Author: financial

Children (under 18s) can earn up to £11,500 in the current tax year and pay no income tax. This is the maximum that can be earned during 2017-18 and will include earnings from all sources subject to income tax. The most common are:

• Income from employment
• Income from self-employment
• Bank interest and dividends received – although see comments below.

If you are aged 16 and over you may have to pay National Insurance if earnings with a single employer exceed £157 per week.

Parents are advised that if they gift shares in family companies to their under 18s children and then pay dividends on the gifted shares – with the aim of taking advantage of the annual tax-free dividends allowance and the possible lower rates of tax payable by the children – this strategy is unlikely to work as HMRC would seek to treat the dividends as if they had been received by their parent(s).

Once a child reaches the age of 18, then gifting shares in a family company to divert dividends from parents to the child would be possible. A word of caution however, this area of taxation is littered with anti-avoidance regulation so before transferring or issuing new shares, professional advice should be taken.

Parents also need to be clear that if they employ their under 18s in their business, then they need to pay a commercial rate for the job involved. Paying more than market rates would likely attract the attention of HMRC.

Capital Gains

Children under 18 years are entitled to claim the annual capital gains tax exemption of £11,300 for 2017-18, but only on the chargeable disposals of assets in which they have a legal title.

Junior ISAs

The under 18s can save in a tax-free fund by investing in a Junior ISA. The savings limit in these schemes for 2017-18 is £4,128. Parents can open an account but the money invested belongs to the child.

Children can take charge of the investment from age 16 but cannot withdraw funds until they reach 18 years.

There are two options if you use a car in your self-employed business for business and private purposes.

You can buy the car through your business, claim a capital allowance, and write off the costs of running the car as a business expense, and in both instances, you will need to adjust your claims to eliminate any private use. In practical terms, this will mean recording your total and private mileage (or business mileage) and reducing the capital allowance and expenses claims accordingly.

Alternatively, you could keep a written record of your business mileage and claim expenses from your business using the approved flat rates. Presently, these are:

• The first 10,000 business miles at 45p per mile,
• Over 10,000 business miles at 25p per mile.

For example, if your business mileage for a year amounted to 12,000 miles you could claim up to £5,000 (10,000 miles at 45p and 2,000 miles at 25p). This amount would be a legitimate business cost for tax purposes and is a tax-free receipt that you can use to defray the actual purchase and running costs that you will be paying personally, outside the business.

This simplified method for claiming relief for the use of your car can only be used if you are not claiming capital allowances for the vehicle or charging any actual running costs to your business.

Also, you do not have to use the simplified method for all your business vehicles, you can pick and choose. Once you have elected to use the simplified claims process you must continue to do so for as long as you use the vehicle in your business.

This simplified option for the use of a car does not affect your ability to claim other travel costs, train fares etc., or parking costs.

To decide which may be the best choice for your business you will need to consider the car purchase price, annual running costs, and your estimated business and private mileage. Please call if you would like our help with the calculations.

Readers may be forgiven for finding the recent rash of announcements by HMRC, regarding possible changes to tax legislation, rather confusing.

On 8th September, we were informed that the remaining sections of the March 2017 finance bill, that were deferred due to the May election, were back in circulation and being dealt with by the appropriate committees and debates. Eventually, they will find their way onto the statute books unless amended by the parliamentary processes.

Changes reintroduced include:

• Ability to reimburse employers for certain benefits and avoid a tax charge.
• A reduction in the money purchase pension allowance, once crystallised, from £10,000 to £4,000.
• A reduction in the tax-free dividend allowance, from £5,000 to £2,000; effective from 6 April 2018.

In all there are seventy-two clauses and eighteen schedules.

It was then announced the government will publish its next Budget on Wednesday 22 November 2017. The November Budget will include further legislation to introduce digitisation of business tax.

It will be interesting to see how the political realities – a much slimmer majority in parliament – affect the progress of these changes in the coming weeks.

There are many reliefs for IHT purposes. They include:

1. Business Property Relief – 100% relief for business assets including an interest in a business, a controlling interest comprising unquoted shares including AIM listed shares, and unlisted shares in a private company.
2. Agricultural Property Relief – 100% relief (occasionally 50%)
3. A controlling interest in a listed company – 50% relief.
4. Certain personal assets used in a business – 50% relief.

Additionally, there are other, smaller reliefs that can be claimed:

• An annual exemption of £3,000. An unused allowance can be carried forward for one year.
• Small gifts exemption of £250 per person.
• Gifts on a marriage or civil partnership: £5,000 from a parent, £2,500 from a grandparent, £1,000 others

There is also an exemption for annual gifts made from income. Basically, a gift will not count as a gift for IHT purposes, if you can demonstrate that the donor’s annual income is at a level to make the gifts without affecting their ability to cover their usual monthly costs.

Gifts to an individual within the nil rate band, and with no strings attached, may still be made without any charge to IHT if the donor lives for 7 years after making the gift.

Changes to the taxation of trusts and non-domiciled persons have complicated IHT planning in recent years. If you haven’t considered your options recently we recommend a review. All you need to do is compile a list of your assets, let us have sight of your Will(s) and we can consider changes you might make to reduce your exposure to this tax.