December 2021

Technical and Client Update

In this issue

Christmas is the time for giving

Reporting Coronavirus (COVID-19) grants and support payments

Tax Investigation Service

Exam Success

Local charity support

Christmas opening hours

Christmas is the time for giving

Many were expecting the chancellor to announce changes to inheritance tax (IHT) in his Autumn Budget. However, like capital gains tax (CGT), the rules have remained broadly the same as last year. This means that each tax year individuals can make gifts of up to £3,000 in total and that amount is not included in their cumulative total of gifts for IHT. Even if the £3,000 annual exempt amount is exceeded, provided it is an outright gift to an individual, there would be no IHT payable provided the donor survives for 7 years.

Note that the gift of an asset other than cash may also give rise to a capital gain and CGT may be payable where the asset has increased in value. However, if you give away a business asset such as shares in your trading company, it is possible to make a claim to hold over the gain so that no CGT is payable. We can of course advise you on the procedure to follow.

Regular gifts out of your income is tax efficient

One tax planning opportunity that many thought the chancellor might restrict was the exemption from IHT for regular gifts out of an individual’s income. IHT is designed to tax transfers of value so if the donor can demonstrate that the gifts are made out of surplus income then the transfers are not taken into consideration for IHT. The exemption applies where there is a regularity to the payments, such as a standing order to pay school fees. HMRC will also require proof that the payments are paid out of post-tax income and do not limit the donor’s normal lifestyle. Detailed records are required, and we can advise on what information should be kept.

Trust planning opportunity still available

Another tax planning strategy that is still available despite rumours that it would be closed in the Budget is the CGT hold over relief when assets are transferred into or out of a trust.

This relief currently enables a non-business asset, such as an investment property, to be transferred without paying CGT. The relief applies where the transfer is subject to IHT, but where the value transferred is no more than the £325,000 IHT nil rate band, the transfer of the asset can take place without IHT or CGT being payable.

For example, Colin, a higher rate taxpayer, wants to gift his adult daughter Liz an investment property worth £300,000.

The property cost him £100,000 a number of years ago. If he were to transfer the property to Liz directly there could be up to £56,000 CGT payable on the £200,000 gain.

If the property is transferred to a trust for the benefit of Liz then the transaction would be immediately chargeable to IHT but covered by the £325,000 nil rate band. The resulting gain could then be held over so that no CGT is payable.

At a later date the property could be transferred from the trustees to Liz providing another opportunity to hold over the capital gain.

If this strategy may be of interest to you please get in touch with our Trust & Estate Support Services Team. You will also need to instruct a competent trust lawyer to set up the trust.

Gifts to charity

Where possible taxpayers should “Gift Aid” any payments to charity to provide a further benefit to the charity. Higher rate taxpayers obtain additional tax relief on the grossed-up amount donated.

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 he or she is able to claim a further £5 tax relief under self-assessment, reducing the net cost of their donation 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 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.

Christmas party

Last year many businesses put on a “virtual” Christmas party event and HMRC agreed that would be acceptable in order for there to be no taxable benefit for the employees involved.

There continues to be no taxable benefit for employees provided that all staff are invited, and the cost does not exceed £150 a head, inclusive of VAT.

If you have also had an annual summer event then provided the combined cost of the two events is no more than £150 a head there would be no taxable benefit in kind. If, however the summer event cost £80 a head and the Christmas party £100 a head, only one event would qualify for the exemption.

Christmas gifts of up to £50 per employee is also tax free

Remember that certain gifts to staff at Christmas are also tax free if structured correctly. Employers are allowed to provide their directors and employees with certain “trivial” benefits in kind tax free. This exemption applies to small gifts worth no more than £50 to staff at Christmas, on their birthday, or other occasions and includes gifts of food, wine, or store vouchers.

Reporting Coronavirus (COVID-19) grants and support payments

HMRC have updated their guidance on ascertaining whether a business needs to include a Covid-19 grant or support payment on a tax return.

A new section covering company tax returns has been added, which explains that grants and payments to support businesses during the coronavirus are taxable and need to be declared on returns. The guidance can be found here.

Tax Investigation Service

HMRC can target anyone who submits a tax return and their highly efficient ‘Connect’ software is accessing and trawling through financial information right now. The powerful system can trace even the smallest discrepancy in spending or earnings, prompting an investigation into individuals and businesses.

With a budget deficit of over £300 billion, we fully expect HMRC to raise more enquiries to increase tax revenue to plug the hole left in the Government’s finances caused by Covid-19. For those who have relied on a Covid-19 support scheme such as the CJRS (furlough scheme), it is likely that HMRC will be looking a lot more closely at tax returns, payments and compliance history. Tax and VAT repayments will also be checked more rigorously alongside the usual full tax investigations.

Humphrey & Co has offered a Tax Investigation Service (TIS) to our clients for several years now, and we invite all our clients to share in the protection offered. Tax investigations can be costly. Investing a small amount into our Tax Investigation Service now means that you will receive complete support if HMRC targets you, at no additional expense.

We believe that we know you and your business best and we want to be there for you when you need us most. We will manage your case from start to finish, reducing stress and providing peace of mind.

Please visit our website for further information on the Tax Investigation Service and how it can protect you.

Exam Success

We are pleased to announce that Joe de Vivo and Lauren Maclaren have passed their final exams to become a fully qualified Accounting Technician (AAT). Joe and Lauren joined the firm in 2018 and work for Partner Ian Simpson in our Hove office, assisting with his wide portfolio of business and healthcare clients.

We are delighted to have yet more exam success within the firm and congratulate Joe and Lauren on all their hard work in achieving this qualification.

Local charity support

During 2021 we chose to continue supporting the Eastbourne Foodbank and Hangleton & West Blatchington Food Bank. We are very appreciative to all members of our staff who have helped to raise money for these very worthy causes despite the restrictions caused by the pandemic.

For more information visit:
www.eastbourne.foodbank.org.uk and www.hangletonfoodbank.org

The firm is pleased to announce that for 2022 we will be supporting

Pedal People in Brighton and Wheels for All in Eastbourne.

www.pedalpeople.org.uk

cycling.org.uk/locations/eastbourne-wheels-for-all

We will update you on the funds raised during 2022 in future news updates.

Christmas opening hours

We will close at 11.30am on Thursday, 23 December 2021 and reopen on Tuesday, 4 January 2022.

Friday24 DecemberClosed
Monday27 DecemberClosed
Tuesday28 DecemberClosed
Wednesday29 DecemberClosed
Thursday30 DecemberClosed
Friday31 DecemberClosed
Monday3 JanuaryClosed
Tuesday4 JanuaryOpen

On behalf of everyone at Humphrey & Co we would like to wish you a very Merry Christmas and a happy, healthy and prosperous 2022.