Thursday, December 1, 2016
This is where deferral comes in handy. The Enterprise Investment Scheme (EIS) provides one of the mechanisms that allows such a deferral. Most people misunderstand that the general EIS conditions for income tax relief are much more restrictive than the conditions for CGT deferral. In particular the requirement that one owns less than 30% of the company or that one is connected to the business only applies to the income tax relief component of the EIS, not the CGT deferral. Same thing for the requirement that the investment be held 3 years or more: if you sell earlier the deferral just ends then (see HMRC note).
Monday, November 21, 2016
Many companies distribute dividends on a monthly basis as a means of providing themselves with a 'salary-like' income. In many cases it is only through habit and there is no reason that these frequent distributions shouldn't be replaced by a less frequent dividend followed by drawings against their current account with the company.
Tuesday, August 23, 2016
The government has confirmed that, from 6 April 2017, all UK residential property will fall within the scope of UK inheritance tax. This means that shares in overseas companies holding UK residential property will no longer be considered as excluded property for IHT purposes, and will therefore be chargeable to UK IHT on the death of the owner, regardless of their domicile status. This treatment will also extend to overseas partnerships owning UK residential property. The definition of residential property is likely to follow the existing definition of a dwelling under the Non-Resident Capital Gains Tax rules.
IHT on Residential Property
Many non-UK domiciled have traditionally held UK residential property through an offshore structure in order to avoid exposure to IHT. Even following the introduction of the ATED (Annual Tax on Enveloped Dwellings) charge that now applies to properties worth over £500,000 held by an overseas company or other structure, many non-doms chose to retain their structures, accepting the ATED charge on the basis that the property would not be subject to UK IHT on their death.
Thursday, May 19, 2016
There are still a number of benefits however to operate as a Limited Company. Here they are:
1. Better legal protectionAs the name suggests, if you run a Limited Company, you are protected in case things go wrong. Assuming no fraud has taken place, you will not be personally liable for any financial losses made by your Limited Company. Those running a business as self employed do not enjoy such protection from financial claims if things go wrong with their business. While it's possible (and recommended) to subscribe to a professional liability insurance, there is always a risk of running foul of the fine print...
2. More professional image or statusIn some industries, having a Limited Company can provide a more professional image. If you are doing business with larger companies, you may find that they prefer to deal only with Limited Companies rather than Sole Traders or even partnerships. Indeed by being transparent, adhering to regulatory requirements and opening up company accounts to public scrutiny, you are demonstrating that the business is being correctly managed and this inspires confidence.
3. Wider availability of some contracts
The reason bigger corporations do not hire Sole Traders is not just image or professionalism but IR35 risk. The IR35 regulation was put in place to prevent employees to set up shop as free-lancers just to save tax. In other words if HMRC decides that a free-lancer behaves as an employee, then he is required to pay the same amount of tax and NI as an employee would. He he does not, whoever hired him is responsible for the back tax and NI, unless he operates as limited company (and in which case that limited company is responsible). It's easy to understand then why some organisations will only deal with limited companies!
4. Name protectionOnce you register your company with Companies House, your company name is protected by law. No-one else can use the same name as you, or anything deemed to be too similar. As a Sole Trader, you can use a trading name but it's not protected and there is nothing to prevent a competitor to start using the same trading name as you. While it's possible to protect a trading name with a trademark, it will be in practice a lot more expensive than just creating a company with that name.
Wednesday, May 18, 2016
In other words, most mortgage providers should now accept instead of the HMRC SA302, the tax year overview confirming the tax due on the return submitted. It is also possible for the mortgage providers to cross check the tax due as per the accountant's calculation against the tax paid as displayed on the HMRC web site.
The institutions that have agreed at this time on the new process are the following:
Thursday, March 31, 2016
These new measures only apply to individual shareholders and close companies (broadly, companies controlled by five or fewer people) but it represents a significant tax increase where the shareholder was able to claim Entrepreneur's Relief on the gain (a jump from 10% to 38.1% if dividends are falling within the additional rate band).
More specifically, the anti-avoidance is targeted after the following behaviours:
Wednesday, October 28, 2015
The difference in spread and fees is often huge resulting in significant savings for individuals that need to transfer money overseas or companies that often trade in multiple currencies.
The problem is however that those rates are very attractive on the first few transactions but have a tendency to creep up after a while. Most people will spend time initially to select a broker based on price but few will put in competition multiple brokers every time they need to do a transfer.
This is where a new start-up found an opportunity. Called currencytransfer.com, the company takes care of registering you with up to 8 brokers (yes the compliance process is done just once and passported over to the other brokers). Going forward when you need to do a forex transaction, the platform will put a bid on your behalf to all available brokers. You just have to pick-up the best price and off you go, with just a few clicks. Everytime.
This is a huge benefit as brokers have to stay honest if they want your business and it therefore guarantees the best possible price everytime without you having to be a specialist.
Wednesday, October 21, 2015
It does not have to be. There are a number of ways one can significantly reduce this tax with a little bit of estate planning. Here are 5 tips you need to keep in mind when it comes to IHT:
1. Gifts from disposable incomeThis is actually an HMRC concession that most people are unaware of. It relates to the ability to give away an unlimited amount provided it qualifies as "normal expenditure out of income" and it is arguably one of the most useful IHT exemptions. It is also very flexible, because you don't have to gift the same amount every year or make the gifts to the same person. Many people use the exemption to pass on money on a regular basis to children or grandchildren. It is important to remember however that the exemption is not given automatically and has to be claimed retrospectively by the executors of your estate. For the gifts to qualify, you must be able to show that the payments are made out of surplus income - either earned income or investment income - and that they do not reduce your standard of living and in particular you cannot pass on income and then use your capital to supplement living costs.
2. Gifts of capital survived 7 yearsThere is a way to give your whole estate away and pay no tax at all. As long as you survive the gift by 7 years or more. This type of transfer is known as a "Potentially Exempt Transfer" or a PET. It is important to bear in mind that when making a large gift it has to be in excess of the nil band rate (NBR) to benefit from any potential reduction in the potential tax due as a result of the taper relief. In addition it is also important to be aware that any gift made essentially uses up the nil rate band and could push the remaining estate into a full rate of tax with no relief at all for the subsequent 7 years.
Keep in mind that if you give your estate away, you don't control it anymore. Something that many people are reluctant to do. But there is another option. Please read on....
Monday, August 10, 2015
To re-cap, the current proposals are to abolish the 10% tax credit on dividends from April 2016 and replace it with a new £5,000 dividend allowance. The proposals also set out the intention to change the rate at which dividends are taxed from April 2016 to the following:
- Basic rate band: 7.5%
- Higher rate band: 32.5%
- Additional rate band: 38.1%
Currently the effective rates are 0% in the basic rate band, 25% in the higher rate band and 30.56% in the additional rate band. Since the Summer Budget last month no further information has been released, and we are still waiting for the draft legislation which may not arrive until the Autumn Statement later this year.
As it stands the information provided is very general, and the following is unknown:
- How the dividend allowance will interact with the personal allowance
- Whether the dividend allowance is available in full for higher and additional rate tax payers
If the proposed changes go ahead then it is clear that personal tax liabilities will increase for director/shareholders who pursue a strategy of taking a small salary and dividends to extract profit. But it's impossible at this stage to a reliable calculation.
Many people are wondering whether it still makes sense to operate as a Limited company or if it will be more tax efficient to operate as a sole trader from April 2016. However it's impossible to answer this question right now as it is rumoured that Class 4 NIC may increase, partly due to the fact that Class 2 is being abolished from April 2016. And the much publicised ‘Tax Lock’ does not apply to Class 4 NIC.
Tuesday, June 9, 2015
The first question is to answer is if your property business qualifies as a Furnished Holiday Let (FHL). HMRC spells out the rules very clearly. In a given tax year, an accommodation qualifies for FHL if:
- The property is located in the UK or the EEA and is let commercially (i.e. with the intention to make a profit)
- The total of all lettings that exceed 31 continuous days is less than 155 days
- The property is available for letting for at least 210 days in the year (excluding your days of occupancy)
- You have let the property as a furnished holiday accommodation for at least 105 days in the year (excluding periods let at reduced rate to friends or let for more than 31 days).
So here are the important points to consider: