December 18th, 2019

The Jonathan Ford & Co Advent Calendar – Day 18

 

Over the course of the festive season we’ll be bringing you an advent calendar’s worth of tax and financial tips.  Some of them might even be a little Christmassy!  Bundles of cash lying about can only be a good thing, right?  Open door number 18 and see if there are any issues lurking. 

Bank deposits

If you’re in the position of holding large amounts of cash on deposit then that can only be a good thing.  There are still, however, some issues with this.

If your bank fails – as Northern Rock did in 2008 – then the Financial Services Compensation Scheme will only cover you for up to £85,000 per person per financial institution.  Consider moving funds to other banks so as to maximise the insured amount.

If you hold all your cash in one account then you are also more at risk of losing it all to fraud.  Again, spreading your cash around the various banks is a good tactic to reduce your exposure.  Also talk to your bank about additional security measures.

You may also have exposure to inheritance tax (IHT) which can become an issue with estates as small as £325,000.  Consider making use of the various exemptions when gifting cash, especially if your plan is to leave cash to relatives upon your death.  There is a £3,000 annual exemption and an exemption for regular cash gifts out of income provided the gift does not impinge on your lifestyle.  You can of course make larger cash gifts but these will only fall out of the scope of IHT if you survive for seven years following the gift.

Large cash balances within limited companies also come with the same issues.  Be careful, though.  If you are opening up new deposit accounts then these must be in the company’s name and you can’t gift cash to family members without first paying tax.

Holding large balances under investment in a limited company may also jeopardise Entrepreneurs’ Relief and Business Property Relief, which exempts the value of the company from IHT.  Consider reducing the cash held by making pension contributions but be careful of the annual and lifetime limits.

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Filed under

Banking Capital Gains Tax Inheritance Tax Limited Companies

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Director

John manages a wide portfolio of owner managed businesses and oversees the smooth operation of the firm’s payroll department.

After obtaining his degree in mathematics from the University of Liverpool, John joined Jonathan Ford & Co in 2004 and qualified as a chartered accountant four years later. John likes to keep abreast of developments in tax and accounting and is responsible for the mentoring of junior staff.

Outside of work, John enjoys keeping fit and is a Liverpool FC season ticket holder.

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