Protect Your Assets for your Loved Ones Today – Check out these Advanced Inheritance Tax Planning Strategies

I think it’s time we walked about a topic we have put on hold for weeks. Today, I want you to picture what life will be for your loved ones when you are gone.

For many of my clients, inheritance tax planning is not something they are open to talking about. After all, it is hard to envision the outcome for your family upon death. However, today we will look at two strategies you can use to protect your family from financial backslides due to poor estate planning.

A few weeks ago, I had a guest over to talk about the basics of inheritance planning (use of wills and gifting). This week, you will be learning more about inheritance tax planning from our guest Mr. Aidan Dow of Aidan Dow Wealth Management.

Aidan talked about two main inheritance tax planning strategies you can pay attention to in order to secure your family’s future. They are:

  • Using Family Trusts

You may use family trusts to keep your estate within your family. With a trust in place, your beneficiaries have a legal standing to inherit your estate. You set up a trust and transfer assets. You then name your beneficiaries – those to whom your wealth will transfer – and trustees to enforce the conditions of the trust.

Trusts protect inherited property, as Aidan pointed out. One circumstance where having a trust matters is when you want to ensure the inheritance still passes to your children even with the remarriage and divorce of your surviving spouse.

  • Investing in Assets with Tax Benefits

If you are passionate about propagating small businesses and hold no fear for high-risk investment, this method of inheritance tax planning would be suitable for you, Aidan affirmed during our session.

Assets such as in-shares and venture capital trusts fall outside your estate when owned for more than two years. With such assets, you can save your beneficiaries from paying the 40% inheritance tax usually charged on property worth above £325,000.

So, the next time you are thinking about taking care of your loved ones with inheritance tax planning, remember these strategies. Additionally, consult with an expert to help you plan your estate the best way you can.

P.S. If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please book me in via the link so we can arrange a chat: https://hannah-xu.youcanbook.me

What’s New on Public Sector IR35 2017-18?

A lot of doctors are working with the NHS as a locum doctor and IR35 has become a big issue to most doctors. It is nearly the anniversary of the public sector IR35 rule that kicked-in from April 17. Here we have provided the updated guidelines on the tax implications if you are inside IR35 and being paid to your Ltd company, the expenses claims and considerations of closing down a company.

Tax Treatment When You Are Inside IR35 and Being Paid to Ltd Company

A lot of locum doctors were deemed inside IR35, they still have active limited companies and being paid to the company bank account, but after tax/NI deducted as an employee. This caused a lot of confusion when it comes to corporation tax and income tax. And most importantly how one can avoid being taxed twice for the same income.

As the income inside IR35 were still technically ‘employment income’, you would declare this income under Self-Assessment, but you may not have additional tax liability on this income as taxes were already deducted.

When it comes to Ltd company corporation tax, the same gross income should be treated as the ‘revenue’ for the company. But equally, the same gross amount will be taken out as ‘director’s salary’ so that the income will not be taxed under corporation tax.

For example, Dr Rebecca being paid £6,000 gross per month, the tax/NI deducted was appx £1,500. That gives net amount of £4,500. Dr Rebecca would need to count the £6,000 as revenue, but £6,000 as ‘director’s salary’ which is ‘deductible expense’, so there’s no corporation tax charged on that income. And that income would declare the IR35 under her Self-Assessment.

Expenses Claims

If you still run an active company, any expenses that are necessary for the company are still tax deductible, e.g. your bookkeeping software or subscriptions. When you are doing any consultancy jobs that are outside of IR35, the expenditures that are directly related to those activities are still tax deductible.

When inside IR35, you may not claim travel and subsistence the same way as a self-employed individual. As you are technically an ‘employee’, you may only claim the travel to temporary workplace and that are necessary for you to perform your job. You may not claim travel from home to ‘clients’ office’ by justifying your home is your usual workplace, as those will be treated as usual work commute.

Company Strike Off Considerations

Some individuals might feel as though it is not worth to keep the company running and they just want to do the job, get paid and be tax efficient. In order to close down the company, the company has to be at least 3 months dormant. One thing to be aware of is the final assets of your company, if its less than £25,000 then you can do a normal strike off. Anything remaining will be counted as capital gain. If there is more than £25,000 you might need to use a liquidator to apply for members voluntary liquidation.

Summary

  • You would need to make sure you declare the income as employment income in your self-assessment.
  • Inside IR35, you are technically an employee, so any expenses related to the work that is inside IR35 you will claim the expenses as an employee.
  • You need to look at your long-term vision, if running a business is not your long-term vision then you would need to look at closing down the company.

P.S. If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please book me in via the link so we can arrange a chat: https://hannah-xu.youcanbook.me

Is Your Business In Sleep Mode? Critical Issues For Dormant Companies

Currently, the IR35 is heating the public sector and is affecting a lot of NHS doctors that are working as a locum via limited companies. Because of IR35, the trust or the agency are using the blanket approach to push everyone into either PAYE or umbrella companies.

As a result, lots of locums would stop using limited companies. Those companies would be inactive. And some of them are even considering closing down their companies to avoid the hassle. However, setting companies aside doesn’t mean no responsibilities at all. Here are some critical issues you may need to be aware of.

What defines a company as inactive?

A dormant company is a company that does not have any activities, there are no major transactions apart from minimal transactions if there is a bank account still open and the bank is still charging a fee.

If you have any activities even though you have any money coming in but you still have a pile of cash and are still running payroll out of the company then your company is not dormant. It just means you do not have any sales coming in but you still incur payroll costs. You still have to file a full set of accounts, the company tax return and declare what a standard company needs to declare.

Filing Confirmation Statement

If your company qualifies as dormant, it doesn’t mean you do not need to do anything for the company. For instance, every limited company is required to fill a confirmation statement once a year. A confirmation statement is a replacement of annual return. The detail is very similar to any return, it confirms who are the shareholders/directors are, the address and it makes sure all information is up-to-date. You would also need to declare the people with significant control, this is not only the shareholder but the person who has more than 25% of shares. If you file the confirmation statement online then there is a fee of £13 but if you file it by paper then you need to pay £40.

If you forget or do not file the confirmation statement there is no penalty. It is your responsibility as director to file it on time, if you leave it for a while then Companies House will assume your company is no longer trading so they will automatically dissolve your company.

Filing Company Accounts

If your company is dormant then of course there is no transactions and no activities but you still need to file dormant company accounts. You still need to declare how much shares your company is holding and some basic information. The format is much simpler than the normal set of accounts but it is still something you need to file. It needs to be filed within 9 months after the accounting period.

Responsibilities to HMRC

For a dormant company, by law corporation tax is not required, but it is still your responsibility to let HMRC know the company is dormant, or simply file a nil Corporation tax return to fulfill the requirement. If you do not file the company tax then they will still issue the penalty.

This applies to companies that are VAT registered as well, you still need to file your quarterly VAT return except you would put everything as zero.

What happens with your self-assessment?

This mainly relies on your personal circumstances. If you do not have any dividends income to declare and everything goes through PAYE, even if you think you do not need to file a self-assessment, it is better to let HMRC know rather than leaving it.

Closing down the company

If you think you will never use the company again, in order to reduce the hassle of having to take on all these responsibilities, you might decide to close down the company completely. For most contractors, if their net assets are less than £25,000 then the majority of the time they do qualify for the striking off process. It is important to check with Companies House to see if you do qualify for the striking off process.

There may be issues that will affect this such as if you still have payment arrangements with creditors then you might not qualify. You would need to go through a liquidator so that they are able to deal with this for you and close down the company.

If your company does qualify for striking off then there is an application on Companies House that needs to be signed by all directors. However, before you do the application you need to de-register for VAT, PAYE etc. Any obligations need to be fulfilled and every order needs to be paid, especially HMRC debt. After this process, you are then able to continue with the application, the company will normally be dissolved within 2 months. Within the 2-month period you need to make sure you close down all business accounts because if you do not all the business assets will go to the crown, which means you end up losing all the money.

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