Budget 2017 – highlights and (more) lowlights!

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Mar 092017
 

Here is a summary of all the Budget 2017 proposals affecting mainly small and mediums sized businesses and private clients:

Corporation tax:

  • Offshore property developers: all profits arising on or after 8 March 2017 from trading in and developing land in the UK will be taxed in the UK.
  • Substantial Shareholding Exemption:   new rules will remove the investing company requirement within the Substantial Shareholdings Exemption, and provide a more comprehensive exemption for companies owned by qualifying institutional investors.
  • Loss relief reform: the amended rules a) give all companies more flexibility by relaxing the way in which they can use losses arising on or after 1 April 2017 when they are carried forward – these losses will be usable against profits from different types of income and profits of other group companies and b) restrict the use of losses carried forward by companies so that they can’t reduce their profits arising on or after 1 April 2017 by more than 50% – this restriction will apply to a company or group’s profits above £5 million – carried forward losses arising at any time will be subject to the restriction
  • Tax treatment of appropriations to trading stock: new proposals will remove the ability of businesses with loss-making capital assets to obtain an unfair tax advantage by converting those losses into more flexible trading losses. The changes will take immediate effect from Budget on 8 March 2017.
  • Corporation tax rate has changed from 20% to 19% effective 01 April 2017

Income tax:

  • Income Tax charge and rates: tax year 2017 to 2018 will see 3 distinct groups of rates: the ‘main rates’, which will apply to ‘non-savings, non-dividend’ income of taxpayers in England, Wales and Northern Ireland, the ‘savings rates’, which will apply to savings income of all UK taxpayers, and the ‘default rates’, which will apply to a very limited category of income taxpayers that will not fall within the above 2 groups, made-up primarily of trustees and non-residents (details here)
  • Dividend allowance reduction: the 0% tax allowance for dividend income will be reduced from £5,000 to £2,000 from April 2018 ()
  • EIS and SEIS: the rights to convert shares from one class to another will be excluded from being an arrangement for the disposal of those shares within the no pre-arranged exits requirements for the EIS and SEIS for shares issued on or after 5 December 2016.

………more to follow

 

Sep 242015
 

ATED is a tax (s.94 Finance Act 2013) charged on ‘non-natural persons’ (a company, a partnership with a company member, or a collective investment scheme) that hold an interest in one or more UK residential dwelling(s) known as (a ‘single-dwelling interest’) and where that single dwelling interest is worth a certain value threshold as follows:

  • above £500,000 (but not more than £1 m) — tax charge £3,500 (from 1 April 2016 – s.110 Finance Act 2014)
  • above £1 million (but not more than £2 m) — tax charge £7,000 (from 1 April 2015 – s.109 Finance Act 2014)
  • above £2 million (but not more than £5 m) — tax charge £23,350 (from 1 April 2015; for chargeable periods beginning 1 April 2014, the charge was £15,400; for chargeable periods beginning 1 April 2013, the charge was £15,000 – s.70 Finance Act 2015)
  • above £5 million (but not more than £10 m) — tax charge £54,450 (from 1 April 2015; for chargeable periods beginning 1 April 2014, the charge was £35,900; for chargeable periods beginning 1 April 2013, the charge was £35,000 – s.70 Finance Act 2015)
  • above £10 million (but not more than £20 m) — tax charge £109,050 (from 1 April 2015; for chargeable periods beginning 1 April 2014, the charge was £71,850; for chargeable periods beginning 1 April 2013, the charge was £70,000 – s.70 Finance Act 2015)
  • above £20 million — tax charge £218,200 (from 1 April 2015; for chargeable periods beginning 1 April 2014, the charge was £143,750; for chargeable periods beginning 1 April 2013, the charge was £140,000 – s.70 Finance Act 2015)

It does not apply where an individual alone, or with other individuals, owns a residential property. ATED is an annual tax and is charged in respect of ‘chargeable periods’ running from 1 April to 31 March. The first chargeable period was 1 April 2013 to 31 March 2014. Where a person owns a single-dwelling interest for a shorter period then its chargeable period will be 1 April to the date it no longer owns the interest (for example 1 April 2015 – 28 January 2016). Furthermore, where a liability arises in only part of the year then a proportion of the annual amount payable will need to be paid.

In order for ATED to apply all of the following conditions must be met:

  • The ownership condition
  • Beneficial entitlement, either alone or with others, to a single-dwelling interest
  • The single dwelling interest has a value that fits the band above
  • None of the exemptions apply, and the person is
  • Unable to claim any relief

The ownership condition is met if the single dwelling interest is held by a company (otherwise than as a member of a partnership or for the purposes of a collective investment scheme), or by a company which is a member of a partnership, or for the purposes of a collective investment scheme.

Beneficial entitlement in a single-dwelling interest means an interest which a person is entitled to or in which the person has an interest for its own benefit. 

Single dwelling interest is an important definition and to understand that meaning of ‘dwelling’ will need to be understood first. A ‘dwelling’ has its normal meaning and will comprise a distinct unit of residential property (i.e. a house or flat which is considered as one residence). Non-residential properties are not within the charge to ATED. A dwelling not only includes a property that is used as a dwelling but also one that is suitable for use as a dwelling. The ‘dwelling’ may extend beyond the actual building. It will include land which comprises the grounds or gardens to a dwelling and any other land that is, or is at any time, intended to be occupied or enjoyed with a dwelling. A dwelling also includes land which subsists (or is intended at any time to subsist for the benefit of the dwelling). This ensures that any land which would naturally be associated with a particular house is treated as part of that dwelling. The most obvious example is a garden, but a tennis court, drive, garage, swimming pool and changing room, summerhouses etc would all be included as part of the dwelling for the purposes of ATED.

Exemptions apply to charitable companies provided the interest is held by that charitable company for qualifying charitable purposes, and the necessary conditions for the exemption from the charge are met. A charitable company is charity that is a body of persons and is distinct from a charitable trust. A ‘charity’ is defined as: ‘a body of persons or trust that: (a) is established for charitable purposes only (b) meets the jurisdiction condition (c) meets the registration condition, and (d) meets the management condition. Exemption also applies to public bodies which are not regarded as companies for the purposes of ATED and they will therefore not meet the ownership condition in section 94(4) FA 2013. As well as the bodies themselves, any company in which all the shares are owned by a listed public body, as well as any wholly owned subsidiary of such a company, will also be exempt. Certain bodies established for national purposes (e.g. The Historic Buildings and Monuments Commission for England) and certain dwelling conditionally exempt from inheritance tax are also not hit by the charge.

Reliefs are available and can be claimed against ATED which being an annual tax must be paid if the conditions for a liability are met at the beginning of a chargeable period. Reliefs must be claimed on the ATED. The reliefs are:

  • Qualifying property rental businesses including preparation for sale etc carried on a commercial basis and with a view to a profit.
  • Dwellings opened to the public where a single-dwelling interest is exploited as a source of income in a qualifying trade which offers the public the opportunity to make use of, stay in or otherwise enjoy the dwelling as customers of the trade on at least 28 days of the year. Relief will also be available where a single-dwelling interest is not yet being exploited provided there is an intention to do so and steps are being taken so that the trade can begin without delay (except so far as any delay is justified by commercial considerations or cannot be avoided). This is the case even if the trade in question has not commenced. Furnished holiday letting is an example.
  • Property developers including exchange of dwellings where a single-dwelling interest is held by a person carrying on a property development trade (the ‘property developer’), and the interest is held so that it will be developed and resold as part of the property development trade.
  • Property traders where a single-dwelling interest is held by a person carrying on a property trading business (the ‘property trader’), and the interest is held as the stock of the business and for the sole purpose of resale in the course of that property trading business.
  • Financial institutions where repossesses a property as a result of its business of lending money.
  • Occupation by employees or partners where a dwelling may be owned by a trading business to provide living accommodation to employees or where a trading business is structured as a partnership, providing accommodation to certain partners may also be relievable (as well as to employees of the partnership).
  • Farmhouses occupied by a ‘farm worker’ or a ‘former long-serving farm worker’ may qualify for relief. The farmhouse, however, must form part of the land that is occupied for the purposes of a qualifying trade.
  • Providers of social housing where the providers must be either a ‘profit making registered provider of social housing’ or a ‘relevant housing provider

Filing return and payment of tax 

The ATED return must be made by a person for a chargeable period in respect of any single-dwelling interests within 30 days of the date on which the person first comes within the charge to ATED. A person who owns a single dwelling interest on the first day of the chargeable period (1 April each year) will have a filing date for the return of 30 April.  For a newly built property the return should be filed within 90 days of the earliest of the date your property becomes a dwelling for Council Tax purposes or the date it was first occupied. However if your property was valued between £1 million and £2 million for the   chargeable period 1 April 2015 to 31 March 2016 you need to submit your return a) by 1 October 2015 if your property is within the scope of ATED on 1 April, or b) by the later of 1 October 2015 or within 30 days of acquisition if your property comes within the scope of ATED after 1 April. The return could be filed using this form. A taxpayer can make an amendment to its return, or its return of adjusted chargeable amount, at any point within 12 months of the end of the chargeable period to which the amendment relates. The paper form of the return could be sent to HMRC, ATED, Crown House, Birch Street, Wolverhampton, West Midlands, WV1 4JX. HMRC will send you a reference number by letter or email, within 10 days of receiving your ATED return which could be used for making the payment.

Tax Partners

Aug 152012
 

Unlike some other tax jurisdictions, residence, ordinary residence and domicile status assume considerable significance when it comes to an individual’s liability to UK tax. UK residents not domiciled in the UK (‘non-doms’ for short) are treated to some special rules on their overseas income and gains. Whilst the Finance Act 2008 (FA 2008) fundamentally changed the course of non-dom taxation, the Finance Act 2012 (FA 2012) introduced further changes and added some sweeteners as well.

Normally, UK residents are liable to pay UK tax on their worldwide income and chargeable gains on ‘arising’ basis. In other words, if you are tax resident in the UK you are liable to pay UK tax on your income earned and gains made wherever in the world. However, if you’re resident but not domiciled in the UK you could opt for your overseas income and gains to be taxed in the UK on ‘remittance’ basis. What it means is that you will be taxed on your foreign income and gains only to the extent to which they are remitted over to, or received in, the UK.

The changes made by FA 2008 and FA 2012 mean that now we have three broad classes of non-domiciled residents for tax purposes:

1) Those resident in the UK for at least 12 of the last 14 years

Unfortunately the law assumes that the longer you’re resident in the UK the richer you get overseas!! Accordingly, if you have been resident in the UK for at least 12 out of the last 14 years and if you wish to pay UK tax on remittance basis, you will need to cough up a remittance basis charge (RBC) of £50,000. In effect this is a charge for not paying tax on your worldwide income and gains on an arising basis. This is in addition to any tax that you might have to pay on your UK income and gains and on the amount remitted to the UK. But, the RBC could be nominated against tax due on your unremitted overseas income and gains, so to that extent they are not taxed again.

Let us consider a scenario where you are a 40% tax payer and you have an overseas income totaling £225,000. If you remit £100,000 you will pay £40,000 (£100,000 @ 40%) straight away. Over and above that you will also pay the RBC of £50,000 because you have been resident in the UK for at least 12 of the last 14 years. However, this RBC could be nominated against your unremitted income of £125,000. Should you bring this £125k over to the UK in later years you don’t need to pay any more tax because the RBC has sufficiently covered the tax due (£125,000 @40%. Should you have an unremitted income of £300,000, you will be liable to pay tax on £175,000 (i.e. £300,000 – £125,000) whenever that is remitted to the UK. However, the RBC of £50,000 would care of part of the tax due i.e. on £125,000 income.

The consequence of this change is that from April 2012 if you have been resident in the UK for at least 12 years you should opt for remittance basis only if your overseas income is more than:

a) 50,000/45% – £111,111 for those paying the additional rate of tax,
b) 50,000/40% – £125,000 for those in the higher tax rate, and
c) 50,000/20% – £250,000 for those paying basic rate of tax.

(For simplicity this illustration considers overseas income only, whereas both income and gains are taxable)

2) Those resident for at least 7 out of the last 9 years

The tax exposure for those in this category will be on identical lines as above except that the RBC payable is limited to £30,000. Therefore, you should opt for remittance basis only if your overseas income is more than:

a) 30,000/45% – £66,667 for those paying the additional rate of tax,
b) 30,000/40% – £75,000 for those in the higher tax rate, and
c) 30,000/20% – £150,000 for those paying basic rate of tax.

3) Those resident in the UK for less than 7 years

You have the option of either paying UK tax on your worldwide income and gains or you could opt for the remittance basis. Should you opt for the remittance basis you will need to pay UK tax in the year in which the money is received in the UK.

Making a claim

In order to benefit from the remittance basis, every tax year you will need to make a claim on your tax return. You do not need to make a claim in the following circumstances: a) Your unremitted ‘relevant’ overseas income and gains is less than £2000; OR b) if you meet all the following conditions: (i) you have no ‘UK income or gains’ for the tax year other than taxed investment income of no more than £100 gross; (ii) you have no ‘relevant income’ or ‘gains’ remitted to the UK in the tax year; and iii) you have been resident in the UK for not more than six years or you are less than 18 years of age

Key points

• An individual who claims the remittance basis for any tax year is not entitled to any personal reliefs (e.g. personal allowance) for that tax year and is not entitled to the annual exemption for capital gains tax.

• The remittance basis applies to foreign capital gains and income. It cannot be claimed for gains or income in isolation.

• The remittance basis can be claimed on a tax year basis i.e. you could opt to claim remittance basis for a particular year but could choose to pay tax on ‘arising’ basis the next year.

• The definition of what constitutes ‘remittance’ is very wide and includes virtually anything a ‘relevant person’ brings in, receives in the UK.

Unremitted income and gains

So what about the unremitted foreign income and gains? Whether or not you opt for the remittance basis, as a non-domiciled tax resident you are liable to disclose your unremitted overseas income and gains over £2,000. Where do not opt for the remittance basis you’re liable to pay tax on arising basis. Should you wish to pay tax on arising basis, you could claim a credit (Foreign Tax Credit Relief) for all or part of the foreign tax paid against any UK tax due. In many cases this will be covered by a Double Taxation Agreement (DTA) with the country in which you have paid the foreign tax. Where no treaty exists, the UK rules allow unilateral tax credit relief. So, in many cases you will find choosing the ‘arising’ basis a better option, the only change being some additional accounting computation work.

The FA 2012 sweetener

Even if you opt for the remittance basis, you could still escape UK tax on the remittance made under a new law effective April 2012. Called Business Investment Relief, if the qualifying conditions are met, such remittances will not constitute ‘remittance’ and will not, therefore, be taxed. Broadly the conditions are:

a) The remittance must be in the form of an investment (in the form of shares or a loan) in to a ‘qualifying company’ that meets the eligibility conditions for the relief

b) The investment must be made within 45 days of your foreign income and gains being brought to the UK

c) No relevant person is able to obtain benefits, either directly or indirectly, that are attributable to the investment

d) You must make a claim for the relief from UK tax on your Self Assessment tax return in the year of investment

e) Upon disposal of the investment the proceeds (up to the amount of the investment) should be taken offshore or be re-invested in another qualifying investment within 45 days.

And then of course, as with any piece of tax legislation, there is the universal tail-end rider: the investment must not be made as part of a scheme or arrangement, the main purpose of which is tax avoidance.

Eligible trading company: In order to claim this relief the target company should be a private limited company:

a) Carrying on a commercial trade, or
b) One that is preparing to do so within 2 years of remittance, and
c) Carrying on commercial trade is what it does or substantially does

There are then elaborate anti-avoidance rules, called chargeable events, that would reverse the relief unless mitigation steps are taken.

Advance assurance

HMRC does offer an advance assurance scheme where the remittance basis user could make a request to HMRC for opinion on whether a planned investment would be treated as a qualifying investment under the business investment relief provisions.

Watch this space for detailed analysis of the business investment relief provisions.

Tax Partners

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