Give Your House to Your Children to Avoid IHT

This is a great example of the sort of Popular Misconceptions About Tax.

The simple idea is to ensure that the house isn’t owned by the parents when they die and IHT becomes payable. It should come as no surprise that the tax rules are wise to this idea.

Firstly the gift would be ignored for IHT purposes if the parents continue to live there. So the House gets caught by ‘Gift with a Reservation Of Benefit’ rules and is still subject to IHT.

But the position is now probably worse than it was. For example:

When the house is sold by the children the gain will be subject to Capital Gains Tax (CGT) unless they happen to live there with Mum & Dad. If no gift had been made there would no CGT if the property was sold shortly after the parents death.

The parents security of tenure in what is no longer ‘their’ property is now vulnerable to any court rulings that follow if their children divorce or become bankrupt.

It’s also worth noting that under the current rules no IHT is payable unless someone’s taxable estate when they die is more than £325,000 (£650,000 for married couples and registered civil partners).

So if anyone acted on this PMA Tax idea they would simply have created more problems and more tax liabilities than if they’d done nothing. Far preferable to seek out professional advice from someone who really understands the IHT rules and gives this sort of advice on a daily basis.

Story from Tax Advice Network

Employment Ruling Could Affect Tax Status of One Million Workers

A Supreme Court judgment on the employment status of contractors could affect the tax liabilities of one million workers and a large number of businesses, experts have claimed.

Car valeters who carried out work for Autoclenz took the company to the Supreme Court to claim they were employees. The company claimed that substitution clauses in the contract - which place an obligation on the individuals to provide services when they were unable to - proved that the individuals were not employees.

However, the court ruled that these clauses were not a true reflection on the workers’ employment status. The judges said that tribunals should take into account the expectation of the parties and the bargaining power between the parties to decide whether the workers had a choice in signing the contract. These factors could trump the written agreement, the court added.

This ruling means that “the foundations of employment status have been rocked to their very core”, MacIntyre Hudson claimed.

Alastair Kendrick, employment tax director at the firm, said that many businesses had used substitution clauses to protect themselves from paying PAYE and HM Revenue & Customs has had trouble proving that individuals are, indeed, employees.

“We are talking about one million workers being affected,” Kendrick added. Many of these individuals will be in the construction industry, he said.

“This raises issues for the employer,” Kendrick added. “Many will be now be paying PAYE rather than Schedule D tax. They can expect a knock on the door from the taxman for retrospective taxes - this can go back as far as six years.”

Richard Mannion, national tax director at Smith & Williamson, the mid-tier accounting firm, said that there are four main tests in case law for deciding whether someone is employed or self-employed.

The first test is “mutuality of obligations” (was the ‘employer’ under an obligation to offer work and was the ‘employee’ under an obligation to accept the work if offered? If there are no mutual obligations there can be no contract of employment). Test two is the “master/servant relationship” (can the ‘employer’ tell the ‘employee’ how to do the work?).

Test three is “integration” (is the ‘employee’ operating as part of a team, for example someone who manages a team of employees is likely to be an employee).

Test four is “economic reality” (does it look like the person is self-employed, for example do they provide all their own tools and do they work for a number of customers).

The final test is “painting a picture”. All of the above tests need to be considered, none will decide a case on their own. “One judge said it was necessary to paint a picture with all of the details and then stand back to look at the picture from a distance,” said Mannion.

HMRC Help For Customers Affected By Civil Disorder

HM Revenue & Customs (HMRC) has today announced a single helpline number – 0845 366 1207 – to help businesses and individuals adversely affected by the recent civil disorder.

HMRC is determined to do all it can to help, and may be able to do this in a variety of ways.

The dedicated Civil Disorder helpline is available to provide comprehensive advice and deal sympathetically with problems currently faced by businesses and individuals. In particular, HMRC will:

• agree payment schedules with those who are unable to pay their tax bills due to short-term financial difficulties; and
• discuss practical solutions where businesses and individuals cannot meet their other obligations to HMRC – for instance, their records have been lost or destroyed in the disturbances.

In these circumstances, and whenever possible, HMRC will review any penalties imposed and withhold additional surcharges that would normally be triggered by missed deadlines.

In short, if you want to talk about how the disorder has affected you in relation to the tax system (including tax credits), please contact HMRC – we are here to help. There are a range of existing reliefs available and HMRC’s trained advisors will be happy to help.

HMRC’s Civil Disorder helpline will be available from 8.00am to 8.00pm, seven days a week.

To help deal with your query more efficiently, callers should have the relevant taxpayer reference number to hand e.g. Unique Taxpayer Reference (UTR) for Self Assessment customers, or VAT number for VAT-registered businesses.