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Oxford: 01865 950972 

Marlow: 01628 951283

Case Studies: Tax Planning

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Read about various scenarios where we have helped our clients.

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    Our clients, a couple, bought a new property in Oxfordshire where they would be living as their main family home.

    They wanted to rent their former home in London and had been told it would fetch an annual rent of some £100,000. One of them was an additional rate taxpayer paying tax at 45%, and the other worked part-time and did not fully utilise her 20% rate band. It seemed to make sense for the lower earner to receive the rent, but the property was owned in their joint names and the clients wanted this to continue.
    How we helped
    We confirmed that it was possible for a property to be owned jointly and for one spouse to receive the income if a “declaration of trust” was put into place.
    We established that the London property was subject to a mortgage and that this was to continue. We pointed out the considerations in relation to a potential Stamp Duty Land Tax charge on a transfer of the debt between spouses or civil partners and provided an estimate of the charge so that this could be considered in the decision.
    We reviewed the income tax positions and provided a summary of the potential tax payable as a result of the income received jointly, compared with the position of the lower earner receiving the whole income. We pointed out the consequences of the lower earner’s income exceeding £100,000 in the future, and the impact of the loss of personal allowances. This is particularly relevant now that relief for mortgage interest is given at 20% against the tax payable and can no longer be claimed as a deduction against the rental income received.
    The outcome
    The clients were able to make an informed decision on whether to go ahead with the “declaration of trust” so that the lower-earning spouse was taxed on the rental income.
    The clients were also aware of the impact of the lower earner going back to work full time, and the potential effect on personal allowances if the salary achieved took their gross income over £100,000.
    We can continue to review their tax positions on an annual basis and help with their tax compliance requirements in reporting the rental income on their tax returns.
    If in the future, the clients want to sell the London property, we will be able to calculate the potential capital gains tax payable and help with the reporting of the residential property capital gain to HMRC.
    Written: August 2020

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    One of our clients, who had been a high earner, was looking to retire and had also recently inherited substantial investments from his late mother.

    His spouse was also looking to retire on a smaller pension. The clients wanted advice on how best to structure their tax affairs going forward.
    How we helped
    We asked the clients for an estimate of their current and anticipated future income. We asked for a list of assets and found out that the inheritance included a property which the clients wished to rent out going forward.
    We prepared a report detailing how they could look to equalise income. In the report we looked to maximise the use of their personal allowances and tax rate bands, considering the capital gains tax rules on transfers between spouses and civil partners. In the report was a summary of their current income and projected position based on planning.
    In preparing the report, we worked with their stockbroker to ascertain the estimated income to be generated by the inherited investment portfolio, and the potential to use tax free investments such as ISAs. We also liaised with the pension adviser to plan the level of their retirement income.
    The outcome
    The clients were able to plan their financial requirements for retirement.
    Both individuals were able to preserve their personal allowances and enabled them to maximise the use of the lower-earning spouse’s basic rate band. The clients were also able to consider the level of withdrawals from their pension funds, with a view to preserving these as far as possible, because of their current favourable inheritance tax status.
    The financial adviser was able to transfer investments to maximise the use of the unused ISA allowances, and there would now be two annual capital gains tax exemptions to counter tax on any taxable disposals.
    We can continue to review their income requirements as their needs change, and help with their tax compliance requirements, including the completion of tax returns.
    When looking at retirement and other lifestyle changes, it is important to take full advice to ensure that income needs are met now and in the future, as well as other planning such as that relating to inheritance tax and updating Wills.
    Written: September 2020

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