Tag: tax planning


Inheritance Tax – Could there be a better alternative?

Inheritance tax is enormously unpopular to say the least. A YouGov poll found that 59% of the public deemed it unfair, making it the least popular of Britain’s 11 major taxes. What’s more, the tax has a limited revenue raising ability, with the ‘well advised’ often using gifts, trusts, business property relief and agricultural relief to avoid paying so much.

As it stands, the tax affects just 4% of British estates and contributes only 77p of every £100 of total taxation. This puts the tax in the awkward position of being both highly unpopular and raising very little revenue. At the moment, the inheritance tax threshold stands at £325,000 per person. If you own your own home and are leaving it to a direct descendant in your will, this lifts the threshold by an additional £125,000 in the 2018-19 tax year (the nil-rate band), to £450,000. Anything above this is subject to a 40% tax.

Inheritance tax is seen as unfair because it is a tax on giving (while normal taxes apply to earnings) and it is a ‘double tax’ on people who have already earned – and been taxed on – their wealth.

However, the Resolution Foundation, a prominent independent think tank, has suggested an alternative.

They propose abolishing inheritance tax and replacing it with a lifetime receipts tax.

This would see individuals given a lump sum they could inherit tax free through their lifetime and would then have to pay tax on any inheritance they receive that exceeds this threshold. The thinktank suggests that by setting a lifetime limit of £125,000 and then applying inheritance tax at 20% up to £500,000 and 30% after that would be both fairer and harder to avoid.

They predict that a lifetime receipts tax would raise an extra £5 billion by 2021, bringing in £11 billion rather than the £6 billion inheritance tax currently raises. In a time of mounting pressure on public services like the NHS, this additional revenue would be welcomed by many.

Moving away from inheritance tax would reduce many of the current ways to manage the amount of assets an individual is taxed on upon death. For instance, people would not be able to reduce the size of their taxable estate by giving away liquid assets seven years prior to their death.

The Resolution Foundation also suggests restricting business property and agricultural relief to small family businesses.

The lifetime receipts tax is, at the moment, just a think tank recommendation and is not being considered by the government.

However, the government are trying to introduce changes to probate fees that would see estates worth £2 million or more pay £6,000 in probate fees, up from the current rate of £215. This proposal has seen little support in the House of Lords and the government may consider scrapping the tax.


Business Motoring – Tax Considerations

Fuel duty is down a penny at the pumps – but will it help businesses with transport costs?

The Chancellor’s surprise fuel duty reduction in the March Budget looks like good news, particularly alongside his cancellation of the fuel duty escalator. Yet with high oil prices and the January VAT increase, there’s plenty to consider when it comes to the cost of business transport.

Tax implications
Most commercial vehicles can be included in the Annual Investment Allowance (AIA), providing 100% first-year relief on up to £100,000 spent on plant and machinery.

Significantly, cars don’t qualify but, along with other vehicle purchases over the AIA, benefit instead from the Write Down Allowance (WDA), currently at 20% (capped at 10% for cars which emit over 160 grams of CO2 per kilometre).

Vehicles used exclusively for business aren’t liable for tax. If used privately, the employer must pay VAT on the purchase price while the employee pays for the private portion of running the vehicle, although VAT on repairs and maintenance can be reclaimed. Employers must also pay Class 1A National Insurance on motor vehicle and fuel benefits provided to employees.

There are tax concessions on maintenance and running costs, interest on bank loans used to buy a vehicle and rental payments for leased vehicles, while 15% is taxed for cars which emit over 160g/km of CO2. Purchasing low-emission cars (under 110g/km) offers a 100% write-off against tax.

Vehicle excise duty is also a consideration – there is a different rate for the first year after purchase (higher for cars over 130g/km, zero under this), aligning with standard rates from the second year on.

Greener is leaner
So fuel costs are far from the only consideration for business. While a penny less duty is welcome, the overall message from the government is that greener vehicles save tax

If tax avoidance is legal, why is it such a hot topic?

The traditional British view of tax evasion and tax avoidance is black and white: tax evasion is illegal, while tax avoidance is legal. In this time-honoured view, there was even a sense that, while tax evasion was clearly wrong, there was something laudable about tax avoidance: because, after all, “no one wants to pay more tax than he needs to”.

However, this traditional view has been taking quite a battering in recent years. Increasingly it seems, tax avoidance is coming to be regarded – by some, but by no means all – as morally reprehensible or even repugnant. This has helped popularise a third term, tax compliance. A tax avoider seeks to pay less than the tax due as required by the spirit of the law: a tax compliant tax payer seeks to pay the tax due but no more.

There are still plenty of defenders of the old view. Toby Young, writing in the Daily Telegraph in February 2011, said that “Tax avoidance isn’t morally wrong. It’s perfectly sensible behaviour.” He and those who share his views often talk about tax allowances such as are available through ISAs and pension plans, and even duty-free items on offer at airports. Who in his right mind would not take advantage of these perfectly legal opportunities? And if so, are they not avoiding tax?

It seems, though, that what has awoken the public ire is the sense of scale. Particularly when people are facing public spending cuts, tax increases and austerity, it sticks in the craw to find that the rich can apparently flout tax liabilities.

Two cases came to the fore in 2010, amongst other highly publicised examples: Vodafone and Sir Philip Green. Protesters said that Vodafone was let off a £6 billion tax bill by HMRC. Although both organisations denied this, Vodafone stores were shut by demonstrations by protesters.

If true, these allegations suggest that a large corporation is able to avail itself of treatment simply not available to most individuals – or most companies, for that matter. This question of scale goes far beyond the mention of ISAs and duty-free cigarettes, and seems to fly in the face of the spirit of the law.
Sir Philip Green is the owner of the Arcadia Group which comprises Topshop, BHS, Dorothy Perkins, Miss Selfridge and other stores. Green, the ninth-richest man in Britain, has also been the subject of protests against his alleged activities.

A representative of UK Uncut, an anti-tax avoidance organisation, wrote in the Guardian: “While Green lives and works in the UK, the Arcadia Group is registered in the name of his wife, Tina, who is resident in Monaco and so enjoys a 0% income-tax rate. In 2005 this arrangement allowed the Greens to bank £1.2 billion, the biggest paycheck in British corporate history, without paying a penny in tax. This completely legal dodge cost the British taxpayer £285m, enough to pay the salaries of 9,000 NHS nurses or the £9,000 fees of close to 32,000 students. In an age of austerity, the link between tax avoidance and public sector cuts becomes crystal clear.”

These allegations, whether true or not, became more inflammatory when Green was appointed to advise the government on how best to slash public services.

It seems obvious that this sense of indignation is not going to disappear: indeed, it is likely to grow. That being the case, high-profile figures may want to consider moving more towards tax compliance than tax avoidance when arranging tax planning.