October 2007

October 2007

National Minimum Wage changes

From October 2007, the national minimum wage increased again:

 
The government is becoming concerned that large numbers of employers are not paying the relevant NMW and have increased the resources allocated by 50% to tackle non-compliance.  Our payroll software automatically verifies compliance with NMW rates, so we are in a position to assist you with your payroll and NMW checks.

Inheritance Taxation changes

Over recent years more and more people have become subject to inheritance tax as the nil-rate band (currently £300,000) has not increased at the same rate as house prices. On death, the deceased’s estate including any private residence is taxed at the IHT rate of 40%on amounts above the nil-rate band.

Previously, a spouse or civil partner whose estate was passed on death to their surviving partner was not subject to any IHT. However, this meant that on the death of the surviving partner the IHT bill was higher due to the couple’s whole wealth now being taxed on that partner and one nil-rate band being potentially lost.

The Chancellor has tried to solve the problem by allowing any unused nil-rate band to be passed to the surviving partner potentially allowing the surviving partner an IHT exemption of £600,000 (rising to £700,000 for the tax year 2010/11). These new rules apply when the second spouse or civil partner dies after 9 October 2007, but not to couples who are not married or in a registered civil partnership.

Pension Contribution – How the new tax rates affect you

As you may be aware, contributions into personal pension schemes receive tax relief at the basic rate of tax.  As the basic rate of tax is being reduced to 20% from 6 April 2008 this will mean you will need to increase your payments to your personal pension scheme in order to receive the same annual contributions.

For example, if you would like a gross contribution of £100 per month into your scheme you will currently be paying £78 per month (£100 – 22%).  However from 6  April 2008 you will have to increase your payments to £80 per month (£100 – 20%).

Capital Gains Taxation changes from 6 April 2008

The big surprise in the pre-budget report was the introduction of a new 18% rate of capital gains tax and the removal of taper relief for individuals and trusts.

These changes take effect from 6 April 2008 and will have significant effects on capital gains tax for businesses and individuals.

Since the initial announcement, the Government have amended the new rule to include an entrepreneurs’ relief. This relief applies when you sell part or all of your business, or shares in your own company after 5 April 2008, subject to a gains cap of £1million. The capital gain will be reduced by 5/9 of the full gain, making the effective CGT rate 5/9 18% = 10%, so the taper relief position is restored if certain conditions are met.  You can also deduct your annual exemption from the final gain and offset the gain against any capital losses to reduce this bill even further.

There is a lifetime limit of £1million of gains that can be subject to this relief.  This effectively means you can make gains totalling £1million over several years and claim entrepreneurs’ relief on all of them.  Any gains above this amount will be taxed at the full 18%.

We expect more changes to these rules in the 2008 Budget.

If you are planning to sell assets that qualify for business taper relief in the near future please contact us to discuss how these changes may affect you.

Capital Allowance changes from April 2008

If you are planning to buy or lease new business equipment, you should be aware of some significant changes to the tax relief available on these capital assets from either 1 or 6 April 2008.

Items qualifying as plant and machinery which have previously received first year allowances of 40%, 50% or 100% will, from April 2008, be eligible for the new Annual Investment Allowance (AIA) of £50,000.

The bad news comes as the current annual writing down allowance of 25% is reduced to 20% on all equipment balances.

It is important to note that although many plant & machinery purchases will now have 100% tax allowances in the year of purchase, tax will be payable on any amounts received when the asset is sold.

If you are planning on purchasing or leasing capital assets in the near future, we will be more than willing to help you identify the most tax efficient time to do so.