Archive for December, 2017

What happens if we can't manage

Thursday, December 21st, 2017

A reminder that as we age the argument that we should grant powers of attorney to trusted family members becomes increasingly relevant. A lasting power of attorney (LPA) is a legal document that lets you (the ‘donor’) appoint one or more people (known as ‘attorneys’) to help you make decisions or to make decisions on your behalf. There are two sorts of LPA. They can cover personal issues (health and welfare) or financial issues (property and financial affairs).

An LPA allows you to nominate who has control over what happens to you if, for example, you have an accident or an illness and can’t make decisions at the time, or if you for other reasons, ‘lack mental capacity’ to make prudent decisions on your own behalf.

You must be 18 or over and have mental capacity (the ability to make your own decisions) when you make your LPA. This is a classic “chicken and egg” process: if you wait until you are no longer compos mentis, or physically able to make decisions on your behalf, it is already too late.

Please note that there are different processes for registering LPAs in Scotland and Northern Ireland.

How do you make an LPA?

This is a three-stage process:

  1. First, you must choose your attorney – the person who will have control over your affairs – and you can have more than one.
  2. Secondly, you will need to complete the relevant forms to appoint them as an attorney, and finally
  3. Register your LPA with the Office of the Public Guardian (this can take up to 10 weeks).

It costs £110 to register an LPA unless you get a reduction or exemption.

Unfortunately, you will need to register both LPAs if you want to cover all your risks, so the above costs are doubled.

If you want to find out more about the process you can contact the Office of the Public Guardian at:

Office of the Public Guardian
customerservices@publicguardian.gsi.gov.uk
Telephone: 0300 456 0300
Textphone: 0115 934 2778
 

Or, you can take professional advice.

Source: New feed

Timing is everything

Wednesday, December 20th, 2017

We are fast approaching the end of the 2017-18 tax year. In fact, the 31 March (or 5 April) is probably the most common trading year end date for sole traders, partnerships and limited companies. And individuals have no choice, the self-assessment tax year ends on 5 April.

This being so, it is worth considering how business owners, particularly self-employed traders, time significant investment decisions to maximise any tax relief available.

Consider James, a self-employed plumber. He has had a rough year. Due to family obligations he is unlikely to make more than £17,000 profit in the tax year 2017-18. However, he has secured work for 2018-19 that will create profits of at least £60,000.

Whilst this is good news James will need to replace his van to cope with the extra work. He finds a suitable vehicle for £18,000 and buys it during the last month of the 2017-18 tax year. He knows he can write off the full cost of the van against his profits of £17,000 and is feeling very pleased with himself, no tax to pay.

James makes an appointment with his accountant to deliver his books for 2017-18 during June 2018.

During the visit, his accountant points out that there is no need to claim all the van purchase against his profits for 2017-18 as he can earn up £11,500 tax free. Accordingly, his taxable profit of £5,500 (£17,000 – £11,500) is covered by £5,500 of the van purchase and the balance of £12,500 can be carried forward to claim against future years’ profits.

James is happy with this outcome, still no tax to pay for 2017-18 and he has £12,500 to write off against future profits. His accountant is not so sure…

James is dismayed as his advisor points out that if he had bought the van after 5 April 2018, just one month later, the full cost of the van could have been written off against his profits for 2018-19 and this would have eliminated all his exposure to higher rate income tax saving him more than £7,000 in higher rate income tax and Class 4 NIC.

There would have been approximately £2,000 of tax and NIC to pay for 2017-18, but overall a saving of £5,000 has been compromised.

It is true that James will still be able to claim the remaining £12,500 tax relief from the purchase of his van, but this will be restricted to just under 20% a year. Accordingly, it will take much longer to claim back the tax relief available and possibly at lower rates of income tax.

Timing really is everything and we would recommend that any self-employed trader that is thinking of spending a significant amount on commercial vehicles, plant, equipment or computer equipment before the 6 April 2018, take advice now on best way to structure the payments to gain the maximum tax relief.

Source: New feed

Private pension tax relief

Tuesday, December 5th, 2017

There was much speculation prior to the budget last month, that the tax relief for higher rate tax payers was going to be scrapped, or reduced. Many pundits were expecting a flat-rate tax deduction of 33% rather than tax relief for higher rate taxpayers of 40%.

Fortunately, for those who may have been affected by a reduction, this change was conspicuous by its absence.

Presently, therefore, the annual tax-free allowance continues to be £40,000 a year. You can top-up this allowance with any unused allowance for the previous three tax years.

You may also be liable to pay tax if the combined value of all your pension pots is worth more than £1m. What counts towards your lifetime allowance depends on the type of pension you are paying into:

  1. Defined contributions schemes are valued as the money in pension pots that goes towards paying you, however you decide to take the money.
  2. Defined benefit schemes are usually valued at 20 times the pension you get in the first year plus your lump sum.

There are also certain protected policies where the expected retirement age is lower than the usual age 55 years limit, for example professional dancers and sportspersons. If this lower retirement age is written into pension plans, then the £1m lifetime allowance is reduced proportionately.

Now there is more certainty regarding the tax benefits of contributing into a pension, readers still making contributions should consider a consultation with their pensions advisor before the end of the current tax year (5 April 2018). Shifting potentially taxable income into a tax-free pension fund still makes good financial sense in appropriate circumstances.

Source: New feed

Company capital gains relief is frozen

Monday, December 4th, 2017

Before the Autumn Budget, the capital gains tax (CGT) calculations of companies included a relief called the indexation allowance. Basically, this allowed a company to increase the acquisition cost of an asset by the annual rate of inflation.

Without this relief, any CGT payable on the sale of the asset would increase. Instead of deducting the cost plus the inflation proofed indexation allowance, companies would only be able to claim the historical cost.

This allowance has effectively been axed in the budget last week.

Assets owned prior to 1 January 2018

Companies that currently own assets that will be subject to a CGT payment when they are sold, will have any indexation relief capped at the RPI for December 2017. Accordingly, they will still get a measure of relief up to this date.

Assets acquired on or after 1 January 2018

Assets acquired on or after 1 January 2018 will no longer be able to claim indexation relief.

Companies should therefore be aware that if inflation continues to rise they will be paying tax on the inflationary value of the chargeable asset sold.

According to HMRC:

The measure aligns the treatment of capital gains by companies with that for individuals and non-incorporated businesses for whom indexation allowance was abolished in 2008. It will also align the treatment of capital disposals with disposals of similar assets as part of a company’s trading activities.

In addition, it will simplify tax computations and remove a source of potential errors.

What this measure will do, is to increase the corporation tax of companies that dispose of assets subject to CGT.

 

Source: New feed

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