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Tax news articles

Inheritance Tax – Recording potentially exempt transfers

A potentially exempt transfer (PET) is not liable to inheritance tax when made, and it is treated as an exempt transfer unless the person who made the gift (the transferor) dies within seven years.  This means that there is no requirement to notify HM Revenue and Customs (HMRC)  on the making of a PET or to deliver an inheritance tax account for a PET. HMRC will not enter into discussions about, or determine the value of, a PET before the transferor’s death makes that PET chargeable. It should be remembered, however, that there may be a charge to inheritance tax in respect of the PET in some cases, and that on the death of the transferor details of PETs made within the previous seven years will need to be available.  It is therefore important to record all PETs in writing. Tax on a PET that proves to be a chargeable …Read More

Tax: DIY investors aren’t taking advantage of capital gains tax (CGT) allowances

According to new research from Prudential, many DIY investors are failing to consider important taxes and charges when making investment decisions.   44% admit they don’t know which product would be most appropriate for their circumstances, 37% aren’t sure how to avoid tax traps, and 19% aren’t confident they’ll keep under their annual Capital Gains Tax (CGT) threshold. Using the CGT threshold correctly helps investors maximise returns in a tax-efficient way. However, despite 81% DIY investors saying they understand CGT, only 28% knew the allowance. More shocking is that only 7% of DIY investors claim to use their capital gains tax allowance each year, rising to 15% for high net worth investors. Matthew Stephens, tax expert at Prudential, commented: “Investing without advice from an expert may be cheaper initially. However, without a clear understanding of all the relevant considerations, it could be very costly in the long-run”. Well said Matthew. By Karen Shakespeare, 10th April 2013

Tax: Budget puts stop to some inheritance tax planning

In his recent Budget Statement, the Chancellor announced that new legislation will be introduced to stop inheritance tax (IHT) mitigation schemes that rely on deductions for liabilities owed by the deceased. The current rules allow executors to deduct from the taxable estate any debts owed by the deceased at death, whether or not the liabilities are paid after death and regardless of how the borrowed funds have been used. According to HMRC, this has been exploited by avoidance schemes involving contrived debts that are never repaid, so there is no real reduction in the value of the estate. One example of such a scheme is where a person sells an asset to his wife in return for her IOU. When she dies the IOU is deducted from her estate even though the husband had no intention of recovering the ‘debt’. In future, where debts are not repaid on death, the executors will have to demonstrate …Read More

Tax: £9.4m painting is a “wasting asset” for capital gains tax purposes

Since writing about this case in December 2012, the executors of the Castle Howard estate in Yorkshire have succeeded in getting the £9.4 million painting classified as plant and machinery, thus avoiding capital gains tax on its disposal. The painting in question is “Omai” by Joshua Reynolds.  It is a portrait of a young Tahitian brought back to England by Captain Cook in 1774.  It was bought by the Howard family soon afterwards and remained at Castle Howard in North Yorkshire for two hundred years.  It was sold in 2001 by Simon Howard, who had just been through an expensive divorce and needed to raise additional funds to help pay the estate’s running costs.  The painting fetched £9.4million at auction. The sale of the painting led to a multi-million pound capital gains tax bill, but the Howard family felt the painting should be tax exempt because it had been on display at their castle which is run as …Read More

Tax: Budget 2013 Summary

The 2013 Budget was largely a confirmation of previously announced changes.  Here are the main points for individuals. Income Tax As previously announced, from 6th April 2013 tax on income over £150,000 will be reduced from 50% to 45% (37.5% for dividend income). All other income Tax and National Insurance Contributions rates will remain at their current levels. The standard Income Tax personal allowance increases to £9,440 on 6th  April 2013.  As previously announced, the higher age related personal allowance will remain frozen at current rates. Cap on unlimited Income Tax reliefs As previously announced, the new cap on unlimited Income Tax reliefs will come into force on 6th April 2013. The reliefs will be capped at £50,000 or 25% of a person’s income in a tax year, whichever is greatest.  Donations to charity don’t fall within the new rules. Childcare scheme A new childcare scheme will be phased in from 2015 with the aim of helping working families …Read More

Inheritance tax – good news for spouses and civil partners domiciled overseas

It is an individual’s domicile (actual or deemed) rather than their nationality or residence that is important for inheritance tax (IHT) purposes. Someone who is UK domiciled is subject to IHT on their worldwide assets whereas someone who is non-UK domiciled  is only subject to IHT on their UK assets.  An individual who is not UK domiciled is still deemed to be UK domiciled if they have been living in the UK for 17 out of the last 20 tax years, including the current tax year. At present, the tax rules prevent UK domiciled spouses from transferring substantial assets to their non- UK domiciled spouse who in turn transfers them overseas to escape IHT.  There is a cap of just £55,000 with any gift above that amount being subject to IHT. However, from April 2013, non-UK domiciled spouses can elect to be treated as UK domiciled.  This means they will …Read More