Category Archives: New Tax Relief

Life Insurance Available With Tax Relief.

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At last you can buy life insurance and get tax relief. The breakthrough results from changes in the Gordon Browns’ latest Budget speech but the tax relief is only available on a new special sort of life insurance policy. You can’t get tax relief on your existing life insurance policies.

These new policies exploit a loophole in the new Finance Bill and should result in savings of between 5% and 15% for standard taxpayers and around 30% for higher taxpayers.

But there are strings attached! You can’t add extras on to your life policy such as critical illness cover and the insured sum must be a fixed sum. Neither can you have a joint policy. Basically, it has to be a bog standard, level term, single beneficiary, life insurance policy.

Then there are more restrictions, but quite honestly, these are unlikely to pose a problem to anyone unless they’re very wealthy! You can’t have one of these special life policies if the annual contributions you pay into your pension plus the life insurance premiums, exceed £215,000 per year. Furthermore, if the value of your pension fund plus the payout on your life policy exceeds £1,500,000, the current limit set by the Chancellor, then the excess will be taxed at 55%. Conventional life insurance policies are excluded from this calculation.

Tax relief on the premiums is automatically collected by the life insurance company so you pay a premium which is already reduced by standard rate tax relief. If you’re a higher rate taxpayer, you’ll have to claim the extra tax through your self-assessment tax return. However, once you’ve told your taxman about your premiums, they should automatically continue to give you the tax relief through your tax code.

So why are the savings less than the value of the tax relief? Well, the reason is that the life companies have to administer the tax relief and there are certain operational restrictions imposed by the Inland Revenue on the insurance company. This means that the basic cost of these policies is a little more than conventional life insurance – but after the tax relief you should save.

As with all these loopholes, you must be aware that the Chancellor could remove the tax relief. Having said that, it is rare for a future tax change to be applied retrospectively so you are likely to be safe. Your income could also change and move you into a lower tax bracket. This would reduce your savings.

This new type of life policy is now available from most of the big UK insurers and specialist life insurance brokers. However, you won’t be able to get an online quotation – you’ll have to speak on the phone to a Life Insurance Adviser.

And just to confuse matters these policies are known under a range of names: Pension Term Insurance, Life Insurance with Tax Relief, Life Protection with Tax Relief – but they all mean the same thing.

Oh yes, let me confirm one miss-understanding. No, you don’t have to buy a pension at the same time!

Scrouge Online are one of the uk’s leading finance websites covering life insurance, loans and mortgages


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The New Entrepreneurs Relief UK

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The recent Budget provided more details on the new tax relief that will now apply for disposals of businesses and certain shares after 6 April 2008. It’s a partial climbdown on the flat 18% rate of capital gains tax that has been introduced, but ignoring the political issues it represents a welcome and important tax relief available to business owners.

 

How will Entrepreneurs Relief apply?

 

The relief will apply from 6 April 2008 and will only apply to:

•Gains made on the disposal of all or part of a business (including shares), or

•Gains made on disposals of assets following the cessation of a business

 

It will operate by ensuring that the first £1 million of gains will be charged to CGT at an effective rate of 10 per cent. Gains in excess of £1 million will be charged at the normal 18 per cent rate.

 

However before you get too excited this £1 million maximum is a lifetime limit. Therefore if you make a number of capital gains at different times you’ll only be able to make claims for relief up to a lifetime total of £1 million.

Any gains in excess of the £1 million limit will be taxed at the normal 18% rate of capital gains tax.

 

 

The 4/9 restriction – Entrepreneurs Relief

 

It’s important to note that we’re talking about effective tax rates here. There will be no new 10% rate of capital gains tax. It will work by reducing gains liable to CGT (at the single 18 per cent rate) by 4/9ths, resulting in an effective 10 per cent rate (5/9ths × 18 per cent).

 

Entrepreneurs relief will be given before any capital losses and the annual exemption and will need to be claimed.

 

 

Entrepreneurs Relief Example

 

Mike sells shares in his trading company and realises a gain of £1 million. If this was his only gain the full amount would be reduced by 4/9 (£444,444) and the remaining gain would therefore be around £555,556. Assuming no capital losses and ignoring the annual exemption this would then be taxed at 18% with the CGT being £100,000.

 

This equates to an effective rate of 10%.

 

Even if the gains exceed £1 million Entrepreneurs relief will push the effective tax rate down.

 

If for example a gain of £1.5 million was realised this would be reduced by £444,444, as above. The remaining gain would then be taxed at 18% giving a CGT charge of £190,000. This equates to an effective CGT rate of just 12.6% which is still a highly beneficial tax rate.

 

 

Who qualifies? – Entrepreneurs Relief

 

To start with there’s no age limit (which distinguishes it from the old retirement relief). So you could sell a business aged 25 and still benefit from the relief.

 

 

Entrepreneurs relief will apply to gains on:

 

•Disposals of the whole or part of a trading business This includes furnished holiday lettings but does not include a property investment business.

•Disposals of shares (and securities) in a trading company provided that the individual making the disposal has been an officer or employee of the company and owns at least 5 per cent of the shares.

 

 

The Revenue will continue to define a trading company in the same way as for taper relief purposes. This means that they’ll look at the accounts and activities of a company for the past few years to ascertain whether there are any ‘substantial’ non trading assets or activities. Substantial for this purpose means at least 20%.

Carl Bayley is the author of How To Avoid Tax On Foreign Property. For more info on Overseas Property Tax visit Property Tax Abroad or Foreign Property Tax


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