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Tax Savings Income tax charge could catch you out!
Tax Savings Income tax charge could catch you out!
Income tax charge could catch you out!Even more care is required these days when considering passing family wealth down or helping out your children financially. In recent years a new income tax charge came into being, known as “Pre-owned asset” rules. The government brought in the rules to stop what they perceived as abuse of the Inheritance Tax legislation. Despite this, the rules can catch many innocent taxpayers. Unfortunately the rules are complicated and it can be difficult to confirm instantly if someone is caught. Broadly you may need to consider your position further if you enjoy a benefit from any assets (for example home, holiday home, work of art, to name but a few);
For example let us consider a mother giving her son money, which he then uses to buy a holiday home. If the mother then uses that holiday home, she could be caught by the new rules and be liable to income tax. The income tax charge will be calculated at an individuals’ top rate of tax on the value of the benefit enjoyed, and will be an annual charge. The income tax charge can be avoided by electing to be caught by the Inheritance Tax rules. However for many this could prove more costly. There are other ways of avoiding the income tax charge but action is required sooner rather than later. Failure to take action or declare the liability on Tax Returns could build up penalties and a tax bill for a later day. If you are concerned about being caught by these rules or your Inheritance Tax position and require assistance, we can help. Current reviews could result in increased taxes for business owners!Recent press reports have highlighted concerns over the way private equity executives are taxed. Private equity bosses can be paying tax of as little as 10% on their income, rather than the full 40%, due to the way in which it is treated.One of the main concerns seems to be “Taper Relief” on business assets, such as company shares. After owning the shares in an unquoted trading company for two years, the tax on the uplift in value of the shares when sold, could be as little as 10%. The relief was brought in to encourage investment in businesses. Not only has the relief benefited business owners when they come to sell their businesses, but it has also helped private equity executives in reducing their tax bills. The Treasury are reportedly conducting reviews into the tax breaks enjoyed by private equity firms, and although the new Chancellor has played down the possibility of changes, there are fears that small and medium business owners could be hit should any changes be brought in. A tightening of the taper relief rules could result in increased tax bills for many business owners when they come to sell up. Unfortunately once changes are announced then it may be too late and this is where a crystal ball would be useful. Some business owners may wish to consider taking advantage of the current low rates now. Every business is different and professional advice should be sought at an early stage |