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August Question and Answer Section

Newsletter issue - August 2011.

Q. I've heard I could reduce inheritance tax by leaving money to charities in my Will. How does this work? Do I have to leave a minimum amount?

A. Any bequests to charities in your Will are free of inheritance tax (IHT). This means the executors of your estate will only pay IHT at 40% on the value of your estate after deducting the following:

  • gifts to charities,
  • gifts to your UK domiciled spouse; and
  • your available nil rate threshold.

For deaths after 5 April 2012 it is proposed that the rate of IHT paid will be reduced to 36%, if at least 10% of the net estate is left to charity. Your net estate is the amount on which IHT would be charged without considering the charitable gifts. You may need to redraft your Will to ensure your estate qualifies for this tax discount.

Q. I earn £30,000 p.a. taxed under PAYE, but also have a variable amount of rental income. I have read that 40% tax applies above £35,000 but I've also been told I can earn £42,475 before paying 40% tax. How much rental income can I receive before paying 40% tax?

A. The 40% tax rate applies in the current tax year (2011/12) on taxable income above £35,000. This is your total income (earnings, rentals and any interest or dividends) less your tax free allowance of £7,475 and any other valid deductions, such as expenses relating to your rental income. So you can have gross income before deductions of £42,475 (£35,000 + £7,475) before you have to pay 40% tax. However, you must declare any rental income you receive to HMRC.

Q. My employees are occasionally required to work late in the evening. If I pay for taxis to take them home is that cost tax allowable for the business and will the employees be charged tax on the taxi fare?

A. Where an employer pays for the travel costs of an employee for a journey between home and work (i.e. commuting), that cost would normally be a taxable benefit in kind for the employee. However, there is currently a particular tax exemption for late night taxis used when it occurs irregularly, the employee is required to work later than usual and until at least 9pm and at the time the employee finishes work either public transport was unavailable or it would be unreasonable to ask the employee to use it. It also applies where car sharing arrangements have broken down. In these cases the cost of the taxi is not taxable on the employee. But you can only use this tax exemption up to 60 times per year per employee. You need to keep accurate records of why each employee took a taxi to get home and the timing of those journeys.

This tax exemption for late night taxis is due to be abolished from April 2012, so you may need to reconsider your employees' travel arrangements in future. The cost of taxi journeys for employees on business or to or from work will always be tax allowable for the business.

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