The View from No 50





March 2008

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston

Ilkley  LS29 6JA

Tel:  01943 870933

Fax:  01943 870925








The problems with traditional inheritance tax planning measures are they involve (1) giving away wealth which you might not be able to afford to give away and (2) surviving for seven years after making your gift.


So, wouldn’t it be nice if you could hang on to your wealth and not have to pay inheritance tax on it?


This can be done.  The planning is simple and is not contentious.


Governments of all persuasions are anxious that small businesses should not have to sell up or close down on the death of an owner in order to raise money to pay inheritance tax.  So money invested in certain businesses is, subject to some conditions, protected from inheritance tax.


What business investments qualify for this tax break?


Nearly all investments qualify provided the underlying business activity does not involve dealing in or investing in securities, stocks or shares, land or buildings.


The investments can be in sole trader businesses, partnerships, unquoted companies or companies quoted on the Alternative Investment Market (AIM).


The other main condition is that the investment must be held for a period of two years before it becomes eligible for relief from inheritance tax.


Are there any solutions out there which might be suitable for you?


At the DIY level you might have a family member who runs a business and who might welcome some investment from you.  This will work from a tax point of view.  Sometimes, however, other family considerations will make this solution impractical.


Also at a DIY level, if you fancy yourself as a good stock picker, you could invest in appropriate AIM quoted shares.


If you don’t fancy yourself as a stock picker you could pay a suitably qualified provider to manage a portfolio of AIM quoted shares for you.  As this type of inheritance tax planning has become more popular so the number of organisations offering AIM managed portfolio services has increased.


What are the disadvantages of investments like these? 


Your investments could fall in value.


You might need to get your hands on your money.  Getting money out of a family business might not be easy.


The AIM market is less liquid and more volatile than the main market.


Our Advice: This isn’t a place to invest your core savings.  But if you have funds available, beyond your core savings, it is worth a further look.


Please get in touch if you would like to discuss inheritance tax planning.





The taxpayer received an occupational pension from his former employer.  He entered only one half of the pension on his tax return claiming that the other half was his wife’s as he had transferred it to her.  She entered half of the pension on her return and claimed a tax refund as the pension was less than her personal allowance.


H M Revenue & Customs did not accept that a transfer could be made and amended the relevant returns.


The husband and wife appealed, claiming that as pensions could be split between divorced couples, it was only fair that married couples could do the same.


The Special Commissioner dismissed the taxpayers’ appeal.  The husband was the person who was entitled to and did in fact receive the pension.  Fairness did not enter into it.


Our Advice: There was no way the taxpayer was ever going to win this case.  Never expect fairness in tax.





Important changes are about to be made to the regime for giving tax relief to small businesses for the expenditure they incur on equipment.


The changes take place on 1 April for companies and on 6 April for sole traders and partnerships.


For expenditure incurred before these dates small businesses qualify for a first year allowance of 50% of the amount of their expenditure. The residue is allowed as a deduction from profits over succeeding years.


With effect from these dates small businesses will qualify for a first year allowance of 100% on the first £50,000 of their expenditure.  In other words the full cost of the equipment will be written off against the profits of the business in the period in which it is incurred.


There are transitional rules for businesses having an accounting period which spans 1 April or 6 April.  For example if a limited company draws up accounts for the year ended 31 December 2008, the maximum amount of expenditure qualifying for the 100% allowance in the period from 1 April to 31 December will be £37,500 (£50,000 x 9/12).


Our Advice: Our usual advice is to advance expenditure in order to get the benefit of capital allowances sooner rather than later.  However, given the change which is about to take place, you might consider deferring your capital expenditure plans in order to secure a higher rate of first year allowance.





Some tax breaks are available on a ‘use it or lose it’ basis.  If you don’t use them you lose them.  As the end of the tax year approaches now is a good time to remind you about them.


Income tax


Personal allowance                         £5,225

Pension contributions for those

with no (or low) earnings                £3,600

Pension contributions for those

with high earnings (up to)           £225,000

Enterprise investment

scheme (up to)                            £400,000

Venture capital trusts (up to)      £200,000



Capital gains tax


Annual exemption                            £9,200



Inheritance tax


Annual exemption                            £3,000

Small gifts to the same person           £250





Individual savings accounts

Cash                                                £3,000

Shares (Cash ISA in same year)      £4,000

Shares (no Cash ISA in same year) £7,000



And to finish, if you run your business through a limited company and if you could be caught by the income splitting legislation which comes into effect on 6 April 2008 (see the January 2008 newsletter) consider whether you could gain an advantage by paying a dividend to shareholders before the end of this tax year.


Our Advice:  If this reminder has prompted any questions please do not hesitate to get in touch. 


Use it or lose it!





At the end of a hard day at the football chairmen’s conference, the delegates from Manchester United, Liverpool and Bradford City were relaxing in the sauna.


Suddenly there was a bleeping sound.  The Manchester United chairman pressed his arm and the bleeping stopped.  “That was my pager. I have a microchip in my arm” he explained.

They then heard a ringing sound.  The Liverpool chairman, putting his palm to his ear said, “That was my mobile.  It’s implanted into my hand.”

The Bradford City chairman realised his club’s limited resources meant he had no chance of keeping up with his friends but he didn’t want to be outdone. He went to the toilet and returned with some toilet paper hanging from his backside.

The other two stared at the City chairman as he announced, “Just a minute lads, I think I’m getting a fax.”

Copyright:  K P Bonney & Co LLP 2008.  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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