‘Tis The Season for Gifts… And Taxes…
Christmas Is The Time For Giving
If you are thinking about making gifts this Christmas, you should take advantage of the various inheritance tax (IHT) exemptions and reliefs available to you. But you should also bear in mind that certain gifts can also have capital gains tax (CGT) implications.
The IHT Annual Exemption – Use It Or Lose It!
Although not particularly generous at £3,000 per donor per annum, if your annual IHT exemption is not used by 5 April, it is lost, although it is possible to carry your allowance forward one year if unused. This means that if your annual allowance for 2017/18 was not used, you may make gifts of up to £6,000 in 2018/19. So, where gifts to individuals exceed your annual exemption, there may still be no inheritance tax to pay, if they survive for 7 years following the gift or the gift falls within the £325,000 nil rate band.
Gifts Out of Income Are Not Taken Into Account For IHT
A more generous inheritance tax exemption might apply to you if, as a donor, you can prove that you are not transferring capital, but making gifts out of your income. In fact, there are detailed conditions for this exemption to apply, requiring that you keep records of your income and expenditure, to prove that you have sufficient surplus income each year, to make regular gifts to beneficiaries.
Certain Gifts Can Have Capital Gains Tax Consequences
Although you may not have to pay any CGT on gifts of cash, you may well have to pay it where gifts include shares or other assets. This is because the transaction will generally be deemed to take place at market value, between connected persons, even though no money changes hands. The amount of the gain would normally be determined by comparing the market value, with the original cost of the asset gifted. Where the amount of this gain is within the annual CGT allowance (currently £11,700), then you wouldn’t have to pay any CGT. Where your gift comprises shares in a trading company, or other business assets, it may be possible for you, as a donor and recipient to sign an election, to hold over the gain, so that no CGT is payable by the donor, at the time of the gift. The effect of such an election, is that if you are the recipient of the asset, you will take over the donor’s original cost for subsequent disposal.
Not All Shares Qualify For CGT Entrepreneurs’ Relief Now
As the result of changes announced in the Autumn Budget, and now incorporated into the latest Finance Bill, if you have any shares, not all ordinary shares necessarily qualify for the 10% CGT entrepreneurs’ relief rate on disposal. As mentioned in our last month’s Autumn Budget Special post
, the definition of a personal company was tightened up. So, from 29 October, if you are a shareholder, you must have entitlement to at least 5% of the company’s ordinary share capital, voting rights, profits available for distribution, and assets available on the winding up of the company. As a shareholder, as before, you will also need to be an officer or employee of the company. Subsequently, this change means that certain “alphabet” and other shares with limited rights, may no longer qualify for CGT entrepreneurs’ relief when disposed of.
Gifts Of Up To £50 To Employees
From April 2016, new rules were introduced to allow you, as an employer, to provide your directors and employees with certain “trivial” benefits in kind, tax free.
The new rules were brought in as a simplification measure, so that, if you are considering certain benefits in kind, they now do not need to be reported to HMRC, as well as being tax free for your employee. You must of course meet a number of conditions to qualify for the exemption.
Conditions for the exemption to apply:
• The cost of providing the benefit does not exceed £50
• The benefit is not cash or a cash voucher
• The employee is not entitled to the benefit as part of any contractual obligation, such as a salary
• The benefit is not provided in recognition of particular services performed by the employee, as part of their employment duties (or in anticipation of such services)
So this exemption will generally apply to your small gifts to staff at Christmas, on their birthday, or other occasions and includes gifts of food, wine, or store vouchers. Note that as an employer, if you are a “close” company, and you are providing the benefit to an individual who is a director or other office holder of the company, the exemption is capped at a total cost of £300 in the tax year.
Gifts To Charity
Where possible, if you are a higher rate taxpayer, you should “Gift Aid” any payments to charity, to provide them with an additional benefit and for you, as an individual, to obtain additional tax relief on the payment. For example, where you make a £20 cash donation to charity, the charity is able to reclaim a further £5 from HMRC, making a gross gift of £25. Where you are a 40% higher rate taxpayer, you are able to claim a further £5 tax relief under self-assessment, reducing your net cost to £15. Note that you, as a donor are required to make a declaration that you 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 your 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, land and buildings, to charity and claim Gift Aid on the market value of those assets.
Collecting Unpaid Tax For 2017/2018 Through Your PAYE Coding
Under certain circumstances, you can arrange the collection of unpaid tax through your PAYE coding, rather than making a balancing payment on 31 January. This will depend upon the amount outstanding, and the amount of income taxable under PAYE. But you must submit your return to HMRC, online, before 30 December 2018, for the 2017/18 tax to be collected, by amending the 2019/20 PAYE coding.
Diary Of Main Tax Events – December 2018 / January 2019
|01/12/2018||Corporation tax for year to 28/02/2018 unless quarterly instalments apply|
|19/12/2018||PAYE & NIC deductions, and CIS return and tax, for month to 5/12/18 (due 22/12 if you pay electronically)|
|30/12/2018||Deadline for filing 2017/18 tax return online in order to request that HMRC collect outstanding tax via the 2018/19 PAYE code|
|01/01/2019||Corporation tax for year to 31/03/2018|
Unless quarterly instalments apply
|19/01/2019||PAYE & NIC deductions, and CIS return and tax, for month to 5/1/19 (due 22/1 if you pay electronically)|
|31/01/2019||Deadline for filing 2017/18 self-assessment tax return online and paying your outstanding tax for 2017/18|
|01/02/2019||Corporation tax for year to 30/04/2018|
Unless quarterly instalments apply
Lotuswise Chartered Accountants and Business Consultants can support your business with the complexities of these tax and payment rules and help you succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.