FINANCE BILL/FINANCE ACT UPDATE Robert Jamieson MA FCA CTA - - PowerPoint PPT Presentation

FINANCE BILL/FINANCE ACT UPDATE

Robert Jamieson MA FCA CTA (Fellow) TEP 18 October 2017

DIVIDENDS

• Dividend tax rates unchanged for 2017/18.
• But dividend allowance reduced to £2,000

for 2018/19 onwards.

TRADING AND PROPERTY ALLOWANCES

• W.e.f. 6 April 2017, individuals do not

have to pay income tax on trading and property income of up to £1,000 in each case.

• This helps those who do sell items on

eBay or who rent out car parking spaces at home on sporting occasions such as Wimbledon.

• No need to determine allowable expenses.

TRADING AND PROPERTY ALLOWANCES (CONT)

• Partial

relief where income exceeds £1,000 – use £1,000 instead of actual allowable expenditure.

• Needs election – usual time limit.
• Individual can also elect not to take

advantage of this relief – only likely to be necessary where there is loss.

• Partnership trades are excluded.

TRADING AND PROPERTY ALLOWANCES (CONT)

• If individual has 2 or more sources of

trading income, he can decide how to split his £1,000 between each trade.

• But cannot thereby create loss from any
• f his sources.
• Anti-avoidance for employers and close

companies.

TRADING AND PROPERTY ALLOWANCES (CONT)

• In

context

• f

property allowance, distributions from REITs and income representing rent-a-room receipts do not qualify for this relief.

• Also

property landlords cannot use £1,000 facility if they have non-deductible interest costs (eg. because of changes which took effect on 6 April 2017).

OPTIONAL REMUNERATION ARRANGEMENTS

• Salary sacrifice schemes with benefits in

kind can offer useful income tax and NIC savings.

• New legislation in Sch 2 FA 2017 attempts

to stop most of these advantages.

• Unfortunately, latest changes are not just

restricted to salary sacrifice schemes – they also impact on flexible benefit arrangements.

OPTIONAL REMUNERATION ARRANGEMENTS (CONT)

• 2

types

• f

“optional remuneration arrangement”:

• Type A; and
• Type B.
• In either of these cases, taxable value will

be higher of:

• existing taxable value of benefit; or
• salary foregone.

OPTIONAL REMUNERATION ARRANGEMENTS (CONT)

• Tax charge will nearly always be second
• f these 2 options.
• This anti-avoidance legislation will not

apply to:

• pension scheme contributions from

employer;

• employer-provided pensions advice;
• employer-provided childcare;

OPTIONAL REMUNERATION ARRANGEMENTS (CONT)

• cycle-to-work schemes;
• provision
• f

ultra-low emission vehicles; and

• benefits

related to termination

• f

employment.

• Takes effect from 6 April 2017, but

“grandfathering” will ensure that schemes in place before 6 April 2017 are protected for 1 further year.

OPTIONAL REMUNERATION ARRANGEMENTS (CONT)

• And, for arrangements involving cars,

vans, fuel, living accommodation and school fees, transitional protection continues until 5 April 2021.

• Transitional protection will be lost if terms
• f pre-6 April 2017 arrangement are varied
• r renewed on or after that date.
• Further guidance now found in HMRC’s

Employment Income Manual.

OPTIONAL REMUNERATION ARRANGEMENTS (CONT)

• Recent announcement about company

cars provided via salary sacrifice scheme.

• Impact of new rules will clearly be greater

for benefits with low statutory value or where benefit is otherwise exempt.

• Hostile reception for Sch 2 FA 2017.

ASSETS MADE AVAILABLE TO EMPLOYEES

• Special

rules for determining cash equivalent of benefit in kind in respect of cars and beneficial loans.

• Other assets are subject to 20% “annual

value” charge in S205 ITEPA 2003.

• On strict interpretation, employees are

taxed as if asset is made available for whole tax year, even if it is only available for part of year or is being shared.

ASSETS MADE AVAILABLE TO EMPLOYEES (CONT)

• No

provision for apportioning such benefits, despite case law decisions like Westcott v Bryan (1969).

• Also see guidance in Paras EIM21634 and

EIM21635 of Employment Income Manual.

• S8 FA 2017 introduces provisions which

calculate adjusted cash equivalents for 2017/18 onwards where asset is not available for employee’s private use.

ASSETS MADE AVAILABLE TO EMPLOYEES (CONT)

• Deduction to be made from benefit charge

for any day when asset is unavailable for private use because it:

• is not in fit condition;
• is undergoing repair or maintenance; or
• is shared with another employee.

EMPLOYER-FINANCED PENSIONS ADVICE

• New

income tax exemption where “relevant pensions advice” is provided for employee.

• Exemption is limited to £500 per tax year.
• This covers advice not just on pensions

but also on other financial and tax issues relating to pensions.

• Replaces previous limit of £150 – see SI

2002/205.

EMPLOYER-FINANCED PENSIONS ADVICE (CONT)

• If individual has 2 or more employments,

£500 exemption applies separately to each.

• Benefit must normally be available to all

employees – cannot be given to, say, senior staff only.

• Let-out for certain groups of employees
• n grounds of age or ill-health.
• Takes effect for 2017/18 onwards.

EMPLOYER-FINANCED PENSIONS ADVICE (CONT)

• Exemption was recommended as part of
• utcome
• f

recent Financial Advice Market Review involving HM Treasury and Financial Conduct Authority.

TIME LIMIT FOR MAKING GOOD

• This refers to situation where employee

makes payment in return for benefit from his employer.

• Payment reduces taxable value of benefit
• n £-for-£ basis – most commonly it

arises on account of stipulation on part of employer.

• Thought necessary to have fixed date by

which benefits must be “made good”.

TIME LIMIT FOR MAKING GOOD (CONT)

• F(No2)B 2017 has therefore set 6 July

following end of relevant tax year as latest date for this purpose.

• This applies for 2017/18 onwards.

LEGAL EXPENSES

• Cost of legal advice paid for by employer

was previously

• nly

deductible if employee (or former employee) had had allegations made against him in his capacity as employee.

• No longer necessary for employee to be
• n receiving end of such allegations – for

example, employee might be having to give evidence before a public hearing.

LEGAL EXPENSES (CONT)

• If legal advice and support is required, it

will now be possible to claim deduction.

• Similarly, it was felt to be unfair that

individuals in receipt

• f

termination payments could only have access to allowable deduction if they paid their legal costs first – this has also changed.

• Amendments take effect for 2017/18
• nwards.

TERMINATION PAYMENTS

• Recent consultation about tax and NIC

treatment of termination payments.

• W.e.f. 6 April 2018, Government will be:
• retaining £30,000 exemption;
• continuing with unlimited employee NIC

exemption;

• making all payments in lieu of notice

(PILONs) subject to tax and NICs;

TERMINATION PAYMENTS (CONT)

• treating any other contractual payment

as earnings;

• aligning rules for income tax and NICs

so that employer NICs are chargeable

• n payments in excess of £30,000;
• removing foreign service relief; and
• confirming that injury exemption does

not extend to payments for injured feelings.

TERMINATION PAYMENTS (CONT)

• Tax consequences will no longer depend
• n how employment contract is drafted or
• n whether payments are structured to

represent some

• ther

form

• f

arrangement (eg. payment for damages).

• Feelings about these provisions are:
• annoyance that these amendments will

complicate law rather than simplify it;

TERMINATION PAYMENTS (CONT)

• disappointment

that non-contractual PILONs will no longer fall within £30,000 exemption;

• surprise about decision to impose

employer NICs;

• concern that introduction of NICs will

cause confusion among employers; and

TERMINATION PAYMENTS (CONT)

• unease that imposition of NICs will

make employers more inclined to reduce value of termination packages.

• And should foreign service relief really be

abolished?

• Abolition is going ahead, but with small

relaxation in FB 2018.

PENSIONS

• Individuals who have already flexibly

accessed their money purchase pension schemes following changes introduced in 2015 are subject to modified AA test known as money purchase annual allowance (MPAA).

• MPAA was originally set at £10,000.
• This was primarily to deter “recycling”.

PENSIONS (CONT)

• Government now believe that this limit

was too generous – w.e.f. 6 April 2017, MPAA has been reduced to £4,000.

• Unused MPAA cannot be carried forward

(unlike AA).

• 10% special deduction abolished for

foreign pensions paid to UK-resident individuals on or after 6 April 2017 (Sch 3 FA 2017).

DEDUCTION OF INCOME TAX FROM INTEREST

• Because of FA 2016, 95% of all taxpayers

who receive interest no longer have to pay tax on it.

• Following consultation, no income tax

deducted at source from interest paid by:

• investment trusts;
• pen-ended investment companies; and
• authorised unit trusts.

DEDUCTION OF INCOME TAX FROM INTEREST (CONT)

• This latest change takes effect on 6 April

2017.

• Also no tax deduction at source from

interest paid to investors in peer-to-peer lending.

• See Sch 5 FA 2017.

EIS AND SEIS CHANGES

• For shares issued on or after 5 December

2016, EIS and SEIS rules amended to allow companies to have shares with rights for conversion or exchange at later stage into shares of different class.

• However, conversion or exchange should

not take place during “qualifying period” (normally next 3 years).

SOCIAL INVESTMENT TAX RELIEF

• Original 5-year time limit for qualifying

SITR investment extended by further 2 years, ie. up until 5 April 2021.

• SITR investor must be independent of

social enterprise, ie. he must hold no

• ther shares or debentures in social

enterprise.

SOCIAL INVESTMENT TAX RELIEF (CONT)

• New stipulation that there must be “no

disqualifying arrangements”, ie. no arrangements entered into with main purpose of securing any of following venture capital reliefs:

• SITR;
• EIS/SEIS/VCT relief; and
• share loss relief.

SOCIAL INVESTMENT TAX RELIEF (CONT)

• Uprated investment limit of £1,500,000 for

any social enterprise.

• Employee limit is fewer than 250 full-time

equivalent employees.

• Social enterprise must be in sound

financial health at time of investment.

• Several new prohibited activities (eg.

leasing).

• These all have effect from 6 April 2017.

BUSINESS INVESTMENT RELIEF

• BIR allows remittance basis taxpayers to

bring in overseas income and gains without paying tax, provided they use money to make commercial investment in company.

• Needs claim.
• Qualifying

investment can be made directly or indirectly – this must be done within 45 days.

BUSINESS INVESTMENT RELIEF (CONT)

• Originally, BIR investment covered:
• subscription
• f

new shares

• r

securities; or

• making of loan.
• Company (known as “target company”)

had to be:

• eligible trading company; or
• eligible stakeholder company; or

BUSINESS INVESTMENT RELIEF (CONT)

• eligible holding company.
• No requirement for target company to be

UK-incorporated.

• Investment must always be in private

company (with no shares listed on recognised stock exchange).

• LLPs and other non-corporate structures

are excluded.

• 2-year start-up rule for trading companies.

BUSINESS INVESTMENT RELIEF (CONT)

• 2 points to note:
• property letting counts as commercial

trade; and

• at least 80% of company’s activities

must be trading (measured by reference to turnover).

• At time of investment, individual must not
• btain “related benefit” (ie. any benefit

attributable to making of investment).

BUSINESS INVESTMENT RELIEF (CONT)

• Director’s fees and normal benefits in

kind are OK.

• No monetary limits to remittance or size
• f investment.
• Relief is not restricted to UK-resident

companies nor does company’s business have to be carried on wholly or mainly in UK.

• All types of trade qualify (cf. EIS relief).

BUSINESS INVESTMENT RELIEF (CONT)

• No embargo on investor working for his

company – indeed, company can be family concern.

• Clawback
• f

relief in certain circumstances (eg. sale or “abnormal” extraction of value), but can be set aside by “appropriate mitigation steps”.

• Changes in F(No2)B 2017 to make BIR

more attractive (all w.e.f. 6 April 2017):

BUSINESS INVESTMENT RELIEF (CONT)

• BIR to be allowed on acquisition of

existing shares;

• start-up period for company planning to

trade extended from 2 to 5 years;

• company can be both trading and

stakeholder entity (ie. hybrid);

• company which is member of LLP is not

regarded as carrying on LLP’s trade;

BUSINESS INVESTMENT RELIEF (CONT)

• “extraction of value” rule will only be

treated as having been breached if “abnormal” benefit is received in circumstances attributable to taxpayer’s investment; and

• longer grace period allowed where

company fails to satisfy 5-year start-up time limit.

APPROPRIATION TO TRADING STOCK

• Where chargeable asset is appropriated

for use as trading stock, trader is deemed to have sold asset for current MV.

• Potential difficulty of collecting CGT –

“dry” tax charge.

• Election under S161(3) TCGA 1992:
• no gain or loss; but
• MV of asset in trading accounts is

adjusted.

APPROPRIATION TO TRADING STOCK (CONT)

• Converts capital gain into trading profit –

but is this always desirable?

• Time limit for making election.
• Hitherto, election has also been valid

where there was allowable loss – effect was to replace loss with more flexible trading deduction.

• Widely used planning point in recent

times for, eg. property developers.

APPROPRIATION TO TRADING STOCK (CONT)

• However, election facility removed for

appropriations to trading stock made on

• r after 8 March 2017 where loss arises.
• Loss now has to remain as capital item.
• Election can still be made for chargeable

gains.

EMPLOYEE SHAREHOLDER STATUS ABOLISHED

• Favourable tax treatment for employee

shareholder shares brought in 4 years ago has been abolished for schemes set up on or after 1 December 2016.

• In FA 2013, employees were granted CGT-

free shares worth up to £50,000 in return for waiving normal employment rights.

• Income tax and NICs not chargeable on

first £2,000 of share value received.

EMPLOYEE SHAREHOLDER STATUS ABOLISHED (CONT)

• Tax advisers initially sceptical about idea.
• But it was widely used, for example, by

private equity firms.

• Hence lifetime limit of £100,000 placed on

CGT exemption by S88 FA 2016.

• All

tax advantages for employee shareholder status have been removed for schemes launched on or after 1 December 2016.

EMPLOYEE SHAREHOLDER STATUS ABOLISHED (CONT)

• However, arrangements set up before 1

December 2016 are still OK – shares can be sold free of CGT (up to £100,000 limit).

• Note own share purchase change – sale

proceeds no longer treated as automatic capital receipt.

• See Ss12 – 14 FA 2017.

ENVELOPED UK PROPERTY

• Non-UK domiciliaries are chargeable to

IHT on UK-situated property – this rule applies, regardless

• f

individual’s residence status.

• Standard practice for such individuals:

hold UK residential property through

• verseas company (or similar vehicle).
• This gives rise to excluded property, but

potential exposure to ATED.

ENVELOPED UK PROPERTY (CONT)

• W.e.f. 6 April 2017, Government are

bringing UK residential properties within charge to IHT where they are held in

• verseas structure.
• Such property is to be removed from

definition of “excluded property” in Ss6 and 48 IHTA 1984.

• No difference whether overseas structure

is owned by individual or trust.

ENVELOPED UK PROPERTY (CONT)

• Shares in “close” overseas company will

no longer constitute excluded property to extent that value of any interest is attributable, directly or indirectly, to UK residential property.

• Similar rules for non-UK domiciliaries

who are partners in

• verseas

partnerships holding residential property in UK.

ENVELOPED UK PROPERTY (CONT)

• Normal IHT chargeable event legislation

will bite.

• Limited de minimis exemption – less than

5% interest (by value).

• These changes do not affect other UK

situs assets owned by offshore entities –

• nly residential property is caught.

ENVELOPED UK PROPERTY (CONT)

• Definition of UK residential property is

wide – no minimum monetary threshold and no special reliefs for main residence

• r rental properties.
• Government have decided to go with

definition in FA 2015 for non-UK residents rather than that applying for ATED.

• This covers any property suitable for use

as dwelling (+ construction/adaptation).

ENVELOPED UK PROPERTY (CONT)

• List of exceptions.
• But what happens if residential property

has previously been used for commercial purposes?

• “Just and reasonable” apportionment is

not considered to be appropriate.

• Originally,

Government planned to introduce rule adapted from IHT business relief legislation.

ENVELOPED UK PROPERTY (CONT)

• Full value would be caught if it had been

dwelling at any time within last 2 years.

• But this idea has been dropped.
• Only relevant factor = status of property

at time of chargeable event.

• Apportionment will, however, be needed

where there is duality of use, eg. flat above shop premises.

ENVELOPED UK PROPERTY (CONT)

• Valuation:

use value

• f

holding in

• verseas

entity, and not value

• f

underlying property itself.

• Valuation: where overseas entity owns
• ther assets in addition to UK residential

property, make adjustment to ensure that

• nly value deriving from UK residential

property interest is caught.

ENVELOPED UK PROPERTY (CONT)

• With debts, they can be offset against

value of UK residential property, but, where there are other types of asset, liability must be allocated across all assets (in proportion to MVs).

• This applies even if debt is specifically

secured on UK residential property.

• Illustration.

ENVELOPED UK PROPERTY (CONT)

• In addition, there will be exposure to IHT

where:

• there is “relevant loan”;
• money or money’s worth is used as

security, collateral or guarantee; or

• interest of shareholder or partner is

directly or indirectly attributable to loan

• r collateral for it.

ENVELOPED UK PROPERTY (CONT)

• “Relevant loan” refers to situation where

money

• r

money’s worth is made available to finance:

• acquisition of UK residential property;
• maintenance or enhancement of UK

residential property; or

• acquisition of interest in company or

partnership where funds are used for UK residential property.

ENVELOPED UK PROPERTY (CONT)

• Term is not limited to loans between

connected parties.

• Can

these rules create “duplicate” liabilities?

• Illustration.
• Anti-avoidance provisions are aimed at

catching situations where, on or after 6 April 2017, UK residential property is sold

• r “relevant loan” is repaid.

ENVELOPED UK PROPERTY (CONT)

• But only if this takes place within 2 years

prior to chargeable IHT event.

• This applies to sales of interests in

company or partnership, and not to disposals of underlying UK property.

• Watch 2-year “run-off” period.
• HMRC are keen that extension of IHT to

enveloped properties should not be circumvented.

ENVELOPED UK PROPERTY (CONT)

• Introduction of TAAR: arrangements will

be disregarded if main purpose is to secure “tax advantage”.

• Does this mean that TAAR can only apply

to transactions entered into on or after 6 April 2017?

• No transitional reliefs to come – collapse

structures now?

• Collection of tax.

DEEMED DOMICILE

• Widening of scope of deemed domicile

w.e.f. 6 April 2017.

• Applies for income tax, CGT and IHT.
• New terminology:
• anyone born in UK with UK domicile

who is UK-resident but is at present non-UK domiciled = “formerly domiciled resident” (FDR); and

DEEMED DOMICILE (CONT)

• anyone who has been resident in UK for

at least 15 out of last 20 tax years = “long-term resident”.

• Both categories are classified as “deemed

domiciled” – but only for tax purposes.

• Circumstances of parents do not impact
• n children.
• FDRs are unable to access remittance

basis for income tax and CGT.

DEEMED DOMICILE (CONT)

• However, remittance basis will still apply

for pre-2017/18 foreign income and gains remitted on or after 6 April 2017.

• Anti-avoidance legislation – FDRs, where

they are settlors, will have income and gains of offshore trusts attributed to them

• n arising basis.
• Reporting requirements for trustees of
• ffshore trusts.

DEEMED DOMICILE (CONT)

• FDRs caught by IHT on worldwide basis.
• Similarly, any trust of which FDR is settlor

will be denied excluded property status as long as settlor remains resident in UK.

• Special IHT “period of grace” relaxation:

new IHT rule will only bite where FDR:

• is resident in UK; and
• was UK-resident for at least 1 out of last

2 tax years.

DEEMED DOMICILE (CONT)

• When determining 10-year anniversary

charges, key factor is whether settlor was deemed domiciled at 10-year anniversary date – if so, look at number of quarters in last 40 when he was deemed domiciled.

• No

“grandfathering” for excluded property trusts set up before 8 July 2015.

• FDR will lose deemed domicile in first tax

year of non-UK residence, provided he:

DEEMED DOMICILE (CONT)

• retains his foreign domicile under

general law; and

• has not become deemed domiciled by

virtue of long-term residence.

• It does not matter how many years FDR

has been abroad before he re-establishes residence in UK.

• For long-term residents, there is 1

transitional exception where:

DEEMED DOMICILE (CONT)

• individual is not resident in UK for tax

year in question; and

• there is no tax year beginning after 5

April 2017 and preceding tax year in question when he was UK-resident.

• Anomaly – will it be sorted out? No.
• Remittance basis can continue for those

with less than £2,000 of unremitted foreign income and gains.

DEEMED DOMICILE (CONT)

• Remittance basis charges of £30,000 and

£60,000 are remaining in place.

• But £90,000 charge became obsolete on 6

April 2017.

• What happens if individual is both FDR

and long-term resident?

• FDR rules take precedence.
• For long-term residents, necessary to

reconsider relief for capital losses.

DEEMED DOMICILE (CONT)

• Hitherto, UK-resident non-UK domiciliary

who wants to access remittance basis has had to choose either to:

• forfeit entitlement to relief for foreign

capital losses; or

• make irrevocable capital loss election.
• This latter allows relief for all his capital

losses, but in special prescribed order which is often unfavourable.

DEEMED DOMICILE (CONT)

• Legislation has been revised:
• When

someone becomes deemed domiciled, he is now allowed to offset all his losses against gains without having to distinguish between UK and foreign disposals.

• If he loses his deemed domicile but

later returns to UK, he can once again access remittance basis and make capital loss election afresh.

DEEMED DOMICILE (CONT)

• No special IHT provisions for long-term

residents.

• Rebasing relief – individuals who become

deemed domiciled as long-term residents as at 6 April 2017 are able to rebase their foreign assets to MV on 5 April 2017.

• Conditions for individual’s rebasing relief:
• He must not be FDR.

DEEMED DOMICILE (CONT)

• He must not be domiciled in UK under

general law during tax year when asset is disposed of.

• He must have held asset on 5 April

2017, with disposal taking place at later date.

• Asset

must have foreign situs throughout period from 16 March 2016 (or date of acquisition, if later) to 5 April 2017.

DEEMED DOMICILE (CONT)

• Other stipulations:
• He must have been resident in UK for at

least 15 out of last 20 tax years up to 2016/17 and must remain UK-resident in 2017/18.

• He must have paid remittance basis

charge at least once prior to 2017/18 (this means that minors can never benefit from rebasing relief).

DEEMED DOMICILE (CONT)

• Rebasing relief is only available for

assets held directly by individuals – no rebasing for assets held by trusts or companies.

• If asset is to be rebased, individual

must make election which, once made, cannot be revoked.

• This election operates on asset-by-

asset basis.

CLEANSING OF MIXED FUNDS

• For period of 2 years starting on 6 April

2017, non-UK domiciliaries who have claimed remittance basis can rearrange their bank accounts and separate different component parts into:

• clean capital;
• foreign income; and
• foreign gains.

CLEANSING OF MIXED FUNDS (CONT)

• They can then make tax-free remittance to

UK from their clean capital.

• Existing mixed fund rules are being

disapplied for time being.

• Requirements are:
• transfer of money made during 2017/18
• r 2018/19;
• transfer is made from mixed fund;

CLEANSING OF MIXED FUNDS (CONT)

• transfer is made into different receiving

account;

• transfer is appropriately nominated by

non-UK domiciliary;

• no other transfer has been nominated

from that mixed fund into receiving account; and

• transfer

is made by “qualifying individual”.

CLEANSING OF MIXED FUNDS (CONT)

• “Qualifying individual” means individual

who has been taxed on remittance basis for any tax year prior to 2017/18 and who is not FDR.

• Relief does not apply to non-monetary

assets.

• But non-monetary asset can be sold

during 2-year transitional window, with sale proceeds then being separated out.

ATED IN 2017

• ATED is annual tax payable by companies

and certain other NNPs owning UK residential property worth more than £500,000.

• Tax charges for financial year 2017 (ie. 12

months to 31 March 2018).

• 5-year revaluation on 1 April 2017.
• ATED reliefs and exemptions (eg. for

property let out commercially).

ATED IN 2017 (CONT)

• Reliefs should be claimed on ATED Relief

Declaration Return.

• Do not overlook recent reductions in

valuation thresholds.

NEW 100% FYA

• For expenditure incurred on or after 23

November 2016, cost of new electric vehicle charging point qualifies for 100% FYA.

• This form of tax relief will run until 31

March (or 5 April) 2019.

• Intended to make installation of electric

charge-points more common feature on high streets.

NEW 100% FYA (CONT)

• Detailed guidance to be published by

HMRC later this year.

CORPORATION TAX LOSS RELIEF

• Reform of corporation tax rules for carry-

forward of trading losses w.e.f. 1 April 2017.

• Losses covered include:
• trading losses;
• management expenses;
• non-trading loan relationship deficits;
• UK property losses; and

CORPORATION TAX LOSS RELIEF (CONT)

• non-trading losses on intangibles.
• Consultation document published in May

2016.

• Government has 2 aims in “modernising”

tax system – these are to:

• widen scope of carry-forward rules; and
• restrict profits against which such

losses can be set.

CORPORATION TAX LOSS RELIEF (CONT)

• Government’s plans are twofold:
• when corporate losses arise on or after

1 April 2017, they can be carried forward and set against other (ie. non- trading) profits or surrendered; and

• w.e.f. 1 April 2017, amount of profits

which can be relieved by losses carried forward will be limited to 50%, subject to annual allowance of £5,000,000.

CORPORATION TAX LOSS RELIEF (CONT)

• This allowance will apply per company or

per group (as case may be).

• Capital losses are still to be ring-fenced

(ie. they can only be relieved against chargeable gains).

• Comprehensive pro forma for company’s

loss position provided by F(No2)B 2017.

• Other points to mention include:

CORPORATION TAX LOSS RELIEF (CONT)

• where company’s profits include both

trading and non-trading sources, in- year losses and group relief no longer have to be split on pro rata basis;

• group/company has absolute discretion

as to allocation of £5,000,000 limit;

• meaning of “group” for this purpose is

based on group relief definition; and

CORPORATION TAX LOSS RELIEF (CONT)

• pre-1 April 2017 losses which are

carried forward will still be subject to existing streaming rules, ie. they can

• nly be carried forward against profits
• f same trade.
• See Illustration.
• New terminal loss relief regime on

cessation of trade.

CORPORATION TAX LOSS RELIEF (CONT)

• “Same trade” restriction for companies

where trade, which once flourished, has now become small or negligible.

• Anti-avoidance where there is:
• change of ownership; and
• major change in nature or conduct of

trade within 3-year period.

CORPORATION TAX LOSS RELIEF (CONT)

• 3-year period has been widened to 5

years.

• On

change of ownership, any pre- acquisition losses in acquired company cannot be group relieved for 5 years.

CORPORATE INTEREST TAX RELIEF

• Consultation paper published on 22

October 2015.

• Aimed at countering “aggressive” tax

planning, mainly by large companies.

• Idea for restriction of debt relief inspired

by OECD’s BEPS initiative.

• Hitherto, UK only had limited protection:
• transfer pricing rules; and

CORPORATE INTEREST TAX RELIEF (CONT)

• “large company” worldwide debt cap.
• In addition, there are several TAARs to

supplement transfer pricing legislation.

• Some countries, eg. Australia, Germany

and Japan, have general provision which limits interest relief.

• W.e.f. 1 April 2017, corporate group’s net

interest relief is to be capped at fixed percentage of taxable UK profits.

CORPORATE INTEREST TAX RELIEF (CONT)

• Cap has been set at 30% of EBITDA,

subject to de minimis threshold of £2,000,000.

• Alternative group ratio rule which may

produce higher percentage – this is found by expressing net group interest expense as percentage of group EBITDA.

• Modified debt cap.
• Unrelieved interest to be carried forward.

SSE REFORM

• SSE introduced in FA 2002 – detailed

rules found in Sch 7AC TCGA 1992.

• Capital gains exemption for companies

selling trading subsidiaries and corporate investments where they hold stake of at least 10% of O.S.C. (+ other economic rights).

• No distinction between sales of shares in

UK-resident and overseas companies.

SSE REFORM (CONT)

• Main conditions for SSE are:
• Investing company must be sole trading

company or member of trading group through relevant 12-month period.

• Immediately after disposal, this must

still apply.

• Relevant 12-month period can start no

more than 2 years before disposal date.

SSE REFORM (CONT)

• Investee company must be trading

company or holding company of trading sub-group throughout relevant 12- month period.

• Immediately after disposal, investee

company must still be trading company

• r member of trading group.
• Consultation on reform of SSE rules

launched by Government in 2016.

SSE REFORM (CONT)

• Perceived problem area was that both

companies had to be undertaking trading activities – property investment business does not qualify.

• Changes taking effect for disposals made
• n or after 1 April 2017 are:
• removal of investing company trading

condition;

SSE REFORM (CONT)

• extension of start of relevant 12-month

period from 2 to 6 years before disposal;

• removal
• f

post-disposal investee company trading condition (but only for third party sales); and

• broader

exemption for companies

• wned by institutional investors.

TRANSACTIONS IN UK LAND

• Ss76 – 82 FA 2016 brought non-UK

resident developers of UK property fully into UK tax on any profits arising from dealing in or developing land in UK.

• These

rules excluded profits from transactions entered into before relevant commencement date (5 July 2016).

• Government assumed that such contracts

followed standard pattern.

TRANSACTIONS IN UK LAND (CONT)

• But

it became apparent that some contracts would have been entered into several months (or even years) before transfer of property and recognition of profit.

• It was never Government’s intention to

allow these profits to escape tax charge.

• FA

2016 commencement date has therefore been changed.

TRANSACTIONS IN UK LAND (CONT)

• All such profits recognised in accounts
• n or after 8 March 2017 under GAAP will

be taxed, regardless

• f

date when contract was signed.

ENABLERS

• New penalty regime for “enablers” of

defeated tax avoidance schemes, ie. anyone who “enabled” use of “abusive tax arrangements”.

• To be “enabler”, person must have

designed, managed or marketed failed tax planning arrangements.

• Person is also caught if his involvement

was essential to hoped-for success.

ENABLERS (CONT)

• And someone who provided financial

product which allowed taxpayer to participate in arrangement is also classified as “enabler”.

• Definition of “abusive” tax planning uses

familiar “double reasonableness test”.

• Arrangements are “defeated” once all

avenues for appealing against HMRC’s stance have disappeared.

ENABLERS (CONT)

• Penalty = fee received by enabler for his

involvement with scheme.

• HMRC

must, before issuing penalty notice, take into account opinion of 7-man GAAR Advisory Panel.

• Penalty notices are appealable.
• Regime

will apply to arrangements entered into on or after date of Royal Assent.

ENABLERS (CONT)

• HMRC have confirmed that advisers

acting within spirit

• f

updated “Professional Conduct in Relation to Taxation” are unlikely to be affected by new code.

2016/17 TAX RETURNS

• For many years, PA has been offset in

following order:

• non-savings income; then
• interest; and finally
• dividends.
• This normally produced most tax-efficient

end result – see S25(2) ITA 2007.

• No longer position for 2016/17 onwards.

2016/17 TAX RETURNS (CONT)

• Caused by introduction in FA 2016 of:
• personal savings allowance; and
• dividend tax allowance.
• Individual’s personal savings allowance

can be £1,000, £500 or zero (depending on marginal rate of tax).

• But dividend tax allowance is £5,000 for

everyone.

2016/17 TAX RETURNS (CONT)

• Where individual’s total income includes

interest received, it is important to try and maximise benefit of:

• 0% starting rate for savings income;

and

• personal savings allowance.
• 0% starting rate is only in point for those

whose non-savings income does not exceed PA plus maximum of £5,000.

2016/17 TAX RETURNS (CONT)

• Problem

with HMRC’s

• nline

filing parameters for 2 groups of taxpayer:

• those with income (including interest)
• f > £32,000 where non-savings income

is between £11,000 and £16,000; and

• those with non-dividend income of

between £27,000 to £32,000 where total income (including dividends) is > £145,000.

2016/17 TAX RETURNS (CONT)

• In first case, software will not apply 0%

starting rate to income falling within starting rate band, ie. there will be charge

• f 20% (rather than 0%).
• In second case, software will treat

dividend higher rate band as reduced by full amount of dividend tax allowance, even though there may have been spare capacity in basic rate band, ie. more dividends will be pushed into 38.1% band.

2016/17 TAX RETURNS (CONT)

• Affected taxpayers should submit paper

tax returns for 2016/17.

• Normally, this must be done by 31

October 2017.

• However, HMRC confirm that they will

have until 31 January 2018 – there is “reasonable excuse” for late filing.

• Correction

difficulty if return is inadvertently filed online.

2016/17 TAX RETURNS (CONT)

• HMRC promise that this will be sorted for

2017/18 tax returns.

• Not fault of tax software providers – their

software must follow HMRC’s parameters.

• If it does not, none of their online tax

returns will be accepted.

• They had no choice but to code their

products to give incorrect outcome.