HORNBEAM
HIGHLIGHTS 25
November
2005
Hornbeam
Highlights is an information newssheet for clients and associates of Hornbeam
Accountancy Services Ltd
CONSTRUCTION INDUSTRY.
The
Construction Industry Scheme was about to be radically changed. However, this has been deferred for 12 months
to April 2007. We took part in some
early consultation and expressed some major reservations. Changes would mainly
have benefited Revenue administration and big companies, whilst small business
and tradesmen would have been disadvantaged.
Lets hope they use the year to improve the
Scheme for small traders.
SOME
TAX TIPS: CARS
With
rising fuel prices getting more money out of the business to pay for mileage is
even more important. If you usually do
this by charging 40p per mile for use of a private car, don’t forget that you
can add 5p per mile per passenger. This
is often the long journeys so worth remembering.
SOME
TAX TIPS: RENTAL PROPERTIES
If
possible buy a property that you can live in for a year or so before
renting. If you live in for 1 year then
rent for 9, you will get 4 years principal private residence relief {1st year
plus last 3 years for any reason} from capital gains tax, plus a further relief
of up to £40,000 for rental property {only available where the property has
been owner occupied}. All else being
equal {see below} you should thus be able to avoid capital gains tax
altogether.
If
appropriate always consider buying a rental property in joint names, each
partner has an £8,500 annual exemption from capital gains, worth £34,000 tax
saved to a higher rate taxpayer. {But
don’t forget that decisions made for tax purposes can backfire in a
divorce!}.
Don’t
get too excited about putting rental properties into new style self-invested or
self-managed pension schemes. We think
hype in the financial press may be overlooking some fairly substantial
disadvantages. Yes, tax savings will be
very substantial, but in practice schemes will be managed by giant insurance
companies and annual charges are likely to be substantial, whereas flexibility
and control will be very limited.
You
should also be aware that you can only borrow 50% of the fund. So to buy a £150,000 property you need
£100,000 in your fund. To get this you
would put in £78,000 getting £18,000 tax back and £22,000 put in by the
government if you are a 40% taxpayer. If
you are a basic rate taxpayer you will not get the £18,000 tax refund.
So if
you are thinking of doing a property SIPP ask about these aspects. We will be willing to comment upon any
proposed scheme.
MEANING
OF ‘FULLY FURNISHED’:
You
can get an allowance of 10% of rents if your property is let fully
furnished. Whereas most properties are
let with curtains, carpets, cooker, fridge, washing machine, this is not ‘fully
furnished’. The addition of table and
chairs, easy chairs/sofa, beds and wardrobes would make a house ‘fully
furnished’. In terms of cost we suspect
many landlords go ¾ of the way, but still fail to get this useful relief.
SOME
TAX TIPS: TRUSTS FOR THE VUNERABLE.
There
has been a change in the tax treatment of trusts with vulnerable
beneficiaries. This applies to those
under 18 and the disabled {including the elderly who are no longer capable of
managing their own affairs}. This change
makes these a far more tax efficient way of protecting their financial affairs
than was the case previously. If you are
interested in finding out more please give us a ring.
SOME
TAX TIPS: BUSINESS PREMISES RENOVATION
ALLOWANCE.
If
you are thinking of purchasing new business premises there are 100% allowances
available on renovating or converting buildings in designated disadvantaged
areas {some of which include better areas than others}. Again, we can give you more information if
you are interested.
FOR
YOUR INFORMATION: CHILDCARE VOUCHERS.
Those
of you, who have reduced childcare costs due to the new scheme introduced this
year, MUST inform the tax credit office if you are also claiming tax
credits. Otherwise you will not only be
overpaid credits, which will have to be repaid, but you will also risk being
fined £300.
FOR
YOUR INFORMATION: LUMP SUM PAYMENTS OF
STATE PENSION.
Now
that you can defer taking your state until you need it and then take a lump sum
of the accumulated payments when you first draw your pension, you do need to
tell us about these payments. They will
not be added to your income, but will be taxed at your top rate for that
year. It means that deferring this a
little longer, until a year when you have less income, i.e. the year after you
retire, can save you tax, particularly if you are a higher rate taxpayer.
FOR
YOUR INFORMATION: AGE LEGISLATION
As
you probably know, from 2006 it is no longer acceptable to discriminate against
employees on grounds of age. This
affects all areas of employment and works both ways. For instance, you cannot provide benefits for
one age group only {such as medicals only for older employees and training only
for younger employees}. Nor can you
advertise positions which refer to young applicants, or which require
applicant’s age in an interview will fall foul of the new legislation.
FINALLY:
-
The
change that has caused the greatest amount of new legislation is the
introduction of the “Civil Partnership”.
All the wording has been changed so that couples that have become a formal
civil partnership will be treated for tax purposes as a married couple. This may mean re-thinking the position for
inheritance tax in particular, where any assets left to the partner will now be
exempt, but also for capital gains and in some cases income tax. If you are thinking of taking this step then
please contact us as we can help to organise your financial affairs to achieve
the greatest tax benefit.
One
particularly nasty twist to this legislation is that same sex couples will be deemed
to be in civil partnerships for benefits purposes, whether formal or not. In some cases this could result in major
reductions in benefit.
Whether
you are a client or not, if we can provide further help or advice concerning
any of the matters covered here, please do not hesitate to telephone us on
(01603) 720424