The View from No 50

 

 

 

 

September 2008

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby RoadMenston

IlkleyLS29 6JA

Tel:01943 870933

Fax:01943 870925

Email:keith@kpbonney.co.uk

www.kpbonney.co.uk

 

 


 

INHERITANCE TAX Ė TRANSFERABLE NIL RATE BAND

 

The announcement by the government of the transferable inheritance tax nil rate band was well received when it was made last autumn.

 

The new provision applies to the estates of widows and widowers dying on or after 9 October 2007.

 

In very simple terms the new measure means that to the extent the nil rate band is unused on the death of the first spouse, it is available for use on the death of the surviving spouse.

 

If John dies and only makes use of half of his nil rate band and his widow, Janet, dies at a time when the nil rate band is £350,000 then, on the occasion of Janetís death, her executors will have available a combined nil rate band of £525,000.This is made up of her own nil rate band of £350,000 and Johnís unused nil rate band of £175,000 (half of £350,000).The important point to note is that Johnís unused nil rate band is not frozen.It benefits from the increases which apply to the nil rate band generally.

 

Making full use of two nil rate bands was not so easy before the change.Then it was necessary to make chargeable gifts on the first death.This was usually achieved through tax efficient will writing and commonly involved diverting assets from the deceasedís estate to a nil rate band discretionary trust.

 

Many people who made these arrangements will now be asking themselves whether they should re-write their wills.Unfortunately, there is no universal answer to this question.Each couple needs to take its own advice.

 

One of the main points to appreciate about the new transferable nil rate band is that it has to be claimed by the executors of the surviving spouse.It is not given as of right.The claim has to be made no later than 24 months after the end of the month in which the surviving spouse dies.

 

The executors who claim the transferable nil rate band will need to produce information to show to what extent the nil rate band of the first spouse to die remains available.

 

This information must include

 

the death certificate

 

the marriage certificate

 

a copy of the grant of representation

 

a copy of the will

 

a copy of any deed of variation

 

date of death

 

national insurance number

 

the value of gifts made in the seven years before death

 

gifts made with reservation of benefit.

 

Bear in mind this is information about the affairs of the first spouse to die, not the surviving spouse.That death could have taken place many years ago.

 

Our Advice: We donít know how flexible HMRC will be in cases where claims are not supported by the necessary evidence. It therefore beholds prospective executors to make serious enquiries of surviving spouses whilst they are still around in order to establish as much information as possible about the affairs of the deceased spouse and to keep that information in a safe place until the day it is needed.

 

CAR DERIVED VANS

 

Vans attract better tax breaks for business users than cars.For example, a VAT registered business can reclaim the VAT on the purchase of a new van whereas it cannot reclaim any VAT on the purchase of a car.

 

Further, under the new capital allowances regime effective from April 2008, a business can claim as much as 100% of the cost of a van as a tax deduction in the year of purchase whereas a car only attracts a tax write off of up to £3,000 per annum.

 

Further still, when it comes to measuring employee benefits in kind, company vans are generally taxed more lightly than company cars.

 

One of the problems for buyers in the past has been how to find out whether a particular vehicle is a van or a car for tax purposes.What might seem like a van to the layman might not be classed as a van by the taxman.The forecourt salesman anxious to sell you this monthís special offer isnít necessarily the right person to rely upon for advice here.

 

Recognising this problem, HMRC has helpfully produced a list of the car derived vans.Against each model it states whether the vehicle is a van or a car for tax purposes.

 

The list can be found at

 

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_PROD_010443&propertyType=document

 

There are some desirable vans on the list.

 

Our Advice:Next time you are considering a change of business vehicle, have a look at the HMRC website and consider whether a car derived van might be a better choice than a car.

 

TAX CREDITS

 

If you are self employed and you buy a van (see previous article) or a piece of equipment this could reduce your taxable profit quite substantially because you could claim capital allowances of up to 100% (see our March 2008 newsletter).Such a reduction in profits could make you eligible for tax credits.Unfortunately tax credits claims can only be backdated by three months.So if you donít claim soon enough you might miss out on your entitlement.

 

Our Advice: Daft though it might seem, everybody should claim tax credits every year.If your income proves to be too high you will get nothing.But if your income turns out to be low enough to qualify, you will be entitled to tax credits backdated to the beginning of the tax year.

 

ADVISORY FUEL RATES

 

With fuel prices fluctuating wildly HMRC has changed the advisory fuel rates again.

 

From 1 June 2008 the fuel element of the authorised mileage rate is

 

†††††††††††††††††††††††††††††††††††††††††† Petrol†††††††† Diesel

 

1400cc or less†††††††††††††††††††† 12p†††††††††††† 13p

 

1401 Ė 2000cc††††††††††††††††††† 15p†††††††††††† 13p

 

Over 2000cc††††††††††††††††††††††† 21p†††††††††††† 17p

 

VAT registered employers can reclaim VAT on these rates.The VAT is 7/47ths.Thus

 

†††††††††††††††††††††††††††††††††††††††††† Petrol†††††††† Diesel

 

1400cc or less†††††††††††††††††††† 1.79p††††††††† 1.94p

 

1401 Ė 2000cc††††††††††††††††††† 2.23p††††††††† 1.94p

 

Over 2000cc††††††††††††††††††††††† 3.13p††††††††† 2.53p

 

Remember you must hold VAT receipts which show VAT of an amount equal to or greater than the amount of VAT reclaimed on your return.

 

Strange then that the authorised mileage rate itself has not changed since 2003/03.That rate remains 40p per mile for the first 10,000 miles and 25p per mile thereafter.

 

NOT ALL THERE

 

An apprentice footballer walking along a road in the countryside comes across a shepherd and a huge flock of sheep. Stopping to rest, he says to the shepherd, "I will bet you £100 against one of your sheep that I can tell you the exact number in this flock."

The shepherd thinks it over. It is a big flock, so he takes the bet.

The young man looks around and answers, "869." The shepherd is astonished because that is exactly right.

The shepherd says, "Okay, I'm a man of my word.Take an animal." The young man picks one up and begins to walk away.

"Wait." cries the shepherd, "Let me have a chance to get even. Double or nothing that I can guess your exact occupation." The young man agrees.

"You are a professional footballer," says the shepherd.

"Amazing!" responds the young man. "You are exactly right! But tell me, how did you work that out?"

"Well," says the shepherd, "put down my dog and Iíll tell you."

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.

Back to the home page