The Square Circular should have been doing the rounds a couple of weeks ago. However, after thinking about it from all angles we thought we might as well wait for a while after Gordon Brown’s Budget to absorb some of the implications and some of the comment thereon before adding our own comment.
That’s not to say that this Square Circular is just a Budget information sheet. We’ve always tried to do a bit more than just state the facts. You can get the bare facts on our website. What’s important is to think a little beyond those facts and hopefully you’ll get some interest and stimulation (stirring words, eh?) from this issue of the Square Circular.
If you want any further details about any of the tax or financial matters we’ve mentioned in this issue, or indeed, about any matters we haven’t mentioned please do contact us on 0161 832 4841.
You might ask what’s not so new? The game’s given away if you read a letter from us sideways. No, you shouldn’t be sideways – we mean, hold the letter sideways. The bit in the bottom left hand corner (top left hand corner if you’re still sideways) where it says “celebrating 30 years”.
What’s so special about 30 years? There are many older. However, the pace of life in the professional and financial world has become faster than ever before and often those that have changed in order to survive have, in the process, changed beyond all recognition. We like to think of our “30 years old” as being comfortable with our maturity in life but still fresh and innovative in our approach.
ONLINE FILING – TAX RETURNS
Lord Carter’s Review of HMRC Online Services has recently been published. There are a number of useful suggestions unfortunately overshadowed by the proposal that with effect from 2008 the filing date for personal Tax Returns should be brought forward from January to September for paper filers and November for online filers. Lord Carter’s remit was to report on improving the take up of electronic services not to suggest changes in the administration of the self assessment system. HMRC have graciously accepted his proposals.
In the early days of online filing there were a number of, well to put it politely, teething problems. We probably did well to steer clear of it. A report published in the March 2006 newsletter from the Tax Faculty of the Institute of Chartered Accountants suggests that whilst a few problems still remain this year’s online filing of 2004/05 Tax Returns was vastly improved.
Undoubtedly, online filing is the filing means of the future and we’ll be using it this year or next. The proposal to shorten filing deadlines, paper more so than electronic, will encourage the process. In fact, the November deadline rather than a September deadline is something of a S.O.S.H. call…
Save Our Summer Holidays!
AT HOME WITH TECHNOLOGY
Talking about computers, you’ll know (have you seen our website?) that the exemption allowing employees to borrow personal computers from their employers for home use without it being taxed as a benefit in kind has been ended with effect from 6 April 2006. In future when employees no longer require the equipment companies may find themselves with surplus computer equipment.
New rules about mobile phones went hand in hand with this. A mobile phone provided by an employer for business and private purposes has been an exempt benefit in kind since April 1999. The exemption could extend to more than one such phone provided to the employee for himself and members of his family/household but after 6 April 2006 one’s the limit.
Company directors with teenage children, be warned!
CHANGING THE SUBJECT…INHERITANCE TAX (Ih.T)
One Budget measure to particularly excite interest (certainly in the Times and the Sunday Times) is the proposal to no longer treat transfers to Interest in Possession Trusts or Accumulation and Maintenance Trusts as potentially exempt transfers but to treat them in a way similar to Discretionary Trusts. This will involve a re-think about trust Ih.T planning for both new trusts and existing trusts. Whilst the Paymaster General, Dawn Primarolo has said that the measure “affects a tiny fraction of the wealthiest top one per cent of the population” a leading QC has said that “virtually every will in the country that has been prepared on legal advice will need to be rewritten”.
Much has been said about the inequity (or should that be, iniquity) of Ih.T and how an increasing number of estates are now falling within the Ih.T net as growth in wealth, particularly property assets, outstrips the rate at which the nil rate Ih.T band is rising. More thought is now being given to long term Ih.T planning, especially amidst rumours that the 7 year potentially exempt period could one day be extended to 10 years.
If you want to know more about planning to mitigate Ih.T or feel it’s about time you had a serious Ih.T review please do call us on 0161 832 4841.
TAKE AIM AGAINST INHERITANCE TAX (Ih.T)
One way of mitigating Ih.T is to take advantage of the Business Property Relief (BPR) rules. If you’ve held business assets for two years or more BPR can reduce the Ih.T value of these assets in some circumstances by 100%. Shares in companies listed on the Alternative Investment Market (AIM) come within these rules. If you hold such shares you can pass them on to your heirs free of tax. Of course the value of your shares can fall just as easily as they can increase or stand still but share prices have to fall by 40% before heirs are likely to be worse off.
A different valuation on a similar theme is to invest in a “Property Development Fund”. What you are doing is effectively investing in a property development company which falls within the BPR rules because it is a trade of developing for re-sale rather than being a property investment company where the premises are held for long term letting.
PERCHANCE TO DREAM
You can see from our remarks about Business Property Relief (above) that it’s not all doom and gloom. Whilst it may no longer be appropriate to describe Ih.T as a ‘voluntary’ tax because of the way that reliefs have been whittled away, there are still useful planning tools such as nil rate band trusts and lifetime transfers. The key, as we said before, is long term planning. If you were intending to sell your company or business, you wouldn’t come to us to talk about exit strategies a couple of weeks before the sale, would you? We hope you wouldn’t. A couple of years more like! Well, as Shakespeare put it “what dreams may come when we have shuffled off this mortal coil must give us pause” (Hamlet)
Perhaps you should pause to plan now so that the dreams don’t become nightmares of missed opportunities. Call Simon Topperman or your usual contact partner when you’re ready to pause for thought.
AND FINALLY…UPDATE ON TAX AVOIDANCE SCHEMES
A couple of years ago a disclosure regime for packaged avoidance schemes was introduced. In the Budget this was originally limited to certain products. This has now been widened and in addition the end of a number of schemes stopped during the year was officially heralded.
However, there is still no general anti-avoidance rule as some in the tax avoidance industry had feared there might be. We suspect such a rule might come in time but for the moment it seems to be business as usual.