NEWSLETTERSEP03

INHERITANCE TAX AND LAND WITH DEVELOPMENT VALUE

Just how should you value that potential building plot in the garden when it comes to valuing the house and garden for inheritance tax purposes? That was the question over which the Inland Revenue and the executors of a late homeowner disagreed.

Neither the deceased not the executors had taken any steps to obtain planning permission for the development of the garden. The house had not been acquired with a view to development of the garden.

The Valuation Office, acting for the Inland Revenue, believed that the house was worth £72,500 and that the building plot was worth £44,000. It offered to settle at a rounded down total of £115,000.

The executors claimed the entire site was worth only £65,000.

The Lands Tribunal decided that the valuation of the house at £72,500 could not be faulted. There was evidence of sales in the area at the time to support this valuation.

However, the Tribunal determined that the correct value of the plot was only £12,500. It reached this opinion on the basis that a developer would be willing to pay only about 25% of the development value of the plot because of the uncertainties surrounding the granting of planning permission.

The difference between the valuation of £44,000 and £12,500 represents a saving of inheritance tax of £12,600.

This case demonstrates that it is proper to attribute some ‘hope value’ to plots of land which have development prospects. However, where no steps have been taken to realise the development value there is scope for negotiating a substantial discount for the value for the plot.

Our advice : If you encounter a ‘hope value’ situation, make sure that the valuation is determined using the principles outlined in this case – Prosser v IRC.

EXTRACTING MONEY FROM YOUR COMPANY FREE OF NATIONAL INSURANCE

With companies having to pay employer’s national insurance contributions at 12.8% and employees having to pay at 11% on earnings up to £30,940 and at 1% on any excess over this limit, it is no wonder that directors are looking for ways to get money out of their companies without suffering these substantial costs.

It is not uncommon for individuals to invest, sometimes quite substantial, sums of money in their companies. Few, however, bother to charge the company interest for the money so lent, yet there are good reasons why they should do so.

Interest is a good alternative to a dividend, particularly if it allows you to make a payment to somebody who is not a shareholder.

Interest, unlike dividends, is an allowable deduction against the company’s corporation tax.

Importantly, interest is not classed as earnings so there is no national insurance cost to the employer or the employee.

On the administrative side of things, the company has to deduct income tax at the rate of 20% (just as banks and building societies do) and pay this over to the Inland Revenue at the end of each calendar quarter. As with bank and building society interest, non taxpayer recipients can reclaim the tax deducted at source, basic rate taxpayers have no further liability and higher rate taxpayers must pay another 20% tax through the self assessment procedure.

Our advice: If you have lent your company more than, say, £10,000 you might like to consider charging interest on your loan. You could save tax and national insurance.

VAT – MILEAGE ALLOWANCES

Following the radical changes to company car taxation in recent years, it is now commonplace for employees to own their own motor cars and to use them for the purposes of their employer’s business. By way of compensation, employers typically pay an authorised mileage rate to their employees for business mileage.

Depending on the engine size of the motor car, the employer can treat 1.5p to 2p per mile of the mileage rate as VAT. No petrol receipts are required.

Our advice: If your business has omitted to claim back the VAT element of the mileage allowance it should calculate the amount under-claimed for the last three years and make the necessary correction in its next VAT return.

0870 PHONE NUMBERS CAN COST

YOU MONEY

Do you know the difference between an 0870x number, an 0845x number and an 0800x number? Well, make sure you do, otherwise you could be out of pocket.

0800 numbers are free to use. You can call and talk for as long as you like and no charge is made for the call.

0845 numbers are charged at local rates. However, if you have a tariff that offers you cheap local rates, an 0845 number will still be charged at the standard local rate.

0870 numbers make money for the companies that offer them. Calls to these numbers are charged at the national rate. The companies that offer these numbers get rebates from the telephone companies based on usage. Think help lines, information lines, long waits in queues and you can see how much money can be made from you – so watch out!

There is no reason why anyone should choose to offer an 0870 number when dealing with customers exept to make money. Otherwise they would offer an 0845 number.

Our advice: Watch out for 0870 numbers. You can request a normal number from the operator instead of the 0870 number and you should ask for it. It is a bit rich calling a business (and worse if they are in the same town) and not only being charged a higher rate, but also knowing they are making money from you too.

BUSINESS NAMES – WHAT TO INCLUDE

You would not think that a mistake on your letterhead really matters. But it could be costly. Fall foul of the legislation and you could be fined up to £1,000, or worse still, risk having a legal claim thrown out if it is not clear from your letterhead who actually owns the business.

Limited Companies

You do not have to list all the directors on your letterhead but if you list one you must list them all, including their initials.

You must include the company’s full name, where it is registered (normally England & Wales), the registration number and registered office (this must be given on all important business stationery especially business letters and order forms).

Sole traders

If you trade under a name different to your own eg Leaky Plumbers, you must put your own name and address on all business letters, written orders, receipts, invoices and demands for payment. You cannot use just a box number. However, there is no longer a requirement to register the name anywhere.

Next time you order stationery make sure it complies with the law.

Our advice: Avoid confusion and risk of legal claims by including the full name, registration number and registered address on all businses stationery. Sole traders must include their own names.

SAVE US FROM BAD KEEPERS

I wouldn’t say our keeper is bad but …

“… he suffers repetative strain injury from lifting the balls from the back of the net.”

“… he’s the hero of the opposition’s fan club.”

“… during one memorable game he saved a penalty and six fans fainted.”

“… not only did he have a nightmare match, letting in five goals against our local rivals. When he left the stadium he put his head in his hands and missed.”

Copyright Ó K P Bonney & Co LLP 2003. All rights reserved. No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers. Disclaimer The publishers have taken all due care in the preparation of this publication. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publishers.

The View from No 50