The Art of Efficient Gifting

Article Abstract:

Capital transfer tax was introduced in 1974 in the United Kingdom as a tax on lifetime gifts which replaced estate tax which could often be avoided by lifetime giving. The burden has been eased by subsequent legislation, so that, with careful tax planning, wealth can be passed to younger generations. When advising a client, the professional must not discount the importance of the client's wishes, intentions and personal needs as they override the importance of tax savings. Two rates of capital transfer tax exist, one for lifetime gifts (which is the lower rate) and one for transfers on or within three years of death (whichever is higher). Spouses are treated separately with each allowed the full range of exemptions and deductions. Exemptions include transfers between spouses, small gifts (less than 250 pounds per year per person receiving) and annual exemptions (the sum of small gifts up to three thousands pounds in a tax year). Wedding gifts, charitable contributions, gifts for national purposes, gifts for public benefit, gifts to political parties and normal expenditure out of income each carry other levels of exemption. Business property, agriculture property and woodlands each carry relief from capital transfer tax. It is possible to pay this tax by installments. A nine-point set of guidelines are included for the tax planner.

Laws, regulations and rules, Tax policy, Gift tax

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Management Buy-Outs - Avoiding the Tax Pitfalls

Article Abstract:

When a business or subsidiary is failing or draining capital and a group can no longer justify ownership, occasionally the senior management in that business disagrees as to its future prospects. They may form a group themselves and buy it. There are taxation problems with this that should be considered. When assets are transferred to a subsidiary and then bought out, the tax advantages of losses in the trade may be lost. The sale of a subsidiary may also lose past trading losses due to a change in ownership and a change in the nature or conduct of the trade within three years of the change of ownership. This may include changes before the trade. Problems may also be caused if the close company makes a loan to a participant - this may be interpreted as a loan from the bought-out company to its holding company. There are three rules which determine whether a manager is allowed income tax relief from interest paid on a loan to purchase shares. Forming a new company to buy out the old company often solves problems that arise concerning this and also relief for capital losses. There are two schedule E problems that can arise as well. Professional tax planning assistance should be sought.

Management, Property

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Are Share Schemes Tax Effective?

Article Abstract:

Favorable tax treatment can be gained from profit-sharing and savings-related share option schemes in the United Kingdom. In the case of a share option scheme, no tax liability occurs at the time of the grant provided the option cannot be exercised within seven years. Dilution of control and devaluation of equity can occur. In share incentive schemes, the company loans the money or sets up a trust so that the employee can acquire shares. These shares are taxed as income. In an approved-savings-related share option scheme, all employees who have worked for the company a specified number of years must be allowed to join. The tax benefits for employees are substantial, but they are expensive to administer. Approved profit sharing schemes are another option. Calculations and limitations are included with examples.

Income tax

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