A Festive Newsletter : Tax, News, and Events

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TAX DOESN’T HAVE TO BE TAXING

Welcome to our monthly newsletter. This month we’re focusing on Christmas and some tax planning opportunities, plus updating you on some newsworthy items and events to look out for! Best wishes for the festive season and 2022.

CHRISTMAS IS THE TIME FOR GIVING

Many were expecting the chancellor to announce changes to inheritance tax (IHT) in his Autumn Budget, However, like capital gains tax (CGT), the rules have remained broadly the same as last year. That means that each tax year individuals may make gifts of up to £3,000 in total and that amount is not included in their cumulative total of gifts for IHT. Even if the £3,000 annual exempt amount is exceeded, provided it is an outright gift to an individual, there would be no inheritance tax payable provided the donor survives for 7 years.

Note that the gift of an asset other than cash may also give rise to a capital gain and CGT may be payable where the asset has increased in value. However if you give away a business asset such as shares in your trading company it is possible to make a claim to hold over the gain so that no CGT is payable. We can of course advise you on the procedure to follow.

REGULAR GIFTS OUT OF YOUR INCOME IS TAX EFFICIENT

One tax planning opportunity that many thought the chancellor might restrict was the exemption from inheritance tax for regular gifts out of an individual’s income. Inheritance tax is designed to tax transfers of capital so if the donor can demonstrate that the gifts are made out of surplus income then the transfers are not taken into consideration for Inheritance Tax.

The exemption applies where there is a regularity to the payments, such as a standing order to pay school fees. HMRC will also require proof that the payments are paid out of post-tax income and do not limit the donor’s normal lifestyle. Detailed records are required, and we can help you with what to keep a record of.

TRUST PLANNING OPPORTUNITY STILL AVAILABLE

Another tax planning strategy that is still available despite rumours that it would be closed in the Budget was the CGT hold over relief when assets are transferred into or out of a trust.

This relief currently enables a non-business asset, such as an investment property, to be transferred without paying CGT. The relief applies where the transfer is subject to inheritance tax, but where the value transferred is no more than the £325,000 IHT nil rate band the transfer of the asset can take place without IHT or CGT being payable.

For example, Colin, a higher rate taxpayer, wants to gift his adult daughter Liz an investment property worth £300,000.

The property cost him £100,000 a number of years ago. If he were to transfer the property to Liz directly there could be up to £56,000 CGT payable on the £200,000 gain.

If the property is transferred to a trust for the benefit of Liz then the transaction would be immediately chargeable to IHT but covered by the £325,000 nil rate band. The resulting gain could then be held over so that no CGT is payable.

At a later date the property could be transferred from the trustees to Liz providing another opportunity to hold over the capital gain.

If this strategy may be of interest to you please get in touch. You will also need to instruct a competent trust lawyer to set up the trust.

GIFTS TO CHARITY

Where possible taxpayers should “Gift Aid” any payments to charity to provide a further benefit to the charity. Higher rate taxpayers obtain additional tax relief on the grossed-up amount donated.

For example, where an individual makes a £20 cash donation to charity the charity is able to reclaim a further £5 from HMRC making a gross gift of £25. Where the individual is a 40% higher rate taxpayer he or she is able to claim a further £5 tax relief under self-assessment, reducing the net cost of their donation to £15.

Note that the donor is required to make a declaration that they are a UK taxpayer and those that have not suffered sufficient UK tax to support the Gift Aid amount will taxed on the shortfall.

Remember that Gift Aid does not just apply to gifts of cash. Many charity shops will now sell donated items on your behalf and are able to treat the sale proceeds as Gift Aided donations. It is also possible to gift quoted securities and land and buildings to charity and claim Gift Aid on the market value of those assets.

LET’S HAVE A REAL CHRISTMAS PARTY THIS YEAR!

Last year many businesses put on a “virtual” Christmas party event and HMRC agreed that would be acceptable in order for there to be no taxable benefit for the employees involved.

There continues to be no taxable benefit for employees provided that all staff are invited, and the cost does not exceed £150 a head, inclusive of VAT.

If you have also had an annual summer event then provided the combined cost of the two events is no more than £150 a head then there would be no taxable benefit in kind. If, however the summer event cost £80 a head and the Christmas party £100 a head only one event would qualify for the exemption. Check out our blog below for more details, there’s some more quirks that you could consider!

Read the blog

CHRISTMAS GIFTS OF UP TO £50 PER EMPLOYEE IS ALSO TAX FREE

Remember that certain gifts to staff at Christmas are also tax free if structured correctly. Employers are allowed to provide their directors and employees with certain “trivial” benefits in kind tax free. This exemption applies to small gifts worth no more than £50 to staff at Christmas, on their birthday, or other occasions and includes gifts of food, wine, or store vouchers.

BOOMERANG EMPLOYEES

Following the great resignation, employees who have left and didn’t burn bridges, are more likely to return following their old employer following lessons learned during the pandemic, including flexible working etc. Hiring back these employees can provide great learnings and sends a strong message to your existing team. Read more at the blog below.

Boomerang Blog

NEW COHORT LAUNCHING

We’re excited to release a new cohort from the Spring next year. This is about helping you propel your business forward. This will be restricted to only 6 people and will run for 9 months.

Understanding the numbers and building on key elements. For those who do not want to be a cohort there will also be a few slots available for one to one sessions as well. Register your interest here and let us know what you would love to learn.

Register your interest

CHRISTMAS BOOK

Well, 2021 might not have been as we had all hoped for! But we’ve made it through, and hopefully 2022 will bring about new successes. Attached is a short eBook, providing some light reading, activities to help you enjoy the three freedoms, and a cocktail recipe to reflect the year that was; we hope you enjoy it! Our office will be closing on 23 December and reopening on 3 January. Hopefully, you plan to take some time off to relax and define what success will look like for you in the New Year. We’re looking forward to working together in 2022, whatever it might bring. From our team to yours, stay safe, prioritise yourself, and have a well-deserved break!

Download here

TAX CHANGES ON THE HORIZON

So you may have seen the update on the budget, and here it is if you missed it, it’s important to remember the tax changes were already altered by Boris beforehand – the Health & Social Levy and the Corporation tax rates previous to that – Bev’s summarised it here

NEW RECRUIT

Our team is now 8! Join us in welcoming Emily Cooper who has joined us today!

ACCOUNTING EXCELLENCE

You may have seen, we won an award, and we were over the moon – we couldn’t do a normal photograph of course!

Learn More

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