The View from No 50

 

 

 

 

March 2010

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston

Ilkley  LS29 6JA

Tel:  01943 870933

Fax:  01943 870925

Email:  keith@kpbonney.co.uk

www.kpbonney.co.uk

 

 


 

50% TAX FROM 6 APRIL

 

On 6 April 2010 the top rate of income tax increases from 40% to 50%.  The 50% rate applies to individuals whose income exceeds £150,000.  If you are likely to be hit by the 50% rate you might be able to take some measures now which will limit your liability.

 

Convert income to capital gains

 

Consider switching savings from investments which produce an income return to ones which produce a capital return.  At the time of writing the highest rate of tax on capital gains is a mere 18%.

 

Consider moving some of your savings into zero dividend preference shares.  Over the years investors have achieved the aim of converting income into capital gain by putting their savings into the zero dividend preference shares of split capital investment trusts.   This strategy still works.  Do be aware, however, that zeros are not risk free investments.  At the beginning of the last decade the zeros market descended into turmoil when it emerged some managers had made imprudent investment decisions.

 

Consider also structured products.  We are aware of one high street bank which regularly offers investments with a guaranteed return of capital and with fixed returns which are treated as capital gains rather than income.

 

Always take advice from a suitably qualified person before making investments.

 

Make the most of tax free investments

 

National Savings and Investments offers a number of tax free products such as Premium Bonds and fixed and index linked Savings Certificates.  Although the returns are not spectacular the increase in the rate of tax to 50% does actually make them worth another look.  They are also very safe investments in the sense that you should not lose your money.

 

Any profits made inside Individual Savings Accounts are tax free so make sure you use your annual ISA allowance.

 

Advance income

 

Do you have the power to influence when your income arises?  If so, you might consider advancing income from 2010/11 to 2009/10.  For example, consider closing interest bearing accounts before 6 April so that the interest to the date of closure falls in 2009/10 rather than 2010/11.  If you control your own limited company consider advancing dividends which might normally be paid in 2010/11.

 

What about an advance of salary?  Your employer may not be too keen but if you agree to share some of the tax saving by taking a temporary small cut in your gross pay you could both save money.

 

Defer making deductible payments

 

Do you have the power to influence when tax deductible payments are made?  If so, you might consider deferring payments from 2009/10 to 2010/11.

 

Perhaps you are self employed and are considering the purchase of equipment before your business year end.  Whereas the conventional advice is to advance such expenditure in order to accelerate the tax relief you should consider whether deferring the expenditure might actually give you a better outcome.

 

Consider deferring Gift Aid payments.

 

Spouses and civil partners

 

Do you pay income tax at a different rate to your spouse or civil partner?  If so, consider transferring the ownership of income producing assets. 

 

If all else fails..

 

A rather more drastic but effective avoidance strategy is to leave the UK!

 

Our Advice:  If you would like further information or help with the implementation of these ideas please get in touch.


 

TIME RUNNING OUT TO MAKE A REPAYMENT CLAIM?

 

H M Revenue & Customs is standardising its time limits for claims across the range of taxes for which it is responsible.

 

The standard time limit for making a claim for repayment of income tax has been five years and ten months but that is now being reduced to four years.  The following table shows what time limits apply during the transitional period.

 

Tax year            Self                Other

                   assessment       taxpayers

                     taxpayers               

 

2004/05      31.03.2010      31.01.2011

 

2005/06      05.04.2010      31.01.2012

 

2006/07      05.04.2011      31.03.2012

 

2007/08      05.04.2012      05.04.2012

 

2008/09      05.04.2013      05.04.2013

 

Our Advice:  If you are affected by this change you should take steps to get your affairs up to date and so capture the repayments you are owed. 

 

 

FURNISHED HOLIDAY LETTINGS

THE END IS NIGH

 

Do you own a furnished holiday let?  If so you cannot possibly have missed the news that the favourable tax treatment you enjoy comes to an end on 5 April 2010.

 

Are there any things you can do to make the most of the old rules whilst they are still around?

 

Time is short but generally you should be advancing expenditure on furnishings and equipment so that it falls in 2009/10.   Under the existing rules expenditure on furnishings and equipment qualifies for capital allowances.  In most cases the rate of allowance is 100%.  Under the rules which apply from 6 April 2010 there is no direct relief for expenditure on furnishings and equipment.  In place of a capital allowance you will be able to claim a ‘wear and tear’ allowance.  The amount of the wear and tear allowance bears no relation to the amount of your expenditure on furnishings and equipment.  The allowance is set at 10% of rental income.

 

Sally owns a furnished holiday let.  She achieves rental income of £10,000 and after expenses makes an annual profit of £2,500.

 

She needs to replace the all the beds, the lounge suite and the white goods and reckons the total cost will be £6,000.

 

If she incurs the expenditure before 6 April 2010 her profit will be turned into a loss of £3,500.  If she incurs the expenditure after 5 April 2010 her 2009/10 profit will remain £2,500 and she will get no relief for the expenditure of £6,000.

 

Whether she incurs the expenditure or not she will be able to claim a wear and tear allowance of £1,000 (£10,000 x 10%) in 2010/11.

 

Incurring the capital expenditure in 2009/10 has another advantage.  Sally can offset her loss of £3,500 against her other income.  This could reduce her tax bill by as much as £1,435.  In contrast, any losses suffered in 2010/11 and beyond cannot be relieved against general income.  Instead they must be rolled forward and relieved against profits from the letting activity only.

 

Our Advice:  If you have a furnished holiday let give serious consideration to the timing of transactions in the weeks before 6 April 2010.

 

 

TOO MANY BLOWS TO THE HEAD

 

Jack and Norman, two centre halves from the days when footballs had laces and were as heavy as lead, are having an evening together.  Their wives are in the kitchen preparing dinner.

 

“How was your holiday in Morecambe?” asks Norman.

 

“Really good,” replies Jack.  “We found a really nice restaurant.”

 

“That’s interesting,” says Norman.  “We are going to Morecambe next week.  What is the restaurant called?”

 

“Oh!  What is the name of that sweet smelling flower you give to someone you love?  You know, the one that’s red but has thorns,” asks Jack.  

 

“Do you mean a rose?”

 

“Yes, that’s the one,” says Jack.  He turns towards the kitchen and yells, “Rose, what was the name of that restaurant we went to in Morecambe?”

Copyright:  K P Bonney & Co LLP 2010.  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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