February Question and Answer Section
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Newsletter issue - February 2011.
Q. My husband inherited a house in 1986 when it was worth £40,000. He gave me a half share in the property in 2009 when it was worth £450,000. We sold the property in December 2010 for £460,000, but we never lived there. How do I calculate my share of the profit?
A. As you and your husband were living together during the tax year in which he gave you a half share in the property, that gift is deemed to be made at a value that creates no gain and no loss for your husband. Thus in 2009 he disposed of half the property to you at a value of £20,000, the tax cost of which was half the probate value: £20,000. Hence he makes no profit on his gift (£20,000 - £20,000 = nil). The market value of the property in 2009 is irrelevant. You acquire the half share in the property in 2009 at a deemed cost of £20,000.
When the property was sold in 2010 your share of the proceeds was £230,000 (£460,000/2) and the cost of your half share was £20,000. Your share of the profit (taxable gain) is £210,000 (£230,000 – £20,000). Your husband has also made a taxable gain on the sale of the property of £210,000. You can both deduct an annual exemption of £10,100 from your share of the gain, but the balance of the gain will be subject to capital gains tax.
Q. In January 2008 I formed C Ltd with my wife, we were both directors and held 50% of the shares each. In March 2010 we split up, her shares were transferred to me and she also resigned as a director. C Ltd ceased trading in July 2010, and it will be wound up informally. Can I claim entrepreneurs' relief on the whole of the capital distribution paid to me on the winding up, or will just part of the distribution qualify because I only held 100% of the shares for the last 4 months that C Ltd traded?
A. You qualify for entrepreneurs' relief on gains arising from all your shares in C Ltd, as you held at least 5% of the ordinary shares for 1 year up to the date the company ceased trading, and you were also a director of C Ltd throughout the last year of trading. Therefore any shares you held in C Ltd qualify for entrepreneurs' relief, and you will pay capital gains tax at 10% on the capital distribution (after deduction of your annual exemption of £10,100), rather than tax at 28% or 18%.
Q. I've heard that tax relief on childcare vouchers is changing from April 2011. How can I maximise the tax relief from this scheme while it lasts?
A. Employers can currently supply their employees with childcare vouchers worth up to £55 per week, which are completely free of tax and NI. However, employees who join the childcare voucher scheme from 6 April 2011 will only be able to receive vouchers worth £28 per week, if they pay tax at the 40% rate. Those employees in the childcare voucher scheme before 6 April 2011 will not have the value of their vouchers limited, and neither will employees taxed at the basic rate of 20%.
To gain maximum advantage from the scheme you need to bring into your childcare voucher scheme as many employees as qualify before 6 April 2011. Unfortunately employees who are not yet parents, or do not have parental responsibility for a child aged under 16, do not qualify to join the childcare voucher scheme. The childcare vouchers can only be used to pay for childcare provided by a registered or approved childcarer.