The View from No 50
K P Bonney & Co
Chartered Accountants and
Chartered Tax Advisers
Ilkley LS29 6JA
Tel: 01943 870933
Fax: 01943 870925
HOW MUCH AM I ALLOWED TO GIVE AWAY?
I am often asked this question.
I usually find the real question lurking in the background is how much can I give away without paying tax?
The answer is easy to provide but much depends on what is being given away and to whom it is being given. To keep things simple I am restricting this piece to gifts made to individuals other than spouses and civil partners.
We are concerned with three taxes here – inheritance tax, capital gains tax and income tax.
There is no tax to pay on lifetime gifts to other individuals. However, if you die within seven years of making a gift the value of the gift is treated as part of your estate for inheritance tax purposes. If you do die during this time and if there is tax to pay on the gift the liability attaches to the donee.
Each individual has an annual exempt amount of £3,000. The first £3,000 of gifts made in the course of a year will never be charged to tax even if you die within seven years.
In addition there is an exemption for small gifts. A small gift is a gift of up to £250 per recipient per year.
Gifts of certain business assets can also be made tax free in the right circumstances.
Capital gains tax
You could be forgiven for thinking there could not possibly be a charge to capital gains tax when you give something away. But you would be wrong. In fact if you give something away you are generally treated for capital gains tax purposes as if you had sold it at market value.
A client asked me recently how much CGT he would have to pay on a prospective gift. Upon further enquiry it transpired the subject matter of the gift was cash. I was pleased to be able to advise there is no capital gains tax on gifts of money.
Also exempt from capital gains tax are one’s main residence, gilts (UK government bonds) and wasting assets. Wasting assets are interesting. They are tangible assets which have an expected life of less than fifty years. So there is no capital gains tax on things like cars, motorbikes and horses.
The types of gifts which most commonly attract a capital gains tax liability are shares and land and buildings.
The liability attaches to the donor, not the donee, which seems a little unfair but there is nothing to stop the donee paying the donor’s tax bill if they so agree. Interestingly the settlement of the bill by the donee would itself be a gift.
In the course of a tax year individuals can make net gains (that is gains less losses) of up to £10,100 free of tax. Beyond that they pay tax at anything from 10% to 28% depending on the circumstances.
The making of a gift does not trigger an income tax liability. Before the gift is made the income produced by the asset is taxable on the donor and the income produced afterwards is taxable on the donee.
However, parents anxious to relieve themselves of higher rate tax by transferring income producing assets to their children need to be aware that the government moved to block this idea many years ago. If the income produced by such gifted assets exceeds £100 and if the son or daughter is aged under 18 and unmarried the income is treated as the income of the parent for tax purposes.
Our Advice: There is plenty of scope for giving wealth away free of tax. If you would like to discuss your particular plans please get in touch.
FURNISHED HOLIDAY LETS
Do you own a furnished holiday let?
If so you have probably enjoyed very favourable treatment for any losses you have sustained in your letting business.
Earlier this year the Labour government announced the abolition of the tax breaks for these types of lets. The legislation was to be included in the 2010 Finance Act. But Labour had to ditch its proposed abolition as a compromise for getting the main elements of its Finance Bill enacted before the general election.
So, as you were.
The new government is now consulting on the future terms of the holiday lettings tax break.
In brief its proposals are
The number of days the property is available for letting should be increased from 140 to 210.
The number of days the property is actually let should be increased from 70 to 105.
Any losses sustained in the furnished holiday letting business should only be relieved against profits from the same business.
This last proposed change is perhaps the most significant. Under the current rules losses can be set against general income.
Our Advice: If you own a holiday let and you are concerned about the impact of the proposals outlined in the consulation document, make your views known by making a response. The consultation lasts until 22 October.
NEGLIGENT I PRESUME?
Mr Livingstone, a chartered accountant, was the sole director and shareholder of a limited company. For several years the company failed to pay over to HMRC the PAYE and national insurance it deducted from its employees’ wages. Eventually the company was placed in liquidation.
The total amount of national insurance outstanding was £60,428. HMRC raised a personal liability notice against Mr Livingstone.
Mr Livingstone appealed.
The tribunal found the company’s failure to pay over the national insurance was attributable to Mr Livingstone’s neglect therefore HMRC was entitled to seek to collect the upaid contributions from the relevant director – in this case Mr Livingstone.
Our Advice: It is important for director shareholders to understand that whilst creditors cannot generally pursue directors for company debts, the social security legislation does allow HMRC to pursue directors for unpaid company national insurance contributions where they, the directors, have acted fraudulently or negligently.
The pundit was none too pleased at having to travel to the farthest corner of eastern Eurpope to provide witty and incisive commentary on England’s latest meaningless friendly.
When he boarded the sleeper train at Paris he learned there had been a mix up over the reservations and he found himself sharing a sleeper compartment with a very attractive woman. Each being married they were initially embarrassed and uneasy about sharing a compartment but as they were both very tired they fell asleep quickly, he in the upper berth and she in the lower.
In the early hours of the morning the pundit leaned down and gently woke the woman saying, “Ma’am, I’m sorry to bother you but would you mind reaching into the closet to get me a second blanket? I’m awfully cold.”
“I have a better idea,” she replied. “Just for tonight let’s pretend we’re married.”
“Wow! That’s a great idea!” he exclaimed.
“Good,” she replied. “Get your own ******* blanket.”
And finally here is a link to an amusing piece of spoof correspondence from HMRC. I hope you enjoy it too.
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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