Family tax planning exercises involving the transfer of assets between spouses (or civil partners) is often necessary to enable each spouse to fully utilise the various tax exemptions available to an individual. If one spouse owns all the family assets this would not be possible. The ability to make such transfers tax effectively is thus important.

Equalisation of Estates
As a general rule so-called "equalisation of estates" is desirable. This means that ideally each spouse should own assets amounting to at least the value of the inheritance tax (IHT) nil rate band (£325,000 for tax year 2010/11); own assets which, on sale, enables full use of the capital gains tax (CGT) annual exempt amount (£10,100 for tax year 2010/11) and own assets generating income sufficient to mitigate any exposure to higher rate income tax.

The transfers between spouses must be "real" transfers and effected as if to a third party. This means all relevant documentation must be correctly completed.

Inheritance Tax
For IHT purposes inter-spouse transfers are "exempt" transfers and thus not subject to IHT if the spouses are married, although not necessarily living together. As indicated above, transfers from one spouse to the other to ensure each spouse’s estate is at least £325,000 can thus be made without attracting any inheritance tax charges.
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Accountancy Age

Two members of a 21-strong carousel fraud gang have been told to hand over £92.3m in the biggest ever confiscation order secured by HM Revenue & Customs.

Syed Ahmed of Buckinghamshire and Shakeel Ahmad of Middlesex, both currently serving seven-year jail terms, were each ordered to repay £92.3m within two months or face an additional ten years in jail in addition to repaying the money.

Carousel, or Missing Trader Intra-Community fraud sees companies inside the EU buy small high- value goods such as mobile phones VAT free before selling the goods on with VAT included.

However, fraudsters keep the VAT instead of passing it on to the taxman. This process is repeated as the goods pass between traders, earning it the term ” carousel” fraud.

In this case the gang made £37.5m through the MTIC fraud.The money was then used to bankroll the development of luxury flats in Dubai, the taxman said.

In laying down the confiscation order, the taxman has ring-fenced, or ” restrained” two apartment tower blocks in Dubai worth £80m, luxury properties in Knightsbridge and Buckinghamshire collectively worth £6m and a fleet of supercars including a Ferrari 360 Modena convertible.

Richard Meadows, assistant director of criminal investigation for HMRC, said:

“This is the largest ever confiscation order secured by Revenue & Customs at the end of one of our most complicated investigations. I believe it to be one of the largest confiscation orders in the UK to date.”
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Accountancy Age

The Treasury and taxman are ploughing on with plans for a one-size-fits-all anti-avoidance rule, despite opposition from individuals, businesses, advisers and even an accountant MP.

Ever since the idea of a General Anti-Avoidance Rule (GAAR) was unveiled by the Labour government there have been warnings from the profession about the ramifications of such a plan - namely that it would it raise significant uncertainty as to whether activities seen as legitimate planning will be treated as tax avoidance. It could leave accountants potentially being taken to task by HM Revenue & Customs for advice honestly given, but treated as helping their clients sidestep their tax obligations.

In efforts to preserve the UK’s tax take, this further blurring of the lines will not only affect the 4.8m SMEs which form the foundation of the UK economy but also any individuals or new businesses thinking about a move to the UK, advisers say.

In kicking off the informal consultation this month, HMRC said it will be exploring whether there is a case for developing a general anti-avoidance rule. This will be part of wider work on improvements to the tax policy making process. However, advisers maintain the GAAR will lead to uncertainty for individuals and businesses.

Even MPs have been at loggerheads over the prospect of the GAAR. One claimed that top accountants’ primary objective was to help clients sidestep their tax obligations.

However, Conservative MP Nigel Mills, an accountant, hit back at the claims, warning that it would damage efforts to spur inward investment to the UK and keeping entrepreneurs and businesses within our borders. A general anti-avoidance rule in principle may not be a brilliant way of doing that, Mills warned.
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Accountancy Age

• Calling it an “unavoidable Budget”, George Osborne says Budget details will not be buried in the book.

• Everyone will have to contribute to the recovery, but everyone will also share in the eventual prosperity.

• Estimated growth in the UK economy should hit 1.2% this year, 2.3% next year, 2.8% in 2012, 2.9% in 2013 and 2.7% in both 2014 and 2015.

• CPI rates will be 2.7% at the end of the year before returning to target “in the medium term”, which remains at 2%.

• The UK’s borrowing will fall to 1.1% of GDP within five years.

• Public sector net debt to fall to 67% of GDP by 2015/2016, compared to increases proposed by the previous government.

• Unemployment to peak at 8.1% this year before falling back to 6.15 by 2015.

• Most of the deficit reduction will come from spending cuts. 77% of the reduction will come from savings, while 23% will come from tax rises.

• George Osborne says the structural deficit will be plugged by 2015/16 and is set to be cleared one year early.

• The Civil list will be subject to the same audit by the National Audit Office and will be frozen at £7.9m annually.

• An extra £17bn in savings in public services has been found, equivalent to a 25% across the board cut. Final details will be in the spending review released on 20 October.

• Public sector pay will be frozen for two years, but the 1.7m people earning up to £21,000 will receive a pay rise of £250 a year.

• The small companies rate will be cut to 20%.

• Housing Benefit to be reduced by £1.8bn by the end of Parliament.

• Corporation tax will fall to 24% by 2014, dropping 1% a year.

• Tax relief for the video games industry has been repealed.

• Plans to increase broadband access across the country will be funded by the private sector and not through a broadband levy

• The threshold for employers National Insurance Contributions will be increased.

• Employers outside of London and the South East will be exempt from National Insurance Contributions for the first £5,000 up to ten employees.

• About £2bn will be raised via a new banking levy charged to large banks.

• The standard rate of VAT will rise to 20% from 17.5% on 4 January 2011, bringing in £13bn a year of extra revenue.

• The increase in cider duty will be reversed at the end of the month

• Duties on alcohol, tobacco and petrol will remain the same.

• There will be a review of oil prices in time for the next Budget aimed at stabilising pump prices. A further announcement on aviation tax by the next Budget is also expected to change a tax structure which charges each passenger to a per flight tax.

• Personal tax allowance to rise to £7,475 in April, making 23 million taxpayers an extra £170 a year better off and taking nearly a million people out of income tax.

• Capital Gains Tax stays at 18% for standard rate taxpayers but from midnight, those paying the higher rate will see CGT rise to 28%

• The chancellor has announced that while the CGT rate for entrepreneurs’ relief will remain at 10%, the limit is to increase from £2m to £5m.

• Capital allowances are cut to mitigate more a generous corporation tax regime.

• Allowances for plant and machinery operations are reduced from 20%-18% and from 10%-8% for longer lived assets.

• Pensions will be re-linked to earnings, the state pension will increase in line with the consumer price index or 2.5% whichever is greater.

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Accountancy Age

A tribunal decision published on Friday 7 May provides details of the decision in the Novasoft case brought by Novak Brajkovic against HMRC. Between August 1998 and December 2002, Brajkovic worked as a self-employed computer analyst/programmer with Avecia in a deal arranged through the agency Lorien.

Under the IR35 legislation introduced in April 2000, HMRC served formal notices on Novasoft in 2005 under the Income Tax (Pay As You Earn) Regulations 2003 and formal decisions under section 8 of the Social Security (Transfer of Functions etc) Act 1999 based on its determination that Brajkovic was effectively a “disguised employee”.

Of particular note in this instance was that Novasoft used the HMRC’s IR35 assistance service to check whether the IR35 legislation applied its circumstances in January 2002. HMRC officials undertook further enquiries - including interviewing managers at Avecia - that ultimately led to the assessments issued in 2005.

HMRC’s stance was that “Brajkovic did not present an image of a businessman offering his services to the marketplace; rather, of someone comfortable working for the same client on terms equivalent to employment.” As the two sides could not agree, the case eventually ended up in front of the Commissioners.

Brajkovic gave no formal evidence at the hearing in December 2009, but acted as his own advocate. Doing so denied HMRC’s representative the opportunity to cross-examine him formally, but the Commissioners accepted the arrangement was satisfactory.
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They expect that an increase in VAT to 20% has been merely delayed for political purposes until after the general election, which is almost certain to be held in early May.

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Accountancy Age