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[MSE Archna]

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Taxing Times 3 article

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[FTman]

My query is about CGT Holdover Relief. I am a trustee of my late wife's Discretionary Will Trust. Investments are in unit trusts and OEICs all of which are showing good growth. Changes in investments have already used up the Trusts CGT allowance, so is it possible to transfer a unit trust over to a beneficiary as a 'distribution of capital at initial cost' and for the CGT to be paid by the beneficiary.

[Cleasby]

In a word, yes, provided the distribution takes place at any time other than (i) during the three months following the date of the making of the settlement or (ii) during the three months following any tenth anniversary of the making of the settlement.

The trustees must claim the holdover relief. It is not given automatically.

Bear in mind any capital gains tax taper relief entitlement accumulated by the trust is lost when the assets are transferred out. The taper clock starts afresh when the beneficiaries take ownership of the assets.

Remember also, a discretionary trust might have to pay a ten yearly inheritance tax charge. When valuing the assets of the trust on the tenth anniversary for IHT purposes it is necessary to include the value of any capital distributions made in the ten years before the tenth anniversary. Make a note to remind yourself about this at the time.

You might like to consult a Chartered Tax Adviser.

To find one local to you go to

www.tax.org.uk

[ipk1]

We are looking to sell a buy to let flat we have rented for six years. Do we have to pay 40% CGT, are there are any ways around this.
Thank you.

[juliamcvey]

Mu husband and I are paying for student accommodation for our daughter. Can these expenses be claimed against tax?

[Cook_County]

Ton'y answers are cogent, easy to understand and well-thought out. However he is clearly a generalist, and therefore has overlooked several points on several subjects whare foreign/overseas/expat issues arise.

For example:

Property abroad

MoneySaver's Question:

Last year my wife and I bought a small property in India. The total cost came to £50,000, and we used our savings to buy it outright. We didn't inform HMRC in the UK, as we had paid the relevant stamp duty/charges there.

The flat is about to be rented out and will generate an income of about £300pcm. We have set ourselves up as tax payers in India but do we also need to let the UK Inland Revenue know? If so, how?

Tax Tony's Answer:

Yes you do, because as UK residents you are subject to UK tax on your worldwide income. However, if you are not UK domiciled, you will only be taxed on the profit that you remit to the UK. Have a look at HMRC leaflets IR139 - income from abroad and IR20 - residents and non-residents.

A simple phone call to your tax office will suffice to inform them. They will then issue the appropriate pages with your tax return

Cook_County's observations:

Tax Tony has overlooked saying that double taxation relief can be claimed in the UK for Indian tax on doubly-taxed income.

Declaring overseas income

MoneySaver's Question:

I'm wondering if I or my wife needs to declare any overseas income in our tax returns. I am British, my wife is Greek. We live and work in the UK. We have property in Greece from my wife's family, but whilst there is some rental income none of it comes to the UK and is taxed in Greece as if we were living there.

The foreign properties are in my wife's name in Greece, although for tax returns it is joint. My wife is not in paid employment as she is raising our children.

What is our tax position?

Tax Tony's Answer:

I am befuddled by your Greek property being in your wife’s name, but the income being taxed as joint. What are you paying tax on income that is not yours for?

So far as your wife is concerned, her UK tax liability on the Greek rent depends on her domicile. If she is Greek domiciled, she is taxable (and has to tell the Revenue about) only so much of the income as is remitted to the UK. If she has acquired UK domicile, she is taxable on the profit, but gets a credit for the Greek tax she has paid.

Non-domicile is claimed on form DOM1 and on the non-residence pages of her tax return. Taxable income from abroad is reported on the foreign pages.

Domicile has important implications for various UK taxes, particularly inheritance tax. You might need professional advice before delving in this complicated area.

Cook_County's observations:

Tax Tony has confusingly talked about UK domicile which does not exist (although of course it is possible to be domiciled within the UK). He has mistakenly talked about remitting income to the UK when he meant profit. Finally he has become befuddled by the fact the most of the world does not yet have independent taxation of married couples.

Foreign entertainers and sportsmen

MoneySaver's Question:

I am a member of a local cricket club who last year hired a professional cricketer from Pakistan. A contract was drawn up between the club and the player. Throughout the season he is paid weekly. No tax or deductions are made. This year we are going down a similar road but have been told that we could be liable to tax deductions for the player for last year and this. What are the regulations regarding this?

Tax Tony's Answer:

If the contract amounts to employment, your cricketer should be paid through the payroll on PAYE, like any other employee.

Otherwise, payments to a foreign entertainer or sportsman fall under the Income Tax (Entertainers and Sportsmen) Regulations 1987. The payer, the cricket club in this case, must deduct tax at basic rate unless the payment is below £1,000 or the cricketer has persuaded HMRC to apply a lower or nil rate. There are detailed rules about administration etc.

HMRC will look to you for the tax and possibly NI. In law they do not have to give you any credit for the tax that the cricketer has paid (if he has), but in practice usually will. You really need to get this right now, because it can get expensive if HMRC takes the view that you have made a net payment and are holding a deemed deduction already.

Cook_County's observations:

Tax Tony has not mentioned the changes proposed in last week's Budget which are intended to help the Olympians come over to the UK, but in practice mean that only British competitors will be liable to tax.

Travelling and residency

MoneySaver's Question:

My partner and I left the UK last September to travel for 10 months. Before that we were both working full time. We currently have someone renting our house at a cost enough to cover the mortgage, insurances and maintenance. Are we entitled to any tax back for the period between last April and the date when we left? We are abroad on working holiday visas and we are only doing the occasional bit of work here and there.

Tax Tony's Answer:

You will remain UK resident and subject to UK tax on all your income. You should include the property business on your return, even if it is making no profit. Your foreign income should also be included and you will get a deduction for any foreign tax you have paid. If it works out that you have paid too much tax, you will get a refund.

Cook_County's observations:

Tax Tony has mistakenly referred here to a deduction for foreign tax, when he meant say credit or double taxation relief. He has also overlooked advising the individuals to find out if they are liable to foreign tax on the UK rental income. In some cases (although not necessarily this one) Tony's answer in terms of taxation of foreign earnings will be incorrect because a double taxation treaty would apply to exempt the foreign earnings from UK tax.

Working outside the EU

MoneySaver's Question:

I did some work for the UN outside the EU recently. They paid my fees into my UK account, and while I was there also gave me two cheques for per diems which I cashed locally; I brought some cash back with me and spent that in the UK. I did not keep receipts for my expenditure while abroad because I (mistakenly, I now realise) thought that I would not be taxed on any of these earnings, but I did keep a very detailed tally of my expenditure for future expense budgeting reasons. Do I have to pay tax on the per diem payments? And if so, would detailed expense tallies be good enough for expenses against these payments?

On another note, I bought a second hand computer for my (sole trader) work, for £150, and also a mobile for £90. Do these fall under capital expenses?

Tax Tony's Answer:

Unless you were away for a full tax year, you remained UK resident and subject to UK tax on your worldwide earnings. Assuming you are ordinarily resident in the UK, you are taxed on your foreign income, whether or not you brought the money back into the UK.

You haven’t told me what expenses you incurred, so I cannot say if they would be validly deductible against employment income.

The general rule is that HMRC expects you to have invoices or other third party receipts as evidence of expenses claimed. They can accept a detailed record like yours, but I wouldn’t count on it.

You will get capital allowances on the computer and mobile phone.

Cook_County's observations:

Tax Tony has overlooked the fact that much of the income paid by the UN and other international organisations is exempt from UK tax under treaty. The questioner will need to provide more details.

Cook_County's overall observations:

In all cases where overseas matters are in question Tax Tony should suggest a referral to a specialist in this area. The risk of getting things wrong may be too great for Tony's PI insurance to bear. Even if it is not, the individuals concerned will always want best advice.

[qsxwdce]

Can you advise if there is any 'capital gain' made if a 'Gilt' is sold for a higher amount than originally paid for it? In other words would any such a gain be added to any capital gains made on selling shares or unit trusts etc ,when calculating whether one is under or over the annual exemption?

[Mary_Hartnell]

I am an executor of my late mother's estate and it is all sorted (phew) but for the final distribution and income tax returns.

Mum had nest eggs stashed away in four bank/building society accounts.

I wrote to all four promptly informing them of her death and got back letters with the balances and net interest owing at the date of death. These figures I was able to use on the Inheritance tax return. There were several loose ends, so it took a year before probate was obtained and I could close these accounts and gather the funds into the newly opened executors account.
During this year the nest eggs continued to earn interest.
However each of the four financial institutions seems to have treated the situation differently.

In my opinion they should have closed the account as at date of death and reopened the same sort of account but designated "the personal representatives of xxxxx deceased".

However I have now received "tax deduction certificates" that do clearly distinguish between interest before and after the date of death.
(In the case of the ISA account, presumably its the taxed interest that belongs to the executors' income return!).

My mother died early in the tax year, so her final tax return will show a modest total income and thus a tax refund should be due. How do I complete this return ? Can I apportion the income and tax shown on the "tax deduction certificates" between my mother and then her executors ?

I need to send the beneficiaries a form R185 showing the income their inheritance has earned, while in the hands of the executors.

As well as interest taxed at 20 percent, my mother's modest holding of shares has generated a few dividends showing a 10 percent corporation tax credit during the period after her death.

Can I simply pass these tax figures through to the beneficiaries by giving each TWO R185's one for the interest with its 20 percent tax and the other one showing the income taxed at 10 percent. Will the beneficiaries still be "deemed" to have satisfied their standard rate tax liability on this dividend income ?

(Bring back Nigella Lawson's dad - he is the only chancellor who had a mission to make the system simpler !)

Regards,

Mary.

Sunday 9/4/06
I think I have managed to get an answer to this question from
a reasonably knowledgeable bloke on the tax payers'
help line.

Students of Alice in Wonderland will enjoy this:
My mother received a "pension" from the firm who took over my father's modest overdrawn business.
They did not have/want to put the capital on the table at the time, so mum agreed to receive payment as a "pension". She had done enough work for the business (really!) to mop up at least her personal allowance when dad was alive.
At the end of the tax year, a R185 used to arrive showing 750 less tax and
marked "annuity", from a firm of accountants. This R185 was a black and
white form, looking like it was designed in the 1950's and put through the
photocopier ever since. (Should it have been a P60 ?)

It turns out that there are THREE flavours of R185 doing the rounds and after
extracting a web address from the help line, I was able to access and print a
smart looking blue job with boxes on it that distinguish betweensd dividend
payments and simple interest payments.

Now the fun starts:Yes for Inheritance Tax, the income that has accrued but
not been paid is liable for this tax. For those of you living in your own flat
inside the M25, you could find the flat mops up the zero rate band for IHT so
the taxed income you have not yet had pays 40 percent Inheritance tax.
HOWEVER when you pay it out to the beneficiaries you have to put the
same numbers on their R185 so they can report that it is part of their
taxed income and (as will be the case with one of mum's beneficiaries) they might be paying paying tax at 40 (plus the stealth tax called NI contributions).
(Are you with me still 20 percent plus 40 percent plus an extra 20 percent)
which seems a bit unfair, pretty well as bad as getting into the "age allowance trap".
(perhaps that is explained somewhere else on this site ?)
SO, as this is unfair, there is some sort of complex procedure where IF the income has already paid 20, percent plus the 40 percent band of IHT, it can be certified as only liable to 20 the 20 percent already paid even though it takes the beneficiary into the 40 percent band for income tax.
BUT as mum did not own her home, she was still inside the zero rate band for
Inheritance Tax, so the beneficiary, pushed into the 40 percent band of Income Tax by inheriting someone elses income still has to fork out the extra 20 percent (?!)

The moral is simple, if you are arranging to die this year, put your nest egg into a monthly income account and try and hang on until October. If death appears to come on suddenly and you have not had this forsight, then try and close the account before "Paying the Ferry man".

Am I young enough to remember the court case over a tycoon, with the initials CC, if I remember correctly, who tried something similar ? I definitely can remember the days when there was a rush of weddings in October. The bride could earn half of her income as Miss Smith and the next six months as Mrs Jones and the tax saving was enough to pay for the honeymoon.

If I've got the wrong end of the stick, please let me know; I'm just off to do some gardening; it is time to paint the roses.

TTFN

Mary.

[Mary_Hartnell]

"Gilts" - by which you mean loan stocks issued on behalf of the UK Government - are exempted from CGT.
(This dates back to the bad old days (prior to N.Sea oil) when regular losses on gilts used to be off set against gains on shares and the then chancellor did not like it !)

[ziggy]

Last year my employer introduced uniforms at a cost of £10 per month for 12 months, taken straight out of our pay.

The uniforms have the company logo all over and so would not be worn outside of work. I have tried asking payroll if we can claim this back or if we shouold be paying for them at all but its like talking to a brick wall.

I have seen the posts on claiming for dry cleaning (our suits are dry clean only also...) but if anyone know where I stand or what I should do please let me know.

Thanks

[crossie]

Can anyone tell me if a motor mechanic( he is employed by a company but has to buy his own tools)can claim a tax rebate for the tools he has purcashed for work?

[kathrynjo]

can anyone tell me why the inland revenue have sent me out a self assessment form even though i pay correct amount of tax through my employers the tax office cant or wont answer my questions!