2017 07 27 512999 800x380 - Who inherits if someone dies without a Will?

Who inherits if someone dies without a Will?

The intestacy rules that govern how assets are divided if someone dies without making a will changed from 1 October 2014. The changes do not affect people who die with less than £250,000 in assets but for those that leave more, the changes were significant.

For example, prior to 1 October 2014, a surviving spouse or civil partner in a relationship without children would have inherited the first £450,000 of the estate plus half of the remainder. The other half of the remainder would be split with surviving blood relatives of the deceased, such as their parents or brothers and sisters. In many cases these rules necessitated the sale of property in order to split the deceased’s estate. Since the rule change, where the deceased is survived by a spouse or civil partner (in England and Wales) and there are no children or remoter issue, the spouse or civil partner will inherit the whole of the deceased’s estate outright. The rules are different in Scotland and Northern Ireland.

There were also changes where the deceased leaves children. Prior to the change there were complicated rules that gave the spouse or civil partner the first £250,000 plus an entitlement to a life interest in half the remaining amount. This meant the spouse / civil partner could take income from the money, but not the capital. The rules now provide for the surviving spouse /civil partner (in England and Wales) to keep all assets up to £250,000 and to receive one half of the residue in full i.e. the capital rather than just the income. These rules are also different in Scotland and Northern Ireland.

If there are no living relatives, the estate will go automatically to the Crown. These rules may be a surprise to many of our readers.

Planning note:

We would remind anyone that hasn’t made provisions to think about making a Will to ensure that their assets are divided in accordance with their wishes.

2017 07 27 177360 800x380 - The new State Pension

The new State Pension

The new State Pension is payable to those that reach the State Pension age on or after 6 April 2016. The full new State Pension is currently £159.55 per week and is payable to eligible women born on or after 6 April 1953 and eligible men born on or after 6 April 1951. Retirees that reached the State Pension age before 6 April 2016 will continue to receive the State Pension (not the New State Pension) under the old rules.

Claimants require 35 qualifying years of National Insurance Contributions in order to receive the full new State Pension. Individuals that have fewer than 35 qualifying years when they reach State Pension age will get a pro-rata amount of the new State Pension, subject to a minimum requirement of 10 qualifying years.

A persons national insurance record before 6 April 2016 is used to calculate their ‘starting amount’. This is part of the new State Pension. The starting pension amount could include a deduction for any applicants that had previously been contracted out of the Additional State Pension.

Planning note:

The contribution rules changed from 6 April 2016, and there is no longer an option to be contracted out. However, readers who were contracted out in the past, paid National Insurance at a lower rate and this can impact upon their entitlement to the full amount of new State Pension.

It is possible to apply for a pensions forecast if you are unsure of your future entitlements to the State Pension (new or old version). Please call if you would like help organising this.

2017 07 27 921328 800x380 - Directors, beware minimum wage legislation

Directors, beware minimum wage legislation

We have recently considered some of the issues surrounding various tax efficient strategies for paying director shareholders. One aspect of this complex area that we have not yet examined is whether company directors need to be concerned with employment legislation in relation to the minimum wage.

At the most basic level, company directors who do not have a contract of employment are defined as office holders. Office holders are neither employees nor workers. Directors who are considered to be office holders do not qualify to receive the National Minimum or Living Wage.

However, company directors who also have an employment or worker’s contract can be both an office holder and an employee at the same time. If this is the case, the director would need to be paid the National Minimum Wage (NMW) or National Living Wage (NLW). The NLW is currently £7.50 for those aged 25 and over. The hourly rate of the NMW is £7.05 for adults 21-24 year olds.

Planning note:

Where there is a requirement to pay a director the NMW or NLW this would impact the strategy to pay a director’s salary at a minimum level that qualifies the director for state benefits but does not involve payment of any NICs. Careful consideration needs to be given in these cases, especially to directors of personal service companies to ensure the correct tax treatment is in place whilst at the same time considering the implications of employment law and the minimum wage legislation.

If you need advice in this area please call for more information.

2017 07 27 866366 800x380 - Credit card transaction charges to be banned

Credit card transaction charges to be banned

The EU second Payment Services Directive (PSDII) was approved by the European Parliament and European Council in December 2015 and seeks to widen the scope of the existing EU Payment Service Directive (PSD) that defines the information that consumers and businesses must receive when making payments. This includes making reforms to the way payments by debit and credit cards, direct debit, credit transfers, standing orders and other digital payments are transacted. 

The UK government is required to implement the PSDII into UK law by 13 January 2018 to meet its legal obligations and avoid the risk of facing infraction proceedings. This work must still be completed as for the time being the UK remains a full member of the EU.

One of the main changes that will come about as a result of this new legislation will be the removal of extra charges for making payments by credit cards. This practice known as ‘surcharging’ is common across a wide range of businesses including some local councils and government agencies. These new rules will bring an end to the practice entirely.

Planning note:

Most of HMRC’s credit card fees were sharply reduced with effect from 1 April 2016. Since then the credit card fees have varied depending on the type of card used and whether it is a corporate or personal credit card. The lowest fees are for personal Visa or MasterCard credit cards and the highest fees are reserved for corporate credit cards.

From January 2018, HMRC will no longer be able to levy any fees for payment by credit card. As HMRC incurs a fee for processing payments by credit card there is a possibility that the option to make payments of tax by credit card may be removed.

2016 08 18 406774 800x380 - Gift Aid donations only available to taxpayers

Gift Aid donations only available to taxpayers

The Gift Aid scheme is available to all UK taxpayers, but in order to sign up to the Gift Aid scheme when you make a donation, you must be paying UK income tax.

There are clear advantages for charities if you make your donation in this way. The charity or Community Amateur Sports Clubs (CASC) concerned can take your donation and, provided all the qualifying conditions are met, can reclaim the basic rate tax, which means that the value of your donation increases by 25p for every pound donated to charity.

Higher rate and additional rate taxpayers can also claim additional income tax relief. This is based on the difference between the basic rate and their highest rate of tax.

For example:

If a taxpayer donates £500 to charity, the total value of the donation to the charity is £625; the charity claim the £125 difference from HMRC. The taxpayer can also claim additional tax back of:

  • £125 if they pay tax at 40% (£625 × 20%),
  • £156.25 if they pay tax at 45% (£625 × 20%) plus (£625 × 5%).

Planning warning. One of the conditions for an effective claim for Gift Aid is that you must have paid enough tax in the relevant tax year to cover the tax credit that the charity can claim from HMRC. The rules state that your donations will qualify for tax relief as long as they are not more than 4 times what you have paid in tax in that tax year. If you have claimed more tax relief than you are entitled to you will need to notify the charity and pay back any excess tax relief.

2016 12 08 499728 800x380 - Changes to deemed domicile rules

Changes to deemed domicile rules

In July 2015, the then Chancellor George Osborne announced a series of reforms to the non-domicile rules. The new rules were due to come into effect from April 2017, but were removed from the cut-back Finance Bill that was rushed through parliament before the general election. It has now been announced that the necessary legislation to introduce these reforms will be included in the new Finance Bill to be published after the summer recess and that these measures will have retroactive effect from April 2017 as originally intended.

The new rules will mean that any person who has been resident in the UK for more than 15 of the previous 20 years will be deemed to be domiciled in the UK for tax purposes. In addition, individuals who were born in the UK, to UK domiciled parents, will no longer be able to claim non-domiciled status whilst they are resident in the UK.

Under the proposed legislative changes, those deemed domiciled in the UK from April 2017, will be treated as if they were domiciled in the UK for income tax and capital gains tax from the start of the 2017-18 tax year. These measures are intended to prevent those with the most significant links to the UK from claiming non-dom status.

Planning notes.

The existing inheritance tax deeming provisions will also be aligned with the new 15 years out of 20 rule. There will be transitional reliefs put in place including the facility to rebase offshore assets for CGT purposes. It has also been announced that income and gains arising in overseas trusts created by foreign domiciled persons before they become deemed domiciled under the new rules will not be taxed if they are retained in the trust or its underlying entities.

Non-doms that remain unaffected by these changes and wish to retain access to the remittance basis of taxation must pay an additional sum in addition to the tax on any income or gains remitted. This sum is known as the Remittance Basis Charge (RBC).  The RBC charge for individuals who have been UK resident for at least 7 of the last 9 years is £30,000. The charge for individuals who have been resident in the UK for at least 12 of the last 14 years is £60,000.

2017 06 15 939610 800x380 - Employed or self-employed?

Employed or self-employed?

Working out whether you are an employee or self-employed can be a tricky business and HMRC’s view can sometimes be at odds with status defined under employment law.

Clearly, although not always, there are tax and NIC advantages for you and the business that contracts for your services if you are treated as self-employed as opposed to employed. However, you may have more rights – holiday pay for example – if you are employed rather than self-employed.

HMRC’s guidance states that you are probably self-employed and shouldn’t be paid through PAYE if most of the following are true:

  • you are in business for yourself, are responsible for the success or failure of your business and can make a loss or a profit
  • you can decide what work you do and when, where or how to do it
  • you can hire someone else to do the work
  • you are responsible for fixing any unsatisfactory work in your own time
  • the person contracting for your services has agreed a fixed price for work to be done – it doesn’t depend on how long the job takes to finish
  • you use your own money to buy business assets, cover running costs, and provide tools and equipment for your work
  • you can work for more than one client

It is also important to consider if the intermediaries legislation known as IR35 applies to a particular engagement and whether you should pay tax through PAYE. There are special rules that came into effect earlier this year for individuals providing services to the public sector via an intermediary. The new rules shift the responsibility for deciding whether the IR35 legislation applies from the intermediary to the public sector department receiving the service.

Planning notes.

HMRC offers an online employment status tax tool that can be used by workers, employment agencies and those seeking to hire a worker. HMRC will allow users to rely on the results of the test provided there are no contrived arrangements or searches designed to get a particular outcome from the service. The service is anonymous and results will not be stored online. However, the results can be printed and held for your own records.

This area of tax law is a classic grey area and if you are at all unsure of your tax position, either as a supplier or purchaser of services, we would strongly recommend speaking to us about your arrangements.

2016 07 25 672751 800x380 - Class 1 NICs zero rate band

Class 1 NICs zero rate band

Many director shareholders take a minimum salary and any balance of remuneration as dividends. This tends to reduce National Insurance Contributions (NICs), and in some case income tax. The planning strategy is to pay a salary at a level that qualifies the director for State benefits, including the State Pension, but does not involve payment of any NICs.
 
For 2017/18, the NIC rate is set at 0% for annual earnings in the range of £5,876 to £8,164 inclusive.  Earnings in this band range qualify for NIC credit for State benefit purposes.  At £112.99 per week (£5,875 p.a.) no NI credit is obtained for State benefit purposes.  At £157.01 plus per week (£8,165 p.a.) NI contributions start to be paid at the rate of 12%.

Planning notes

Based on the above considerations it will generally benefit director shareholders of small companies to pay themselves an annual salary of £8,164 for 2017-18 – thereby securing credits for State benefits but avoiding any NIC charge – and take any balance of their annual remuneration package as dividends. In certain circumstances, taking a lower salary, but staying within the £5,876 to £8,164 band, would be equally effective. Fixing an appropriate salary level should be decided by considering all the factors that influence liability for a particular taxpayer.

Other points that directors should be aware:

  • The comments on minimum salary levels for directors in this article can only apply to directors who are unaffected by the Minimum Wage legislation. Directors who have a written or implied contract with their company will need to be paid taking the National Minimum or National Living Wage regulations into account. In many cases, minimum salaries will be higher than those dictated to by NIC planning opportunities. We will be adding an article to expand on this point next week.
  • A director’s liability to NI is worked out based on their annual (or pro-rata annual) earnings. This differs from regular employees whose liability is calculated based on their actual pay period usually weekly or monthly.  Payments on account of a director’s NICs can be made in a similar way as for employees however an annual adjustment must be made at the end of the tax year.
  • Directors, who are first appointed during a tax year, are only entitled to a pro rata annual earnings band which depends on the actual date appointed and the amount of time remaining in the tax year. Care needs to be taken in these circumstances not to incur an unexpected liability to pay NIC.
  • Directors resigning during the year still have the full annual earnings band quoted above, and so care is needed to ensure that earnings for the whole tax year are within the range of £5,876 to £8,164.

Directors considering their planning options for the first time are advised to take professional advice as there are a number of considerations to take into account when setting the most tax/NI efficient salary. We, of course, would be delighted to help.

2017 02 21 135190 800x380 - Making Tax Digital – common sense prevails

Making Tax Digital – common sense prevails

A new timetable for the introduction of Making Tax Digital (MTD) has been announced. The new regime was due to start from April 2018, but was delayed by the snap general election earlier this year. The government now appears to have listened to concerns that the roll-out of the MTD was moving too fast. The original proposals would have required most businesses to upload quarterly figures to HMRC.

Under the new implementation plan these obligations have been substantially changed. They are:

  • Only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes. These businesses will only be required to use MTD compliant upload software from April 2019.
  • Other businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes (income tax and corporation tax) until ‘at least’ April 2020, and only if their annual turnover is above the VAT registration threshold.
  • HMRC has also confirmed that the use of MTD by smaller businesses and for other taxes will be voluntary. This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system. 

As VAT returns are already submitted on a quarterly basis, the change of pace of MTD implementation means that all businesses and landlords will have at least two years to adapt to the changes before being asked to keep digital records for other taxes.

HMRC’s MTD pilot tests will be extended to pilot MTD/VAT for businesses later this year, with a more extensive testing phase starting in the Spring of 2018. This means that there will be far more time to test the system and iron out any issues before the system goes live.

Planning note

We can help by offering you advice on the changes you will need to put in place to prepare for MTD including the software that you will need to use. It is important to note that even this revised timetable could be subject to change as we await the introduction of the second 2017 Finance Bill that will contain the necessary legislation.

2016 07 21 920306 800x380 - New Finance Bill to be published

New Finance Bill to be published

The government has confirmed that a new Finance Bill will be introduced as soon as possible after the summer recess. The House of Commons returns to Westminster on 5 September 2017.

In a joint press release from HMRC and HM Treasury we are told that the new Finance Bill will legislate for all policies that were included in the pre-election Finance Bill but not included in the Act that was rushed through Parliament before the snap election.

It has also been confirmed that all policies originally announced to start from April 2017 will be effective from that date. This includes the corporate interest restriction, changes to the treatment of carried-forward losses, the money purchase annual allowance, changes to the deemed domicile rules and penalties for enablers of defeated tax avoidance schemes.

The introduction of Making Tax Digital (MTD) will also be legislated for albeit with significant changes to the implementation schedule.

A Written Ministerial Statement on the Finance Bill by Mel Stride, Financial Secretary to the Treasury states:

‘Where policies have been announced as applying from the start of the 2017-18 tax year or other point before the introduction of the forthcoming Finance Bill, there is no change of policy and these dates of application will be retained. Those affected by the provisions should continue to assume that they will apply as originally announced.

The Finance Bill to be introduced will legislate for policies that have already been announced. In the case of some provisions that will apply from a time before the Bill is introduced, technical adjustments and additions to the versions contained in the March Bill will be made on introduction to ensure that they function as intended.’

Planning note

There is still a measure of uncertainty regarding the ability of the government to present this second Finance Bill for 2017, and see it through the various committee stages without amendment. It will be September 2017 at the earliest before the Bill reaches the statute books. We will have to wait and see what proceeds to legislation.