Wedding Gift Tax Relief

22nd May 2017

As the future bride of a multimillionaire hedge fund manager, Middleton has probably spent some time considering her financial position, but Sarah Ghaffari, ICAEW tax manager, says this has been the case for decades.

 

‘Staying engaged with tax rules has always been important for couples who are planning to get married. For example, a spike in March weddings in the 1950s and 60s can be explained by tax rules at the time- a married man received the full married man’s tax allowance as long as he was married before the end of the tax year,’ Ghaffari said.

 

While the weather rather than tax policy is now the key issue for most couples, and the summer months have now taken over as the most popular time to get married in England and Wales, ICAEW says guests should not overlook the tax relief available on their gifts to the bride and groom.

 

The institute says with more and more couples living together before marriage, it is becoming increasingly common for newlyweds to request gifts of cash rather than more traditional gifts such as a kettle or toaster for their new home.

Whatever the gift, all or part of it will be exempt from inheritance tax (IHT) provided the gift is made on or shortly before the date of the wedding or civil partnership ceremony.

 

The amount of tax relief will vary depending on the relationship between the donor and the recipient.

Each parent (including step-parents) can give up to £5,000 tax free; grandparents can each give up to £2,500; and any other person (such as relatives and friends) can each give up to £1,000.

 

For couples who both own properties, there will be capital gains tax (CGT) complications once they are married. The main residence exemption for CGT only applies to one property per married couple, so bridge and groom must decide which the exemption will be used for going forward and the second may eventually be taxable if it is sold for a profit.

HMRC does allow time to sort out such ‘overlaps’, but ICAEW points out that an unmarried couple using two houses as ‘homes’ can have one house each, so are much better off.

 

And in a final tip which may be useful in the Middleton marriage, Ghaffari said: ‘Remember, that if the wedding or civil partnership is called off and you still give a gift, it will not be exempt from inheritance tax. If the couple wish to give a gift to each other on their wedding day, it will be completely free from Inheritance Tax (IHT) and Capital Gains Tax (CGT).’

STAMP DUTY

4th April 2017

According to its March quarterly update, estimated receipts for Q1 2017 are £1.9bn from residential transactions and £789m from non-residential transactions. The estimated receipts from residential transactions are 16% higher than Q1 of 2016, while for the financial year 2016-17, the estimated receipts are 17% higher than in 2015-16.

 

However, the number of SDLT liable transactions in the first quarter is 5% lower than Q1 2016. There has been a 10% drop in the number of transactions in the £250,000 to £500,000 range, and a 14% drop in those valuations over £500,000.

 

HMRC’s analysis points out that SDLT liable transactions were unusually high at the beginning of the previous year, due to many buyers rushing to purchase ahead of the introduction of the higher rates on additional properties in April 2016. As a result, it says year-on-year comparisons for this quarter should be made with caution.

 

The figures include an estimate of SDLT receipts from ‘additional properties’ to which the additional 3% SDLT rate is applied, for example second homes and buy-to-let properties. For 2016-17 there have been 207,700 transactions of additional properties accounting for £3.2bn in total SDLT receipts, of which £1.6bn is attributed to the additional 3% element.

 

Meanwhile, data from the Nationwide building society shows that UK house prices fell for the second month in a row during April, down 0.4% in April, and the annual rate of price growth slowed to 2.6%, the weakest pace for almost four years.

 

HMRC Quarterly Stamp Duty Statistics report is here.

BUDGET – AT A GLANCE

8th March 2017

Personal Taxation

 

  • The main rate of National Insurance contributions for the self-employed to increase from 9% to 10% in April 2018 and 11% in April 2019
  • The Class 4 rate is levied on profits of more than £8,060 a year
  • The increases, which will apply to earnings below £43,000, will raise £145m a year by 2021-22 at an average cost of 60p a week to those affected. All Class 4 earnings above £43,000 will be taxed at 2%
  • Class 2 National Insurance, a separate flat rate contribution paid by self-employed workers making a profit of more than £5,965 a year, is to be scrapped as planned in April 2018
  • No changes to National Insurance paid by the employed and employers or to income tax or VAT
  • Personal tax-free allowance to rise as planned to £11,500 this year and to £12,500 by 2020

 

Business

 

  • £435m for firms affected by increases in business rates, including £300m hardship fund for worst hit
  • Pubs with rateable value of less than £100,000 to get a £1,000 discount on rates they would have paid
  • Rate rises for businesses losing existing relief will be capped at £50 a month
  • A tax avoidance clampdown totalling £820m to include action to stop businesses converting capital losses into trading losses and introduction of UK VAT on roaming telecoms services outside the EU
  • Review of taxation of North Sea oil producers

 

The state of the economy

 

  • UK second-fastest growing economy in the G7 in 2016
  • Growth forecast for 2017 upgraded from 1.4% to 2%
  • But GDP downgraded to 1.6%, 1.7%, 1.9% in subsequent years, then 2% in 2021-22
  • Annual rate of inflation forecast to rise from 2.3% to 2.4% in 2017-18 before falling to 2.3% and 2.0% in subsequent years
  • A further 650,000 people expected to be in employment by 2021

 

Public borrowing/deficit/spending 

 

  • Annual borrowing £51.7bn in 2016-17, £16.4bn lower than forecast
  • Borrowing forecast to total £58.3bn in 2017-18, £40.6bn in 2018-19, £21.4bn in 2019-20 and £20.6bn in 2020-21
  • Public sector net borrowing forecast to fall from 3.8% of GDP last year to 2.6% this year, then 2.9%, 1.9%, 1% and 0.9% in subsequent years, reaching 0.7% in 2021-22. But borrowing still predicted to be £100bn higher by 2020 than forecast in March 2016
  • Debt rose to 86.6% this year, but will fall to 79.8% in 2021-22

FLAT RATE VAT RISE

28th February 2017

The Flat Rate Scheme is designed to simplify records of sales and purchases and was operating at a 14.5% rate but this is due to rise to 16.5%.  It allows micro businesses and sole traders to apply a fixed flat-rate percentage to gross turnover to arrive at the VAT due. Flat rate turnover is different from standard VAT turnover. For example, as well as business income (eg, from sales), it includes the VAT paid on that income.

 

The guidance details the limited cost business rate and HMRC has produced a calculator to help businesses work out whether they are a limited cost business and will update individual sector rates when the new rules come into force.

 

The VAT flat rate used depends on the business type. If the rate changes, the new rate must be applied from the date it changes.

 

To meet the requirement of being a limited cost business the amount spent on relevant goods including VAT is either:

 

  • less than 2% of VAT flat rate turnover: or
  • greater than 2% of VAT flat rate turnover but less than £1,000 per year.

 

If a return is for less than one year, the figure is the relevant proportion of £1,000. For a quarterly return this is £250.

 

For some businesses this will be clear,other businesses, particularly those whose goods are close to 2%  may need to complete this test each time they complete their VAT return. This is because businesses can move from a limited cost rate of 16.5% in one period to a relevant sector rate in another. This would happen if costs fluctuate above and below 2%.

 

In addition, this could mean that a limited cost trader ends up paying more VAT than on standard accounting. The HMRC guidance includes a number of examples:

 

Example 1: A business has a flat rate turnover of £10,000 a quarter. It spends £260 on relevant goods. This is more than 2% of the flat rate turnover and more than £250 so the rate they need to use is the sector rate for their business.

 

Example 2: A business has a flat rate turnover of £20,000 a quarter. It spends £325 on relevant goods. This is more than £250 but less than 2% of the flat rate turnover so the rate they need to use is 16.5%.

 

Example 3: A business has a flat rate turnover of £10,000 a quarter. It spends £225 on relevant goods. This is more than 2% of the flat rate turnover but less than £250 so the rate they need to use is 16.5%.

 

There are also details of the bridging period as businesses using the flat rate scheme will have to take into account the increase in rates and split the reporting periods to reflect the pre-rise and post-rise rates.

 

The list of so-called relevant goods and exempted items has also been updated but the individual rates for the 54 sectors captured by the rules, including eligible bussinesses providing a range of services from accounting to consultancy, hair dressing and small retail to pubs, dry cleaners, vehicle repair and veterinary supplies, to name a few.

 

Paragraph 4.4, 4.5 and 4.6 have been added to the original November VAT notice. There are also slight amendments to the rest of section 4.

 

This notice cancels and replaces Notice 733 (November 2016). The revised HMRC Notice 733 February 2017 on VAT Flat Rate Scheme is here

12-POINT PLAN FOR EU EXIT

18th January 2017

May has set out 12 objectives to follow to ‘build a truly global Britain’, saying that the UK cannot remain within the European single market as staying in it result in ‘not leaving the EU at all’. Instead she wants to ensure a ‘big free trade deal’ with Europe, despite admitting that she has not yet worked out how the UK will achieve this.

 

During her long-awaited speech, May revealed that government will put the final Brexit deal down to a vote in Parliament, despite previously fighting this decision.  

May’s 12 objectives are as follows:

 

Certainty

May expressed that she recognised how important certainty was, moving forward through the process, for businesses, the public sector and everyone else in the UK.

 

Control of laws

There will be an end to the jurisdiction of the European Court of Justice and UK laws will be controlled and decided by government. Laws will be interpreted in courts in the UK not in Luxembourg, which is the case now.

 

Securing the union

May stressed the importance of union but the UK government must take back responsibility and will have control over foreign affairs. She mentioned taking into consideration Scotland’s Brexit plans.

 

Maintain common travel area with Ireland

The UK has always had a special relationship with Ireland and it is important that the UK works to retain the border.

 

Immigration control

May said: ‘We will have control of the number of people coming to Britain from the EU.

‘Controlled immigration can bring benefits to businesses but when the numbers get too high then public support for the system falters.’

 

Rights of EU nationals

The rights of EU citizens in the UK and UK citizens in Europe must be established and resolved as soon as possible.

 

Workers’ rights

Workers’ rights currently under EU law will be kept and built upon.

 

Global Britain

May said: ‘ 23 June was the moment that we chose to build a truly global Britain – the result of the referendum was not a decision to turn inward and retreat from the world.’

The UK will still reach out the allies across the globe and will continue to build relationships.

 

Leave the single market

If the UK is not part of the single market then it does not have to make any contributions to the EU. May wants to have a customs union agreement with the EU.

 

Science

The UK should aim to stay one of the leaders of science and innovative advances.

 

Terrorism

The UK will continue to work with Europe on defence and foreign policy saying the response cannot be ‘to cooperate less but to cooperate more’. Intelligence and information will continue to be shared in order to beat terrorism and ‘threats to common security’.

 

Transitional phase

There will be a phased implementation of Brexit to allow businesses time to plan and prepare.

 

In her speech May said: ‘ I want Britain to be a country that reaches beyond the borders of Europe’, while stating, ‘we are leaving the European Union, we are not leaving Europe.’

 

As a result of May’s speech the pound recovered from $1.20 on Monday to become $1.21 against the dollar at the time of reporting.

BUY-TO-LET LANDLORDS TAX HIKES

3rd January 2017

Results from the latest Property Investor Survey conducted by Mortgages for Business found that 60% of respondents felt they would be directly affected by income tax relief changes, although 29% said they would not be hit.

 

Perhaps of more concern was the finding that one in ten landlords had not even heard about the imminent tax changes. Despite the tax changes only 9% of respondents said they planned to reduce their property portfolios in the next six months while 45% plan to invest in more properties and 46% will hold their investments as they are for the time being.

 

Those least affected are likely to be base rate taxpayers or landlords who manage their portfolios through limited company vehicles which are subject to corporation tax.

 

David Whittaker, CEO at Mortgages for Business said: ‘The percentages feel about right for the market in general and it has certainly been a tough 18 months or so for landlords.

 

‘We are still encouraging landlords who haven’t already taken professional advice on the matter to do so ASAP, as some may find that the new formula will tip them into the next tax bracket leaving them worse off.’

 

The results compare well with investor understanding of the new Prudential Regulation Authority (PRA) guidelines on buy-to-let lending, which will curb loan to value rates. Some 60% of respondents said they understood the impact of the rule changes on how much they can borrow.

 

However, a quarter of respondents said they only partially understood the implications of the PRA guidelines.

 

From 1 January 2017, buy-to-let lenders are facing tighter affordability calculations. Worryingly the survey found that 9% of respondents did not know how the revised affordability calculations would affect how much they could borrow and 6% were completely unaware of the new guidelines.

 

The survey also found that landlords are continuing to move toward incorporation, with 32% of respondents owning at least one property in a limited company, up 2% on May 2016. Those holding property in companies tend to own four or more properties.

 

When asked whether future purchases would be made personally or using a limited company, 54% opted for the just incorporated route and 16% said they would use both.

 

These figures reflect the Limited Company Buy to Let Index, which in Q3 2016 showed that 63% of all new buy-to-let mortgage applications for purchases were made by landlords using corporate vehicles.

 

Five-year fixed rate mortgages are the most popular product type with 34% of respondents expressing a preference for this category of loan.

 

The majority of respondents (53%) have loans of between 50% and 74% LTV (loan-to-value) against their portfolios, with a further 25% having borrowing of between 25% and 49% LTV and 9% with borrowing of up to 24% LTV.

 

Despite a tougher operating environment, the proportion of landlords seeking to expand their portfolios rose to 45%, up from 41% in May 2016. This suggests that most are willing to absorb the increased costs, adapt strategies and remain in the property investment market, which still provides better returns than most alternative asset classes.

 

The average survey respondent owns between four and 10 investment properties, with 49% of respondents falling into this category. Additionally, 20% own two or three properties, 12% between 11 and 20, 10% a single property and 9%, 21 or more.

 

Full results and analysis of the Property Investor Survey November 2016.

https://www.awaccounting.co.uk/services/property-incom

EU VAT PAYMENTS

30th November 2016
The European Commission is proposing to simplify rules for e-commerce across EU country borders by introducing a one-stop shop for online VAT payments that will cover goods as well as services, in a move which it says will cut compliance costs by 95%
 
It says introducing an EU wide portal for online VAT payments will save businesses across the EU €2.3bn a year. The new rules will also ensure that VAT is paid in the member state of the final consumer, leading to a fairer distribution of tax revenues amongst EU countries.
 
The Commission says the proposals will help member states to recoup the current estimated €5bn of lost VAT on online sales every year.
 
In addition, the Commission is revising regulations so that member states can, if they choose, apply the same VAT rate to e-publications such as e-books and online newspapers as they do for their printed equivalents.
 
Pierre Moscovici, commissioner for economic affairs, taxation and the customs union, said: ‘Online businesses operating in the EU have been asking us to make their lives simpler. Today we’re doing that. Companies big and small that sell abroad online will now deal with VAT in the same way as they would for sales in their own countries. That means less time wasted, less red tape and fewer costs.
 
‘We’re also simplifying rules for micro-businesses and startups, allowing them to tap new markets more easily’.
 
Currently, online traders have to register for VAT in all the member states to which they sell goods, which the Commission estimates costs businesses around €8,000 for every EU country into which they sell.
 
Under the new proposals, businesses will make one quarterly return for the VAT due across the whole of the EU, using the online VAT one stop shop.
 
A new yearly threshold of €10,000 in online sales will be introduced under which businesses selling cross-border can continue to apply the VAT rules they are used to in their home country. The Commission says this will make complying with VAT rules easier for 430,000 companies across the EU, representing 97% of all micro-business trading cross‑border.
 
There will be a second new yearly threshold of €100,000 for SMEs when it comes to VAT, with simplified rules for identifying where their customers are based.
 
Other simplifications would allow the smallest businesses to benefit from the same familiar VAT rules of their home country, such as invoicing requirements and record keeping. The first point of contact will always be with the tax administration where the business is located and businesses will no longer be audited by each member state where they have sales.
 
The exemption from VAT for small consignments imported into the EU that are worth less than €22 is to be removed, on the grounds it is creating opportunities for fraud and tax abuse.
 
Andrus Ansip, Commission vice president for the digital single market, said: ‘Our VAT rules were set up before the boom of the internet and online sales.They are complex. They vary between EU countries. They bring extra cost to businesses trying to trade in different national markets. They need updating.
 
‘Today’s proposals are designed to support the digital economy and to accelerate growth for cross-border online businesses.’
 
These legislative proposals will now be submitted to the European Parliament for consultation and to the Council for adoption.
 
Digital Single Market – Modernising VAT for cross border e-Commerce is here.
 

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VAT ON ASSETS

9th November 2016

HMRC has published a brief setting out the policy on the deduction of VAT relating to assets used by a business prior to its VAT registration, saying this has not always been treated consistently. 

 

The brief clarifies when, and to what extent, VAT is deductible and what to do if the correct treatment has not been applied.

 

A business registering for VAT can recover tax they have incurred on goods and services before their effective date of registration (EDR) as long as they are used by the taxable person to make taxable supplies once registered.

 

Services must have been received less than six months before the EDR for VAT to be deductible, while goods have a four year time limit for deduction that is consistent with the general ‘capping’ provisions.

 

HMRC says the word ‘consumed’ has been interpreted inconsistently over time, particularly in relation to business assets. It states that VAT on services received within six months of EDR and used in the business at EDR is recoverable in full. VAT on stock is deductible to the extent that the goods are still on hand at EDR (for example apportionment may be required).

 

VAT on fixed assets purchased within four years of EDR is recoverable in full, providing the assets are still in use by the business at EDR.

 

Full recovery only applies if the business is fully-taxable. If it is partly-exempt, has non-business activities, or need to restrict VAT deduction for any other reason, the business will need to take that into account when calculating the deductible VAT.

 

HMRC says it will accept corrections for overpayment of VAT in the following circumstances. These are if the business has reduced the VAT it deducted on fixed assets, to account for pre-EDR use; circumstances where HMRC has raised an assessment of tax to account for pre-EDR use of fixed assets; and cases where HMRC has reduced a repayment claim to account for pre-EDR use of fixed assets.

 

HMRC says it will consider claims for repayment of penalties and interest charged as a result of assessments.

 

The time limits for error corrections are four years from the due date of the relevant VAT return where VAT deduction has been restricted in error by the business, or HMRC has incorrectly reduced a repayment, and four years from the date the assessment was paid where HMRC have raised an assessment that incorrectly restricts VAT deduction.

 

Corrections of errors, other than assessments, should be dealt with as per the guidance in section 6 of VAT notice 700/45. Claims relating to VAT paid on assessments raised in error should be made on an error correction notice (form VAT652).

 

HMRC is to amend guidance in the VAT input tax manual and Section 10 of VAT notice 700 to ensure the policy position is clear

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PAYE TAX CODES

20th October 2016

As part of Making Tax Digital, HMRC has set out the priorities for its plans to make near real time adjustments to taxpayers’ tax codes so they pay the right amount of tax within the current tax year

 

HMRC plans to introduce these changes in time for the 2017-18 tax year. The PAYE system is not changing as such, but a number of changes will be introduced to ensure that real time reporting of PAYE codes is available. This requires a change in current HMRC practice to include:

 

  • HMRC says it will use the information it holds, and supplied by employers and pension providers through real time information (RTI), in a ‘more proactive way’ to ensure more customers end the tax year having paid the right amount of tax
  • The new approach to coding will aim to keep the customer’s tax completely up to date in-year so that more taxpayers pay the right amount of tax and do not end the year with an underpayment or overpayment.

 

The first phase of HMRC using real time data will enable HMRC to change a customer’s tax code to adjust, correct or collect any estimated in-year underpayment that arises as a result of a change to the their tax code. This means more customers will end the tax year balanced.

 

PAYE customers using their personal tax account will be able to claim an in-year repayment and arrange for it to be paid into their bank account.

 

However, HMRC does not plan to notify employers of code changes any more frequently than on a monthly basis.

 

The only change for employers and pension providers will be the volume of coding notices is likely to increase because HMRC will have to change codes more often. It is hoped that the new system will mean that more taxpayers will pay the right amount of tax each year, without having to face year end bills or in some instances, refunds.

BUY-TO-LET LANDLORDS CASE

9th October 2016

Cherie Blair of Omnia Strategy LLP, represented claimants and landlords Steve Bolton, chairman of Platinum Property Partners, and Chris Cooper, on behalf of the ‘Axe the Tenant Tax’ group.

 

The group, which is a crowd-funded coalition of individuals and organisations who represent more than 150,000 landlords, believes that the changes in Section 24 of the Finance (No.2) Act 2015, otherwise known as ‘tenant tax’ will stop buy-to-let finance costs (largely mortgage interest) being a claimable business expense.

 

Landlords will have to pay extra tax of 20% or more of their mortgage interest payments and the tax they pay might be greater than their profit, leaving them with a rental loss and a cash shortfall. This will only affect individuals who own rental properties in their own names, meaning companies owning buy-to-let property will be excluded.

 

Cherie Blair said: ‘The Court’s decision that our clients’ legal challenge should not proceed is very disappointing. Steve and Chris, and many others, have dedicated a lot of time and energy into putting forward the best case possible. We know the case has been supported and followed with interest by a large number of individual landlords.  Many of these landlords now face challenging times ahead.

 

‘From the outset, the legal process was just one aspect of our clients’ fight against this unfair measure. Together with their impressive and growing coalition, they will continue to engage with the Government, and the legal team wishes them every success.’

 

Omnia strategy LLP argued that the tenant tax is unlawful due to the restriction on the landlords’ ability to deduct finance costs as a business expense which can result in an unlawful grant of state aid to corporate landlords.

 

Mr Bolton and Mr Cooper said: ‘We are outraged by the Court’s decision today. It has completely missed the opportunity to protect tenants, landlords and the housing market from the disastrous consequences of Section 24.

 

‘Sadly it will be tenants who are hit hardest; they are set to see unprecedented rent increases over the coming months and years, which will be a very clear and direct consequence of this ludicrous legislation.

‘Now that the legal route has run its course, we will be focussing 100% of our attention and resources on taking our case more forcefully, more powerfully and more directly, right to the heart of government. Our goal is simple: to abolish this tax or to remove the retrospective nature of it. ‘

 

Axe the Tenant Tax has launched its third crowd-funding campaign to raise money for media, PR and lobbying campaign in an attempt to push pressure on MPs and government

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