How do I calculate UK inheritance tax
The first step to see if your estate will be affected by IHT is to calculate how much it is actually worth – you may be quite surprised! Don’t forget that this is not a static figure and that your property and investments could increase in value over the next few years which, in turn, could increase your IHT liability.
Your estate value is equal to your total assets less total liabilities. You then apply the following deductions:
· all assets left to a UK-registered charity.
· some political donations to major political parties.
· gifts of up to £3,000 in total in a given year.
· “small gifts” of up to £250 made to separate individuals.
· some business assets (under Business Property Relief or “BPR”).
· some farmland (under Agricultural Property Relief or “APR”).
· gifts made out of income that do not affect the standard of living of the donor.
· gifts made in contemplation of a marriage or civil partnership. The allowance ranges from £5,000 to £1,000 according to the closeness of the relationship of the donor to the person marrying or entering into a civil partnership. £5,000 for close family, e.g. wife and children, £2,500 for grand children, £1,000 for anybody else.
You then deduct the nil tax band rate ie £325,000 (IHT free amount is £325,000 until at least the end of the tax year ending 5 April 2015). Any excess is taxed at 40%.
For example, if you leave behind an estate worth £500,000 the tax bill will be £70,000 (40% on £175,000 – the difference between £500,000 and £325,000).
How do I reduce tax for sole traders working from Home?
The basic rule is that you can claim expenses that are wholly and exclusively for the purpose of carrying out your trade. The most obvious ones are cost of stock, and payroll costs. Other expenses you may be able to claim include:
· Costs of working from home: If you work out of your home then as a sole trader you can charge a proportion of certain household expenses such as mortgage interest, utility bills, and insurance. A good way to calculate the proportion to charge is to do a rough estimate of square footage used, or base it on the number of rooms used, and the amount of time they are used for business. Note if you are using part of your house exclusively for business then this can give you problems with capital gains tax when you sell your house in the future – non exclusive use is much safer. Alternatively you canclaim £3 for each week where you use part of your house for work, which is an easier calculation!
· Telephone: You can claim a proportion of your line rental and call charges. The best approach is to periodically track your business calls and your personal calls so you can see what proportion of the use is business. Keep a record of it (a call log) to support your tax return.
· Broadband: You can also claim a proportion of your broadband costs – again support this through keeping a log to show how many hours broadband is used for business vs. personal. You could keep a log for a couple of weeks every few months assuming that those weeks are representative.
· Mileage: Mileage is calculated at 45p a mile (2011-2012 tax year) for cars for the first 10,000 miles, and 25p a mile above 10,000 miles. You can also claim mileage for motorbikes at 25p a mile, and for cycles at 20p a mile – now there is a good reason to get fit and cycle! Mileage can only be claimed for business mileage, and travel to your normal place of work cannot be charged (so if you work in the same office every day, that is viewed as normal commuting, and is not allowable for tax purposes).
· Business insurance: If you need any insurance for your business, e.g. public liability insurance, professional indemnity insurance, etc. then the cost is tax deductible.
· Magazine subscriptions: If you have a subscription to a magazine, trade paper, etc. which is relevant for your business (e.g. Vogue if you are in fashion) then you can offset this against your business profits.
· Website costs: On-going website hosting costs for your business site are tax deductible. Website development costs are viewed as capital expenditure so are treated differently, ask for advice from your accountant.
· Advertising and marketing: You can charge your PR, advertising, and marketing costs against your business profits. Be careful though, you may think that business entertainment falls under this heading, but it doesn’t, and is not tax deductible.
· Professional fees: If you pay a lawyer to draft your terms and conditions, or you pay an accountant for your end of year accounts, all of these fees are allowable for tax purposes.
· Ongoing training costs: If you need to keep your skills and knowledge up to date then you can claim costs for training against your profits. If you are being taught something new which will enable you to add to your products or services then that is viewed as capital, and you should seek advice from your accountant.
Make sure you keep good records of your expenses, and all your receipts – either original hard copies or electronic scanned versions – to support your tax return.
It’s essential to squeeze every drop of mortgage interest tax relief out of your borrowings. Here’s my short survival guide: