Tips,Advice and News

Pensions are brilliant for tax saving!

There were plans to change Pensions and make them like ISA’s where the tax relief comes at the end not the beginning but fortunately George Osborne changed his mind. Let’s hope he leaves pensions alone! Here are some of the benefits:

  1. Pensions – Up to £40k can be paid in to a pension scheme by your employer and you can use carry forward to pay in even more
  2. IHT - Generally the pension pot is held in a discretionary trust, which means it isn’t taxed on death.
  3. Property - Your pension can own Commercial Property, including your own business premises or shops, offices and industrial units
  4. In Specie Transfers - Currently means that you can claim tax relief of between 20% and 45%.
  5. Once the assets are in a pension scheme transfers ‘in specie’ between schemes are tax free (no capital gains) and no SDLT.
  6. When you retire you get 25% of your pension fund tax free.
  7. SSAS Pensions can lend money to their scheme employer and the scheme employer can borrow from a SSAS subject to passing the 5 key tests.

Can a Buy to Let Investor claim Incorporation Tax Relief?

In summary Incorporation Tax Relief allows Sole Traders to postpone/hold over a gain by transferring all their business assets into a limited company in return for shares

The key problem area is that Property Investment is generally not considered to be a Trade.
Some of the issues were resolved in EM Ramsay v HMRC [2013] UKUT 0226 (TCC)
Mrs Ramsey carried out the following activities

  1. Mr & Mrs Ramsey personally met potential tenants
  2. Mrs Ramsey check the quarterly electric bills
  3. Mrs Ramsey arranged insurance
  4. Mrs Ramsey arranged and attended to maintenance issues (drains)
  5. Mrs Ramsey and her son maintained the garages and cleared rubbish
  6. Mrs Ramsey dealt with post
  7. Mrs Ramsey dealt with fire regulation issues
  8. Mrs Ramsey arranged for a fence to be erected
  9. Mrs Ramsey created a flower bed
  10. Shrubs were pruned and leaves swept
  11. The parking area was cleared of weeds
  12. The flag stones were bleached
  13. Communal areas were vacuumed
  14. Security checks were carried out
  15. She took rubbish to tip
  16. She cleaned vacant flats
  17. She helped elderly tenants with utilities

This work equated to at least 20 hours per week and Mrs Ramsey had no other employment.

It is because she did the work herself that her property investment was considered a ‘Business’ and eligible for Incorporation Tax Relief.

There are many reasons why residential property investors are now rushing to incorporate, the biggest reason being the Restriction of Mortgage Interest Tax Relief.

The Finance Bill set out plans to restrict individuals on claiming mortgage interest as a cost against their property investment income, for individuals the restrictions are phased in from April 2017.

For a 20% tax payer that’s fine but for a higher rate taxpayer it’s a disaster that will lead to them paying a lot more tax.

These rules will not apply to Companies, which will continue to claim full relief.

When you sell or give a residential property to your Company you will incur Capital Gains Tax if you make a gain, it’s for this reason many investors and their advisers believe that they are ‘automatically’ entitled to claim Incorporation Tax Relief, but in many cases Incorporation Tax Relief will NOT be available!

Are you ready for Workplace Pensions?

The tidal wave of small businesses going through Workplace Pensions has now started with the peak being in 2016/17.

So what do you need to do before you stage?

  1. Find out your staging date, this is the date when your obligation under Auto Enrolment will start, the Pension Regulator calculator is a good place to start
  2. Nominate a person to be the Pension Regulators key contact and register their name with the Regulator
  3. Draw up a Project Plan and consider whether you need help (60% of companies currently staging have decided they do need help! and most businesses will start by asking their accountant to help with project management)
  4. Choose a Pension Provider – Nest, Now Pensions and The Peoples Pension are the 3 largest
  5. Make sure your Payroll can provide the analysis

Good News for Employers - £3k NI Allowance

From April 2016 the employment allowance is being increased by £1000 to £3000. Eligible business and charities will be able to claim a greater reduction on their employer NICs liability.

However to ensure that the NICs employment allowance is focused on businesses and charities that support employment, from April 2016, companies where the director is the sole employee will no longer be able to claim the employment allowance. If a company has an employees other than directors, who earn above the lower earnings limit (£5824 for 2016-17), then the £3000 employment allowance would be available.

2016 Budget- Key Points for Small Businesses

  1. It was announced in the 2015 Summer Budget that the rate of corporation tax would be reduced to 18% by 2020. However, it was announced in the 2016 Budget that the rate will now be reduced by an additional 1% to 17% by 2020.
  2. It has been announced that from April 2017 small businesses occupying property with a rateable value of £12,000 or less will pay no business rates. This doubles the current rateable value amount from £6,000 or less.
  3. Class 2 national insurance contributions are to be abolished from April 2018.
  4. The income tax threshold is being raised to £11,500 by 2017.
  5. The higher rate tax threshold is being raised from £43,000 to £45,000 in the tax year 2017/18.

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