The View from No 50
K P Bonney & Co
Chartered Accountants and
Chartered Tax Advisers
Ilkley LS29 6JA
Tel: 01943 870933
Fax: 01943 870925
TICK HERE FOR NO PUBLICITY
The taxpayer, a well-known broadcaster, took part in a marketed tax avoidance scheme. HMRC considered the scheme did not work and amended his tax return accordingly. He appealed against the amendment.
He applied for the appeal hearing to be heard in private and for the resulting decision to be published in anonymised form. He sought these things because he was afraid the current media interest in tax avoidance schemes and in particular their use by celebrities would have a damaging effect on his career and earning capacity.
The First-tier Tribunal said “the presumption of a public hearing is nowadays stronger than might have been perceived even a few years ago.” That the taxpayer was rich or in the public eye was no reason to allow a private hearing. It was important that the tax system be seen to be operated even-handedly. Granting anonymity to individuals who were rich or famous might be seen as allowing them to buy protection from scrutiny in a way not available to other taxpayers. That would not be right.
The taxpayer’s application for a private hearing was dismissed.
And the identity of the mystery celebrity?
We shall only discover that if he proceeds with his appeal.
WHO HAVE YOU BEEN SLEEPING WITH?
In early April each year I send my clients a tax return checklist.
As legislation gets ever more burdensome so the list of questions in the checklist grows.
My checklist for 2012/13 will contain a new question. It will go something along the lines of
‘have you been sleeping with anybody?’
What is the background to that?
In these austere times paying out child benefit to relatively well-off families is not a good use of taxpayers’ money.
The sensible way to reform would be to abolish child benefit and beef up tax credits. But that would be electoral suicide.
So the chancellor has decided he will achieve his objective by imposing an income tax charge on ‘high income’ families in receipt of child benefit. The charge will apply where one partner has income of more than £50,000.
The difficulty here is that the chancellor is trying to meld two completely different systems.
Income tax system is centered around individuals.
The benefits system is centered around families.
The government knows who is receiving child benefit but there is no easy trail from there to work out whether there is anybody in that family who has income of more than £50,000. And how do you define a family?
The Finance Act 2012 provides that a family is a husband and wife living together, a man and a woman living together as husband and wife, a same sex couple in a civil partnership living together and a same sex couple not in a civil partnership and living together as a civil partnership.
As Tim Harford amusingly put it in the FT recently, “If a mother is living with her high-earning husband there is a tax charge. If she is a single parent living with her high-earning mother there is no tax charge. If she lives with a high earning friend there is no tax charge. If she starts sleeping with the friend there is a tax charge. I have asked HMRC how they plan to find out who is having sex with whom. They said they would get back to me.’
SCRIPS AND DRIPS
A quickie which might be of interest to readers who own shares in public companies.
Ever wondered what is the difference between a scrip and a drip?
With a scrip the company applies your dividend money to buy newly issued shares. There is no stamp duty or brokerage to pay so this is the most cost-effective way of re-investing dividends. Any unused cash is carried forward. For tax purposes your income is the value of the shares issued to you.
With a drip the company registrar uses your dividend money to buy existing shares in the market. There is typically a charge of about 0.5% of the transaction value. Any unused cash is carried forward. For tax purposes your income is the money amount of the cash dividend.
So the differences are small and subtle.
The real dilemma is whether to take dividends as cash so you can spend the money on things you like or to reinvest via a plan of the kind described above.
The FT reminded us recently that £100 invested in the UK stock market in 1899 would have been worth £12,655 at the end of 2010. But if all dividends had been reinvested over that time frame the £100 would have grown to £1.7m.
DANGER – GROBS – GIVE WITH CARE
Jean died in 2007. In 1999 she had transferred £94,000 from an account in her sole name to a new joint account in the name of herself and her adult son John.
On her death how much of the money in the account formed part of her estate for inheritance tax purposes?
A. None because she survived the gift by more than seven years
B. Half of the balance in the account at the date of her death because she had a half share in the account or
C. The full balance in the account at the date of her death.
The answer is C. As a joint signatory Jean had the power to withdraw all of the funds in the account for her own benefit. Accordingly the whole account remained under her control. A gift over which you retain control is called a gift with reservation of benefit (or GROB for short).
Where you have a GROB the seven year IHT clock only starts to tick once the reservation is relinquished.
Our Advice: This case demonstrates that gifts into joint accounts are fraught with difficulties. To avoid the GROB rules make gifts to the intended donee outright.
STILL HANGING ON
A few months ago I had a bit of a rant about the amount of time it was taking HMRC to pick up the phone.
As if having to wait isn’t bad enough it is particularly galling that you have to ring an 0845 number.
I am indebted to a contact of mine who has drawn my attention to a website which lists alternative STD codes for premium rate numbers.
I haven’t tested it myself but next time you need to ring an 08 number consider giving it a try. Here is the link
The pope was cruising along the beach in his pope-mobile when there was a frantic commotion just offshore. A helpless man wearing an English football shirt was struggling to escape from the jaws of a shark.
As the pope watched in horror a speedboat pulled up alongside the incident. Inside the boat were three men – each wearing the shirt of his home nation – one Welsh, one Scots and one Irish. One of the men fired a harpoon into the side of the shark while the other two reached out and pulled the hapless Englishman from the water. Then, using long clubs, the three beat the shark to death and hauled it into the boat.
The pope summoned the men to him. “I give you my blessing for your brave actions. I heard there is bitter hatred between the Celts and the English but I have seen with my own eyes that this is not true.”
As the pope drove off the Welshman turned to his friends. “Who was that?”
“That was the pope,” replied the Irishman. “He is in direct contact with god and has access to all god’s wisdom.”
“Well,” said the Scot, “he may have access to god and his wisdom but he knows nothing about shark fishing. Is the bait holding up or do we need another one?”
Copyright: K P Bonney & Co LLP 2013. All rights reserved. No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers. Disclaimer: The publishers have taken all due care in the preparation of this publication. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publisher.
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