Yes we know! Don’t tell us; this Square Circular is a little late. Spring is turning to, well, er, Summer. But we were waiting to see who won the General Election on 7 May so we could include our article on the tax programme of the successful party.
Of course, there are other items in this Square Circular issue, including our regular highlight of a topic specifically relevant to property owners.
If you want more details about any of the matters we’ve mentioned in this issue, or indeed, about any of the matters we haven’t mentioned please do contact us on 0161 832 4841.
The Chancellor’s Budget Statement is scheduled for 8July. But, you’ll say, didn’t the Winter 2015 issue of Square Circular tell us it was for 18 March? Yes, but that was the Spring Budget. This is going to be the Summer Budget. And don’t confuse it with the Autumn Statement, last Winter.
Obviously George is A Man For All Seasons like Sir Thomas More, albeit Chancellor of the Exchequer, not Lord Chancellor.
Our Chancellor obviously has a lot to say, but 8 July coincides with Men’s Quarter Finals day at Wimbledon and the start of the 1st Ashes Test in Cardiff, so the Chancellor may struggle to gain our attention.
At least, his statement is not likely to be affected by rain.
FROM MANIFESTO TO REALITY
Let’s not kid ourselves that taxation policy was a high priority in the manifestos of the political parties in the recent General Election. That said, they did all have ideas about tax. Sparing a thought for the rain forests Square Circular had been waiting for a winner to emerge before telling you what was in the manifesto of the, as it turns out, victorious Conservatives. That doesn’t make us Green, it just means that we don’t want to worry you with things that will never happen.
So, keep this issue of the Square Circular for five years (we know, you keep and cherish the Square Circular for posterity, anyway) and see if the following come to pass:
- No increase in tax rates. That goes only for income tax, NICs and VAT
- increasing personal income tax allowance to £12,500 and raising the threshold for the 40% income tax rate to £50,000
- reducing tax relief on pension contributions for additional rate taxpayers
- introducing an extra Inheritance Tax allowance of up to £175,000 per person specifically in respect of the family home.
Time will tell.
CAREFUL WHAT YOU SAY
Issue 47 of the Square Circular in Autumn 2014 told you about Connect. That’s the all-knowing, all seeing HMRC intelligence gathering machine. It gathers information from many varied sources; connects that information and is able to cross reference the information to tax returns so as to facilitate enquiries into inconsistencies. It is thought that recent HMRC disclosure campaigns, or amnesties as they’re sometimes called, have been prompted by Connect data.
Whilst Connect may be as smart as Sherlock Holmes when it comes to picking up the clues it might not always be as smart when it comes to correctly interpreting the clues. Connect may well be responsible for launching time-consuming and costly investigations into a taxpayer’s affairs when there are no irregularities, by jumping to incorrect conclusions. So if your tax return shows that you’ve annual income of £50,000 and you want to boast to your friends on social media that you’ve just acquired the three remaining bottles of Glenfiddich’s 1966 Virgin Oak Finish and the two remaining bottles of their 1958 Single Cask Sherry Butt you should hasten to add that it didn’t cost you a penny because it was a gift from your ageing, alcoholic, eccentric millionaire aunt. Otherwise, you may get a visit from HMRC and it won’t be just to share your fine whisky.
The date by which you have to organise Auto Enrolment – Staging Date, to give its technical name – has either already passed or is drawing inexorably closer. Your staging date can be found on letters sent to you about Auto Enrolment and depends upon your PAYE district.
When you start getting letters about Auto Enrolment, don’t bin them. Start to act upon them because there are penalties for not complying with the legislation. And, of course, let us know if and when you need help.
LAUREL AND HARDY
You’re probably expecting a bit of a laugh, now. The joke is that this is really about pensions.
Did you hear about the revival of Laurel and Hardy on the big screen? There is a feeling that as the generations go by, there is less appreciation of traditional slapstick comedy. Phrases such as “another fine mess you’ve got us into” will be lost to future generations and the big screen revival is meant to send Laurel and Hardy appreciation cascading down the generations.
Funny, well not that funny, but that’s what IFAs talk about; pension wealth cascading down the generations. Recent pension reforms have provided the possibility of passing on wealth tax free to the next generation using pension reforms. We mentioned something about this in the Autumn 2014 Square Circular. No apologies for mentioning it again. What used to be a tax efficient way of saving for an annuity in your old age has become a tax efficient way of saving for all kinds of possibilities.
Be alive to the possibilities; worth talking to one of our partners about it.
Sorry to disappoint you. This is more about pensions, not Laurel and Hardy.
Talk about the lifetime allowance reducing to £1million (it was £1.8 million in its heyday in 2010/11) or the annual allowance being £40,000 (that was £255,000 in 2010/11) and you’re probably talking about someone who used to be a big earner or who’s a millionaire in pension terms.
Recent Press articles suggested that pensions can be a “nice little earner” as an investment for the basic rate or non-taxpayer because of easy access as you grow older. Think about it. For someone without a pension, putting £2,880 into a short lived pension investment will produce a much better return than a simple deposit account.
Whether the subject is Auto Enrolment, passing wealth to future generations or some more mundane planning, a chat with us and our financial services arm, Pareto Alexander, may be a good investment of time.
By now, you’ve probably picked up on the fact that each issue of the Square Circular includes a titbit (tidbit, if you’re American) of interest for property owners. This time, it’s exclusively for commercial property, not residential.
One big difference between commercial and residential premises is that the former gets you Capital Allowances. If you own your own premises the allowances can reduce your taxable business profit; if you’re a landlord they can reduce your taxable rental income. The topic of capital allowances on commercial buildings is something we’ve mentioned in the past but we make no apologies for mentioning it again.
In recent years, changes in Capital Allowances legislation have made the topic of eligible allowances embedded in a building or an extension or major refurbishment into a bit of a goldmine. Using the services of specialist surveyors we have been able to lawfully mitigate tax for a number of clients. Especially significant are the rule changes about the purchase and sale of buildings which came into play from April 2014. In very simple terms, if a vendor does not identify potential allowances, these allowances are lost forever to any future purchaser. You don’t actually have to claim those allowances. If you’re a tax exempt pension scheme owning a building you won’t care about claiming allowances for yourself but if you now find that you want to sell the building it may suddenly become of interest.
It is reckoned that tax (that’s tax, not allowances) of over £2 billion has been lost in the last year in property transactions post April 2014. The message is that if you can claim Capital Allowances, do so, and if not, don’t anyway, leave things until the last minute prior to a potential sale. If you own a commercial building which cost over say £500,000 and you haven’t had a Capital Allowances survey on it, it may be worth having a word with John or Simon, our tax partners.
MORE ABOUT CAPITAL ALLOWANCES
On the subject of Capital Allowances, you may be aware that the Annual Investment Allowance which gives you a 100% allowance on your qualifying capital expenditure is limited to an annual maximum spend of £500,000. But that only lasts until next December, another seven months. After that, in theory, it reverts to what it was before being increased as an emergency measure to £500,000. That was £25,000. It may not actually go all the way back down to £25,000 but it may well be reduced to who knows how much. We may not actually know how much until the Autumn Statement next December, just a few weeks before it’s due to change.
So, if you’re smart and you know you’re going to incur capital expenditure and your accountant’s given you seven months’ notice of the change you’ll spend your money on that new equipment soon. If you think you’re super smart you’ll wait until December before incurring the expenditure and it’ll be just your luck to meet the super smart super salesman who offers you a deal to buy now but pay three months later. In which case you’ll fall foul of the rules about when expenditure is incurred. You may be in for a shock and disappointment.
The rules are pretty complicated. So when you discuss your future capex plans with your contact partner give him very full details and don’t be surprised if he says he’s going to run it by one of his tax partners.
Another from the church notice board:
The sermon this morning “Jesus walks on Water.” The sermon tonight: “Searching for Jesus”.