness e.g. if your customers are VAT registered and can reclaim the VAT you charge them.

Don’t forget that if you become VAT Registered you will need to file VAT Returns online with H M Revenue & Customs. You will need to create a Government Gateway account and register to file VAT Returns online. Make sure you allow enough time for this process before your first VAT Return becomes due!

  1. Do I pay myself a salary?
    • No, the money you draw from your business is not classed as a salary and is not a business expense. You do not pay tax on the money you draw from the business, only on the business profits. You can of course employ other people and pay them a salary which is a business expense.
  2. When do I pay tax?
    • Your first tax return will run from the day you start self-employment up to the following 5 April. Any tax will be due on the 31 January following that e.g. if you start self-employment on 1 June 2016, your first tax return will run to 5 April 2017 and if you have made a taxable profit, you will pay tax on 31 January 2018.
  3. Do I need to register for national insurance?
    • When you register as self-employed you will automatically be registered to pay national insurance. If your income is high enough, you will pay national insurance at the same time as any income tax.
  4. What records should I keep?
    • You need to keep records of your business income and expenditure. This will include bank statements, sales invoices and purchase invoices, details of the entries on your VAT Return and payroll records if you employ people. Keep records for at least 5 years from the 31 January following the tax year e.g. you must keep your records for the year ended 5 April 2016 at least until 31 January 2022.
  5. What happens once I’ve registered as self-employed?
    • HMRC will issue you with a unique taxpayer reference number and send you a notice to complete a tax return. You will need to enter on this tax return all your business income and expenditure to calculate your taxable profit and any tax that may be due. The tax return needs to be filed by the 31 January following the tax year end date (e.g. tax returns for the year ended 5 April 2016 are due to be filed by 31 January 2017).
  6. Aren’t things changing soon?
    • Yes! Over the next few years the Government’s plans to ‘make tax digital’ (MTD) will be rolled out and, depending on the size of your business, you may have simpler rules to follow for reporting your income and expenditure. You will also have to report more regularly, probably 4 times a year. More details will follow as they come through!

Changes to Dividend Tax

Dividend Tax Credits

Up until 5 April 2016 dividends paid by UK Companies normally had an attached 10% tax credit of the grossed dividend. Therefore if you received a dividend of £90, there would be a deemed tax credit of £10, making the total gross dividend £100.

This dividend tax credit was non-refundable but could be offset against a taxpayer’s other income tax liabilities.

Dividend Allowance

From 6 April 2016 the entire gross dividend is paid to the recipient with no “attached” dividend tax credit. However, a new £5,000 tax free dividend allowance has been introduced.  Dividends above this level will be taxed at 7.5% for basic rate (20%) taxpayers, 32.5% for higher rate (40%) taxpayers and 38.1% for additional rate (45%) taxpayers.

Do note that dividends received through ISA’s will be unaffected.

Taxpayers who receive dividends in excess of £5,000 will from 6 April 2016 be required to complete a Tax Return form in order that the tax charge can be collected by HMRC. This is in contrast to earlier years where basic rate taxpayers had no additional liability due to the benefit of the attached tax credits and hence no need to contact HMRC.

If you would like further information on this topic, please don’t hesitate to contact Martyn Gillingham on 01872 271655 or via email at martyn.gillingham@kelsallsteele.co.uk

Budget 2016

Highlights

  • Income tax personal allowance to rise to £11,500 for 2017/18
  • Introduction of a Lifetime ISA for under 40’s
  • Abolition of Class 2 NI
  • Reforms to corporate tax losses
  • Reduction in the Corporation Tax rate
  • Changes to Entrepreneurs’ relief

Budget 2016 Summary

The Chancellor’s 2016 Budget contained some important announcements and confirmed a number of changes planned for the new tax year. Following this, we have put together a Budget Summary PDF which contains the latest tax and financial information, which we trust you will find useful.

There is also a handy Tax Data Card for 2016/17, giving details of all the allowances and limits you’ll need to know. You can download both the PDFs for free via the links below:

Our summary goes into more detail on all of the points raised in the budget, aimed to give you a clearer picture of the announcements and how the changes will affect you and your business. however, as always, if there is anything you would like to discuss, please do not hesitate to contact us on 01872 271655 or via email at enquiries@kelsallsteele.co.uk

Dividends and Tax

Dividends – All change

We are fast approaching the end of the tax year and from 6 April 2016 it’s all change as far as the taxing of dividends are concerned.

The legislation

Under current legislation, your dividends are deemed to be received net of 10% tax. For example, a dividend of £10,800 is actually treated for tax purposes as being a dividend of £12,000. Providing total income (including the £12,000) remains within the basic rate band, this £12,000 is taxed at 10%, so the tax due is £1,200. As the dividend received was only £10,800 the recipient has effectively already paid the £1,200 and no further tax is due. If the basic rate band is used up, the dividend income is then taxed at the higher rate of 32.5%. A £12,000 dividend in the higher rate band would result in tax due of £3,900 of which the recipient is deemed to have already paid £1,200, so the amount due to be paid is £2,700.

Under the new rules, the tax calculation is quite different. The dividend amounts received are not adjusted upwards so if you receive £10,800 you are taxed on £10,800. The first £5,000 will be tax-free and from then on, the rates vary, depending on your level of other income. For dividend income falling within the basic rate band, the tax will be 7.5%, for dividend income falling within the higher rate band, the tax will be 32.5% and for dividend income falling within the additional rate band, the tax will be 38.1%.

This year

It is particularly important this year to ensure that you are able to take advantage of the current legislation by ensuring you receive the maximum amount of dividends within your basic rate band, so that no additional tax will be payable. Remember, any dividends voted do not have to be taken as physical cash now (although they can be), but could be added to your Directors Loan Accounts and drawn down tax-free at a later date when cash flow allows.

However you can only vote dividends if the Company has sufficient reserves to do so. Your Accounts will show the ‘Reserves’ of the Company which is normally retained profits from previous years less any previous distributions e.g. dividends.

It is also important to consider your other personal income for the year and for future years to plan ahead and ensure that dividends are voted in the most tax-efficient manner. A few things to consider would be the claw back of child benefit for couples where one partner’s income exceeds £50,000. Also your tax-free personal allowance is reduced where your income exceeds £100,000. Remember also that contributions to pension schemes increase your basic rate band so that more of your income is taxed at the basic rate rather than the higher rate. Other deductions to your income may be available also e.g. interest on qualifying loans.

An example

The following example is based on a scenario of an £8,000 salary and net dividends of £45,000 with no other personal income. You will see that by keeping the dividend level the same next year, the tax will increase by £1,762. To keep the take-home amount the same, the dividends need to rise to £47,610.

  2015/16   2016/17 2016/17
  £   £ £
Salary 8,000 8,000 8,000
Dividend received 45,000 45,000 47,610
Income tax liability (3,513) (5,275) (6,123)
Take home amount 49,487   47,725 49,487

There are always many things to take into consideration when proposing and voting dividends and if you would like assistance on any specific examples please don’t hesitate to contact us on 01872 271655.

Marriage Tax Breaks

Marriage Tax Breaks

For those who want to leap into marriage this year (according to an old Irish legend, women are allowed to propose to men on 29th February) there are some financial breaks for taking the plunge:

Marriage Allowance

You may be able to claim marriage allowance to allow you to transfer 10% or £1,060 of your Personal Allowance to your husband, wife or civil partner (in 2016/17 this rises to £1,100). This reduces their tax bill by up to £212 in the tax year. To be of benefit, you as the lower earner should have an income of £10,600 or less.

Capital Gains Tax (CGT)

A couple can pass ownership of assets between them free of tax (unless you separated or didn’t live together at all in that tax year).  And if you are selling assets that would attract CGT, you will be taxed on any gains over £11,100 in 2015/16 but as both spouses have a CGT exemption, assets may be transferred and shared so that effectively a couple can realise gains of £22,200 before CGT is due.

Marriage gifts

If family are feeling generous, there may be no inheritance tax on wedding or civil partnership gifts worth up to £5,000 for a child, £2,500 for a grandchild or great-grandchild and £1,000 to anyone else.  The gift must be given on or shortly before the date of the wedding or civil partnership ceremony.

Inheritance Tax (IHT)

Your estate is exempt from IHT if you left everything to your husband, wife or civil partner (who lives permanently in the UK).  Again married couples and civil partners can give any value of gifts to each other during their lifetime without IHT being due on them.

There are more benefits to being married than you may have thought so maybe consider taking that leap! For more information on any of the points in this article you can contact Clare Vaughan at clare.vaughan@kelsallsteele.co.uk or 01872 271655

Rent-a-Room Scheme

UPDATE: As announced in the Summer Budget 2015, as of April 2016 the rent-a-room scheme allowance will increase to £7,500. This is the first increase to this allowance in 18 years.

If you provide furnished accommodation in your main home you may qualify for tax-free rental income under the Rent-a-Room Scheme.  If you receive £4,250 or less per year for the accommodation then you will not need to pay tax on the income.

If you receive £4,250 each year but there are 2 of you that own the property, the income will be split between you and also the allowance will be split so you will each be able to receive a maximum of £2,125 tax free.

This allowance most commonly applies to people who have a lodger in their main home or who run a Guest House or Bed & Breakfast from their home. You may not claim it if the room is not part of your main home and the room must be furnished. You cannot claim it if the room is in your UK home while you live abroad or if you let the whole of your home out and not just a part. You also cannot claim it if the room is used as an office or for business purposes although it is fine if your lodger works from your home in the evenings.

To calculate your income for the year, you must not only include the rental income, but also any amounts you receive for meals, goods and services such as cleaning or laundry. If your total income is less than £4,250 you pay no tax on the income but if it is higher than £4,250 you can choose how to treat it for tax purposes.

Your first option is to treat it as you would any other source of income by calculating the expenses you have incurred and deducting those from the income to arrive at a ‘net profit’ figure. This figure will be entered on your tax return and taxed at your marginal rate (e.g. 20% if your total income falls into the basic rate band and 40% if your total income falls into the higher rate band).

Alternatively, you may find that it is better to take the rental income for the year and deduct the £4,250 allowance. This figure is then entered on your tax return as rental income and taxed in the normal way. You cannot deduct any of your expenses if you use this method, but you may find that the overall income that is taxed is lower than using the standard method.

You can change the method you use each year, depending on which is most tax-efficient.

If your income less your expenses results in a net loss rather than a profit then it is best to use the standard method. This loss can be carried forward and offset against future rental profits, even if you choose to change your method in the next year.

For example, if you receive income of £5,000 from renting your room to a lodger, but incur expenses against that of £6,000 then you will have an overall loss to report on your tax return of £1,000. The following year, you may again receive £5,000 but only have £1,000 expenses to offset against this. Your net profit is therefore £4,000. It would be better in this case to use the second method and offset the £4,250 allowance against your £5,000 income so you only need to report £750 (£5,000 less £4,250) as your net profit. You have a loss of £1,000 brought forward from the previous year which you can offset against this £750 so your actual net profit will be £Nil and you will still have £250 losses to carry forward to the following year.

If you have any queries about the Rent-a-Room scheme or if you are not sure which method to use to calculate your net profit, please don’t hesitate to contact us on 01872 271655 or email Lydia.williams@kelsallsteele.co.uk

Benefits in Kind

A simple guide to Benefits in Kind

This is a basic guide and should not be used as a definitive guide, since individual circumstances may differ, in which case specific advice should be obtained, where necessary.

As an employee, you pay tax and National Insurance Contributions on your wages but you must also pay tax on company benefits you receive like cars, accommodation and loans.

The amount of tax you pay depends on the value of the benefits that you get. Your employer will normally take the tax owed from your wages.

You will always pay tax on benefits from your job if:

  • you’re a company director
  • you earn £8,500 a year or more (including the value of the benefits)

Some company benefits can be tax-free, e.g. childcare and canteen meals.

Company cars

You pay tax on the value of the car and fuel to you. It should be remembered that the ‘value’ of a car is the manufacturer’s list price and not necessarily the amount your employer paid for it! Your company car’s value also depends on things like the type of fuel it uses and its CO2 emissions. Its value is reduced if you have the car part-time or you pay something towards its cost. If your employer pays for fuel you use personally and not for your job, you’ll pay tax on this separately.

Loans

You’ll pay tax on low-interest or interest-free loans from your employer if they’re worth more than £10,000. You pay tax on the difference between the interest rate you pay to your employer and the official rate of interest set by the Bank of England. You may pay tax if your employer lends money to one of your relatives.

Living accommodation

If you (or one of your relatives) is living in accommodation provided by your employer you may pay tax. How the tax is worked out depends on whether the accommodation cost more than £75,000.

You may not pay tax if you get the accommodation so you can do your job, or do your job better (e.g. agricultural workers living on farms). The costs connected with living accommodation might also give rise to a tax charge. For example if your employers make payments on your behalf for any of the following:

  • rent
  • council tax or water charges.
  • mortgage interest
  • repairs and insurance
  • heat and light
  • telephone expenses

Medical insurance

You usually pay tax on the cost of the insurance premiums if your employer pays for your medical insurance.

You can get some tax-free health benefits from your employer, e.g.:

  • medical insurance when you’re working abroad
  • annual check-ups

Tax-free company benefits

You can get some company benefits tax-free, including:

  • meals in a staff canteen
  • hot drinks and water at work
  • a mobile phone
  • workplace parking

National Insurance on company benefits

You don’t usually have to pay National Insurance on benefits you get from your job if they’re not paid in cash. Your employer will pay National Insurance contributions on them instead.

But if the benefits you get are cash or treated like cash your employer will take extra National Insurance from your wages.

For example, if your employer gives you a voucher with a cash value or a gift that you could sell instead of keep, you will pay National Insurance on the value of the gift if you sold it.

This is a complex area of taxation – if in doubt seek specialist advice.

Salary, Dividends or both?

Salary, Dividends or both?

You may have heard mention of tax efficient methods of extracting monies if you operate your business through a limited company, particularly with reference to salary and dividends.

Salary

Salary is subject to income tax and national insurance (NI), both employee’s and employer’s and any salary or bonus payment should be fully tax deductible in the company’s hands.

Dividends

Dividends are withdrawn out of post-tax profits and, up to the basic rate band, (currently £41,450) with no other income, these can be drawn at no personal tax cost to the individual due to a deemed 10% tax credit already paid.

So which is better?

Lets take as an example a company making a profit of £60,000 and look at three methods of extracting funds within a corporate vehicle. The assumption is that there is a single director shareholder with no other forms of income and the whole £60,000 is extracted by either salary only, dividends only or a mixture of salary and dividends.

salary-dividend-table

We can see from this table that the by taking a mixture of salary and dividend, there is a greater level of income in the individual’s hands and a lower overall tax cost by way of income and corporation tax. If the level of salary is taken to at least the lower earnings limit (currently £109 per week), this will ensure the individual’s entitlement to state benefits is preserved.

If this is something you are currently considering, or you’d just like some further information on the topic, please don’t hesitate to get in touch with Clare Vaughan on 01872 271655 or email at clare.vaughan@kelsallsteele.co.uk

Self-Assessment – filing your tax return on time

Filing on time

With the filing deadline of 31 January fast approaching for self-assessment, there has recently been published the 10 oddest excuses for sending in a late return.  The highlights of these run from ‘my goldfish died’, ‘my wife won’t give me my mail’, ‘I’ve been cruising round the world in my yacht’ and from an accountant ‘I’ve been too busy submitting my clients’ tax returns’.

Excuses

HM Revenue & Customs accept reasonable excuses for late filing with some examples such as a failure in the HMRC computer system, problems with the preparer’s computer, a serious illness or not receiving the activation code in time.  However these are just examples and each case will be considered individually. HMRC would still need to see a reasonable effort has been made to meet a deadline.

Penalties

In normal circumstances, the penalty for late filing of the tax return is an initial fine of £100, even if there is no tax to pay or the tax due is paid on time.  After three months, an additional daily penalty of £10, up to a maximum of £900, applies.  After 6 months a further charge of £300 is imposed ,or 5% of any outstanding tax, whichever is greater.  There are also additional penalties for paying late of 5% of the tax unpaid after 30 days, 6 months and a year.

If you have any queries or concerns, please contact our tax experts

Farmers Averaging Relief: What’s Your Average?

Wouldn’t it be nice if you could even out the ups and downs of your business profits? For farmers and market gardeners, there is the opportunity to do just that using the Farmers Averaging relief.

Instead of paying tax and national insurance on the actual taxable profit for two consecutive years, you can choose to take the average profit and then pay tax on this averaged profit figure for both years.

This relief is available for sole traders and partnerships only, and if you are in a partnership you can choose to average your share of the profit without your partners needing to average as well. You cannot claim if you commenced or ceased trading in either of the two years.

Averaging is particularly effective if one years profit would take you into the higher rate band whereas an average of the two years profits would keep you in the basic rate band for both years. Even if both years profits are in the basic rate band already, by reducing the second years profits through averaging, you will gain from a cash flow perspective by reducing the payments on account due for the following year. You can also average if one of the years has resulted in a taxable loss rather than a profit. In these cases, you treat the loss-making year as a NIL profit and therefore the averaged amount is half of the profit arising in the profit-making year.

To qualify, your profits must differ by an amount equal to 30% of the higher profit. There are also limited reliefs available if the difference is between 25% and 30%.

The adjustment is made on the second years tax return and any additional tax that becomes due for the first year (because the averaged value is higher than the original first years profit) is entered on the later tax return i.e. you do not have to amend the first return. Also, it’s worth bearing in mind that you cannot average for tax credits purposes. The income figure for your tax credits return must be the actual (un-averaged) profit.

For more information, please contact Lydia Williams on 01872 271655 or lydia.williams@kelsallsteele.co.uk

Autumn Statement – The Key Points

Our guide to some of the key points announced in the 2013 Autumn Statement.

Income tax and National Insurance contributions

Transferable tax allowances for married couples
From 2015-16 spouses and civil partners will be able to transfer £1,000 of their income tax personal allowance to their spouse or civil partner. Couples where neither partner is a higher or additional rate tax payer will be eligible to transfer. The transferable amount will be increased in proportion to the personal allowance.

Employer National Insurance contributions for the under 21s – The government will abolish employer NICs for those under the age of 21 from April 2015, with the exception of those earning more than the Upper Earnings Limit, which is £42,285 a year (£813 per week) in 2015-16. Employer NICs will be liable as normal beyond this limit. This will be legislated for in the NICs Bill currently before Parliament.

Tax exemption for employer-funded occupational health treatments – As announced at Budget 2013 the government will introduce a tax exemption for amounts up to £500 paid by employers for medical treatment for employees. In response to consultation the government will extend the exemption to medical treatments recommended by employer arranged occupational health services in addition to those recommended by the new Health and Work Service.

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).

Social investment tax relief – The government will introduce a new tax relief for equity and certain debt investments in social enterprises with effect from April 2014. Organisations which are charities, community interest companies or community benefit societies will be eligible. Following consultation, investment in social impact bonds issued by companies limited by shares will also be eligible. The government will publish a roadmap for social investment in January 2014.

Venture Capital Trusts (VCTs): changes to scheme – Following a consultation over the summer, investments that are conditionally linked in any way to a VCT share buy-back, or that have been made within 6 months of a disposal of shares in the same VCT, will not qualify for new tax relief. This change will take effect from April 2014. The government will also consult further on potential changes to VCT rules to address the use of converted share premium accounts to return capital to investors where that return does not reflect profits on the VCT’s investments. To continue to facilitate use of VCTs by different types of retail investors, the government will change the VCT rules so that investors can subscribe for VCT shares via nominees

Taxation of pensions and savings

Tax relief on loans to purchase life annuities – Following a consultation launched at Budget 2013, the government has decided not to legislate to withdraw relief for interest on loans taken out to purchase life annuities by people aged 65 or over before 1999.

Announcement of new ISA annual subscription limits – The government will uprate the ISA, Junior ISA and Child Trust Fund annual subscription limits in line with CPI. The 2014-15 ISA limit will be increased to £11,880 (half of which can be saved in a cash ISA). The Junior ISA and Child Trust Fund limits will both be increased to £3,840.

Class 3A voluntary National Insurance – In October 2015 the government will introduce a new class of voluntary NICs to allow pensioners who reach State Pension age before 6 April 2016 an opportunity to top up their Additional Pension records.

Capital gains tax

Capital gains tax (CGT): private residence relief – The government will reduce the final period exemption from 36 months to 18 months from April 2014.

CGT: non-residents – The government will introduce CGT on future gains made by non-residents disposing of UK residential property, from April 2015. A consultation on how best to introduce the new CGT charge will be published in early 2014.

Employee ownership

Employee ownership – Following a consultation launched at Budget 2013, the government will introduce 3 new tax reliefs to encourage and promote indirect employee ownership:

  • from April 2014, disposals of shares that result in a controlling interest in a company being held by an employee ownership trust will be relieved from CGT
  • transfers of shares and other assets to employee ownership trusts will also be exempt from inheritance tax (IHT) providing certain conditions are met
  • from October 2014, bonus payments made to employees of indirectly employee-owned companies which are controlled by an employee ownership trust will be exempt from income tax up to a cap of £3,600 per annum

Share Incentive Plans and Save As You Earn limits – The Share Incentive Plan annual limits will increase to £3,600 per year for free shares and to £1,800 per year for partnership shares. The maximum monthly amount that an employee can contribute to Save As You Earn savings arrangements will increase from £250 to £500. These changes will take effect from April 2014.

Inheritance tax and trusts

Simplification of trusts – Following consultation announced at Budget 2013, the government will legislate to simplify filing and payment dates for IHT relevant property trust charges. It will also introduce legislation to treat income arising in such trusts which remains undistributed for more than 5 years as part of the trust capital when calculating the 10-year anniversary charge. The government will consult on proposals to split the IHT nil rate band available to trusts with a view to delivering this change alongside simplification of the trust calculations in 2015.

Vulnerable Beneficiary trusts – The government will extend with immediate effect from 5 December 2013 the CGT ‘uplift’ provisions that apply on the death of a vulnerable beneficiary and extend from 2014-15 the range of trusts that qualify for special income tax, CGT and IHT treatment. The government will consult further on ways to reform the tax treatment of trusts established to safeguard property for the benefit of vulnerable people.

Inheritance Tax (IHT) online – During 2015-16, HMRC will provide an online service for IHT, reducing administrative burdens for customers and agents.

The Gov.uk website contains full details of the Autumn Statement and it’s key announcements. Alternatively feel free to contact Neil Brittain on 01872 271655 or email at neil.britain@kelsallsteele.co.uk should you require any further information or clarification on any of the points detailed in this article.

Doctors Finance: The Lifetime Allowance

The Lifetime Allowance is the total amount that you can build up from all your pension savings in your lifetime without incurring a tax charge. The Government wants to encourage everyone to save enough to provide an adequate pension in retirement. However there is a tax consequence if too much is saved in a pension and the limit of £1.8m was reduced to £1.5 m from April 2012.  A further reduction to limit will take effect from 6 April 2014 to £1.25m.

If you exceed the limit lifetime allowance tax is charged on any excess over the lifetime allowance limit. The rate depends on how this excess is paid to you. If the amount over the lifetime allowance is paid as a:

  • lump sum – the rate is 55 per cent
  • pension – the rate is 25 per cent

Generally you and your scheme administrator are jointly responsible for paying the lifetime allowance charge.

Below is an illustration of if you’re in a defined benefit scheme and you take your pension before 6 April 2014/After 6 April 2014

Your pension benefits will be tested against the lifetime allowance of £1.5/£1.25 million. This level of pension saving is broadly equivalent to an annual pension of:

  • £75,000/£62,500 if you don’t take a lump sum
  • £56,250/£62,500 if you take the maximum tax free lump sum

Money purchase scheme

If you’re in a money purchase scheme it’s the value of your pension pot that is tested against the lifetime allowance at the time you take your benefits.

Your provider can provide an annual pension scheme statement which will show the value of your pension pot.

 

There are various forms of protection in place and these are noted below:

Primary protection

This gives you an enhanced lifetime allowance, which means you can have more pension savings without paying the lifetime allowance charge. If you have primary protection you can also have enhanced protection, but not fixed protection.

Fixed Protection

This fixes your lifetime allowance at £1.8 million. without paying the lifetime allowance charge. You had to apply before 6 April 2012 to get fixed protection.

You can’t have fixed protection if you have either primary or enhanced protection.

Fixed protection 2014

This will work in a similar way to the existing fixed protection regime introduced in April 2012. You will be able tofix your lifetime allowance at £1.5 million. You’ll have to apply before 6 April 2014 to get fixed protection 2014. You can’t have fixed protection 2014 if you already have primary, enhanced or fixed protection.

If you’re unsure of the value of your pension savings and don’t know whether you need fixed protection 2014 contact your scheme administrator or financial adviser.

Individual protection 2014

As well as fixed protection 2014, the Government has announced that individual protection 2014 will be available for 2014-15. The details of individual protection 2014 will be confirmed later but it is expected that:

  • A lifetime allowance equal to the value of your pension rights on 5 April 2014 – up to a maximum of £1.5 million.
  • Not affected by making further savings in to your pension scheme
  • any pension savings in excess of your lifetime allowance will be subject to a lifetime allowance charge

You’ll be able to apply for this from 6 April 2014.

You can hold both fixed protection 2014 and individual protection 2014 but you can’t apply for them at the same time.

If you’d like more information on this topic, don’t hesitate to get in touch with Lydia Williams on 01872 271655 or email lydia.williams@kelsallsteele.co.uk

The Health and Wellbeing Tax Plan

The Health and Wellbeing Tax Plan is an initiative launched by HM Revenue and Customs (HMRC) in early October 2013. It affects health professionals but not doctors and dentists (who were the subject of an earlier initiative) or nurses and social workers. Its aim is to offer health professionals a chance to bring their tax affairs up to date by telling HM Revenue and Customs by 31 December 2013 that they wish to join the plan and they have until 6 April 2014 to provide details of any undeclared income and pay any tax, interest and penalties due.

In particular, the plan covers medical professionals:

  • Physical therapists such as chiropodists, chiropractors, occupational therapists, osteopaths, physiotherapists and podiatrists;
  • Alternative therapists such as acupuncturists, dieticians, homeopaths, nutritional therapists, psychologists and reflexologists; and
  • Other therapists such as speech, language and art therapists.

By taking advantage of the initiative those medical professionals who voluntarily come forward will find that any penalty they might have to pay will be lower than if HMRC come to them first. From 1 January 2014 HMRC will be taking a much closer look at the tax affairs of the health professionals mentioned above.

After the opportunity closes on 6 April 2014, HMRC will be following up with the individuals identified as having outstanding taxes due and they could face significant penalties. HMRC will use information it holds from third parties and regulatory bodies to identify people who have not paid what they owe.

For further information on the campaign including how to make a disclosure please see  The Health and Wellbeing Tax Plan campaign website or contact Lydia Williams on 01872 271655 or lydia.williams@kelsallsteele.co.uk