Gifts

Those thinking about making gifts at Christmas should take advantage of the various inheritance tax (IHT) exemptions and reliefs available to them. Note that certain gifts can also have capital gains tax (CGT) implications.

THE IHT ANNUAL EXEMPTION – USE IT OR LOSE IT!

Although not particularly generous at £3,000 per donor per annum if this annual IHT exemption is not used by 5 April it is lost, although it is possible to carry the allowance forward one year if unused. This means that if the annual allowance for 2017/18 was not used an individual may make gifts of up to £6,000 in 2018/19.

Where the gifts to individuals exceed the annual exemption there may still be no inheritance tax to pay if they survive for 7 years following the gift or the gift falls within the £325,000 nil rate band.

 GIFTS OUT OF INCOME ARE NOT TAKEN INTO ACCOUNT FOR IHT

A more generous inheritance tax exemption applies where the donor can prove that he or she is not transferring capital but is making gifts out of their income. There are detailed conditions for this exemption to apply requiring records to be kept of income and expenditure in order to prove that there is sufficient surplus income each year to make regular gifts to the beneficiaries.

CERTAIN GIFTS CAN HAVE CAPITAL GAINS TAX CONSEQUENCES

Although there will be no CGT on gifts of cash there may be CGT to pay where the gift comprises shares or other assets. This is because the transaction will generally be deemed to take place at market value between connected persons even though no money changes hands.

The amount of the gain would normally be determined by comparing the market value with the original cost of the asset gifted.

Where the amount of this gain is within the annual CGT allowance (currently £11,700) then there would be no CGT payable.

Where the gift comprises shares in a trading company or other business assets it may be possible for donor and recipient to sign an election to hold over the gain so that no CGT is payable by the donor at the time of the gift. The effect of such an election is that the recipient of the asset will take over the donor’s original cost for subsequent disposal. Please get in touch with us if you are considering making gifts of shares or other assets so that we can advise you fully of all the tax implications.

NOT ALL SHARES QUALIFY FOR CGT ENTREPRENEURS’ RELIEF NOW

As the result of changes announced in the Autumn Budget, and now incorporated into the latest Finance Bill, not all ordinary shares necessarily qualify for the 10% CGT entrepreneurs’ relief rate on disposal.

As mentioned in last month’s Budget newsletter the definition of a personal company was tightened up so that from 29 October the shareholder must have entitlement to at least 5% of the company’s ordinary share capital, voting rights, profits available for distribution, and assets available on the winding up of the company.

The shareholder, as before, will also need to be an officer or employee of the company.

This change means that certain “alphabet” and other shares with limited rights may no longer qualify for CGT entrepreneurs’ relief when disposed of. As a consequence of this change we may need to review the rights attaching to the shares that your company has issued and make changes to ensure that the shares qualify.

 GIFTS OF UP TO £50 TO EMPLOYEES

From April 2016 new rules were introduced to allow employers to provide their directors and employees with certain “trivial” benefits in kind tax free.

The new rules were brought in as a simplification measure so that certain benefits in kind do not now need to be reported to HMRC as well as being tax free for the employee. There are of course a number of conditions that need to be satisfied to qualify for the exemption.

Conditions for the exemption to apply

  • the cost of providing the benefit does not exceed £50
  • the benefit is not cash or a cash voucher
  • the employee is not entitled to the benefit as part of any contractual obligation such as a salary sacrifice scheme
  • the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)

So this exemption will generally apply to small gifts to staff at Christmas, on their birthday, or other occasions and includes gifts of food, wine, or store vouchers.

Note that where the employer is a “close” company and the benefit is provided to an individual who is a director or other office holder of the company the exemption is capped at a total cost of £300 in the tax year.

GIFTS TO CHARITY

 Where possible higher rate taxpayers should “Gift Aid” any payments to charity to provide additional benefit to the charity and for the individual to obtain additional tax relief on the payment.

For example where an individual makes a £20 cash donation to charity the charity is able to reclaim a further £5 from HMRC making a gross gift of £25. Where the individual is a 40% higher rate taxpayer he or she is able to claim a further £5 tax relief under self-assessment, reducing their net cost to £15.

Note that the donor is required to make a declaration that they are a UK taxpayer and those that have not suffered sufficient UK tax to support the Gift Aid amount will be taxed on the shortfall.

Remember that Gift Aid does not just apply to gifts of cash. Many charity shops will now sell your donated items on your behalf and are able to treat the sale proceeds as Gift Aided donations. It is also possible to gift quoted securities and land and buildings to charity and claim Gift Aid on the market value of those assets.

 

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Annual Investment Allowance increase

The Annual Investment Allowance (AIA) which provides businesses with a 100% write off against profits when they acquire plant and machinery has been temporarily increased from £200,000 to £1 million for two years from 1 January 2019. This will again mean that the timing of expenditure will be critical. It may be advantageous to delay expenditure until after 1 January 2019 to get full benefit in certain circumstances.

However, the current enhanced capital allowance for energy efficient plant will be abolished from April 2020. A further change is that the writing down allowance for special rate pool equipment, broadly long-life assets and fixtures in buildings, is being reduced from 8% to 6% from April 2019.

Being busy versus being productive

In today’s hyper connected business environment, it seems we are all busier than ever. Whether we are responding to emails outside of office hours or taking a call while on the way to a meeting, there is so much going on in our work lives that it’s easy to lose focus on getting the most important work done.

 Focus on being effective

Busy people tend to have a good work ethic. That is why they are always busy. The problem is not that they don’t work hard, but that they don’t work smart. Productive people focus on being effective. They are constantly looking for better ways to achieve the same outcome.

Don’t sweat the small stuff

Busy people tend to get lost in the minor details whereas productive people tend to focus on the macro issues. Once you get from A to B in the most efficient way possible, it doesn’t really matter which route you took to get there or what else you did along the way. Focus on hitting each milestone along the way to achieving your business objectives and don’t sweat the small stuff.

Set your own direction

Busy people tend to be reactive and let others set their direction. Productive people tend to set their own direction and they are proactive in moving forward with each of their business objectives. Industry norms can try to set your direction of travel. However, if you want to move forward in a way that embraces new and innovative ways of doing things, it’s best to choose your own path to achieving each of your objectives.

The power of why?

Busy people tend to say yes and don’t really challenge why others are asking them to do things. Productive people tend to ask “why”? They challenge others with questions like “Why are we doing this” and “how does investing time in this particular activity help us to achieve the objectives of our business?”

Don’t try to do everything yourself

Busy people tend to do everything themselves. More productive people tend to use the tools and resources available to them in order to get things done in the most efficient manner. If a particular task has a high rate of recurrence or isn’t a particularly good use of your time, either hire someone cheaper to do it or outsource it.

Tax Efficient Child Care Schemes

Earlier this year the government announced that no new childcare voucher schemes could be set up after 5 October 2018. This was a six month extension from the previous 5 April 2018 end date. If those employers offering such schemes at 5 October are prepared to keep administering their scheme then they will continue to be available but will eventually be phased out.

The current scheme allows employers to provide vouchers to employees to pay for care of their children up age 16. Vouchers to the value of £55 a week can be provided tax free to basic rate taxpayers with differing tax free amounts for higher rate and additional rate taxpayers.

The replacement scheme is the government’s “tax free” childcare account which started this year for children up to age 12. Under this scheme the government tops up the savings in the childcare account by 25% up to £2,000 per child per year (£4,000 for a disabled child).

Thus, savings of £8,000 would be topped up by the government to £10,000 and the £10, 000 could then be used to pay Ofsted registered childcare providers such as nursery fees, childminders, after school clubs and summer camps.

Unlike childcare vouchers, the new childcare accounts will be available to both employees and the self-employed.

 

Property swaps

QUESTION : Jack and Jill jointly own two investment properties and wish to swap their interests so that they each have ownership of one of the properties. As tenants in common they currently equally own Cornfield with a market value of £210,000 and the original cost of £50,000 and Wheatfield with a market value of £200,000 and the original cost of £49,000. Jack is to have Cornfield and Jill is to have Wheatfield. What are the CGT and SDLT implications?

ANSWER: For CGT there is a form of roll-over relief on the disposal of joint interests in land in s 248A TCGA 1992 where conditions A to E in that section is satisfied. Condition A is that there is a joint holding of land or separate holdings in land; condition B is that there is a disposal of an interest to one or more co-owners; condition C is that the consideration includes an interest in a joint holding in land; condition D is that in consequence of the disposals the co-owners become sole-owners and condition E is that the acquired interest is not an interest in excluded land. The excluded land is defined in s 248C TCGA 1992 as a dwelling-house which would attract private residence relief under ss 222-226 TCGA 1992 arising on its subsequent disposal within six years of acquisition or becomes excluded land within six years in which case any relief is then withdrawn.

In this example the conditions for relief are satisfied and the position for Jack is as follows:

Without the roll-over relief, his disposal of his half share of Wheatfield shows a gain of £80,500 (the half share of the market value acquired of £210,000 less the half share of Wheatfield disposed of amounting to £24,500).  On submitting a claim under s 248B(2) TCGA 1992 the gain is reduced to £5,000 being the excess of the consideration received over the market value of the relinquished interest.  The acquisition cost of the half-share acquired becomes £24,500 (the market value of the acquired interest less the gain on Wheatfield).  The chargeable gain of £5,000 is below the annual exempt amount in s 3 TCGA 1992 so if Jack has no other disposals in the year will not have to pay any CGT.

The position for Jill is as follows:

Jill acquires half of Wheatfield with a market value of £100,000 in exchange for her half share in Cornfield with a cost of £25,000 (half of £50,000) giving a gain of £75,000. With a claim for the roll-over relief under s 248B(1) TCGA 1992 there is no chargeable gain and the base cost of the half-share that Jill acquires in Wheatfield is £25,000. This is achieved by treating the disposal proceeds as being equal to the acquisition cost of the interest transferred and the base cost of the acquired half-share in Wheatfield becomes the market value of £100,000 less the gain rolled-over of £75,000, ie £25,000.

For SDLT the rules on partitions with joint owners going their separate ways are to be found in para 6 Sch 4 FA 2003 and for exchanges see para 5 Sch 4 FA 2003. The property interest given up by one party is not treated as consideration for the acquisition of the interest from the other party.

There is no definition of “partition” in the legislation and this was raised during the Standing Committee Debates on the Finance Bill 2003. The Chief Secretary to the Treasury clarified the definition in an example – “A and B are the joint owners of two properties. They agreed to split ownership, so that A is left as sole owner of one property and B is the sole owner of the other.”  The intention of relief for partitions in para 6 Sch 4 FA 2003 is to give full relief except to the extent that money is paid which is corroborated by the HMRC manual at SDLTM04030A.  Therefore, SDLT will not be due unless there is a balancing payment or other consideration given and in the case of Jack and Jill above that is not the case and, accordingly, no SDLT will be due.

Disbursement vs recharged expenses

The treatment of recharged expenses is a common cause of VAT errors. A disbursement is where you act on behalf of your customer in arranging and paying for goods or services, but the underlying supply remains between the supplier and your customer.

A common example of a disbursement is the Companies House filing fee. Here the supply is between Companies House and the company, but it is common practice for an accountant to file and pay the fee on their client’s behalf. Because the ‘supply’ remains between Companies House and the client, the accountant can treat this payment as a disbursement, as long as the disbursed amount is clearly shown on an invoice separately from any other supply, and the exact cost is passed on. The accountant, therefore, does not need to account for VAT when they recharge this cost on to the client.

However, expenses such as hotel accommodation, travel and meals are being supplied to and are consumed by you, not your customer. Therefore, this is not a disbursement, and your must treat any recharge of these types of expense as further consideration for the main supply.

Guidance on how to show recharges and disbursements on your invoices can be found on the GOV.UK website VAT: costs or disbursements passed to customers

Employee stress

Employee stress is a problem for all businesses (and all employees). Stress naturally occurs in the workplace. When left unchecked, it can wreak havoc on employee health and productivity.

 Relationships

Relationships can make or break a work environment. When people don’t get along and don’t know how to communicate effectively, it can create a lingering tension in the office. Consider investing in some training. Training sessions can promote an understanding of personality types in order to help people to work together more effectively.

New, more modern policies

Consider if there are new policies that could be introduced that would make the office less stressful, such as a casual dress policy. People feel less stressed if they are comfortable so maybe it is time to say goodbye to suits and ties. Another positive change could be to introduce an open door policy. This will encourage people to communicate more freely with their managers.

Office environment

Take the time to walk around your office space and consider if it is possible to make it a more enjoyable working environment. Perhaps there is a lack of natural light or a lot of clutter around the office. An office cleanup followed by some fresh paint and a few new features like a coffee machine and some plants can make it more enjoyable to work in. It doesn’t have to cost a fortune but a few tweaks can make all the difference.

Promote activities that make the office more pleasant for your employees.

This might include reassigning workloads in order to spread the work more evenly between teams, giving public recognition for a job well done or starting a weekly lunchtime barbecue during warm weather. You might add perks such as office yoga classes, gift certificates after completion of a difficult project or health and wellbeing initiatives such as healthy eating week, lunchtime running sessions, etc.

Agile working

The world of work is changing and agile working is becoming the norm. Giving your team members the flexibility to work from home or at different times of the day can help them to improve their work life balance. If someone needs to focus on a particular project, they can work from home or somewhere quiet, away from the office, in order to get their project over the line. This can help to reduce their stress levels and improve their productivity.