Category Archives: HMRC

HMRC Inheritance Tax receipts at a record high


Inheritance tax paid by British families has hit a record high of £5.1bn in the year to May 2017.

This is largely caused by the fiscal drag of continuing house price inflation compared to the frozen inheritance tax nil rate band of £325,000.

The new residence nil rate band which came into effect on 6 April this year may start to reduce the inheritance tax take figures, but the complexity of the new rules and the relatively narrow band of people for whom it will be of benefit mean it is unlikely to have a dramatic effect.

Inheritance Tax by the numbers

  • Inheritance tax is charged at 40% on the portion of a deceased person’s estate over and above the nil rate band of £325,000.
  • Anything left to a spouse is exempt (providing they are UK domiciled).
  • If the deceased person is a widow or widower, they may also have inherited their former spouse’s nil rate band if they didn’t use it, meaning they can have £650,000 of exemption.
  • The residence nil rate band adds another £100,000 of exemption per person – but with a complex set of conditions surrounding it. This allowance increases by £25,000 per year until it reaches £175,000 per person in April 2020.
  • You can also inherit your deceased spouse’s residence nil rate band if they didn’t use it.
  • Adding all those nil rate and residence nil rate bands together means that couples can get up to £1million of inheritance tax exemption if they plan properly.

Inheritance tax is complex and thinking about what you want to happen after your death can be daunting.  However, if you don’t want your family to be contributing to the Government’s tax receipts, you need to face it.  Our job is to make that as clear and painless as possible for you, helping you understand the options available to you and making sure that your estate and pension planning are aligned.

We draw on our strong blend of tax and financial planning expertise, coupled with our personal touch, to help our clients build the right solution for their families.

For more information, talk to us and we’d be more than happy to help.

Jane Parry – Tax Partner
jane.parry@pmm.co.uk
01254 679131

Looking forward to ATED

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If you own residential property in a company and its worth more than £500,000, then you may need to comply with the Annual Tax on Enveloped Dwellings (ATED) rules.

The rules require an annual tax return to be submitted by 30 April covering the forthcoming year.  The ATED charge for the forthcoming year must also be paid on that date.

Who needs to file an ATED return?

ATED returns must be filed and an ATED charge paid every year by non-natural owners of residential properties located in the UK, where the property is worth more than £500,000, and one of the reliefs or exemptions has not been claimed for the property.

A non-natural person can be defined as one of the following:

–       Any company wherever it is registered;
–       A partnership where one or more of the partners is a company;
–       A collective investment scheme.

There are exemptions from the charge, for example for properties which are commercially let, but there is still a requirement to submit the annual ATED return and claim the exemption, even if you have nothing to pay.

The rates

The new rates have recently been revealed for the chargeable year beginning 1 April 2017. The charge for the period will need to be paid by 30 April 2017.

Property value £ 2016/17 £ 2017/18 £
500,001 – 1,000,000 3,500 3,500
1,000,001 – 2,000,000 7,000 7,050
2,000,001 – 5,000,000 23,350 23,550
5,000,001 – 10,000,000 54,450 54,950
10,000,001 – 20,000,000 109,050 110,100
Over 20,000,000 218,200 220,350

The valuation band is determined by the properties’ market value as at 1 April 2012. If the owner acquired the property since that date, the value to use is the open market value at the date of acquisition.

If the property falls within 10% of a valuation band, the owner can apply to HMRC for a pre-return banding check. These checks can take at least 30 days to process, so it is best to apply as soon as possible.

For more information on ATED or if you’re worried about the above rates, please get in touch with our tax team by emailing tax@pmm.co.uk or by calling 01254 679131.

 

Buy-to-let – the new rules are coming

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If you cast your mind back to the 2015 summer budget, you may remember the significant changes that will impact all landlords. The implementation date of these changes is drawing ever closer and it will eat into landlords’ profits and, in some cases, may wipe them out completely.

With the slashed tax relief and added stamp duty, you may feel that someone has got it in for buy-to-let landlords. The question is what can you do about it?

What does the loss of tax relief mean?

This is one of the biggest changes to buy-to-let and now means that people buying to let residential property will no longer be able to claim tax relief on their mortgage interest payments at their marginal rate of tax. Before the changes this meant that basic rate taxpayers would get 20% tax relief, but those at a higher rate would receive 40% or 45% in tax relief.

What’s changing?

The changes mean that the tax relief will be a flat rate of 20%. Basic rate taxpayers, in most cases, will not see any changes, but those on higher incomes will find themselves losing much more in mortgage interest payments.   Also, more landlords may find themselves unexpectedly moving up into the higher rate tax bracket because of the way the new rules work.

To provide some perspective, here’s an example:

A landlord with a £150,000 buy-to-let mortgage on a property worth £200,000, with a monthly rent of £800, would currently have a net profit after tax of around £2,160 a year. With the lower tax relief, the net after-tax profit would be reduced £960.

Overall, the higher the interest you pay, the more you will feel the changes.

However, the full impact of the new rules is not felt immediately, as these changes will be gradually phased in from 6 April 2017, with transitional rules in place until April 2020. During the transition, the amount of interest directly deductible from rents will reduce and the proportion deducted as a fixed 20% credit will increase. This means in the transitional period landlords will be able to claim:

Tax year Interest deductible from profits Interest at fixed basic rate credit
2017/18 75% 25%
2018/19 50% 50%
2019/20 25% 75%

Income tax on property gains!

New rules announced last year, designed to target non-resident companies and individuals from escaping UK tax on profits made from the sale of UK properties, could inadvertently impact UK landlords. The new rules seek to charge the profits on selling UK property to UK income tax rather than CGT when the ownership of the property is more in the nature of a trade than a fixed investment.

When the changes were announced, there was widespread concern that UK landlords could be affected.

HMRC have now addressed this by releasing a 64-page guidance document to help clarify how they will seek to operate the rules.  In the guidance, they state that the new rules will not apply to businesses which buy properties in order to generate rental income, even if these businesses also enjoy an uplift in market value of the property. So the average UK buy-to-let landlord should not be subject to income tax on the gains he makes when he sells properties which were acquired for letting.

Whilst this is good news, it is only HMRC guidance and not law. For those particularly concerned about this new legislation, the position can be clarified with HMRC under their non-statutory clearance application process.

 

 

Trivial benefits in kind exemption may not be so trivial

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It’s Christmas and the annual minefield of gifts and Christmas parties for employers to navigate. If you are giving your employees gifts to create goodwill, the last thing you want to do is destroy that goodwill with an unexpected tax bill.

However, help is at hand from the new trivial benefits rules.

Previously, the rules were subjective. HMRC allowed exemptions for reasonable gifts but there were no clear thresholds, making it difficult to have certainty about tax treatment.

Under the new rules, benefits and gifts can be tax-free providing that:

–       They cost no more than £50 per benefit and
–       They are not cash or a cash voucher (gift vouchers e.g. for a shop, are allowed).

There is no limit on the number of trivial benefits that can fall into the new rules for employees, providing that they do not form part of the employee’s remuneration for their job or part of a salary sacrifice arrangement.

Special rules apply for directors to limit the overall total for a tax year to £300 of tax-free trivial benefits.

The new rules are good news for generous employers who can now have clarity about what is and is not tax-free, not just at Christmas, but throughout the year. Also, employers who were previously providing vouchers and paying the tax under a PAYE settlement agreement may no longer need to that.

And don’t forget the £150 per person tax exemption for events such as Christmas parties. But do be aware that the limit can only apply to one event, not spread across multiple ones and it includes the extras such as employer funded travel.

The VAT inclusive cost needs to be used when considering if the tax-free limit is reached for both trivial benefits and the annual events exemption.

For more information in trivial benefits, please contact our tax team by emailing tax@pmm.co.uk or by calling 01254 679131.

HMRC Asset Seizures Up 145% In A Year

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The percentage of businesses in the UK having their assets seized is significantly increasing in this tax year. In order to settle outstanding debts, HMRC have been clamping down on businesses who fail to pay their tax bills.

Funding Options announced that HMRC seized assets to recover £42.6m of outstanding debt in the last year, an increase of 145% from the previous year where debts to the Revenue totalled £15.3m.

Under a power called ‘taking control of goods’ HMRC can seize assets in order to settle debts from businesses that have been unable to pay their overdue tax bills. The assets seized are then sold at auction in order to recover the money owed to HMRC.

It’s more important than ever to ensure your tax affairs are in order. If you need any help or advice in organising your tax affairs, please get in touch with our tax team by emailing tax@pmm.co.uk or by calling 01254 679131.

HMRC Announces New Sanctions For Taxpayers That ‘Fail To Correct’ Offshore Irregularities

shutterstock_223883626The Government is set to crack down further on people who have not paid UK tax on their income and gains from offshore bank accounts and investments. A new Worldwide Disclosure Facility comes into effect on 5 September, offering people the opportunity to make disclosures and get their UK tax affairs in order before draconian new penalties come into effect in September 2018.

Exact details of the new penalties are not yet decided, but initial proposals suggest they could extend to as much as 3 times the actual lost tax in some cases.

Anyone with any concerns about offshore assets or income which have not been disclosed should take advice now to protect their position. For any advice or further guidance on any tax issues, please contact a member of the tax team by emailing tax@pmm.co.uk or by calling 01254 679131.

HMRC Plan To Scrap Business Record Checks

shutterstock_141007105HMRC have announced their intentions to scrap the Business Records Checks that have been consistently criticised by the Chartered Institute of Taxation for being ineffective.

The checks were originally introduced to allow HMRC to visit and confirm that a business is keeping sufficient information on its income and expenses in order to produce an accurate tax return. For businesses with inaccurate records, there is currently a potential £3,000 fine on top of any unpaid tax, interests and penalties.

Julie Walsh, Tax Manager at PM+M, said; “The reduction in unnecessary HMRC interventions is great news for businesses, but business owners should not forget that it remains crucial for businesses of all sizes to keep records up to date and in good order to protect themselves against any HMRC enquiries and tax demands.”

HMRC investigations can be very costly even if companies have up to date records. One way that we support our clients with this is in providing fee protection insurance to cover any professional fees that may be incurred in the event of an unexpected investigation or HMRC intervention.  This means we can spend time helping clients through the process and defending against HMRC challenges without the client facing a bill for our time.

For more information or advice on protecting your business, or for a fee protection quote, please get in touch with our tax team by emailing tax@pmm.co.uk or calling 01254 679131.

Is It The End For Tax Free Termination Payments?

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A consultation is to take place to review the treatment of termination payments with a view to simplifying the treatment of tax and national insurance.

This does however mean that the current rule allowing the first £30,000 of some termination payments to be made tax free could be abolished, as contractual and non-contractual payments are aligned in their treatment for income tax and national insurance purposes.

This could be replaced with a new exemption from tax and national insurance, which will increase in proportion with the length of service.  In addition, no allowance would be available until completion of two years’ service with the company.

There is also a move to link the exemption to any statutory redundancy payment.

HMRC are consulting until 16 October 2015 on the current proposals and our tax team with provide more information as soon as it becomes available.