The share identification rules
Regardless of when they were originally acquired, all shares of the same class, in the same company are treated as forming a single asset. However, ‘same day’ transactions are matched and the ’30 day’ anti-avoidance rules will remain.
Example
On 10 April 2015 Tina sold 2,000 shares in A plc from her holding of 5,000 shares which he had acquired as follows:
- 1,000 in February 1991
- 1,500 in May 2002
- 2,500 in September 2006
Due to a significant stock market change, she decided to purchase 500 shares on 30 April 2015 in the same company.
The disposal of 2,000 shares will be matched firstly with the later transaction of 500 shares. As this is within the following 30 days and then with 1,500/5,000 (1,000+1,500+2,500) of the single asset pool on an average cost basis.
The CGT annual exemption
Every tax year each individual is allowed to make gains up to the annual exemption without paying any CGT. The annual exemption for 2015/16 and 2016/17 is £11,100. You may have to take action to ensure that both spouses/civil partners and possibly children utilise this free allowance.
The new CGT rates
The 28% and 18% rates will continue to apply for carried interest and for chargeable gains on residential property that do not qualify for private residence relief (PRR). In addition, the 28% rate still applies for ATED related chargeable gains accruing to any person (principally companies).
In order to minimise the capital gains tax, careful planning of capital asset disposals is essential. If you live in Welling, Beckenham, Bromley, Kent and London we, at Adiva Accountants in Welling, would be happy to discuss the options and reliefs with you. Please contact us today, if you would like further help and advice.
We will cover below the taxation of capital gains and outline the reliefs available. If you live in Welling, Beckenham, Bromley, Kent and London we, at Adiva Accountants in Welling, can provide taxation advice to ensure that maximum opportunity is taken of the reliefs available.
A capital gain arises when certain capital (or ‘chargeable’) assets are sold at a profit. The gain is the sale proceeds (net of selling costs) less the purchase price (including acquisition costs).
The features of the current system
- For disposals up to 5 April 2016 capital gains tax (CGT) at the rate of 18% applies to gains (including any held over gains coming into charge) where net total taxable gains and income is below the income tax basic rate band of £31,785 for 2015/16. Gains (or the rest of gains) above this limit will be charged at 28%.
- From 6 April 2016, with a few exceptions the government is to reduce the higher rate of CGT from 28% to 20% and the basic rate from 18% to 10%.
- Entrepreneurs’ relief may be available on certain business disposals.
Entrepreneurs’ Relief (ER)
For certain business disposals taking place on or after 6 April 2008, ER may be available. This relief has the effect of charging only 10% tax on the first £10m (from 6 April 2011) of gains qualifying for the relief.
This relief will apply to gains arising on a disposal of:
- the whole, or part, of a trading business that is carried on by the individual, either alone or in partnership;
- assets used by a business or a company which has ceased;
- shares in a trading company, or holding company of a trading group. Provided that the individual owns broadly a 5% shareholding and has been an officer or employee of the company;
- assets used in a partnership or by a company but owned by an individual. If the assets disposed of are ‘associated’ with the withdrawal from participation in the partnership or the company.
A trading business includes professions, but only includes a property business if it is a ‘furnished holiday lettings’ business.
In certain situations, there are restrictions on obtaining the relief on an “associated disposal”. This applies where a property is currently in personal ownership, but is used in an unquoted company or partnership trade in return for a rent. The availability of ER relief is restricted where rent is paid from 6 April 2008 onwards. It is clear that careful planning will be required with ER, so please do get in touch. We are happy to discuss ER in detail and how it might affect your business.
Investors Relief
In Budget 2016 the government announced that ER will be extended to external investors. Other than certain employees or officers of the company in unlisted trading companies. To qualify for the 10% CGT rate under ‘investors’ relief’ the following conditions will apply:
- shares must be newly issued and subscribed for by the individual for new consideration
- have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016
- be in an unlisted trading company, or an unlisted holding company of a trading group
- have been held continuously for a period of three years before disposal.
An individual’s qualifying gains for investors’ relief (the same as ER) will be subject to a lifetime cap of £10 million.
Other reliefs
Capital gains rise on Enterprise Investment Scheme and Venture Capital Trust shares, and deferred gains on share for share or share for loan note exchanges, can be complex. Please talk to us before making any decisions.
Finally, many existing reliefs continue to be available, such as:
- private residence relief;
- letting relief;
- business asset gift relief, which allows the gain on business assets that are given away to be held over until the assets are disposed of by the donee;
- business asset rollover relief, which enables the gain on a business asset to be deferred until a point in the future;
- any unused allowable losses from previous years, which can be brought forward in order to reduce any gains.
If you are an investor or entrepreneur who live in Welling, Beckenham, Bromley, Kent and London we, at Adiva Accountants in Welling, can provide tax advice to ensure that all the reliefs available are claimed. We would welcome the chance to tailor a plan to your own personal circumstances, so please do contact us today.
Marriage breakdown, separation and divorce can have quite significant tax implications. The most important areas to consider are:
- available tax allowances
- transfers of assets between spouses.
Marriage Breakdown
Maintenance payments
An important element in tax planning on marriage breakdown involves the payment of maintenance. No tax relief is usually due on maintenance payments.
The transfer of Assets
Quite often marriage breakdowns involve the transfer of assets between husbands and wives. Careful planning on the timing of any such transfers can avoid or mitigate adverse CGT consequences.
If an asset is transferred between a husband and wife who are living together, the asset is deemed to be transferred at a price that does not give rise to a gain or a loss. This treatment continues up to the end of the tax year in which the separation takes place. Therefore, where transfers take place after the end of the tax year of separation, but before the divorce, the CGT implications can be significant. However, gifts holdover relief is usually available on transfers of qualifying assets under a Court Order.
On the other hand, if transfers take place before the granting of a decree absolute on divorce, IHT will not cause a problem. Transfers after this date may still not be a problem as often there is no gratuitous intent.
Any tax planning must take into account all relevant circumstances. It is important that any proposed course of action considers all areas of tax that may be affected by the proposals.
It is important that professional advice is sought at an early stage. That is crucial as tax savings can only be achieved if an appropriate course of action is planned in advance.
If you live in Greenwich, Bromley, Kent and London we, at Adiva Accountants in Greenwich, would welcome the chance to tailor a plan to your own personal circumstances so please do contact us today.
The joint ownership of assets
The ownership of income producing assets should be divided in such a way, to ensure that personal allowances are fully utilised. This way any higher rate tax liabilities are minimised. When husband and wife jointly own assets, any income arising is usually assumed to be shared equally for tax purposes. This rule applies even where the asset is owned in unequal shares. Unless an election is made to split the income in accordance to the ownership of the asset.
Married couples are taxed on dividends from jointly owned shares in ‘close’ companies according to their ownership of the shares. Close companies are those owned by the directors, or five or fewer people. For example, if a spouse is entitled to 95% of the income from jointly owned shares they will pay tax on 95% of the dividends from those shares. This is designed to close a loophole in the rules and does not apply to income from any other jointly owned assets.
We at Adiva Accountants can advise on the best strategy for jointly owned assets to ensure that the tax liabilities are minimised.
Capital gains tax (CGT)
The CGT liability for each spouse is computed by reference to their own disposals of assets. Each spouse is entitled to their own annual exemption allowance of £11,100 per annum, for 2015/16 and 2016/17.
Tax savings may be made by ensuring that maximum advantage is taken of any available capital losses and annual exemptions. This often is achieved by transferring assets between spouses before the sale of the asset. This course of action generally has no adverse implications for CGT or inheritance tax. Planning is important, and the impact on income tax of transferring assets should be carefully considered.
Inheritance tax (IHT)
When a person dies, IHT becomes due on their estate. The rate of inheritance tax payable is 40% on death, and 20% on lifetime chargeable transfers. The nil rate band covers the first £325,000. Providing the donor survives for seven years after the gift, most of them are ignored and not tax is due on them.
Transfers of property between spouses are generally exempt from IHT. New rules have been introduced which allow the surviving spouse to use any nil-rate band unused on the first spouse’s death. The transfer of the unused nil-rate band from a deceased spouse, irrelevant of the date of death, may be made to the estate of their surviving spouse who dies on or after 9 October 2007. The amount of the nil-rate band available for transfer will be based on the proportion of the nil-rate band which was unused when the first spouse died.
IHT is not charged on a gift for family maintenance. These cases include the transfer of property made on divorce under a court order. Also, the gifts for the education of children, or maintenance of a dependent relative.
Gifts in consideration of marriage are exempt up to £5,000 if made by a parent with lower limits for other donors.
Small gifts to individuals not exceeding £250 in total per tax year per recipient are exempt.
Gifts which are made from income which are typical and habitual and do not result in a fall in the standard of living of the donor are exempt. Payments under deed of covenant and the payment of annual premiums on life insurance policies would usually be exempt too.
If you live in Greenwich, Bromley, Kent and London we, at Adiva Accountants in Greenwich can help you pay less Capital Gains and Inheritance tax, depending on your family’s personal circumstances, so why not call us today.
Children
Tax savings could be achieved by the transfer of income producing assets to a child, to take advantage of the child’s personal allowance. If the annual income arising is above £100, this cannot be done by the parent. The income will still be taxed on the parent. However, transfers of income producing assets by grandparents or others, will be effective.
A parent can use a ‘bare trust’ which would allow a child to use any entitlement to the CGT annual exemption.
Child Tax Credit
Depending on various factors Child Tax Credit (CTC) might be available to some families. To check if you are entitled to claim visit the HMRC website.
The High Income Child Benefit Charge
High Income Child Benefit Charge applies to a taxpayer who has adjusted net income over £50,000 in a tax year. And where either they or their partner are in receipt of Child Benefit for the year. If both partners have incomes in excess of £50,000, the charge will apply to the partner with the higher income.
The income tax charge will apply at a rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000. Therefore, the charge on taxpayers with income above £60,000 will be equal to the full amount of Child Benefit received. If the claimant or their partner do not wish to pay the charge, it is possible to elect not to receive the Child Benefit.
Example
The Child Benefit for two children amounts to £1,788.
The taxpayer’s adjusted net income is £53,000.
The income tax charge will be £536.
This is calculated as £17.88 for every £100 above £50,000.
If you live in Greenwich, Bromley, Kent and London we, at Adiva Accountants in Greenwich can help you pay less Child Benefit charge, so why not call us today.
You need to be aware that husbands and wives are taxed separately and you need to consider the tax position of the children too. You need to consider the impact of marriage breakdowns and divorce on your tax affairs. We will cover here the most relevant issues and the basic tax planning opportunities. If you live in Greenwich, Bromley, Kent and London we, at Adiva Accountants in Greenwich can help you optimise your tax position depending on you and your family’s personal circumstances.
We cover below the main areas of importance where proactive tax planning can minimise overall tax liabilities.
It is very important that professional advice is sought on matters relevant to your personal circumstances.
Married couples
Independent taxation means that husbands and wives incomes and capital gains are taxed separately. As a result, both have their own personal allowances and basic rate tax bands for income tax. Also, the annual exemption allowance for capital gains tax purposes. Each are responsible for their own tax affairs. The same rules apply to same-sex couples who have entered a civil partnership under the Civil Partnership Act.
Children
For tax purposes a child is an independent person. So, is entitled to a personal allowance, the savings and basic rate tax bands before being taxed at the higher rate. Therefore, it may be possible to save tax by generating income or capital gains in the children’s hands.
Tax planning for couples
Every person is entitled to a basic personal allowance. However, this allowance cannot be transferred between spouses, except for the circumstances below.
Marriage Allowance
From the beginning of tax year 2015/16, married couples and civil partners are eligible for a new Transferable Tax Allowance.
This is the Marriage Allowance, and enables spouses and civil partners to transfer 10% of their personal allowance to their spouse. This option is not available to unmarried couples. This option is available only to couples where neither pays tax at the higher or additional rate. If eligible, one partner can transfer 10% of their personal allowance to the other partner, which is £1,100 for 2016/17 (£1,060 for the 2015/16 tax year).
Couples who marry within the year are entitled to the full benefit in their first year of marriage. For all those couples, where one spouse does not use all their personal allowance, this tax benefit will be worth up to £220 in 2016/17 (£212 in 2015/16).
Eligible couples can apply for the marriage allowance at https://www.gov.uk/marriage-allowance. The spouse or partner with the lower income need to enter some basic information before applying to transfer some of their personal allowance. Those who do not apply via the government gateway will still be able to make an application later and receive the allowance.
A married couple’s allowance is available, if either you or your spouse were born before 6 April 1935. This is given to the husband, although it is possible, by election, to transfer it to the wife.
If you live in Greenwich, Bromley, Kent and London we, at Adiva Accountants in Greenwich can help you minimise the amount of tax that you have to pay, depending on your family’s personal circumstances, so why not call us today.
You are required to keep records of income, expenditure and reliefs claimed. On the income side this means the taxpayer has to keep the documentation given by the person making the payment. In regard of expenses, records are required to support the claim. If they decide to enquire into the return, HMRC wants to ensure that the underlying records to the tax return exist.
Records required for HMRC enquiry
Employees and Directors
- Details of payments made for business expenses (e.g. receipts, credit card statements)
- Deductions and reliefs
- Share options awarded or exercised
Documents you have signed or which have been provided to you by someone else:
- Interest and dividends
- Gift aid payments
- Tax deduction certificates
- Dividend vouchers
- Personal pension plan certificates.
Personal financial records which support any claims or amounts paid e.g. certificates of interest paid.
Records for Business
- Invoices, bank statements and paying-in slips
- Details of personal drawings from cash and bank receipts
- Invoices for purchases and other expenses
If you live in Orpington, Bromley, Kent and London we can prepare your personal tax return on your behalf and advise on the appropriate payments on account to make. If there is an enquiry into your tax return, we will assist you in answering any queries from HMRC. Please do not hesitate to contact us at Adiva Accountants in Orpington for help or information.
Please find below the late filing penalties that apply to personal tax returns:
- £100* penalty immediately after the due date for filing (this penalty is applied even if there is no tax to pay, or the tax due has already been paid)
* In the past, the penalty could not exceed the tax due, however this cap has been removed. Therefore, if your return is filed late, the full penalty of £100 will always be due. If filing by ‘paper’ the deadline is 31 October after the end of the fiscal year, and if filing online the deadline is 31 January.
Please find below the additional penalties that can be charged:
- over 3 months late – a £10 daily penalty up to a maximum of £900
- over 6 months late – an additional £300 or 5% of the tax due if higher
- over 12 months late – a further £300 or a further 5% of the tax due if higher. Furthermore, in particularly serious cases, there is a penalty of up to 100% of the tax due.
If you live in Orpington, Bromley, Kent and London and have been charged a penalty we, at Adiva Accountants in Orpington, can help to appeal against the penalty.
The underpayment “coding out”
As a taxpayer, you have the option to ask HMRC to compute your tax liability in advance of the tax being due. In this case the tax return must be completed and filed by 31 October following the end of the tax year. This is also the deadline for making a return where you require HMRC to collect any underpayment of tax through your tax code, also known as ‘coding out’. However, if you file your return online HMRC will extend this deadline to 30 December. Whether you or HMRC calculate the tax liability, there will be only one assessment which covers all your tax liabilities for the tax year.
Amendments and corrections
HMRC has nine months from the return being filed to correct a self assessment, in order to correct any obvious errors or mistakes in the return.
An individual has 12 months from the return being filed to amend their self assessment by notifying HMRC of the changes made.
HMRC may enquire into any tax return by giving a written notice. Usually the time limit for HMRC to issue a notice is 12 months from the filing date.
If HMRC does not enquire into a return, it will be final and conclusive. Unless HMRC makes a discovery, or the taxpayer makes an overpayment relief claim.
Most noteworthy HMRC cannot query any entry on a tax return without starting an enquiry. The main purpose of an enquiry is to identify any errors on, or omissions from, a tax return which result in an understatement of tax due. However, the opening of an enquiry does not mean that a return is incorrect.
If there is an enquiry in your tax return, we will also receive a letter from HMRC. It will detail the necessary information required by them to check the return. If that happens, we will contact you to discuss the contents of the letter and the way forward. If you live in Orpington, Bromley, Kent and London and have HMRC enquiring into your tax return we, at Adiva Accountants in Orpington, can advise and assist in answering the enquiry.
We summarise below the self assessment rules, penalties and interest charged for failing to comply with your obligations. If you live in Orpington, Bromley, Kent and London we, at Adiva Accountants in Orpington, can prepare your tax return and advise you on payments that you may need to make to HMRC. We will minimise the amount of personal tax that you have to pay, so why not call us today.
Under the self assessment, it is the responsibility of the individual to make sure that their tax liability is calculated and is paid on time.
The self assessment cycle
Shortly after the end of the fiscal year, HMRC issues tax return notices to all of those whom HMRC are aware need a return. These include all who are self employed or company directors. If a taxpayer is not issued with a tax return but has tax due, they should notify HMRC who may then issue a return.
The fiscal year runs from 6 April to the following 5 April, so 2015/16 tax year runs from 6 April 2015 to 5 April 2016. If using online filing a taxpayer is required to file his tax return by 31 January following the end of the fiscal year. If using paper format, the 2015/16 return must be filed by 31 October 2016. If this deadline is missed, penalties will apply, unless the return is filed online before the following 31 January. If you live in Orpington, Bromley, Kent and London and need to prepare a tax return we, at Adiva Accountants in Orpington, can advise and prepare your tax return.
