Archive for November, 2019

Gifts and Inheritance Tax

Tuesday, November 5th, 2019

When you make a gift to third parties you are potentially transferring part of your estate and a life-time charge to IHT may be applied.

However, in most cases you will not need to open your cheque book as there are a number of exemptions that may cover your intended gifts.

The current gift exemptions are reproduced below.

You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’.

You can carry any unused annual exemption forward to the next year - but only for one year.

Each tax year, you can also give away:

  • wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
  • normal gifts out of your income, for example Christmas or birthday presents - you must be able to maintain your standard of living after making the gift
  • payments to help with another person’s living costs, such as an elderly relative or a child under 18
  • gifts to charities and political parties

 

You can use more than one of these exemptions on the same person - for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.

You can give as many gifts of up to £250 per person as you want during the tax year as long as you have not used another exemption on the same person.

Even if your gift is not excluded by these exemptions any tax payable can be deferred under the “potentially exempt transfer” or PETs. Essentially, as long as the person making the gift lives seven years after making the gift, no IHT is payable. A sliding scale applies if the donor dies during this seven year period.

Taxing aspects of electric cars for your business

Tuesday, November 5th, 2019

This article does not cover the risks of owning an electric car, depreciation rates etc. Instead it discusses the tax implications if you buy an electric car for business purposes.

As electric cars have zero carbon emissions for tax purposes it should be possible to claim what is called a “first year allowance” when the car is purchased from new. Effectively, this means that you can write-off up to 100% of the cost of the car against your business profits in the year that you buy the vehicle.

This allowance is only available for new vehicle purchases. If you buy a used electric car for business, you can only claim a “main rate” writing down allowance of 18%.

Additionally, self-employed traders will need to reduce their claim for either of these allowances if there is any private use of the vehicle.

When the car is sold, if you have claimed the 100% first year allowance then all of the proceeds of sale will be taxable as a balancing charge. The balancing charge will be reduced if there is any private use.

If you have the use of an electric company car, it will still attract a car benefit charge for the driver and a National Insurance charge for the employer, albeit at the lowest rates.

The ability to be able to write-off the cost of a car in the year of purchase is appealing as this boosts the initial cash-flow benefits of going-electric.

And, of course, there are environmental considerations…

Negligible value claims

Tuesday, November 5th, 2019

Occasionally, the tax system in the UK throws up an issue that does not make sense. For example, how can you create a tax loss for capital gains tax (CGT) purposes without disposing of the asset?

After all, CGT applies when an asset subject to CGT is sold or otherwise disposed. If you sell an asset for more than you acquire it you make a gain for CGT purposes and if you dispose of an asset for less that you paid for it then you make a loss for CGT purposes.

So far, so good…

 

What if you own shares in a quoted company that are currently worth much less than you paid for them? You may consider that there is a possibility – perhaps a remote possibility – that the share price will recover in which case you may want to keep the shares.

But what if the present value of the shares means you are sitting on a significant CGT tax loss, a tax loss that you may be able to utilise against other chargeable gains?

Which brings us back to the opening comment of this post, how can you create a tax loss for capital gains tax (CGT) purposes without disposing of the asset?

The answer in to make what is called a Negligible Value Claim. This what HMRC offer in guidance on this topic:

If you own an asset which has become of negligible value in your ownership then you may choose to make a negligible value claim so that you’re treated as having disposed of an asset even though you remain the owner.

The claim is made when we receive it, even if you choose to use a tax return to make the claim. The conditions for making a claim are that:

  • you must still own the asset when you make the claim,
  • the asset must have become of negligible value while you owned it.

So, if the asset was of negligible value when you acquired it then it could not become of negligible value when you owned it. An asset is of negligible value if it is worth next to nothing.

If you make a competent negligible value claim then you’ll be treated as though you had disposed of the asset and immediately reacquired it at the time the claim is made for an amount equal to the value which you specified in the claim. That time will be after the year to which the tax return relates.

When you make the claim, you may choose to specify an earlier time when you will be treated as though you had disposed of and immediately reacquired the asset. If you want to specify an earlier time then you have to meet all of the necessary conditions to make the claim at the time the claim is made that are explained above.

If, by chance, you have a shareholding in your portfolio that is of no real value and you could utilise any CGT loss to good advantage, please get in touch and we will help you submit a formal claim to HMRC.

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