The View from No 50
K P Bonney & Co
Chartered Accountants and
Chartered Tax Advisers
Ilkley† LS29 6JA
Tel:† 01943 870933
Fax:† 01943 870925
BANGING ON THE SAME OLD DRUM
Inheritance tax is a voluntary tax.
Inheritance tax is a tax paid by those who fail to take advice.
Saving inheritance tax is easy.† You give away the wealth you donít need.† You survive for seven years.† Job done!
Well it would be easy if we knew how much we could afford to give away and if we knew how long we were going to live.
It is the classic dilemma.† We want to give it away but we donít know if we can afford to do so.
What is the answer?
There are several.† But one I particularly like is the business property relief answer.† This is where the drum comes in because this is a subject I have been returning to fairly regularly in these columns.
The business property relief answer is the Ďhave your cake and eat ití answer.
With the business property relief answer you donít have to give anything away.† You can continue to enjoy your wealth.
With the business property relief answer you achieve your inheritance tax saving after only two years.
So what is involved?
You have to invest in business property, as defined.† This can take several forms.
At the time of your death you must have owned the business property for at least two years.
At one extreme you can hand over your money to an investment manager.† He invests it for you in qualifying shares.† Hopefully he makes a good job of it.† You sit back and enjoy the dividend income.† If you need to dip into the capital from time to time you can do so.
At the other extreme you could invest in the business of a friend or a member of your family.†† Certain business activities are excluded so it is important to take advice before making your investment.
In my January newsletter I explained how certain investments in shares will attract a rate of tax relief of 78% in 2012/13.† In theory it could be possible to secure 78% tax relief on your way in and save 40% inheritance tax on your way out.
Now thatís tax planning!
Whatever kind of investment you make, you must accept that its value can fall as well as rise.† And there is the big downside with the business property relief answer.† If your investment falls in value by 40% you may as well not have bothered.† Your beneficiaries are no better off.
Our Advice: †This is not high risk tax planning.† Business property relief has been in place for many years and has survived intact under governments of all persuasions.
There are many investment managers out there who will be happy to run a portfolio of qualifying shares for you.
Never put all your inheritance tax planning eggs in one basket but certainly give business property relief your serious consideration.
PLANNING YOUR CAPITAL EXPENDITURE
X and Y are each in business.† They each draw up their annual accounts to 30 April.† Each decides to buy a truck costing £40,000.† X buys his truck in March 2012.† Y buys his truck in April 2012.
In his tax return based on his 30 April 2012 accounts X gets capital allowances (i.e. a deduction from his profits for tax purposes) of £40,000.
In his tax return based on his 30 April 2012 accounts Y gets capital allowances of only £9,604.
Why such a big difference?
Expenditure on plant and equipment qualifies for capital allowances at the rate of 100%.
For periods up to 31 March 2012 (5 April for individuals) the maximum amount of expenditure capable of qualifying for the 100% allowance is £100,000 per annum.
For periods beginning on 1 April 2012 (6 April for individuals) the maximum amount of expenditure capable of qualifying for the 100% allowance is £25,000 per annum.
There are special rules for expenditure incurred in periods straddling 31 March 2012.† They do not apply as logically or as favourably as one might expect.
Our Advice:† The timing of capital expenditure on or around 31 March this year can have a significant impact on the timing of the tax relief.
If you have capital expenditure plans for your business and would like to understand how to make the most of the changes please get in touch.
Yes, the picturesque village in the Yorkshire Dales.† This piece is about Dent Parish Council which appealed against a £400 penalty imposed by HMRC for the late filing of its employerís annual return for 2009/10.
Dent Parish Council filed its annual return, on time, on 20 April 2010.† Or rather it thought it did.† In actual fact the filing, unbeknown to the council, failed.
The penalty for late filing is £100 per month.† By the time HMRC got round to issuing a penalty notice four months had elapsed, hence the penalty of £400.
The Parish Council finally filed its return on 20 January 2011.
This case is similar to many others heard by the tax tribunals in recent times. As taxpayers only become aware of their failure at the time of receipt of the penalty notice, they argue the delay by HMRC in issuing the penalty notices leads to an unfair increase in those very penalties.† Tribunals have accepted this argument and have criticised HMRC for using delay as a revenue raiser.
Dent Parish Council deployed the same arguments as other successful taxpayers.† It must have felt confident of victory.
It lost because despite learning about the failure in September it still didnít file its return until the following January.† The Parish Council did not exercise due diligence and expedition in dealing with its affairs.
An unwelcome dent in the Parish Councilís finances.
Our Advice:† Do not assume an online return is filed successfully until you receive an email confirmation from HMRC.
If you receive a penalty notice for filing a late P35 and if you have reasonable grounds for believing you complied with all the obligations placed on you then make an appeal.† The tribunal judges are finding in favour of the taxpayer in most cases of this kind.
Sepp, visiting London, finds the red light district and enters a welcoming brothel.
The madam asks him to be seated and sends over a young lady to entertain him.† They sit and talk, frolic a little, giggle a bit, drink a bit and she sits on his lap. He whispers in her ear and she gasps and runs away!
Seeing this, the madam sends over a more experienced lady to entertain him.† They sit and talk, frolic a little, giggle a bit, drink a bit and she sits on his lap. †He whispers in her ear and she screams, ďNo way!Ē and smacks him as hard as she can and leaves.
The madam is surprised that this ordinary looking man has asked for something so outrageous that her two girls will have nothing to do with him. She decides she will attend to him herself.
She sits and talks with him. They frolic, giggle, drink and then she sits in his lap.
Sepp leans forward and whispers in her ear, "Can I pay in Euros?"
Thank you to Andrew W for that.
Copyright:† K P Bonney & Co LLP 2012.† 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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