The View from No 50

 

 

 

 

September 2014

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

 


 

 

INHERITANCE TAX

 

David Cameron says he wants to raise the inheritance tax threshold to £1m.

 

His government is committed to freezing the inheritance tax threshold at £325,000 until 2017/18.

 

A classic case of a politician saying one thing and doing another.  But then I suppose he would trot out his usual excuse…”Well, if we weren’t in a coalition…”

 

Inheritance tax is one of those taxes that stirs up a whole range of emotions.

 

Having paid income tax and national insurance on their hard earned income some individuals resent having to pay inheritance tax on what is left.

 

Some of these people are prepared to go to great lengths to avoid the tax by legitimate means.  No doubt there are others who resort to illegitimate means as well.

 

Some are willing to pay the tax.  Tax goes to fund education and health and infrastructure and these are all good things from which we expect to benefit in a modern society.

 

Some do not care about the size of their inheritance tax bill.  They will never be around to pay it.  Ergo, no need to worry.

 

Some care but just can’t bring themselves to actually do anything about it.

 

Some would like to do something about it but their financial circumstances prevent them from doing anything effective.

 

The FT reported recently that inheritance tax receipts are back to their 2007 peak.   The Office for National Statistics singled out the growing value of estates coupled with the static tax threshold, see David Cameron above, as the main source of revenue growth.

 

When inheritance tax was first introduced it was intended to be a tax on the very rich.

 

The bizarre thing about the tax is that the very rich can avoid it quite legitimately while the not so rich bear a disproportionate burden.

 

To illustrate, if you have an estate worth £100m you can probably comfortably give away £99m, survive for seven years on what is left and pay a relatively small amount of tax on your death.  Virtually the whole of your fortune of £100m reaches your family tax free.

 

Contrast with this. You are unmarried and living in a £400,000 house with savings and investments of £100,000 and a small income.  You can’t afford to give anything away.  Your eventual tax bill will be £70,000.  Here your family inherits only 86% of your estate.

 

Reform is needed so that the burden is borne more fairly.

 

What is fair?   That question stirs a whole range of emotions too.

 

Our Advice:  Even if you are in the ‘couldn’t care less’ camp do make sure you have a will which reflects your wishes.  If you are concerned about the impact inheritance tax might have on your estate please get in touch.

 

 

DIRECT RECOVERY OF DEBTS (DRD)

 

Tax professionals are exercised right now over proposals to grant HMRC the power to take money from the bank accounts of taxpayers who have not paid their tax bills.

 

Not all are against.  The head of tax policy at the Institute of Directors considers the measures will go some way to re-assuring the compliant majority that the non-compliant minority is not getting away with it.  Further, safeguards are built in to the measures.  Only tax debts of more than £1,000 will be collected in this way, resort to direct recovery will only be taken after HMRC has made four contacts with the taxpayer and HMRC will always leave at least £5,000 in the taxpayer’s bank accounts so he / she will not be left penniless.

 

But, as with any change, it is the voice of the ‘anti’ campaign which is the louder.  Here are some of their points:

 

The Law Society felt any provision of financial information by a bank to HMRC might breach confidentiality obligations under EC Human Rights Law and be unlawful under the UK Data Protection Act.  They recommended that any new power should be subject to some independent oversight before money is taken from bank accounts.

 

The Low Incomes Tax Reform Group (LITRG) pointed out that the tax in question need not be an agreed liability in the sense most people would expect.  It may be HMRC’s own estimate of a taxpayer’s liability in the absence of a filed tax return. There are many good reasons why a taxpayer might not get round to filing a tax return.  From time to time we come across ‘brown envelope syndrome’.  It may be hard to fathom but there are people out there who are terrified of contact with HMRC.

 

LITRG also stated that the power sought by HMRC ‘proposes to oust the jurisdiction of the court’ which currently exists. It went on to argue that, if HMRC feel that the current power to collect debts via the courts is a ‘slow and expensive process’ then that process should be streamlined; it should not, however, be streamlined by the removal of judicial oversight. This is an important point; if the system is broke it’s broke for everyone not just for HMRC. It therefore needs fixing so that all organisations, businesses and individuals can get the money they are owed. If it ain’t broke, then someone is telling porkies, perhaps to cover up their own incompetence?

 

Most ‘anti’ campaigners are worried that HMRC just can’t be trusted with such an important power.  Hardly a month goes by without HMRC admitting to some shortcoming or other.   In its 2014 report the Adjudicator’s Office upheld either fully or partially 90% of the complaints made to it against HMRC.

 

As if to provide us with a timely reminder of its incompetence HMRC has just sent letters to hundreds of taxpayers whose income exceeded £50,000 in 2012/13.  It informs them they should have paid the High Income Child Benefit Charge.  Now in some cases that will be true.  But in most cases it will not be so because the charge will have been paid, quite correctly, by their partner who has a higher income.  Had HMRC been bothered to do its research it could have established that fact itself.  But no, it is easier to send out a scary letter and have the taxpayer either pay some tax that isn’t actually due or put HMRC right without it having to exercise any brain cells.

 

Should we trust such a brazen organisation with access to our bank accounts?

Will the proposed measure be properly funded?   HMRC reckons DRD will apply to 17,000 cases a year at a cost of £800,000 over five years.  Making an assumption about HMRC staff costs it is estimated they will be able to allocate 25 minutes to each case.  Now, bearing in mind HMRC has to find out from the banks and building societies just what cash the taxpayer has and to act on that information whilst leaving the taxpayer with £5,000 to cover living costs, is it realistic to believe the objective can be achieved in that amount of time?

 

The general concensus is that taxpayers should pay the right amount of tax at the right time and that those who refuse to do so should be pursued vigorously. 

 

If you agree with payment of the right amount at the right time but object to HMRC being given the right to dip into people’s bank accounts then please consider adding your support to this petition.

 

https://submissions.epetitions.direct.gov.uk/petitions/68384

 

It calls for the proposals to be withdrawn and for a wide-ranging consultation on the problem of and a solution to deliberate non-payment.

 

 

ONE SEASON EACH YEAR

 

Andy and Martin were fortunate (or unfortunate, depending on your point of view) enough to have season tickets to watch Manchester United.  They could not help noticing that there was a spare seat next to them on match days.  They had a friend who was keen to buy a season ticket, especially if all three of them could sit together.

 

At half time one Saturday Andy went to the ticket office and asked if he could buy the season ticket for the vacant seat.  The official said that unfortunately the ticket had been sold.  Nevertheless, week after week the seat remained empty.

 

Then on Boxing Day, much to the surprise of Andy and Martin, the seat was taken for the first time.  Martin could not resist asking the newcomer, 'Where have you been all season?' 

 

‘Don't ask,’ said the man.  ‘My wife bought the ticket last summer and kept it for a surprise Christmas present.’

Copyright:  K P Bonney & Co LLP 2014.  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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