Tax Tip No. 311 - Retirement Gifts

Retirement gifts

“… Freedom an' whisky gang thegither! ..” [Robert Burns]

As many of you will know from the January edition of this missive: “… Bob Law, CEO of Langdowns DFK, is stepping down from his position after 39 years at the firm … Bob will continue on at the firm until his retirement on the 30th April …”.

So, the day is upon us when Bob marches off into what promises to be a very busy next stage of his life, with a retirement that is richly deserved, and which his directorial colleagues were keen to celebrate with him. As you will know, Bob has been an enormously influential driver in the development of Langdowns DFK, and we were therefore keen to mark the occasion with a retirement gift, one component of which was a single malt whisky from a Scottish island close to Bob’s heart, distilled as part of the same 1977 vintage as Bob himself became part of the firm.

Prior to a relaxation for minor gifts in last month’s Budget announcement, retirement gifts were the only staff gift that was exempt from income tax, and even then only where the employee has 20 or more years’ service and where a long-service gift has not been given in the previous 10 years. For this exemption to apply, the employee must receive a tangible gift. Money or cash vouchers are not permitted, but a vintage bottle of whisky is. It is permissible to give a gift with a value up to £50 per year of service, and 39 years x £50 appeared to provide a degree of leeway. Of course, none of the other directors even considered the taxation implications, but as Tax Director, well, you do silently wonder to yourself ... You see, like many businesses, Langdowns DFK has gone through something of a metamorphosis over those 39 years. Bob has been with the firm for 39 years, but for the first 22 of those years the firm was a partnership. Then, part of the business was carved out into a limited company, and both the partnership and the limited company became Langdowns DFK ‘only’ in 2007. Do all the 39 years ‘count’, or has Bob only been with the firm for tax purposes for the 17 years that he has been a director, or the 9 years he has been a director of Langdowns DFK?

Bizarrely, professional and HMRC commentary on the matter is non-existent, which is a little surprising given that reducing rates of corporation tax have caused many unincorporated businesses to become limited companies over the years. So, in the absence of commentary, it is necessary to check out the precise terminology of the legislation, which states that “… service is treated as being with the same employer if it is with two or more employers, each of whom is a successor or predecessor of the others …”. Bob’s original service wasn’t as an employee, but it was for ‘an employer’, who was a predecessor of the current firm. And on that basis, we feel entitled to exclude the gift from charge.

With that good news in the bag, I am sure you will all join me - and The Bard - in a final retirement toast: -

Here's a bottle and an honest friend!
   What wad ye wish for mair, man ?
Wha kens, before his life may end,
   What his share may be o' care, man ?
Then catch the moments as they fly,
   And use them as ye ought, man :
Believe me, happiness is shy,
   And come not aye when sought, man