Tag Archives: capital gains tax


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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


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Entrepreneurs’ Relief and Furnished Holiday Lettings

HMRC back down!

Entrepreneurs’ Relief is a valuable Capital Gains Tax (‘CGT’) provision intended to reduce the burden of taxation payable on capital gains made by individuals on certain business assets disposed of in certain circumstances. If you can benefit from entrepreneurs’ relief you can reduce your rate of CGT from the top rate of 28% (or the flat rate of 18%) to just 10%.

Entrepreneurs’ relief applies mainly to gains made by individuals on the disposal of certain qualifying business assets where it can be shown that the assets in question have been sold as part of disposing of all or part of a business.

Our clients operate a Furnished Holiday Lettings business which consisted of a number of properties in different locations. Back in 2010 they decided that one of those properties did not quite fit with the rest of the business. It was located some way from the rest of their properties and offered a different holiday to the rest of the business. They decided to sell it.

The sale of the property included passing on advance deposits received from people who had booked the property for the coming season. It included all the fixtures and fittings in the cottage together with all the furniture. Our clients wrote to their former customers advising them that the property was being sold and that the new owners would continue to offer it for Furnished Holiday Lettings in the future.

The capital gain was duly calculated and entered on our clients Tax Returns for the year ended 5th April 2011. The self-assessment tax was calculated on the basis that our clients had disposed of part of their business and were, therefore, entitled to claim Entrepreneurs’ Relief.

Some months after the Tax Returns were filed HMRC wrote requesting further details of the sale. Once these were provided HMRC suggested that Entrepreneurs’ Relief was not due as our clients had sold only an asset used in a business and not ‘part of the business’ itself. We demonstrated that our client’s business turnover had reduced and that their profits were reduced as a result and that the new owners were operating the property as a going concern – so clearly part of the business had been sold. HMRC disagreed and refused the claim for Entrepreneurs’ Relief.

We appealed against the decision and requested it be reviewed. HMRC steadfastly refused to change its position and suggested that the only solution would be to take the matter to a hearing before the First Tier Tax Tribunal. We suggested that we might meet with HMRC under the Alternative Dispute Resolution system to discuss our different views of our client’s entitlement. HMRC refused this course of action and listed the matter for a hearing.

There followed months of correspondence between us. Vast quantities of paperwork were produced as we and HMRC prepared our respective cases for the hearing. HMRC maintained their view that ‘part of the business’ had not been sold. Our clients maintained their determination to see the argument through.

After two and a half years of stalemate in April 2015 HMRC backed down.  Suggesting that a change to viewpoint had led them to revise their opinion, the claim for Entrepreneurs’ Relief was allowed and it was accepted that our clients Tax Returns were correct all along.

The moral of this story – any valuable tax relief is worth fighting for and make sure you get the experts on your side.

Please contact us if you have a CGT enquiry.


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Pre Year-End Tax Planning for Agriculture

There are now less than two months to go until the end of the 2014-15 tax year, and businesses should plan carefully to utilise annual tax allowances and reliefs to their maximum.

Capital Expenditure

Many farming businesses have accounting year ends of 31 March or 5 April and for businesses considering expenditure on capital equipment it could be worthwhile ensuring this expenditure is incurred in the current year. The current 100% Annual Investment Allowance (AIA) on qualifying capital expenditure is £500,000 and under current legislation this will remain until 31 December 2015 when it falls to £25,000.

Care should be given to expenditure already incurred in the past accounting year, and also to consider the business’s accounting date which will affect the amount of relief available.

Be aware that not all capital expenditure qualifies for relief at 100%, different types of expenditure may only qualify for relief at 18% or even 8%.

Timing of expenditure is key, relief is only given when the obligation to pay becomes unconditional.

Similarly, consider deferring the disposal of equipment until after the year-end as the proceeds may generate an unwelcome tax liability.

Stock

The amount and value of stock held at the year-end can have a significant impact on profits and tax liabilities. The stock adjustment is necessary to ensure that costs incurred before the year end but which will not give rise to income until a later period, are carried forward to set against the income when it arises.

Stock should be valued at the lower of cost or net realisable value. For cattle, HMRC accept 60% of market value as a deemed cost, and for sheep and pigs a 75% value is used by most businesses. This method is more straightforward for home-reared animals, however, there are other methods including actual cost of production and net realisable value if a profit is not expected to be made. Actual cost of production can result in valuations considerably less than deemed cost, so there is an opportunity to reduce the value of closing stock to bring down the tax bill.

The timing of sales could be crucial in determining the period in which the profit will be recognised. If high profits are expected in the current tax year, delaying the sale until after the year end will result in the value being reduced by 25% in the accounts, with profits delayed until the following year.

Accrue for expenditure

Businesses should consider bringing forward any business expenditure which it is intended to incur after the year-end, for example maintenance of buildings and yards, in order that tax relief may obtained a whole year earlier.

Similarly, farmers should think carefully about the timing of any sales made around the year-end. Profit is only recognised when the sale takes place, so simply deferring a sale until after the year end can reduce current year profits whilst not significantly affecting cashflow.

Tax Payments

To assist cashflow, farmers may consider the likely profits for the current year and whether tax payments on account can be postponed. With milk prices at their current level it may be that profit levels will fall and the tax payment due on 31 July can be reduced.

Child Benefit

The clawback of Child Benefit already paid will apply where one individual in a household has an income in excess of £50,000. If possible, a husband, wife and partners should equalise income between them, to ensure any Child Benefit restriction is kept to a minimum.

Restriction of loss relief

If a trading loss is anticipated, when considering the most effective use of this note should be taken that relief on trading and certain other losses is now restricted to the higher of 25% of net income and £50,000 a year for active participants and £25,000 for non-active participants.

Capital Gains Tax

The annual exemption for the 2014/15 tax year is £11,000 (rising to £11,100 in 2015/16). Each individual therefore is able to make a Capital Gain of this amount without incurring any CGT liability. Spouses may wish to consider transferring an interest in an asset to each other prior to any disposal to ensure both Annual Exemptions are maximised, which could save tax at 28%.

Pension Contributions

Taxpayers may wish to consider their pension funds and if cash is available, make additional contributions into these funds before 5 April, minimising any Higher Rate Tax.

If you would like any further information on any of the points raised in this article, please don’t hesitate to contact Malcolm Peters at malcolm.peters@kelsallsteele.co.uk or on 01872 271655.


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Property Sales Campaign: Time is running out

Tax payers have until 9 August 2013 to notify HMRC should they believe the Property Sales Campaign applies to them and until 6 September 2013 to make a disclosure to HMRC and settle any outstanding tax liability. After this date HMRC will utilise their intelligence in order to analyse the tax affairs of taxpayers believed to have under declared their capital gains tax liability in respect of property sales.

This latest campaign from HMRC is aimed at individuals who have sold a residential property or properties in the UK or abroad where capital gains tax should have been paid but who have not disclosed the sale to HMRC previously. Most commonly relating to the sale of rental properties or holiday homes this campaign does not apply to sales of your main home as such disposals are normally covered by principal private residence relief. It would also not apply to individuals who buy and sell property as a business as this business would be subject to income tax rather than capital gains tax.

Although HMRC make it clear that any disclosures made to them throughout this campaign will not result in the taxpayer avoiding being penalised, they will typically be treated in a more favourable light.

Director Clare Vaughan said: “This campaign provides an opportunity to people who may not have previously realised they should have paid capital gains tax to disclose the sale, and anyone who believes that this may apply to them can call Kelsall Steele as soon as possible to discuss their situation.”