Financial Update Oct Nov 2019 Newsletter

A chance to simplify inheritance tax? Inheritance tax (IHT) has remained largely unchanged for the past decade, apart from the introduction of the residence nil rate band in 2017. However, proposals from both sides of the political spectrum mean any current estate planning may soon require revision. The O ce of Tax Simplification (OTS) has been looking at how IHT could be simplified, and their latest report, containing a raft of suggestions, has recently been published. The changes concentrate on three key areas. LIFETIME GIFTS The report recommends that the seven-year survival period be reduced to five years, but with taper relief abolished. Since taper relief is only relevant when tax is payable, this measure would be largely beneficial. However, such a change would create a five-year cli edge for IHT chargeability. Regarding the various lifetime exemptions, the OTS suggests that the annual exemption and the marriage/civil partnership exemption be replaced with a personal gifts allowance. This allowance could be used to replace the exemption for normal expenditure out of income. BUSINESSES The OTS suggests that the threshold for trading activity for business property relief should be aligned with that for capital gains tax (CGT) gift holdover relief and entrepreneurs’ relief. So the present test of ‘wholly or mainly’ (generally meaning above 50% of trading activity) would be replaced with an 80% test. On a more positive note, the OTS thinks that furnished holiday lets should qualify for business property relief. INTERACTIONWITH CGT Currently, there is a CGT tax-free uplift on death, with a person inheriting assets at their market value at the date of death. The OTS recommends that the uplift be removed where an asset also qualifies for an IHT exemption, and the recipient of the asset should inherit at the historical base cost of the person who has died. Given the current political turmoil, there could well be a change of government on the horizon. The Labour party avoided IHT in their previous election manifesto, but there is speculation that they may cut in half the maximum tax-free allowances (currently £950,000) where a family home is left to children. All of which means that you may wish to take some simple planning measures: ■ If you are in a position to make large tax-free gifts out of income, do so now in case the exemption is curtailed. ■ Look at restructuring a business that falls between the 50% and 80% trading activity tests. ■ If there is no CGT advantage to retaining assets until death, consider making lifetime gifts instead. 2 As we move towards winter with continuing political uncertainty, in this edition we focus on change. The planned roll out of the off- payroll employment tax rules to the private sector will mean that many contractors may see an unwelcome change to their employment status. New car emission standards will come into effect from April 2020, resulting in significant changes to the company car tax regime. Meanwhile, for many, the idea of completely changing how they work to become self-employed has many attractions. But being your own boss brings a whole new set of issues you need to take into account. We also look at the implications of getting it wrong on VAT, as well as a reminder that small and micro employers will soon need to comply with workplace pensions re-enrolment. 03 Determining o -payroll employment status The private sector is set to contend with the roll out of the IR35 rules for contractors. 04 So you want to be your own boss? Working for yourself can seem attractive, but there are some key issues to consider. 05 Unpaid work trials and the minimum wage There are rules around trying out potential new recruits. 06 All change for company car tax benefits New rules are coming into effect from April 2020 as new standards take effect. 07 Remember pension re-enrolment Firms must re-enrol staff in their workplace pension every three years and now small and micro firms need to comply. 08 Very awkward tax - getting it right on VAT It pays to avoid getting the complex VAT rules wrong. In this issue... This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before takingor refraining from takinganyactionon thebasisof thecontentsof thispublication. Thenewsletter representsourunderstandingof lawandHMRevenue&Customspractice. © Copyright 16 October 2019. All rights reserved. TAX iStock/sturti Cover image: Sergey Nivens/Shutterstock.com iStock/Jasmina007 iStock/driftlessstudio Credit: Dmytro Zinkevych/Shutterstock.com

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