Kilsby Williams

The Chancellor has just announced a much welcomed new Capital Gains Tax ("CGT") relief from April 2008, in response to the backlash against his pre-budget proposal to abolish Business Asset Taper Relief. The removal of business taper dealt a major blow to people holding business assets and currently enjoying a tax rate as low as 10%.

The new CGT relief will operate in a different format to business taper but will protect many holding business assets. The proposed new relief in summary is:

-     Gains qualifying for the relief can be:

       -   gains made on the disposal of all or part of a business;
       -   gains on the cessation of a business; or
       -   gains by certain individuals involved in running a business.

-     The first £1m of a gain qualifying for relief will be charged to tax at an effective rate of 10% and any excess will charged at the new standard
       rate of CGT of 18%.

-     More than one claim may be made during a lifetime, with a lifetime total of qualifying gains of £1m.

-     Relevant conditions have to be satisfied for a period of one year to qualify.

The draft legislation is yet to be published. In view of the uncertainty regarding conditions attached to the new relief, if you are in the process of disposing of a business asset or considering doing so in the near future, we would recommend you proceed with the disposal before April. This will ensure you take advantage of the business taper relief that you know you can get now.

Those individuals holding non-business assets will still benefit from the new rate of 18% being introduced from April 2008 and are advised to consider carefully their position before selling non-business assets prior to April 2008.

If you require any further advice in respect of the current proposals or are currently planning a disposal, please do not hesitate to contact us.

February 2008

For many years companies have routinely put directors' bonuses into the accounts even when the decision to pay those bonuses is perhaps taken after the year end. For many years this has been accepted by H M Revenue & Customs.

There is clear evidence that H M Revenue & Customs is now launching a new attack on this. Its challenge goes along these lines: strict rules say that a company's accounts should include as expenses only those items incurred at the year end. Provision for things which happen after the year end can go in but only if there was a practical obligation at the year end to make the payment. That means that either there was some sort of contractual commitment or there was a regular practice such that the company was committed to making payment. H M Revenue & Customs is now looking closely to see whether directors' bonuses do comply with these rules. If they do not then it will say that relief is due later. This can hurt cash flow. If the company's tax rates change there can be a permanent loss.

It is henceforth important to have some evidence that at the year end the company was committed to paying bonuses. What will be appropriate will vary with each case. Please contact us if you want to consider what might best be done.

March 2007

H M Revenue & Customs has introduced a much welcomed initiative to benefit businesses’ VAT and cash-flow position with an increase to the cash accounting turnover threshold. Businesses with annual turnover of up to £1.35m (previously £660k) can now benefit from the cash accounting scheme.

The scheme effectively allows businesses to defer paying VAT until they have received payment from their customers.

If you would like to benefit from this scheme or require further advice, please do not hesitate to contact us.

May 2007

From 11 April 2007, expenditure on certain business premises that have been vacant for one year or longer may qualify for 100% capital allowances in many areas in south Wales.

The increased allowances are available on capital expenditure that would normally qualify for capital allowances on the renovation or conversion of business premises. Further relief may be available for renovation expenditure on commercial buildings (including offices and shops) which do not normally qualify for capital allowances.

If you require further information about the relief available or the qualifying areas, please contact us.

June 2007

In the past H M Revenue & Customs has always made a distinction between trading companies and investment companies on, amongst other things, pensions. Changes to pension legislation have removed the anomalies on pensions.

- Your company can contribute significant amounts into your pension per year

- You can contribute up to 100% of remuneration (exclude dividends) per tax year, with an over-riding maximum of £215,000

Why would you consider pension contributions?

- Company contributions can reduce corporation tax and do not attract company or personal national insurance.

- Personal contributions can be offset against your highest rate of income tax.

- Assets held within a pension fund are free of inheritance tax, whereas assets held in an investment company are fully chargeable to inheritance tax.

- Assets bought and sold within a pension fund are free of capital gains tax.

- Very little income tax is settled within a pension fund.

- Pension funds can hold commercial property.

- Pension funds can now purchase assets (ie commercial property) from ‘connected parties’

The above opportunities with careful financial planning can lead to significant tax savings for individuals who own investment companies.


November 2006

KEY CHANGES TO PENSIONS THAT EMPLOYERS HAVE TO ADDRESS

The Department for Work and Pensions has published regulations that relate to Occupational Pension Schemes.

The regulations set out key points which impact on these schemes and Trustees will need to be aware of how their pension scheme will be affected.

There are various parts of this legislation but the key areas that will impact employers will be:

Appointment of Member Nominated Trustees

Between now and October 2007, any occupational scheme that has 12 lives or more must find and put in place Member Nominated Trustees. Previously, schemes could elect to opt out of appointing member nominated trustees and this has generally been taken up by employers.

The option to opt out is not available after October 2007.

Trustees Knowledge and Understanding

The Pensions Act 2004 also lays more responsibility on the role of the Trustee (including any new Member Nominated Trustee). The Trustee will have to gain a much higher level of knowledge to fulfil this role.

The details of this knowledge are laid out in the Pensions Regulator’s “Code of Practice for Trustee’s Knowledge & Understanding.” This is a 62 page document that we can make available to you.

This will be extremely onerous on any Trustees especially newly appointed ones that have no experience in the role.

Introduction of Scheme Administrator

The concept of the Scheme Administrator, also introduced by the Pensions Act 2004, will mean that Trustees have to take on new responsibilities. These involve detailed online reporting on an annual basis and additional reporting on a three monthly basis will also need to be submitted.

The majority of these reporting commitments can be delegated to an “authorised practitioner”, which most Trustees will look to delegate to the product provider of the scheme. However, not all product providers will offer to be the Scheme Administrator.

The Next Steps

Taking into account these three key changes and the changes that have been introduced by the simplified regime effective from 6 April 2006, we think you that you should be analysing your scheme and determining how it will be effected by both the Pensions Act and the new regime changes. Industry commentators expect many occupational money purchase schemes to be wound up and replaced by the less onerous stakeholder or personal pensions.
 
As fee based independent financial advisors, Kilsby Williams & Gould is well placed to discuss the impact of these changes on your company pension scheme and review other options.


May 2006

You will remember the furore that was caused by Gordon Brown’s proposed changes. After much lobbying these were enacted in a somewhat less damaging form. We want to set out the outlines for you here.

Briefly, the new legislation makes the position for Trusts under inheritance tax very much worse. It does this by moving many sorts of Trusts into an existing regime with the result that:

-  Lifetime transfers into Trusts are likely to be taxable to inheritance tax; and

-  Trusts are likely to be taxable at 6% on their value every ten years.

The following summary distils some very complicated legislation down to its bare bones:

Discretionary Trusts

These are already under the new tax regime. Everything else is being put under that same rather unattractive regime. Thus it follows that a Discretionary Trust should not need any review as a result of this legislation.

Accumulation and Maintenance Settlements

These are usually set up for grandchildren. Typically, the grandchildren can have the income up to age 25 and then they either get a right to the income or to the income and the capital. These Trusts have potentially been legislated against and any existing Trusts should be reviewed.

Life Interest Settlements

These are settlements where somebody has a right to the income but not to the underlying capital. They are often set up by Will for surviving spouses or young adult children. Existing Trusts should be protected from the new regime until there is a change of life tenant. There is an opportunity prior to April 2008 for an existing life tenant to step aside for a successive one. These are somewhat rare circumstances but Trusts with elderly life tenants should consider their position.

Trusts arising from your Will

Most arrangements for Trusts for surviving spouses should not suffer under the new legislation. But long-term arrangements for children and grandchildren are likely to be affected. Certainly, we would recommend a review here. 

Future planning

It is broadly true to say that large settlements will be much more difficult to do in the future. The legislation forces gifts within families to go to individuals in their own right and not be sheltered behind Trusts. This can be a very real problem where parents do not know – because they are young – how things will turn out with their children.


April 2007