Member Since: 12th Jul 2003
25th Jan 2008
Fully compensates for loss of taper? I think not
"This fully compensates small businesses (as I understand small business) and to some extent the legendary serial entrepreneurs for the loss of business taper relief after 5 April."
Allow me to differ. I'm not convinced that the newly-announced "entrepreneur relief" does "fully compensate" for the loss of taper. The assertion that it does is dependent on the unstated assumption that there is no annual exemption available.
Take a pre-5 April 2008 example. Gains are £36,800. Taper removes 75% of this from charge, leaving £9,200 which is entirely covered by exemption.
Post-5 April 2008: Gains again £36,800. Entrepreneur relief removes 4/9 of this from charge, leaving £20,444. After exemption (assume same as before), we have £11,244 taxable at 18%.
So, an entrepreneur with relatively minor gains sees a nil tax liability rise to over £2,000 while supposedly facing the same "effective" 10% rate of tax....
Virtually all the debate on the proposed 18% rate, and now the entrepreneurs' 10% rate, has ignored the effect of the exemption.
This is surely wrong, as in my experience very few clients will not have an exemption available against sales of business assets. After all, where else would they use it? For most individuals other than buy-to-let landlords, the only thing they ever sell which ends up subject to CGT is their business. What are the alternatives: cars (exempt); home (exempt); chattels (exempt); quoted shares (in the ISA).... In my view, every comparison of CGT regimes for the disposal of shares should take account of the effect of the exemption, and on that basis none of the alternatives prove to be as favourable as business asset taper.
On a related subject, what about shareholdings split between husband and wife? It's not clear from the information out so far, but it looks as though a shareholding spouse who doesn't work in the company would qualify for the £1M relief. Which further skews this new measure away from fully restoring the benefits of taper...
To conclude, the headlines sound good, but the removal of taper is still a blow to the entrepreneur, and disproportionately so for ones with relatively small levels of gain.
15th Nov 2006
Tail wagging dog?
"the watchdog ... conclud[ed] that there is "no case for a complete rebuild of the cheque clearing system". It said cheques have seen a rapid decline in use over recent years"
Might it not be the case that cheques are in decline precisely because the clearing system is so useless? The OFT is missing the point: reform the clearing system and people will start using cheques again.
10th Oct 2006
IHTA 1984 ss. 4 and 200
On death, the deceased is treated as making a transfer of value, and the amount transferred is an amount equal to the value of his estate(s.4); the estate includes his free estate and his settled estate (s.5).
From that we can see that there is no question of tax being due on the separate transfer of the various parts of the estate - there is a single transfer of value with a single liability. It is essentially fungible, so that no part of the liability (e.g. the nil-rate band) can be identified as attaching to any part of the overall estate.
Section 200(1)then sets out that various persons are liable for the tax "so far as the tax is attributable to..." the value of the relevant interests immediately prior to death.
Putting this together we have the standard methodology for allocating tax on the death estate: calculate total tax, and apportion between LPRs and trustees pro rata the values of their portions at death.
9th Jun 2006
Apart from an embarassing typo:
"The rules for deductions for the self-employed are, in a nutshell, that the expense must be:
Wholly and necessarily incurred for the purpose of the business, and ...
You meant, of course, to say "exclusively".
Dormitat et Homerus...
21st Mar 2006
No representation without taxation?
"we seem to know that although a majority of people say that they want to pay more tax for better services, they don’t actually vote that way"
An alternative interpretation may be that many people are willing to vote to make other people pay more tax for better services...
(1) A flat tax (if implemented as brainlessly as most of the proposals we have seen to date) would favour the wealthy at the expense of middle-income individuals. Guess who's more likely to vote for a flat tax...?
(2) Tax credits (aka benefits) tend to favour the lower-paid. I wonder why they are less popular with the wealthy...?
(3) Most of the campaigning pressure to reform/abolish IHT seems to come from homeowners.
10th Feb 2006
I don't actually disagree with you too much on the "scrap PAYE" idea. My only real fear is that the present managerial style at HMRC would not lead to a simple tax return/reclaim format, but rather to a complex SA100-clone which would deter people from getting their overpayments back.
The real problem, as we all agree, is the underlying complexity of the charging system. HMRC would no doubt design a form which could trap all the complexities of ITEPA, just in case...
If we could simplify the tax charging legislation (fat chance!), we could simplify the collection procedures. But probably not until.
8th Feb 2006
Some thoughts on Adam's points
(1) Not a good idea. It's the kind of system the USA has, and it means that every citizen in employment has to file a tax return (or a tax repayment claim, which is essentially the same thing). Unrepresented, indolent (or just plain thick) taxpayers would end up paying too much as a matter of course (just like Rebecca's example of the BR coded dinner lady).
(2) Much better idea - following the lead of Australia. It wouldn't even be too hard to implement, as we already have a rudimentary form of FBT: it's called Class 1A NIC!
(3) Couldn't agree more! I am currently engaged in a process of trying to get all the SA income stripped out of my clients' codes (with their active co-operation, I should add).
24th Jan 2006
How to prejudge an issue?
As Anne comments, HMRC "explain that, as they are seeking leave to appeal the judgment, it would be premature to rewrite the guidance"
Why? Surely such an attitude reflects the slightly arrogant assumption that (i) HoL will grant leave to appeal and (ii) such leave being granted, HMRC will inevitably prevail.
I would (modestly, of course) propose a radical change in attitude by HMRC. As primarily a public administration body charged (inter alia) with running the self assessment system, the Board should be issuing disclosure guidance which refects the law as it stands.
As a litigant in a technical dispute, the Board should of course exercise its best endeavours to win its case, but that exercise should not impinge upon its primary role.
Cynically, I note that HMRC wasted no time in issuing and updating guidance during those periods when their view constituted the law... no matter how premature that may have turned out to be in hindsight!
12th Dec 2005
The most disappointing element of the pre-Budget statement, to me, is the element of hysterical over-reaction.
The existing legislation in FA 2004 provides for tax charges (up to 70%) if a member actually uses a scheme asset. Surely that is enough to cope with "fine wines, classic cars and antiques"...? Not to mention holiday homes here and overseas.
Why, then, does Gordon feel it necessary to impose an additional, identical set of charges on the actual investment - regardless of whether the asset is actually used by a member - and upon any income it brings in?
As for the business of "deeming" an income if the investment doesn't actually generate one... why not go the whole hog and reintroduce old-style Schedule A?
As SOGG and others point out (and as I do regularly on the lecture circuit), very little SIPP money was ever going to end up in residential property in the real world. For such as did, the original tax regime was quite robust enough. This whole thing smacks of a Chancellor who has no long-term idea of what he is really trying to achieve, and who is just making it up as he goes along.
17th Nov 2005
Best option is the "SSAS-like SIPP"
Nichola's article presupposes that all SIPPs are alike. That is, of course, not the case.
Company directors can establish their own SIPP (what HMR&C term a "SSAS-like" SIPP)under private irrevocable trust, without the need for a life company, bank or similar financial body (FA 2004 s.154(1) for post A Day setups, or TA 1988 s.632(1A) for current setups). No actuaries are required, and the control lies - as with a SSAS - in the hands of the members.
This type of SIPP has all the advantages of a SSAS and none of the pre A Day disadvantages. At present, they are far cheaper than a SSAS both to establish and to run; I can't see that changing significantly post A Day.
Problem is, most people don't know this - hardly surprising, since the "traditional" SIPP providers have no incentive to publicise its existence.
My own clients have been establishing such SIPPs since 2002 (the possibility only arose in 2001).
The choice is not polarised between SIPP and SSAS: consider the hybrid which offers best of both worlds.