Introduction to Stamp Duty & Stamp Duty Land Tax

Stamp Duty is a type of tax you pay when you buy land or shares. You pay a Stamp Duty Land Tax when you buy property and Stamp Duty Reserve Tax when you buy shares.
You pay Stamp Duty Land Tax on such properties like houses, flats , other buildings and land. There is a threshold of 125,000 which is tax free. If the land or property is up to 250,000 than you pay a rate of 1% Stamp Duty Land Tax. From 250,001 to 500,000 there is a 2% tax rate and a rate of 4% for am amount exceeding 500,001.
If you want to buy a property which is designated by the government as a disadvantaged property than you do not have to pay any Duty Land Tax for an amount of 150,000 or less.
You pay Stamp Reserve tax when you buy shares. There is a tax rate of 0.5% of the value of the shares.
Stamp duty is payable when the shares are transferred to you using a stock transfer form and Stamp Duty Reserve Tax (SDRT) when the shares re transferred to you electronically,also known as paperless transactions, without using a stock transfer form.
When you buy shares from a stockbroker the transaction is usually completed electronically through the electronic settlement and registration system known as CREST. CREST automatically deducts the Stamp Duty Reserve Tax and sends it to the HMRC. If you do not pay for shares using CREST than you have to pay the stamp duty tax to Inland Revenue yourself.
You do not have to pay UK Duty Stamp or SDRT if you buy foreign shares. There will probably be foreign taxes involved that you need to carefully consider.
When buying either properties or shares, carefully tax planning must be considered. Taxfile’s tax accountants in South London always make sure you never pay more than your minimum tax liability.

Is Your Estate Excepted From IHT?

(for UK domiciliaries only)

From 6 April 2004, there are two types of estates are qualified to be excepted from IHT for UK domiciliaries.

1. Low valued estates
When the total value of estates does not exceed the inheritance tax threshold, then those estates do not suffer IHT.

Which threshold should be applied is determined by the date of deceased’s death. If the death was between 6 August and 5 April in any one tax year, or between 6 April and 5 August with the grant of representation taken after 5 August, you should use the threshold of that tax year in which the death happened. If death was between 6 April and 5 August, but the grant of representation was taken before 5 August, the threshold should be used is the one from the tax year of one year earlier.

2. Exempt estates
No IHT is payable when either Spouse/Civil Partners Exemption or Charity Exemption applies and the gross value of the estates is less then £1 million.

Spouse/Civil Partner Exemption can only be deducted if both spouses or civil partners have always been domiciled in the United Kingdom, if one of the spouse/ partners is domiciled outside of UK at the time of transfer of estates, the exemption is limited to £55000. And charity exemption can only be deducted if the gift is an absolute gift to the organisation concerned.

Both types of estates must be subject to the following conditions in order to be exempted from IHT:

• the deceased died domiciled in the United Kingdom,
• if the estate includes any assets in trust, they are held in a single trust and the gross value does not exceed £150,000 (unless the settled property passes to a spouse or civil partner or to a charity when the limit is waived),
• if the estate includes foreign assets, their gross value does not exceed £100,000,
• if there are any specified transfers(transfer the estate to somebody as a gift, the value does not exceed £100,000 if the transfer is within 7 years of death, and this transferred estate does not get involved into any trust), their chargeable value does not exceed £150,000, and
• the deceased had not made a gift with conditions attached
• the deceased did not have an alternatively secured pension fund, either as the original scheme member or as the dependant or relevant dependant of the original scheme member

Well financial planning with the help of Taxfile will significantly save your IHT, just feel free to visit our offices in
South London to get professional advice from our
tax experts.

Something You Need to Know about Principal Private Residence Relief to Avoid CGT

Before you start the game of property investment, be aware that the Inland Revenue is always interested in the profit you make by selling your properties.

But the sale of your main home will rarely result in any Capital Gains Tax (CGT) liability, because of the principal private residence (PPR) exemption.

Determination of Principal Private Residence
It is not necessary to have lived in it as the only or main residence for all the period of ownership, but it must have been occupied for at least part of the period of ownership as your only or main residence.
HM Revenue and Customs state that to qualify, “residence is one of quality rather than the length of occupation which determines whether a dwelling-house is its owner’s residence”. A dwelling house must have become its owners home at some point during ownership even though no minimum qualifying period of occupation is required to qualify for the relief.

•Nomination of Principal Private Residence
The nomination is made by sending a formal election to your tax office within two years of purchasing the second home. Once made, the nomination can be changed, and be backdated by up to two years, and can even be done after you have sold one of the two homes, which can lead to some useful tax planning. If you acquire a second home and do not make a nomination within the two year time limit, your main residence will be decided by the Revenue as a question of fact, which could mean you miss out on some valuable opportunities to claim relief.
Clearly, by careful planning with the PPR election, significant tax savings can be made, wherever there are two homes, nomination can be made to ensure that both are classed as qualifying main residences at some point in order to shelter the last three years from tax on both properties. Ordinarily, the property that is expected to realise the largest gain on sale will be the property that retains the nomination for the largest duration.
At Taxfile in Tulse Hill, South London you can pop in to see one of their tax advisers and for a reasonable fee they will recommend the best solution in order to minimize your tax liability.

Casual labour / subcontracting

It is not widely known that you must establish someone’s status when you pay them any money for helping you with their labour.The trick or tip is to get them to supply their unique tax reference number. They should invoice you for their services . If they don’t offer an invoice, it’s best to issue a self billing invoice for them to sign at the time you hand over the money.
Lots of people will offer their services to you if you have work which needs doing. In some industries it’s well regulated such as within the Construction Industry Scheme (CIS).
Most labour suppliers will be registered as self employed or a partnership and frequently these days as a limited company.
Each of them will have its own unique tax reference number (UTR).
They are not obliged to put this on their invoice to you.
You must request it if you fall into the classification termed by the government as a contractor or subcontractor.
There is a useful helpline for Construction Industry Scheme if you are not sure about your position and always try to get professional tax advice from companies like Taxfile in South London where their tax accountants make sure to sort out all your tax affairs.
If for example you are doing up a buy to let then you do not necessarily have to register just for this one activity, just make sure you follow the invoicing guidelines as above.
It may seem a lot to ask of the person doing the work for you but these days you just can’t be sure of how the government will react if they discover you have paid someone without adequate proof that they are registered to pay tax on their own profits.
For more information on the new CIS you can refer back to our blog post dated 25th August 2007 entitled ”What is the Construction Industry Scheme?”

Your personal tax allowance

Everyone who lives in the UK is entitled to a personal allowance. This is the amount of income you can receive each year without having to pay tax on it. Depending on your circumstances, you may also be able to claim certain other allowances.
There are three levels of personal allowance for 2007/2008 tax year:
•Basic rate, which is 5225 (with no income limit)
•age 65 to 74, which is 7550 (with an income limit of 20900)
•age 75 and over 7690 ( with an income limit of 20900).
It is important to bear in mind that if your income is over the income limit, the age related allowance reduces by half of the amount (£1 for every £2) you have over that limit, until the basic rate allowance is reached (you’ll always get the basic allowance, whatever the level of your income).
If you become 65 or 75 during the year to 5 April 2008, you are entitled to the allowance for that age group.

So if, for example, you are 69 and have an income of £22,000( £1100 over the limit) your age-related allowance would reduce by £550 to £7,000.

If HM Revenue & Customs (HMRC) knows your age you should get the personal allowance automatically. But bear in mind they won’t know your age unless you’ve told them or shown your date of birth on a tax return or claim form. If you haven’t done this already and you are 65 or over you need to contact your Tax Office.
If you want to claim a tax refund because you didn’t use your personal allowance (or for any other reason), you need to do so within five years from the 31 January following the end of the tax year concerned. Taxfile in South London can help you claim the overpaid tax . Their tax advisers deal with the Inland Revenue on your behalf , taking the strain off you at a taxing time, making sure that you never pay more than your minimum tax liability, whether this be income tax, capital gains tax (CGT) or inheritance tax(IHT).

What is the Construction Industry Scheme?

The Construction Industry Scheme (CIS) sets out the rules for how payments to subcontractors for construction work must be handled by contractors.

A contractor is a business or other concern that pays subcontractors for construction work. A subcontractor on the other hand is a business that carries out construction work for a contractor.
Under the Scheme, all payments made from contractors to subcontractors must take account of the subcontractor’s tax status as determined by HM Revenue & Customs (HMRC). This may require the contractors to make a deduction, which they then pay to HMRC.

As of 6 April 2007 the new Construction Industry Scheme replaced the previous scheme. The main changes in the scheme are the following:

• There are no more CIS cards, certificates or vouchers.

• Contractors have the responsibility to ‘verify’ new subcontractors by contacting HMRC.
•Subcontractors are still paid either net or gross, depending on their own circumstances, but it is HMRC who tell the contractor during verification which treatment to use.
•There is a higher rate tax deduction of 30% if a subcontractor has not registered with HMRC.

• The standard rate of deduction for those registered with the Inland Revenue is 20% .
• There are no more CIS annual returns. Now contractors must make a return every month to HMRC, showing payments made to all subcontractors. Returns must be made using official forms. Photocopies are not acceptable.
• Contractors must declare on their return that none of the workers listed on the return are employees. This is called a Status declaration.
•Nil returns must be made when there are no payments in any month. These can be made over the telephone as well as over the Internet or on paper. If made by paper, this must be on an official form. Photocopies will not be accepted. There will be financial penalties for failure to submit a return (including nil returns).

For most of subcontractors, the new CIS is still a puzzle. For this reason, the tax accountants at Taxfile in South London can unveil the mystery behind it. You can pop in to see one of our tax advisers in our office in South London, just two minutes away from Tulse Hill station or you can visit us on www.taxfile.co.uk.

Taxfile knows everything about taxi drivers’ tax!

There are a few things that need to be considered when it comes to taxi drivers’ tax. Among them we can mention the following:

•Mileage Allowances
Taxi drivers can claim as an alternative to vehicle running costs mileage allowances of 40p for the first 10,000 miles and 25p per mile thereafter. You may not claim mileage allowance and vehicle running costs. Should you choose to claim the mileage allowance then keep good records of mileage covered, purpose of journey.

•Taxi Capital Allowances
If you bought a vehicle in 2005-06 and used it as a taxi you can claim a first year tax allowance of 40% of the cost of the taxi, restricted to £3,000 for vehicles costing over £12,000. On vehicles purchased in previous tax years you can claim 25% writing down allowance on the balance not yet claimed. If you have bought and sold a vehicle used as a taxi during the financial year the tax allowance is restricted to any loss made on resale and any profit made over the written down value is taxable as a balancing charge. First year allowance in the current tax year 2006-07 is 50%.

• Taxis bought on Hire Purchase
Claim capital allowances on the original cost of the vehicle, interest and other charges count as business expenses and go in the self assessment tax return.

•Taxi Running Costs
When completing the self assessment tax return taxi drivers should enter fuel costs as cost of sales not motoring expenses. Do not claim fuel expenses when you are on holiday, the revenue will check should they inquire into your self assessment tax return.Taxi running costs also include repairs, servicing and parts including tyres, road tax, taxi insurance and AA/RAC membership. Include radio hire and taxi office costs in general administrative expenses.

• Household expenses
If you run your taxi business from home you can claim a proportion of household expenses as business expenses. Household expenses are likely to be disallowed unless they are either specific to the business or a specific area of your home is devoted entirely to your business.

• Spouse Costs
You can claim expenses for partners who work for your taxi business and payments up to £94 would not attract income tax or national insurance however any payments claimed must be real payments for real work done. The Revenue naturally adopt a strict view on expenses claimed for partner work as it is an area some people might use to reduce the tax liability.

•Other Expenses
The best method of ensuring the taxi drivers tax bill is as low as possible in the future is undoubtedly to meticulously maintain good records of all taxi receipts and expenses and mileage covered which offers the opportunity for taxi drivers to compare vehicle running costs against mileage allowances and choose the most tax efficient option. General if the taxi cab capital allowances are high vehicle running costs will be the best option and if taxi cab capital allowances are low then mileage allowances may well legally increase the costs you can claim and save you money.

Taxfile in South London taxi and cab drivers choose the best accounting option in order to reduce their tax liability.
Taxfile can also provide you with a record-keeper to fill in with all your takings and your expenses for the year. For more information, you can visit us on https://www.taxfile.co.uk/.

Business welcomes tax Tory plans

The Tories yesterday set out proposals for easing the burden of tax and regulation on British businesses in an attempt to improve the economy’s competitiveness.

However Chancellor George Osborne said that any tax reductions would have to be paid for by tax increases elsewhere, such as new environmental taxes:

” Any reductions in specific taxes will have to be balanced elsewhere, most notably green taxes.”

The former Cabinet minister John Redwood called for a series of tax reductions including abolishing inheritance tax, reducing corporation and capital gains taxes, abolishing stamp duty on share deals and raising the threshold for the higher rate of income tax.

Mr Redwood said that ” reducing the tax burden was the best way to stimulate economic growth and increase overall prosperity.[…] we believe a lower tax economy would be a more successful economy. If you have the courage to cut the rates , the rich pay more.”

The proposals received great support from business organisations.

Richard Lambert, CBI director-general said that the goal of getting corporation tax down to 25% and reducing tax on small businesses, represents a welcome direction of travel after a period when the burden of business taxes has grown substantially. He added, ” A focus on cutting regulation and red tape, one of the biggest irritants for firms trying to succeed and expand, is also positive. Too often, while our European competitors manage to implement EU directives in a few pages, the UK gold plates them with reams of prescriptive and complex regulations and guidance.”

Companies like Taxfile In South London can help you understand better the way corporation tax and capital gains taxes, inheritance tax and income tax works, giving you the right accounting advice at the right price.

Types of tax-free investment

There are a number of ways investors can reduce their tax liability. Here are the most popular:

Cash Mini ISAs
These are basically ordinary saving accounts but the interest you accumulate is free from tax.
Anyone over 16 can put up to £3000 per tax year into a cash mini Isa. The good news is that from April 2008 you would be able to place up to £3600 each year in a mini cash Isa.

Share ISAs
These are accounts in which you can hold stock market-type investments such as shares. The money grows free of capital gains and income tax. Higher rate taxpayers also avoid paying extra tax on dividends payments from shares, and they don’t have to declare their Isas on their tax returns.

There are two types of shares Isas – maxis and minis. For the 2007/08 year you may invest £7,000 in a maxi equity Isa. If you have a cash mini Isa you may also invest £4,000 in a mini equity Isa.

For 2008/09, the overall limit increases to £7,200. So if you have used the new maximum cash mini Isa allowance of £3,600, the maximum you may place in a stocks and shares Isa is £3,600, bringing your total Isa investment to £7,200.

Venture capital trusts
VCTs have traditionally offered one of the best tax breaks available, although they have recently lost their shine as tax breaks were cut and extra restrictions imposed.
VCTs are high risk – they are effectively companies quoted on the stock exchange which invest mainly in unquoted companies or ‘start-ups’.
At the time of writing, investors were entitled to 30% income tax relief. It means that every £10,000 you invest will only cost you £7,000 because of the tax break. There is no income tax to pay on any dividends, nor capital gains tax to pay on the increase in your stake in the trust.
To check these figures are up to date and for current rules about tax breaks offered to investors in VCTs visit the HMRC website at http://www.hmrc.gov.uk/guidance/vct.htm.

Offshore investing
Investing offshore provides opportunities for tax suspension, reduction and avoidance.
The attraction is ‘gross roll-up’. This means assets can grow without being taxed and could therefore outperform investments at home. However, gains or income are liable to tax in Britain when they are brought back to the UK. You will also need to pay tax of another country if you take the money there.
The trick is to take into account how long you are going to be away if you are emigrating, your residency for tax purposes, your will, property and more liquid assets such as savings.
Always seek professional advice from a tax company like Taxfile with offices in South London when it comes to ways of minimizing your tax liability.

Welcome to the Inheritance Tax Blog

Inheritance Tax (IHT) is a tax on the value of a person’s estate on death and on certain gifts made by an individual during their lifetime.

There is a certain threshold when it comes to inheritance tax. This is defined as the amount above which inheritance tax becomes payable. If the estate, including any assets held in trust and gifts made within seven years of death, is less than the threshold, no inheritance tax will be due on it. Starting from April 2007 the threshold, also known as the nil-rate band is £300 000. For transfers on death, the value of an estate above the mentioned band is taxed at a rate of 40%. For lifetime transfers the tax rate is 20%.

There are a few things to consider when dealing with IHT:

• Gifts between husband and wife are generally exempt for IHT. It may be desirable to use the spouse exemption to transfer assets to ensure that both spouses can make full use of lifetime exemptions, the nil rate band and the potentially exempt transfers (PETs). With a PET the gift will be exempt from IHT if the donor survives for seven years.
• Gifts to individuals not exceeding £250 in total per tax year per recipient are exempt. The exemption cannot be used to cover part of a larger gift.
• £3,000 per annum may be given by an individual without an IHT charge. An annual exemption may be carried forward to the next year but not thereafter.
• Gifts in consideration of marriage are exempt up to £5,000 if made by a parent with lower limits for other donors.
• Gifts to registered charities are exempt provided that the gift becomes the property of the charity or is held for charitable purposes.
• Trusts can provide an effective means of transferring assets out of an estate whilst still allowing the donor to retain some control over the assets. Provided that the donor does not obtain any benefit or enjoyment from the trust, the property is removed from the estate.

A good planning is essential when dealing with Inheritance Tax. Any plan must take into account your personal circumstances and aspirations. Taxfile in South London can help you find the best solution to minimize your tax liability.