NEW INTESTACY RULES NOW IN FORCE

The Inheritance and Trustees’ Powers Act 2014, which applies only in England and Wales, came into force on 1 October 2014.  For non-lawyers, the most important change it makes is a rewriting of the rules for distributing an intestate’s estate, where the intestate is survived by a spouse or civil partner.

Hitherto, the rule has been that, if the deceased left a spouse (or civil partner) but no children (or grandchildren, etc), then the spouse was entitled to the first £450,000 and the balance was divided half to the spouse and half between other relatives, such as parents, brothers or sisters.  But where death occurs on or after 1 October 2014, the whole estate will now pass to the surviving spouse (or civil partner).

Where the ceased is survived by both a spouse (or civil partner) and one or more children (or grandchildren, etc), the old rule was that the spouse took the first £250,000 and a life interest in half the remainder.  The child then took the other half (or the children shared it), and also took the capital when the spouse’s life interest fell in.

Under the new rule, the surviving spouse (or civil partner) will still take the first £250,000, but the balance will be divided half for the spouse (outright, not a life interest) and half between the children.  This means that the surviving spouse can either spend his or her half, or decide its ultimate destination, which may be an issue where he or she has children who are not also the deceased’s children (for example, children of an earlier marriage).

The surviving spouse (under both the old rules and the new) is also entitled to the deceased’s ‘personal chattels’.  The Act contains a new definition of ‘personal chattels’, so that the term now excludes property held ‘solely as an investment’.  The official Explanatory Notes emphasise that: ‘This is intended as a narrow exception for property held solely as an investment which had no personal use at the date of the deceased’s death.  Property which had some personal use but which the deceased also hoped might maintain or increase its value, for example precious jewellery worn only occasionally, will not fall within this exception( and so will pass to the surviving spouse) even if it is held outside the home, for example in a bank for security reasons.’

RTI PENALTIES

HMRC’s original plan was to charge penalties for late filed in-year ‘pay day by pay day’ RTI Returns from April 2014.  Then in February 2014 the Department announced that no penalties would be charged provided employers were up-to-date by 5 October 2014.

The latest development is that, on 9 September 2014, HMRC announced that the deadline for employers with 49 or fewer employees had been extended to 5 March 2015.

It was also stated that penalty notices will be issued on a quarterly basis.  Accordingly, firms with 50 or more employees, who did not get their RTI Returns up-to-date by 5 October 2014, will receive their first penalty notice in January 2015.  There will be an online appeal process for employers who believe they have a reasonable excuse for filing late.

All employers were subject to penalties for late filed ‘final submissions’ for 2013/14 and penalty notice were sent out last month (September).

HMRC has posted an employer’s guide to late filing penalties and appeals at www.hmrc.gov.uk/news/paye-late-pen.pdf.

COMPANY CAR ADVISORY FUEL RATES

The suggested reimbursement rates for employees’ private mileage in their company cars are reviewed each quarter on 1 March, 1 June, 1 September and 1 December.  The following rates apply from 1 September 2014, with the previous quarter’s rates shown in brackets:

engine size petrol diesel LPG
1,400 cc or less 14p   9p
1,600 cc or less   11p (12p)  
1,401cc to 2,000cc 16p   11p
1,601cc to 2,000cc   13p (14p)  
over 2,000cc 24p 17p 16p

If you reimburse your employees the tax free amount of 45p a mile (25p after 10,000 miles) for using their own car for business purposes, 20/120ths of the above amounts can be reclaimed as input VAT by your business e.g. a petrol engine car over 2,000 cc = 24p x 1/6 = 4p VAT a mile.

 

HIGH INCOME CHILD BENEFIT CHARGE

Child benefit started to be taxed from 9 January 2013, but only in cases where the claimant or their partner received income of over £50,000 a year. HMRC have been writing to those individuals who said they had received child benefit and earned over £50,000 in 2012/13, but who did not themselves actually pay the high income child benefit charge (HICBC). This is likely to be because the individual’s spouse or partner received higher income and had actually paid the HICBC which HMRC seem to be chasing.

The letters are written to attract attention, with the words “You need to act now!” stamped in red across the front, but they have not been copied to us as your agents. Please contact us if you receive such a letter, as we will get in touch with HMRC on your behalf. If HMRC had cross-checked with the partner’s tax return, these letters would have been unnecessary.

NO TAX DEDUCTION FOR SPONSORSHIP

A recent case before the Court of Appeal has determined that a particular company was not allowed tax relief on their sponsorship of a rugby club, as there was “duality of purpose”. The payments in question were posted to “marketing and advertising” in the company’s accounts. In order to secure tax relief against trading profits, the expense must be incurred “wholly and exclusively” for the purpose of the trade. In this case, the problem was that the rugby club was in financial difficulty and the judges held that the payments by the company Interfish Ltd were intended to provide financial support as well as advertising. This decision does not mean that all sponsorship payments will be disallowed – just those made under similar circumstances.

Note that where the club in question is established as a Community Amateur Sports Club (CASC) to benefit the local community, the latest Finance Act now specifically allows a deduction against company profits for donations from 1 April 2014 onwards.  This tax relief is in line with the relief for corporate donations to charities.

FLEXIBLE PENSIONS TO GO AHEAD IN 2015

In his March 2014 Budget, the Chancellor announced that there would be significant changes to allow individuals to have greater access to their pension funds from 2015.

The proposed changes have been consulted on during the summer and the Treasury have now published the outcome, together with draft pensions legislation, enabling the new flexible regime to commence on 6 April 2015.

The flexibility will apply to Defined Contribution (DC) Schemes such as Self Invested Personal Pensions. However, it will continue to be possible to transfer funds from certain Defined Benefit (Final Salary) schemes into DC Schemes to allow access to the new flexible rules. An Independent Financial Adviser should be consulted to consider the full implications of this course of action.

From 6 April 2015 it will be possible to withdraw 25% of the pension fund tax free at age 55, but any additional amounts  will be taxed at the marginal tax rates of 20%, 40% and 45% (depending on level of income). This means that you will need to work closely with us and your pensions adviser so that we can estimate the taxation implications of the amount that you are planning to withdraw. As announced in the Budget, from April 2015 it will be possible to withdraw the whole of your pension fund if you wish. You may recall the Press suggesting that some individuals may decide to spend their pension pot on a Lamborgini!

The new pensions legislation will permit more innovative pension products, including the ability to draw lump sums from annuities and flexible annuities as well as flexible drawdown products.

Under the current rules, annuities lapse upon the death of the pensioner with no value passing to the children, whereas drawdown pensions can pass to the next generation upon death (subject to a 55% charge on the fund). The Government acknowledge that this 55% charge is too high and will announce the new lower rate in the Autumn Statement on 3 December.

Note that the new pensions legislation includes anti-avoidance rules to limit “recycling”.  In other words, someone over 55 might make contributions into their fund to obtain tax relief and then immediately withdraw 25% of the fund tax free. From 6 April 2015, where an individual’s fund is in drawdown, a maximum of £10,000 may be paid in each year for the purpose of obtaining tax relief.

 

RTI PENALTIES DELAYED AGAIN

As advised in earlier newsletters, automatic in-year RTI late filing penalties start on 6 October 2014.  However, HM Revenue and Customs have recently announced that the start date for penalties on PAYE schemes that have fewer than 50 employees will now be delayed until 6 March 2015.

HMRC have said that the extra time will give smaller employers, who appear to be experiencing the greatest difficulties with RTI, more time to adjust their processes to comply with RTI requirements. It will also allow HMRC more time to update its systems and enhance its guidance and customer support.  To qualify for the 5 month deferral, the employer must have fewer than 50 employees on the payroll at 6 October 2014.

TAX DIARY FOR OCTOBER/NOVEMBER 2014

 

Date What’s Due
1 Oct Corporation tax for year to 31/12/13
19 Oct PAYE & NIC deductions, and CIS return and tax, for month to 5/10/14 (due 22 October if you pay electronically)
1 Nov Corporation tax for year to 31/01/14
19 Nov PAYE & NIC deductions, and CIS return and tax, for month to 5/11/14 (due 22 November if you pay electronically)