The appearance of the summer Square Circular is perhaps a better indication that summer has arrived than the hot dry climatic conditions currently enjoyed in the UK. Perhaps the spring Square Circular (Issue 17) shouldn’t have talked about holiday homes abroad and offshore bank accounts.
This time we’re staying firmly at home with a couple of points about changes in legislation, a warning for landlords, our usual update about tax mitigation strategies and an idea which might appeal to PEP/ISA rich investors approaching retirement age. We obviously can’t promise that the Square Circular will be of relevance to everyone but at least we hope it will be of interest.
If you want any further details about any of the matters we’ve mentioned in this issue, or indeed, about any matters we haven’t mentioned please do contact us on 0161 832 4841.
In an effort to save a few trees and not add to the paper on your desk the Square Circular is now available electronically. If you are happy to receive future issues by email please let us know by emailing firstname.lastname@example.org
HERE’S A BIT OF NEWS – THE COMPANIES ACT 2006
If there was a Companies Act in 2006 you might think it’s history rather than news; a bit of history that’s passed you by.
Well, it’s one of those Acts where the implementation dates are spread over quite a period. Some aspects don’t actually happen until as late as October 2008. However, some are happening sooner (October 2007 is a fairly significant date) and company directors and secretaries do need to know how you might be affected by the changes. Let us know if we can help.
HERE’S A BIT MORE NEWS – EPAs and LPAs
The proposals to replace Enduring Powers of Attorney (EPA) with Lasting Powers of Attorney (LPA) originally scheduled for 1 April 2007 were postponed until 1 October 2007.
The LPA regime promises to be less flexible than the EPA regime and more costly because of factors such as registration fees. If, for example, you have an aged relative who may need an Attorney type of arrangement in the not too distant future you may want to hurry to your local solicitor while EPA stocks still last.
We’re not lawyers but we can help with recommendations if you need.
The so-called tax amnesty has been and gone and those who did not notify in June that they would have a disclosure to make by the end of November either have no disclosure to make or, if they do, are wondering whether to come clean even without the benefit of the ‘amnesty’ or whether to wait for the knock on the door.
If you remember how the whole thing started, it was from banks being obliged to disclose details of offshore bank accounts held byUKaccount holders. But this is just one example of HMRC finding out more details about you. Here’s another.
Since 6 April deposits received by landlords have to be registered with government agencies that operate the Tenancy Deposit Protection regime. As part of the money laundering procedures these agencies have to be prepared to pass on information to HMRC who can check the details of rented properties against the landlord’s personal tax return.
George Orwell’s novel, ‘Nineteen Eighty-Four’ famous for “Big Brother is watching you” was published in 1949, just a year before Orwell died. Definitely a man ahead of his time.
TAX MITIGATION STRATEGIES
We usually like to keep you reasonably up to date with what’s in the air at the moment.
In the spring Square Circular we told you about Gordon Brown’s (when he was Chancellor) swipe at partnership loss schemes on 2 March. A number of schemes creating income tax losses to offset against other income worked on the basis of the wealthy taxpayer being a limited partner in a partnership which generated such losses for him and the placing of an annual limit on the “sideways and backwards” relief of such losses seemed to kill off many of these schemes. We understand that these type of schemes are still alive and kicking but in a format that avoids the limited partnership problem.
Having said that, there is definitely an atmosphere in the air which discourages the sleight of hand schemes. There remain more conservative strategy providers who see their products more as a tax efficient investment rather than a tax avoidance strategy. Boring, you might think, but safer.
As you know by now, we don’t get involved in promoting investment strategies or tax mitigation strategies but can introduce you to and work with those that do. Please feel free to contact us to help in this regard.
HOW ABOUT THIS ONE?
Quite often, tax efficient ideas do not depend upon just one transaction but on what you do following that transaction, but of course the circumstances have to fit. Sounds confusing? Let’s explain.
Supposing over the years you’ve built up a sizeable portfolio of PEPs and ISAs which currently stand at a value of say £1 million; and suppose you’re also a reasonably high earner, say £200k per annum, and not far off retirement. What would be the tax position if you decided to cash in £78,000 of your PEP/ISA investments, invest the money in a SIPP and draw a 25% tax free lump sum leaving the balance in your SIPP?
There’s no CGT on realising £78k of PEP/ISA investments so that £78k really is worth £78k. The contribution to the SIPP is made net of basic rate tax so that the SIPP is deemed to have received a contribution of £100k. You’ll get £25k as your tax free lump sum and a tax refund of £18k on the higher rate tax relief on your £100k pension contribution. In all it’s cost you £35k (£78k – £18k – £25k) to put £75k in your SIPP.
That’s a return of 214%.
This idea has been around for a while now. Let us know if you fit the circumstances.
Apparently a letter from a taxpayer to a tax inspector read:
“I received your income tax form but had to go into hospital an hour afterwards”