Christmas Is The Time For Giving…(and Tax Planning)
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.
Remember that the gift of an asset other than cash may give rise to a capital gain and CGT may be payable where the asset has increased in value. Note however that 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 employee’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 IHT. 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 a suitable spreadsheet.
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 on your behalf.
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.
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 to staff at Christmas, on their birthday, or other occasions and includes gifts of food, wine, or store vouchers.
There are of course a number of conditions that need to be satisfied to qualify for the exemption.
Conditions for the exemption to apply
the cost of providing the benefit does not exceed £50
the benefit is not cash or a cash voucher
the employee is not entitled to the benefit as part of any contractual obligation such as a salary sacrifice scheme
the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties
The Rawcliffe & Co team is available via phone or email Monday to Thursday 9-5pm and 9 – 4:30pm on Fridays.
Tel: 01253 798812
Email: info@rawcliffeco.com