Morfitt's Mailshot Issue 26...          Can't see this email properly? View in browser

Morfitt & Turnbull

Issue 26   

Fancy a Christmas pint???
A different spin on the UK tax system.....

Over the Christmas period a group of ten friends go out for a beer or two with the bill for all ten coming to £100. Let's suppose that instead of paying equally they do so based upon the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7
The eighth would pay £12.
The ninth would pay £18.
The tenth man (the richest) would pay £59.
So, that's what they decided to do; the ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by £20". Drinks for the ten men would now cost just £80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free, but what about the other six men; the paying customers?

How could they divide the £20 windfall so that everyone would get his fair share?

They realised that £20 divided by six is £3.33 but if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four; now paid nothing (100% saving).
The sixth now paid £2 instead of £3 (33% saving).
The seventh now paid £5 instead of £7 (28% saving).
The eighth now paid £9 instead of £12 (25% saving).
The ninth now paid £14 instead of £18 (22% saving).
The tenth now paid £49 instead of £59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

"I only got a pound out of the £20 saving," declared the sixth man, he pointed to the tenth man, "but he got £10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a pound too. It's unfair that he got ten times more benefit than me!"

"That's true!" shouted the seventh man. "Why should he get £10 back, when I got only £2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!"

The nine men surrounded the tenth and gave him a physical "talking to".

The next night the tenth man didn't show up for drinks, so the nine sat down and had their beers without him, however when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, in a roundabout way, is how our tax system works!!! The people who already pay the highest taxes will naturally get the most benefit from a tax reduction.

Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier...

Any questions on beer or tax, speak to your usual Adviser!


Adam's Technical...  
A possible increase to the Inheritance Tax allowance
The summer budget announced that there will be a new "main residence nil rate band" designed to protect the family home from Inheritance Tax (IHT). Since the initial announcement further information has filtered through which I have detailed below:
  The Residence Nil Rate Band (RNRB) is being introduced in April 2017. It will be phased in gradually from this date with the additional allowance for each individual set to be £175,000 by April 2020.

The RNRB will increase as follows:

£100,000 - tax year 2017/18
£125,000 - tax year 2018/19
£150,000 - tax year 2019/20
£175,000 - tax year 2020/21

The intention is that from April 2021 the RNRB will increase in line with the Consumer Prices Index (CPI).
  As with the £325,000 IHT allowance the RNRB allowance can be inherited by a spouse or civil partner on death.
  The transfer must be made on death and has to ultimately be left to direct descendants - children or grandchildren.
  It is available when an owner of a residential property dies on or after 6 April 2017. However, if married or in a civil partnership and one person dies before 6 April 2017 and the other on or after this date, the amount available as a RNRB is £100,000. If both deaths occur before 6 April 2017 they will not benefit from the RNRB.
  An individual without a residential property or a share worth less than the RNRB will only benefit up to the value of the property. If a property is not owned the RNRB will be of no benefit.
  If any of the RNRB is not used on first death the percentage entitlement remaining can be passed to the surviving partner to be used against the RNRB applying at the date of the second death.
  If an individual's estate is valued at more than £2 million their entitlement to the RNRB is reduced by £1 for every £2 the estate is over £2 million. This £2 million threshold will also increase in line with the CPI from April 2021.
  Special provision is being made for those who downsize / dispose of their home after 8 July 2015 to prevent the scenario of individuals not wanting to move. This area of the RNRB is under consultation and legislation is expected to be published in the Finance Act 2016. Please note that anyone who disposed of a property prior to the 8 July 2015 will not benefit.
If you have any queries, please speak to your usual M&T Adviser.

Gareth Says... 

FTSE watch

A view on the markets to end 2015....

"At the time of writing (15 December) the FTSE is down 8.2% (for 2015) at 5980. The majority of our clients have made money this year which is a pleasing result. Diversification is how this is done and we will keep our prudent approach for 2016."

Staff Matters - closing/opening times
After that bumper edition of Morfitt's Mailshot we have to end extending our best wishes to one and all over the festive period. The M&T office will be closed as follows:
  • Closes 12.30pm Friday 18 December
  • Reopens 8.30am Monday 4 January 2016
See you in 2016!!!


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