The View from No 50
K P Bonney & Co
Chartered Accountants and
Chartered Tax Advisers
Ilkley LS29 6JA
Tel: 01943 870933
Fax: 01943 870925
STOP NICKING OUR TAX RELIEF PART 2
In the September newsletter I criticised certain institutions for grabbing a share of precious tax reliefs which the government intended to go to individual taxpayers.
I cited as an example a charity which charges more for admission to its premises to those visitors who choose to pay by gift aid.
I was wrong to criticise. It is not so much a case of the charities being greedy and more a case of the government and HMRC being helpful. Let me explain.
The whole ethos of gift aid is that the donor gives money and receives nothing in return. If a visitor pays for admission to an attraction he is not making a gift. Accordingly a charity cannot treat admission money as gift aid income.
This is where the gift aid rules on admission come to the rescue.
Gift aid applies to admission receipts where either
the visitor makes a donation of at least 10% more than the normal admission price or
the charity allows the visitor free access to the attraction for a period of at least twelve months.
In these circumstances the charity can treat the full receipt as gift aid money.
So in actual fact the government has gone to great lengths to enable charities to benefit from gift aid on admission receipts.
I apologise for casting aspersions on charities and for mis-informing you, dear reader.
BORING, BORING PENSIONS
Yes, very boring. Until you approach pension age that is, and then they become epic in their importance.
5 April 2014 sees a change which for many will be boringly irrelevant and for others will be hugely significant.
If you start to draw benefits from your pension scheme now and the value of all your pension savings exceeds £1.5m your pension scheme will, unless you have already signed up for protection, suffer a ‘lifetime allowance tax charge’. The rate of tax is either 25% or 55% depending on how you draw your pension benefits.
What is going to change?
With effect from 6 April 2014 this limit on your tax-favoured pension savings, called the ‘lifetime allowance’, is reduced from £1.5m to £1.25m. So in future the lifetime allowance tax charge will apply to more pension savers.
To protect those fortunate enough to have pension savings of more than £1.25m already and those who might have such savings before they ‘retire’, there is a facility, open until 5 April 2014, to elect to retain the old limit of £1.5m.
It is important to understand, however, that if you elect to retain the £1.5m limit you must not make any contributions to pension schemes after 5 April 2014.
If you are fortunate enough to have a fund which will exceed £1.25m at the time you ‘retire’ or if you expect your fund to exceed that limit without further contributions, you have a very important decision to take before 6 April. The decision is made all the more difficult by the fact pension law is in a state of constant change. Who knows what the rules might be in ten or twenty years’ time?
HOW AM I TAXED IF I INVEST IN GOLD?
Investing in gold has been something of a roller-coaster ride in recent years. First the excitement centred around the significant increase in the price of the metal. More recently it has centred around its fall.
So how are you taxed if you invest in gold?
In this article we are concerned only with individuals who hold gold as an investment, not as stock for re-sale.
First, VAT. The purchase and sale of investment gold is exempt from VAT. However, the first time you make a sale of investment gold of more than £5,000 you must notify HMRC within 28 days. This is worth knowing because HMRC imposes harsh penalties for failures to notify.
Gold is a chargeable asset for capital gains tax purposes. Accordingly if you make a gain on the disposal of gold you are chargeable to capital gains tax. Similarly if you make a loss on disposal you have an allowable loss which you can set against capital gains of the same year and, to the extent they cannot be so relieved, carry forward and relieve against future capital gains.
Certain assets are exempt from capital gains tax. The most common examples are private motor cars and government securities (gilts). Sterling is also an exempt asset. Sterling includes gold sovereigns dated 1838 onwards. It also includes proof sets, gold Britannia coins and gold pound, two pound and five pound coins.
So a canny investor holds exempt forms of gold in a rising market and non-exempt gold in a falling market. Of course if he is really that canny he won’t be holding gold in a falling market in the first place.
MY LEARNED FRIEND
What do the following have in common?
British Guild of Beer Writers
British Association of Ski Instructors
British Hang Gliding and Paragliding Association
Heavy Woollen District Junior Chamber of Commerce
The answer is they are all recognised as professional bodies or learned societies for tax purposes. This means if you pay a subscription to one of them you can deduct it from a relevant source of income.
As you can see from the examples above subscriptions to some pretty unusual and obscure groups qualify.
Our Advice: Might it be worth checking out the list of eligible professional bodies and learned societies for yourself?
Here is the link.
HOW AM I TAXED IF I SPECULATE IN SHARES, DOG SHARES AND DOGS?
If I buy and sell dogs with a view to making a profit and if I do it on a regular basis I am trading. (Attention Ebay traders, HMRC is watching you). My profits are chargeable to income tax. My losses can be relieved against my other income. The rate of tax / relief could be as high as 45%.
Yet if I buy and sell shares, no matter how often I do it, my profits and losses are taxed under the capital gains tax, not the income tax, regime. My maximum rate of tax / relief is only 28%.
In today’s hostile climate that might be seen as a tax loophole ripe for closure.
But there is method in the taxman’s apparent madness.
We might all fancy ourselves as successful stock-pickers but the truth is we are not. We pick the dogs. We make losses. The last thing the taxman wants is to allow us to offset our losses on share dealing against our income. So he is happy to tax the net profits at 28% and allow us to carry forward our net losses.
And when it comes to spread betting, horses and dogs the taxman’s approach is even more generous or sensible depending on your point of view. The profits from gambling are tax free. The losses are not deductible. Why? Because there are more losers than winners. UK plc is better off allowing the profits to go untaxed and denying relief for the losses than trying to tax the elusive profits and allowing relief for the abundant losses.
So what might be seen as a loophole is in fact a very sensible strategy on the part of HMRC.
MONEY, I’M HOME!
A man rushes into his house and yells to his wife, “Martha, pack your things I’ve won the lottery!”
“That’s wonderful,” she responds. “Should I pack for warm weather or cold?”
“I don’t care,” says the husband, “so long as you are out of the house by noon!”
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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