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Inheritance Tax Planning
Planning opportunities to reduce or eliminate Inheritance Tax (IHT) are becoming more and more restricted by the complex legislation changes being introduced by HM Revenue and Customs (HMRC). In addition many people will have read recent rather over-dramatic, press reports of a tax case (known as the "Phizackerley" case) in which HMRC were held to be correct in their view that a particular piece of IHT planning did not work. It is all too easy in the current climate to think that there is little or nothing that can be done, short of giving all one’s assets away more than seven years prior to death, to reduce IHT liabilities. It is worth noting, however, that the Phizackerley case involved some rather unusual circumstances, and for most married couples (or civil partners) it is still possible to save a significant amount of IHT on the death of the second spouse by leaving an amount equivalent to the Nil Rate Band (currently £300,000) in a Will Trust on the first death rather than leaving the entire estate outright to the surviving spouse. This requires careful Will drafting and adherence to certain administrative requirements when the trust comes into being, but, properly organised, can save IHT of £120,000.
There are other, more straightforward ways in which IHT can be reduced which are often overlooked. In isolation they may not seem of enormous value, but over the longer term they can make a significant difference.
Gifts made within the seven years prior to death have to be taken into account in calculating the amount of the Nil Rate Band available on death, but part or all of many gifts can be ignored for this purpose.
Everyone has an annual exemption of £3,000, which if it is not used in a particular year can be carried forward for one year only. (The exemption for the current year is used in priority to any exemption brought forward.) In addition any number of gifts not exceeding £250 pa per donee may be made. Gifts in consideration of marriage are also exempt, although the amount depends upon the relationship between the donor and donee: £5,000 where the donor is a parent of one of the parties to the marriage; £2,500 where the donor is a grandparent or remoter ancestor; £1,000 for any other person. It is important to bear in mind that the gift should be made on the date of the marriage or shortly beforehand, and not after the marriage has taken place.
Another significant exemption is that covering gifts which can be demonstrated as being made as part of "normal expenditure out of income". For gifts to qualify for this exemption the donor must be able to demonstrate that, after paying all taxes and normal living expenses, he or she has surplus income from year to year. In addition there must be a pattern of making such gifts on a regular basis, although the amounts and the recipient do not have to be the same each year.
When Executors prepare the IHT forms needed to obtain probate, they are required to certify that they have made the fullest possible enquiries to ascertain details of any gifts made in the seven years prior to death. It helps them, therefore, if the donor keeps a detailed list of all gifts made with his or her Will or other important records.
Of perhaps greater significance is the fact that owners of businesses may be able to take advantage of Business Property Relief, which can reduce the tax on the asset concerned by 50% or even 100%. At present shares quoted on the Alternative Investment Market (AIM) qualify for 100% relief. There are, of course, detailed rules about qualifying periods of ownership etc.
It is understandable to wish to leave the minimum amount possible to the Chancellor of the Exchequer, but it is important when considering making any gifts not to lose sight of the fact that the donor may have need, later in life, of the capital. Tax considerations should not be allowed to override the requirements of a secure and comfortable old-age.
Should you have any queries regarding this article please contact Steve Cook, Tax Partner at steve@nunn-hayward or call on 01753 888211.
Stop Press – Application for State Pension Forecast
Unfortunately the Department of Work and Pensions are currently unable to provide a State Pension Forecast for anyone reaching pensionable age after 6th April 2010.
Their software is being updated to reflect the recent changes in State Pension rules.
They hope to be able to provide State Pension Forecasts by October 2008.
Anyone who will reach State Retirement age before April 2010 should still be able to get one.
If you have any queries please contact Suzanne Precious at suzanne@nunn-hayward.com or on 01753 888211. |
New VAT Registration
It is widely known that H M Revenue & Customs are currently taking a ludicrously long time to process new VAT registrations. What should traders do in the meantime?
They must recognise that VAT is chargeable during the interim period between application and registration, and will have to be paid over when the registration eventually goes through. So a trader should start keeping records and ensuring that prices charged to customers reflect the need to account for VAT form the date he knows he has to be registered. He must not of course show VAT separately on an invoice until the VAT registration number is issued; but once that happens VAT invoices can and should be issued to customers as soon as possible after registration. In the interim a trader might like to ask for a sum equivalent to VAT from his customers, issuing formal VAT invoices once the VAT certificate is issued.
If VAT is not charged, a trader does not have a legal right to go back to customers to add VAT onto things post registration. So if he has not added on the VAT he will run the risk that he will in effect himself bear the loss of 7/47 of his income in VAT.
For more on this or any other aspect of VAT please contact Steve Cook, Tax Partner at steve@nunn-hayward.com or call him on 01753 888211.
Important Tax Dates
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| 30 | | Deadline for submission of the 2007 Tax Return if you wish HMRC to calculate the tax or, if you wish to have a 2006/07 balancing payment of less than £2,000 collected through your 2008/09 PAYE code, and are submitting the Return in paper form. | | | | | | End of CT61 quarterly period |
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Please contact us to discuss the above further
Tel: 01753 888211 Fax: 01753 889669
Email: abacus@nunn-hayward.com
Nunn Hayward, Sterling House, 20 Station Road, Gerrards Cross, Bucks SL9 8EL. |
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Chartered Accountants, Registered Auditors and Insolvency Practitioners. This publication has been prepared as a guide only to topics of current financial and business interest. It is not intended to be a substitute for professional advice. No responsibility for loss occasioned to any person acting or refraining from acting as a result of any material in this publication can be accepted by either the authors or Nunn Hayward. All rights reserved. If you would like to subscribe to future editions of the Abacus Newsletter then please e-mail your name and address and we will add you to our mailing list. © 2007 Nunn Hayward. All rights reserved |
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