Your Q1 round-up of the latest tax & accountancy news.
CORPORATION TAX RELIEF BACK FOR ACQUIRED GOODWILL
From 1 April 2019 a late change to the Finance Bill will re-introduce relief for acquired goodwill on the acquisition of businesses with eligible intellectual property.
This relief was withdrawn back in July 2015 and the restoration of relief for goodwill and customer-related assets is very welcome although the new form of relief will be more restricted.
The proposed new relief will be given at a fixed rate of 6.5% on up to 6 times the value of any qualifying intellectual property assets in the business being acquired. Qualifying assets will include patents, registered designs, copyright and design rights and plant breeders' rights. This means that the qualifying costs will be written off over just over 15 years and will not follow the treatment in the company accounts as currently applies to other intangibles.
INCREASED CAPITAL ALLOWANCES STARTED 1 JANUARY 2019
The Chancellor announced that from 1 January 2019 a temporary increase, to £1 million, in the Annual Investment Allowance (AIA) for expenditure on plant and machinery. However transitional rules mean that the full amount will not necessarily apply to your business straight away.
For example, if your business year end is 30 June 2019 the maximum AIA would be £600,000 being 6/12 x the old £200,000 limit plus 6/12 x the new £1 million limit. The following year to 30 June 2020 would be entitled to the full £1 million.
NEW CAPITAL ALLOWANCE FOR COMMERCIAL BUILDINGS
The Autumn 2018 Budget announced a new 2% straight-line tax deduction for the cost of construction or renovation of commercial buildings and structures. HMRC have now issued a technical note setting out the details for the operation of the new relief. Unlike the old Industrial Buildings Allowance the new relief is available for the construction of shops and offices as well as factories and warehouses.
The new tax break is available where the contract is entered into and construction costs are incurred on or after 29 October 2019. The allowance is available to commercial property landlords as well as trading businesses. There are special rules for leasehold buildings which determine whether the landlord or tenant is entitled to the allowance.
Note that there are more generous plant and machinery allowances available for fixtures and fittings within the building and we can work with you to help you maximise tax relief. The AIA referred above would mean that there may be 100% capital allowances for equipment such as central heating and air conditioning.
PASSING ON THE FAMILY HOME
On 6 April 2017 new inheritance tax rules for passing on the family home came into play. This additional relief should be taken into consideration when drafting your Will and we can work with your solicitor to make sure your Will is tax efficient.
From 6 April 2017, an additional nil rate band of up to £175,000 is available on death where your residence is left to direct descendants. This is in addition to the normal £325,000 nil-rate band.
The additional relief is however restricted if your assets exceed £2 million. The rules are fairly complicated, but we can review your personal circumstances to ensure that you take advantage of all the relief that you are entitled to.
This additional inheritance tax relief is available even when you downsize to a smaller property.
For example, if a married couple currently live in a large house worth £500,000 and downsize to a flat worth £250,000, they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property. They could even sell up completely and move into a rental property, and still get the inheritance tax relief!
We are often asked about the tax consequences of a gift. Gifts can come in a number of forms and a number of different taxes can apply depending on the circumstances. The rest of this Technical Briefing looks at the main areas.
USE IT OR LOSE IT! - THE INHERITANCE TAX (IHT) ANNUAL EXEMPTION
Although not particularly generous at £3,000 per donor per annum, if this annual IHT exemption is not used by 5 April it is lost - it is also possible to carry the allowance forward one year if unused. This means that if the annual allowance for 2017/18 was not used, an individual may make gifts of up to £6,000 in 2018/19.
Where the gifts to individuals exceed the annual exemption, there may still be no inheritance tax to pay if they survive for 7 years following the gift, or if the gift falls within the £325,000 nil rate band.
GIFTS OUT OF INCOME ARE NOT TAKEN INTO ACCOUNT FOR IHT
A more generous inheritance tax exemption applies where the donor can prove that he or she is not transferring capital but is making gifts out of their income. There are detailed conditions for this exemption to apply, requiring records to be kept of income and expenditure in order to prove that there is sufficient surplus income each year to make regular gifts to the beneficiaries. We can of course assist you in keeping the necessary records to satisfy HMRC.
CERTAIN GIFTS CAN HAVE CAPITAL GAINS TAX (CGT) CONSEQUENCES
Although there will be no CGT on gifts of cash there may be CGT to pay where the gift comprises shares or other assets. This is because the transaction will generally be deemed to take place at market value between connected persons, even though no money changes hands.
The amount of gain would normally be determined by comparing the market value with the original cost of the asset gifted. Where the amount of this gain is within the annual CGT allowance (currently £11,700) then there would be no CGT payable.
Where the gift comprises shares in a trading company, or other business assets, it may be possible for donor and recipient to sign an election to hold over the gain so that no CGT is payable by the donor at the time of the gift. The effect of such an election is that the recipient of the asset will take over the donor’s original cost for subsequent disposal. Please get in touch with us if you are considering making gifts of shares or other assets, so that we can advise you fully of all the tax implications.
GIFTS OF UP TO £50 TO EMPLOYEES
From April 2016 new rules were introduced to allow employers to provide their directors and employees with certain “trivial” benefits in kind tax free.
The new rules were brought in as a simplification measure so that certain benefits in kind do not now need to be reported to HMRC as well as being tax free for the employee. 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 (or in anticipation of such services)
So this exemption will generally apply to small gifts to staff at Christmas, on their birthday, or other occasions. It also includes gifts of food, wine, or store vouchers.
Note that where the employer is a “close” company (meaning that the shares and ownership is controlled by 5 or fewer persons) and the benefit is provided to an individual who is a director or other office holder of the company, the exemption is capped at a total cost of £300 in the tax year.
Please feel free to contact us if you are considering taking advantage of this exemption.
GIFTS TO CHARITY
Where possible higher rate taxpayers should “Gift Aid” any payments to charity to provide additional benefit to the charity, and for the individual to obtain additional tax relief on the payment.
For example where an individual makes a £20 cash donation to charity, the charity is able to reclaim a further £5 from HMRC making a gross gift of £25. Where the individual is a 40% higher rate taxpayer, they are able to claim a further £5 tax relief under self-assessment, reducing their net cost to £15.
Note that the donor is required to make a declaration that they are a UK taxpayer, and those that have not suffered sufficient UK tax to support the Gift Aid amount will be taxed on the shortfall.
Remember that Gift Aid does not just apply to gifts of cash. Many charity shops will now sell your donated items on your behalf and are able to treat the sale proceeds as Gift Aided donations. It is also possible to gift quoted securities, and land and buildings, to charity and claim Gift Aid on the market value of those assets.