Understanding lifetime transfers

The current Inheritance Tax limit is £325,000 per person. This is the amount that can be passed on free of IHT as a tax-free threshold. An additional Inheritance Tax main residence nil-rate band (RNRB) will also be introduced from next year.

On top of this allowance, gifts made during a person’s life are not subject to tax at the time of the gift. These lifetime transfers are known as Potentially Exempt Transfers (PETs). These gifts or transfers achieve their potential of becoming exempt from IHT if the taxpayer survives for more than seven years after making the gift. If the taxpayer dies within 3 years of making the gift, then the IHT position is as if the gift was made on death.

A tapered relief is available if death occurs between three and seven years after the gift is made. There are insurance products such as a seven-year term assurance policy that can be used to reduce the amount of IHT due should the taxpayer pass away within seven years of making a gift. Obviously, there will be an additional cost associated with such insurance policies.

The rules surrounding PETs have resulted in many people wanting to make gifts long before they die. The problem in practice is that they do not want to give up control over the assets concerned. A common example is a person giving their house away but continuing to live in it rent-free. Such gifts are known as ‘gifts with a reservation of benefit’.

HMRC does not accept that a true gift has been made so the ‘gift’ remains subject to IHT even if the taxpayer dies more than 7 years later. These rules can be even more complicated if a trust has been established. We would be happy to advise those with existing trusts and those considering setting up trusts on the best way forward.

We also look at SEIS investments as a way to exempt assets from inheritance tax while still staying under your control. These investments becoming exempt from inheritance tax after just two years since they will qualify for business asset relief.

Gary
post by
on 14/03/2017

Take-up of EIS and SEIS

HMRC recently published the latest National Statistics on the number of companies raising funds under the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). The full report makes for interesting reading and includes updated figures for 2014-15. The first figures for 2015-16 are expected to be published in April 2017.

The main points raised in the report are as follows:

Enterprise Investment Scheme

  • Since the EIS was launched in 1993-94, 24,620 individual companies have received investment through the scheme and almost £14.2 billion of funds have been raised.
  • Data for 2014-15 shows that 3,265 companies raised a total of £1.81 billion of funds under the EIS scheme. This represented the highest amount of funds raised since the scheme was launched. In 2013-14, 2,840 companies raised £1.59 billion of funds.
  • Data for 2014-15 shows that the 1,660 companies raising funds for the first time under the scheme raised a total of £1.02 billion compared with 1,405 first time companies raising £897 million in 2013-14.
  • In 2014-15, companies from the Business Services sector accounted for over £600 million of investment. This comprised one third of all EIS investment. The hi-tech and energy & water supply sectors also garnered significant investment.
  • London and the South East continued to account for the largest proportion of investment with companies in these regions receiving 65% of investment in 2014-15.
  • The number of investors claiming Income Tax relief on Self Assessment forms under EIS increased from 28,830 in 2013-14 to 29,380 in 2014-15. The majority of these investors made a claim for tax relief in respect of an investment of less than £50,000.

Seed Enterprise Investment Scheme

  • In 2014-15, 2,290 companies received investment through the SEIS and £175 million of funds were raised. This compares with 2,110 companies raising a total of £171 million under SEIS in 2013-14.
  • The average investment per company under SEIS in 2014-15 was around £77,000.
  • Over 1,800 of these companies were raising funds under SEIS for the first time in 2014-15, representing £152 million in investment.
  • In 2014-15, companies from the Hi-tech and Business services sectors made up 62% of the amount of SEIS investment received.
  • The largest proportion of funds raised through SEIS was raised by companies registered in London and the South East.

In 2014-15, 8,150 investors claimed Income Tax relief on Self-Assessment forms for SEIS, compared to 7,795 investors in 2013-14.

Gary
post by
on 28/02/2017

What is IHT online?

The government together with HMRC are working towards the introduction of a new online service to support the administration of Inheritance Tax (IHT). This measure was first announced by the then Chancellor, George Osborne as part of the 2013 Autumn Statement measures. The new service is known as IHT Online and will eventually replace the almost entirely paper-based process for IHT. It has been reported that HMRC receives some 300,000 paper forms a year relating to IHT.

The system will ultimately create a process that removes the need to complete paper versions of forms. The software will enable the application for probate and submission of IHT forms to be completed digitally with progress reports available online. The legislation that will allow for the electronic filing of IHT returns is already in place.

At Key Business Consultants we are experienced with the IHT forms that need to be completed and would be happy to advise on any uncertainties.

Gary
post by
on 14/02/2017

Categories: HMRC, IHT, inheritance tax, Probate

Autumn statement update for investors

In his first major chance to help shape the direction of the economy over the coming years, the new Chancellor, Philip Hammond delivered his first Autumn Statement on the 23 November 2016. One of the most interesting changes was the announcement to switch to an Autumn Budget and a Spring Statement.

This change had been called for by many businesses as well as economy and tax experts as the UK had become the only major advanced economy to make significant budgetary changes twice a year. This means that the March 2017 Budget will be the last to be held during springtime with a second Budget taking place next year in Autumn 2017. From 2018, there will be a Spring Statement which is expected to be sharply reduced in scope and to move away from being a mini-Budget.

This change will also mean that the Finance Bill will be introduced following the Autumn Budget with Royal Assent expected before the start of the following tax year. This will mean that the majority of tax changes should be announced and legislated for in advance of the start of the next tax year.

In the detailed background papers that accompany the Autumn Statement we learnt of the government’s plans to amend some of the requirements for the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs) as part of the Finance Bill 2017 measures.

These changes would:

  • clarify the EIS and SEIS rules for share conversion rights, for shares issued on or after 5 December 2016;
  • provide additional flexibility for follow-on investments made by VCTs in companies with certain group structures to align with EIS provisions, for investments made on or after 6 April 2017;
  • introduce a power to enable VCT regulations to be made in relation to certain shares for share exchanges to provide greater certainty to VCTs.

A new consultation will also be launched looking at streamlining and prioritising the advance assurance service for the schemes. It was also confirmed that the government will not be introducing flexibility for replacement capital within the tax-advantaged venture capital schemes at this time but will continue to review this over the long term.

There are also plans to increase the amount that social enterprises can raise through Social Investment Tax Relief.

It should also be noted that much of the tax reliefs are currently subject to the EU State Aid rules. As the march to Brexit continues we could see significant changes to schemes such as the SEIS and EIS over the coming years.

Keep in touch with us and join our mailing list so you are kept fully informed of the changes over the coming months and years.

Gary
post by
on 31/01/2017