Financial Monitor (February 2008)

Your Last Chance to Preserve Indexation Allowance
Those of you who have held second properties, a portfolio of buy to lets or shares in quoted companies from between March 1982 and April 1998 will lose a useful capital gains tax relief on 6 April 2008.  Indexation allowance removes the effect of inflation on capital gains tax calculations from 1982 to 1998 when the relief was frozen.

If a second property was owned in March 1982 and was worth £30,000 at that time, then the indexation allowance currently available is £31,400.  The loss of the relief will increase the capital gains tax payable on a future disposal of the property by £5,600.

This relief can be preserved, without incurring a capital gains tax charge now, by simply transferring the asset to a spouse.  They will acquire the asset at its original cost plus the accumulated indexation allowance.  Those affected need to act quickly to preserve this useful relief and it will benefit anyone who has property etc which they acquired before 1998.

Please contact Peter Newsam to discuss this matter.

Inheritance Tax Planning
Elderly clients who have surplus cash may like to consider investments on the Alternative Investment Market so as to minimise their exposure to inheritance tax.  Once the asset has been owned for two years it is exempt from inheritance tax and consequently 40% of the amount invested is saved.

There has always been a concern that such investments carry a high degree of risk.  It is true that they have greater risk than a deposit in a Bank but a number of Investment Brokers have funds which invest in a portfolio of such companies which spreads the risk and overall gains have been made.  Indeed, providing the two year ownership period is achieved, the investment would have to fall by 40% before an Estate would be worse off, assuming there are other assets to cover the available nil rate band.

Those considering Inheritance Tax planning should contact Peter Newsam.

Illegal Immigrants Working in the UK
New measures to deal with illegal migrants working in the UK come into force on 29 February.  The measures, contained in the Immigration, Asylum and Nationality Act 2006, include:

• a fine of up to  £10,000 per illegal worker for employers who employ illegal migrant workers
• a maximum two-year prison sentence and/or an unlimited fine for employers who knowingly employ illegal migrant workers.

Employers also have a responsibility to check the ongoing entitlement of migrant workers who have a time-limited visa (such as a working holiday visa) to ensure that their employees’ immigration status remains valid.

Business Journeys in Company Cars
There were two unfortunate typing errors in our article in the December edition of Financial Monitor and we are grateful to a reader for pointing these out to us.  The correct wording is as follows.  We have highlighted the words misspelt:

Where an employer provides a company car but the employee pays for the fuel, then the employer may pay a tax free mileage allowance for business journeys.  The new rates from 1 January 2008 are:

HMRC have announced that the rates will in future be reviewed twice a year on 1 January and 1 July and may be changed at other times if fuel prices fluctuate by 5% or more.

New Rules for Non-UK Domiciled Individuals
Those who are resident in the UK but not domiciled (either not born in the UK or not having established domicile in the UK) can currently pay tax on their income and gains arising outside the UK on a remittance basis, ie. only the income or proceeds of disposals actually brought back into the UK are taxed.

From 6 April 2008 such individuals will be required to claim the remittance basis for all income and gains unless the unremitted income and gains is less than £1,000 for the tax year in question.  Those who claim the remittance basis will lose their entitlement to personal allowances and the capital gains tax annual exemption.

Furthermore those who are resident in the UK but not domiciled for at least 7 out of the 9 years prior to claiming the remittance basis will only be eligible if they pay the ‘remittance basis charge’ of £30,000 per annum.  Whilst the new rules do not come into force until 5 April 2008 the period of residence in the UK prior to 5 April 2008 will be taken into account.

Individuals can choose each year whether or not they wish to be taxed on the remittance basis.  If they do not so wish, then they will be taxed on their worldwide income like all other residents.

HM Revenue and Customs have confirmed that those claiming the remittance basis will only need to disclose and pay tax on their remittances to the UK and will not need to provide details of all their overseas income and gains.

Business Rates on Empty Premises
The Rating (Exempt Properties) Act 2007 abolishes with effect from 1 April 2008, the 50% reduction in non-domestic rates currently allowed where the premises in question are unoccupied.

The Act provides a zero rate for empty property owned by a charity or a community amateur sports club (CASC) if it appears likely that the next use of the property will be for a charitable purpose or for the purposes of a CASC.

The other exemptions relating to domestic property are not affected by this legislation.

The exemption for unoccupied industrial premises will be limited to six months.  In addition:

• a permanent exemption will apply to vacant non-domestic buildings which are listed or enjoy statutory protection
• a permanent exemption will apply to non-domestic properties owned by companies in administration
• the entitlement to time limited reliefs will continue to be revived after the building has been occupied for six weeks.

Fuel benefit for Company Cars
The multiplier used to calculate the car fuel scale charge has been set at £14,400 since 2003/04 but is to be increased to £16,900 from 5 April 2008, a 17% increase.  This will significantly increase the cost of a benefit which is only cost effective for a small percentage of company car drivers.  If you wish to discuss more tax effective  alternatives please contact Peter Newsam.

Whilst every care has been taken in the preparation of these notes we can accept no responsibility for errors or omissions contained in them or for any loss arising from their use unless we have been consulted professionally prior to any action being taken.

UHY Wingfield Slater
Wellington House, 39 Wellington Street, Sheffield S1 1XB
Tel: 0114 275 1544  Facsimile: 0114 275 1366  Email: info@uhy-wingfieldslater.com  Web Site: www.uhy-wingfieldslater.com
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