In 2015/16, new 0% starting rate for savings income up to maximum - - PDF document

FINANCE ACT 2015

Robert Jamieson MA FCA CTA (Fellow) TEP 25 September 2015 NEW STARTING RATE FOR SAVINGS

• In 2015/16, new 0% starting rate for

savings income up to maximum of £5,000.

• But only in point for those whose non-

savings income does not exceed personal allowance plus £5,000.

• This will benefit (mainly) elderly taxpayers

with modest pensions and certain amount

• f interest.

ZERO-EMISSION VANS

• For several years, S155 ITEPA 2003 has

ensured that company vans which emit no CO2 were not subject to any benefit in kind charge for private use.

• This nil rate regime came to end on 5

April 2015.

• For 2015/16, 20% of normal van benefit

(£3,150) will be chargeable on drivers of zero-emission vans.

ZERO-EMISSION VANS (CONT)

• Thereafter,

this percentage gradually rises as follows: 2016/17 40% 2017/18 60% 2018/19 80% 2019/20 90% 2020/21 100%

ZERO-EMISSION VANS (CONT)

• In other words, benefit for zero-emission

vans in 2020/21 is precisely same as for vans which emit CO2.

• But restricted private use exemption in

S155(4) ITEPA 2003 (“commuter use” and “business travel” requirements) remains.

BENEFICIAL LOANS

• No taxable benefit on cheap or interest-

free employer-provided loans where total

• f all such loans does not exceed £10,000.
• Nor is there Class 1A NIC charge.
• But ignore any loans which would attract

income tax relief (ie. because they were made for qualifying purpose).

• Official rate of interest = 3% for 2015/16.

EMPLOYEE EXPENSE CLAIMS

• OTS review of tax regime for employee

benefits and expenses published in January 2014.

• 4 changes announced in Budget 2014 and

intended for inclusion in FA 2015:

• abolition of £8,500 threshold;
• statutory

exemption for “trivial” benefits;

EMPLOYEE EXPENSE CLAIMS (CONT)

• introduction of system of voluntary

payrolling for benefits in kind; and

• replacement
• f

dispensations with exemption for paid and reimbursed expenses.

• Publication of consultation document

entitled “Employee Benefits And Expenses – Exemption For Paid Or Reimbursed Expenses” on 18 June 2014.

EMPLOYEE EXPENSE CLAIMS (CONT)

• At present, employers can apply for

dispensation using Form P11DX, but not all employers are aware of this possibility.

• OTS

recommended that dispensation regime should be replaced with more straightforward exemption for qualifying expenses.

• This would allow employers to decide

whether expense payment is taxable.

EMPLOYEE EXPENSE CLAIMS (CONT)

• Automatic tax relief, subject only to

checks being made by HMRC

• n

employer’s records.

• HM Treasury accepted recommendation.
• W.e.f. 6 April 2016, dispensation regime is

to be abolished.

• New rules found in Ss289A – 289E ITEPA

2003 for 2016/17 onwards.

EMPLOYEE EXPENSE CLAIMS (CONT)

• If expenses would be deductible under

Ss333 – 360A or Ss369 – 377 ITEPA 2003 (eg. travel expenses

• r

fees and subscriptions), they will qualify for automatic exemption (S289A ITEPA 2003).

• But there must be no “relevant salary

sacrifice arrangements”.

• Payments of expenses calculated in

“approved way” are also exempted.

EMPLOYEE EXPENSE CLAIMS (CONT)

• This requires that sums are calculated

and paid in accordance with:

• regulations laid down by HMRC; or
• agreement made under S289B ITEPA

2003 (flat rate payments).

• But Conditions A and B must be met –

these mainly relate to employer (or third party) having system for checking that expenses are of correct type.

EMPLOYEE EXPENSE CLAIMS (CONT)

• Employers can apply to HMRC to make

flat rate payments to employees in respect of deductible expenses.

• Requirements:
• reasonable estimate of actual costs

given to HMRC; and

• HMRC officer to issue approval notice.
• Mechanism for revoking such notices.

EMPLOYEE EXPENSE CLAIMS (CONT)

• Separate exemption for benefits such as

use of company credit cards (S289D ITEPA 2003) – here, too, there is “relevant salary sacrifice” restriction.

• Over and above, there is TAAR which

stops these exemptions applying to any arrangements where effect is to reduce employee’s income subject to tax and NICs (S289E ITEPA 2003).

EMPLOYEE EXPENSE CLAIMS (CONT)

• Corresponding

changes for NIC purposes.

REPEAL OF “LOWER-PAID” CODE

• W.e.f. 6 April 2016, special income tax

code for employees earning at rate of less than £8,500 per annum will be abolished.

• All employees to be subject to same

benefit in kind tax rules.

• Only

exception is for “lower-paid” ministers of religion.

PAYE AND BENEFITS

• New powers which allow HMRC to make

regulations authorising employers to deduct or repay income tax on employee benefits through PAYE system.

• Will operate on voluntary basis for

2016/17 onwards.

• Administrative saving.

BOARD AND LODGING PROVIDED FOR CARERS

• No income tax liability where board and/or

lodging is provided on reasonable scale for home care worker at home of person who is being looked after.

• Also equivalent NIC exemption.
• Applies for 2016/17 onwards.
• This follows abolition of £8,500 threshold.

LUMP SUMS PAID TO ARMED FORCES PERSONNEL

• Under EDP 05 scheme, persons aged 40
• r over but less than 55 who leave armed

forces after at least 18 years of service are entitled to lump sum plus monthly payments until they reach age of 65.

• Lump sums are paid free of tax and NICs,

but monthly amounts are dealt with under PAYE.

• Latest version is EDP 15 scheme.

LUMP SUMS PAID TO ARMED FORCES PERSONNEL (CONT)

• This started on 1 April 2015.
• Income tax exemption for lump sum

payments under EDP 15 has been continued.

• But now there has to be minimum service

period of 20 years.

B SHARE SCHEMES

• “B share schemes” are typically set up by

listed companies wanting to return cash to their shareholders.

• Actual structure of these arrangements

varies considerably.

• They usually involve creation of new

class of share, issued on pro rata basis to existing shareholders.

B SHARE SCHEMES (CONT)

• Main purpose is that shareholders could

then choose what form their “dividend” takes, ie. income or capital.

• New S396A ITTOIA 2005 which takes

effect for receipts on or after 6 April 2015.

• Applies where person has choice between

receiving:

• income distribution; or

B SHARE SCHEMES (CONT)

• something else which is essentially of

same value but which is not chargeable to income tax (“alternative receipt”).

• “Alternative receipt” is now treated as

income distribution.

• Makes no difference if choice is subject to

exercise of any conditions or power (including failure to exercise right).

• Double charge relief.

REMITTANCE BASIS CHANGES

• New £90,000 RBC applies for 2015/16
• nwards where non-UK domiciliary has

been resident in UK for 17 out of last 20 tax years (“17-year residence test”).

• Does this link in with deemed domicile

rule for IHT purposes?

• Anomaly?
• Intermediate RBC levy increased from

£50,000 to £60,000 for 2015/16 onwards.

REMITTANCE BASIS CHANGES (CONT)

• This is in point where taxpayer has been

UK-resident for 12 out of last 14 tax years.

• Also

consultation

• n

possibility

• f

requiring remittance basis election to be for minimum of 3 tax years – not now going ahead. Basis of taxation for non- UK domiciliary can still be changed annually.

• “15-year” rule w.e.f. 6 April 2017.

PENSION FLEXIBILITY – ANNUITIES

• Rules in FA 2004 amended to allow

anyone to receive payments from annuity

• n death of pension scheme member.
• Takes effect from 6 April 2015.
• Where individual dies before age of 75,

new Ss646B – 646F ITEPA 2003 allow transfer of annuities to be exempt from tax.

INVESTMENT RELIEFS

• These changes affect SITR (+ venture

capital reliefs such as EIS, SEIS and VCTs).

• Intention to increase amount which social

enterprises are able to raise from approx. £250,000 over 3-year period to £5,000,000 per tax year.

• Overriding maximum = £15,000,000.
• State aid approval needed first.

INVESTMENT RELIEFS (CONT)

• Agriculture and market gardening are

excluded activities under SITR.

• When approval comes through for SITR

enlargement, community organisations carrying out “small-scale” agricultural and horticultural activities will be eligible for relief.

• Investment in renewable energy schemes

is currently made through EIS/VCTs.

INVESTMENT RELIEFS (CONT)

• Reasons:
• EIS/VCT regimes predate SITR;
• they have higher investment threshold;

and

• rganisations receiving feed-in tariffs

are excluded from SITR.

• This is set to change.

INVESTMENT RELIEFS (CONT)

• All

community energy generation undertaken by qualifying organisations will be eligible for SITR from date of expansion of this relief.

• Following

transitional period, such activities will then cease to attract EIS, SEIS and VCT reliefs.

• New EIS, SEIS or VCT shares issued on or

after 6 April 2015 will not qualify.

INVESTMENT RELIEFS (CONT)

• This is where trade consists wholly or

substantially of subsidised generation of energy from renewable sources.

• Applies to both UK schemes and their
• verseas equivalents.

GOODWILL ON INCORPORATION

• HMRC

uncertainty about whether company can carry on “profession”.

• Also problem with goodwill.
• HMRC now accept that professional

activity can be transferred to company (+ goodwill).

• However, w.e.f. 3 December 2014, no ER

for transfers of goodwill to related close company.

GOODWILL ON INCORPORATION (CONT)

• New S169LA TCGA 1992.
• Illustration of tax planning which was

available for transfers before 3 December 2014.

• Does new regime completely cut out

attraction of such arrangements?

• Problem with retiring partners.
• Key issues going forward are:

GOODWILL ON INCORPORATION (CONT)

• whether there has been valid transfer of

business to company; and

• whether goodwill has been correctly

valued.

• HMRC likely to remain vigilant about

possibility of goodwill being transferred at overvalue.

• If so, excess value treated as distribution
• r earnings – see Issue 76 of Tax Bulletin.

GOODWILL ON INCORPORATION (CONT)

• What about S162 TCGA 1992 where part
• f consideration takes form of director’s

loan account balance?

• Gift of goodwill (or sale at undervalue)

followed by extraction of profits via dividends.

• Retain personal ownership of goodwill

and license company to use it – full ER on later sale of shares?

GOODWILL ON INCORPORATION (CONT)

• For transfers on or after 3 December

2014, company can no longer claim amortisation relief for internally- generated goodwill when asset is acquired from person who is related to company.

• Incorporations which took place before 3

December 2014 are unaffected.

ASSOCIATED DISPOSALS

• Associated disposal relief under S169K

TCGA 1992.

• Must “withdraw from participation” in

business carried on by company or partnership.

• Reduce equity stake in business – no

need to reduce workload.

• See “Entrepreneurs’ Relief – Practical

Points” published by CIOT.

ASSOCIATED DISPOSALS (CONT)

• For disposals on or after 18 March 2015,

sale of asset owned personally must be accompanied by “significant” reduction in claimant’s business interest (ie. at least 5%).

• There must be no arrangements for

buying back further shares or partnership interest.

• No alteration to S169P TCGA 1992.

JOINT VENTURE ARRANGEMENTS

• If company held 10% or more of O.S.C. of

JV company, proportionate part of JV company’s activities was treated as belonging to investing company.

• JV company is company:
• which is trading company or holding

company of trading group; and

• at least 75% of O.S.C. of which is held

by 5 or fewer persons.

JOINT VENTURE ARRANGEMENTS (CONT)

5% 4 OTHERS

32% 68% JV LTD I LTD MR A

JOINT VENTURE ARRANGEMENTS (CONT)

• Use of JV arrangements to secure ER for

individuals who would not otherwise have satisfied 5% requirement in company.

• W.e.f. 18 March 2015, activities of JV

companies are no longer regarded as carried on by shareholder company.

• Similarly,

activities carried

• n

by corporate partner are not treated as trading activities.

DEFERRAL RELIEF

• Following changes in F(No2)A 2010, it

was no longer possible for individual both to claim ER and to defer gain if it was reinvested in EIS shares.

• Only 1 of these reliefs was permitted.
• Similar regime when SITR was introduced

last year.

• In FA 2015, Chancellor decided to relax

this stance.

DEFERRAL RELIEF (CONT)

• In other words, potential EIS and SITR

investors can now benefit from both:

• deferral of their business gain; and
• ER claim when deferred gain comes

into charge.

• New S169U TCGA 1992 specifies 4

conditions which must be met in order for deferred gain to qualify for ER:

DEFERRAL RELIEF (CONT)

• Gain representing all or part of held
• ver gain must be treated as accruing

(this is known as “first eventual gain”).

• Original disposal which gave rise to

“first eventual gain” must have been:

• material disposal of business assets;
• r
• associated disposal.

DEFERRAL RELIEF (CONT)

• Timely ER claim must have been made

in respect of “first eventual gain”.

• “First eventual gain” must be first gain

which is treated as accruing in respect

• f original held over gain.
• Amended regime applies to business

gains which, but for deferral, would have accrued on or after 3 December 2014.

WORK OF ART AS PLANT?

• See decision of Court of Appeal in HMRC

v Lord Howard (2014).

• Sale of 18th century painting at auction

for nearly £9,500,000.

• CGT exemption in S44 TCGA 1992 for

wasting assets, ie. assets which have predictable life of less than 50 years.

• Examples include motor cars and clocks.

WORK OF ART AS PLANT? (CONT)

• However, durable assets like paintings

are usually chargeable to CGT.

• Painting was nearly 230 years old at time
• f sale in November 2001.
• Vendors claimed that painting should be

regarded as “plant and machinery” because it had been hanging in public area of Castle Howard for 50 years and was significant visitor attraction.

WORK OF ART AS PLANT? (CONT)

• Painting satisfied both “functional” and

“permanence” tests.

• S44 TCGA 1992 provides that anything

classified as plant and machinery is regarded as having predictable life of less than 50 years “in every case”.

• Such items are automatically treated as

exempt wasting assets.

• Painting attracted this exemption.

WORK OF ART AS PLANT? (CONT)

• Note S45 TCGA 1992 override where asset

is used for trading purposes.

• This provision did not apply because

business of opening Castle Howard to public was run by separate company and painting was owned by Lord Howard personally.

• No requirement that owner of asset must

be person who carries on business.

WORK OF ART AS PLANT? (CONT)

• Decision reversed by S40 FA 2015 which

inserts new S45(3A) – (3D) TCGA 1992.

• W.e.f. 1 (or 6) April 2015, let-out in S45

TCGA 1992 will not apply where person disposes of asset:

• which has been used for purposes of

trade carried on by another person; and

• which, because of that use, has become

plant (but was not wasting asset).

CGT CHARGE FOR NON-UK RESIDENTS

• W.e.f. 6 April 2015, new CGT charge for

gains made by non-UK residents who dispose of UK residential property.

• Catches

individuals, partnerships, trustees, personal representatives and some companies.

• ATED-related CGT charge has been in

force since 6 April 2013 if NNP disposes

• f house or flat for more than £1,000,000.

CGT CHARGE FOR NON-UK RESIDENTS (CONT)

• Residence status of NNP property owner

is irrelevant (+ exemptions).

• No de minimis threshold for new regime.
• However, it will not apply to certain forms
• f communal residential property, eg.

boarding schools, care homes and purpose-built student accommodation.

• Non-UK

resident company must be “closely-held”.

CGT CHARGE FOR NON-UK RESIDENTS (CONT)

• “Closely-held” = under control of 5 or

fewer shareholders.

• Where property was acquired by non-UK

resident before 6 April 2015, how is gain to be computed?

• Default position: rebasing to MV as at 5

April 2015.

• But possible to make election to calculate

gain on time-apportionment basis.

CGT CHARGE FOR NON-UK RESIDENTS (CONT)

• This election is irrevocable.
• Can also compute gain (or, more likely,

loss) over whole period of ownership.

• Special rules for losses – ring-fenced.
• “Mixed use” property – apportion.
• Apart from ATED-related CGT charge,

non-UK resident charge takes priority

• ver other anti-avoidance legislation.

CGT CHARGE FOR NON-UK RESIDENTS (CONT)

• Indexation relief available for companies

and annual CGT exemption is in point for individuals and trusts.

• How is this CGT to be collected?
• Final part of new rules applies to those

who are UK-resident as well as to those who are not – this concerns nomination

• f main residence where taxpayer owns 2
• r more properties.

CGT CHARGE FOR NON-UK RESIDENTS (CONT)

• Non-UK resident may determine which of

2 or more properties should be regarded as main residence at time of disposal.

• But property can no longer be treated as

“residence” for any taxpayer if:

• it is located in territory in which

individual is not tax-resident; and

• individual does not spend at least 90

days there per tax year.

CGT CHARGE FOR NON-UK RESIDENTS (CONT)

• See S222C(8) TCGA 1992 which explains

how “day count” test works.

• Occupation by spouse (or civil partner)

counts as occupation by taxpayer.

• Where more than 1 property is owned in

same jurisdiction, “90-day” rule covers all such properties.

• Any use of property prior to 6 April 2015

is normally ignored.

CGT CHARGE FOR NON-UK RESIDENTS (CONT)

• Corresponding changes to trust tax

legislation in respect of beneficiaries

• ccupying property under terms of trust.
• These rules, too, have effect in relation to

property disposals made on or after 6 April 2015.

END OF ROAD FOR PILOT TRUSTS?

• Consultation document published on 31

May 2013 – nil rate band to be shared equally by all relevant property trusts.

• Further consultation document published
• n 6 June 2014 – introduced concept of

“settlement nil rate band” which would

• nly apply to trusts created on or after 7

June 2014.

• Both ideas have been scrapped.

END OF ROAD FOR PILOT TRUSTS? (CONT)

• New concept of “same-day additions” –

see S62A IHTA 1984 (£5,000 rule).

• This applies if settlor of 2 or more trusts

adds value to trusts on same day.

• Special anti-fragmentation provision in

S62B IHTA 1984 – stops possibility of transferring larger amounts to trust, but in multiples of £5,000.

END OF ROAD FOR PILOT TRUSTS? (CONT)

• W.e.f. date of Royal Assent to FB 2015,

subsequently added value must be included in any IHT computation, together with initial value of property in

• ther trust(s).
• Similar idea to way in which related

settlements are dealt with.

• Comparison of old and new rules.

END OF ROAD FOR PILOT TRUSTS? (CONT)

• But new regime not in point if either

settlement can be classified as “protected settlement” – see S62C IHTA 1984.

• This is any trust which commenced

before 10 December 2014 where Condition A or Condition B is met.

• Condition A is that there have been no

transfers of value by settlor into that trust

• n or after 10 December 2014.

END OF ROAD FOR PILOT TRUSTS? (CONT)

• Condition B is met if:
• there has been post-9 December 2014

transfer of value into that trust; and

• transfer took place on death of settlor

before 6 April 2017 and it represented “protected testamentary disposition”,

• ie. settlor’s will (although changed)

was, in substance, same as it had been prior to 10 December 2014.

NEW IHT EXEMPTIONS

• Ending of so-called “Frankland trap”.
• For deaths on or after 10 December 2014,

where will trust is wound up within 3 months of death and appointment of property is made to deceased’s spouse, “reading back” under S144 IHTA 1984 is available (Cl 14 FB 2015).

• Award for valour or gallant conduct =

excluded property (S6 IHTA 1984).

NEW IHT EXEMPTIONS (CONT)

• W.e.f. 3 December 2014, exemption has

been extended to cover all:

• awards for service in armed forces; and
• awards made by State in recognition of

achievements and service in public life.

• Similar orders, decorations and awards

made by other countries are also covered.

• S154 IHTA 1984 relief.

NEW IHT EXEMPTIONS (CONT)

• For deaths occurring on or after 19 March

2014, exemption extended to include:

• member of emergency services or

humanitarian aid worker who dies as result of responding to emergency; and

• current or former police constable or

member of armed services who dies as result of their status.

• See new Ss153A and 155A IHTA 1984.

NEW IHT EXEMPTIONS (CONT)

• In addition, no further IHT at death rates

due on chargeable lifetime transfers or failed PETs because of death within 7 years.

• This last point has also been included in

S154 IHTA 1984.

REFORM OF SDLT

• Replacement of old “slab” system for

purchasers of residential property who complete on or after 4 December 2014.

• New “slice” system instead (cf. income

tax) – see SDLTA 2015.

• SDLT charges generally now lower –

break-even point = £937,500.

• But charges will also be lower for some

more expensive properties.

REFORM OF SDLT (CONT)

• Special transitional relief where contracts

were exchanged before 4 December 2014 but contract is completed on or after this date.

• What happens if land transaction return

has already been submitted before claim for transitional relief?

• 13-month time limit for amending return.

REFORM OF SDLT (CONT)

• 4

important points about property transactions:

• No SDLT on gifts.
• No special exemption for transfers

between spouses (or civil partners).

• Assumption of debt by acquirer of

property triggers tax charge.

• Deemed MV rule, eg. when property is

transferred to connected company.

REFORM OF SDLT (CONT)

• No change to SDLT on acquisitions of

non-residential property.

• Also “mixed use” properties.
• “Slab” basis still applies.
• Status of property is normally based on

its use at time of completion – this

• verrides any past or intended future use.
• Unused buildings?

REFORM OF SDLT (CONT)

• Specific exclusions from being classified

as residential:

• student halls of residence;
• care homes;
• hospitals; and
• hospices.
• Special deeming rule in S116(7) FA 2003 –

transfer of 6 (or more) separate dwellings.

ATED

• Huge increase in tax figures for year to 31

March 2016 (eg. £15,400 v £23,350).

• New band up to £2,000,000, but charge of

£7,000 has not been amended.

• For FY 2016, further new band up to

£1,000,000 – charge of £3,500 unchanged.

• Change to rules for date when new 5-

yearly valuation takes effect (eg. 1 April 2017).

ATED (CONT)

• 2 or more interests held in same property

by connected persons (see S110 FA 2013) – new minimum limit of more than £250,000 for company’s interest (where property valued at up to £2,000,000).

• Consultation document published on 22

July 2014 – aimed at simplifying administration of ATED.

ATED (CONT)

• New relief declaration return – single

return for all properties eligible for same relief (eg. property letting).

• All these changes apply for chargeable

periods beginning on or after 1 April 2015.

AVERAGING FOR FARMERS

• Legislation in ITTOIA 2005 allows sole

traders and partners who are farmers or market gardeners to average their business profits for income tax purposes.

• This arrangement looks at profits for 2

consecutive tax years.

• For 2016/17 onwards, it is planned to

extend period over which profits can be averaged from 2 years to 5.

ECAs AND ZERO-EMISSION GOODS VEHICLES

• 100% ECAs for capital expenditure on

zero-emission goods vehicles – see S45DA CAA 2001.

• Relief extended for further 3 years to:
• 31 March 2018 (for companies); and
• 5

April 2018 (for unincorporated businesses).

• New conditions added by S45 FA 2015.

ECAs AND ZERO-EMISSION GOODS VEHICLES (CONT)

• 100% ECA is not available where:
• expenditure has been incurred on or

after 1 (or 6) April 2015 and State aid grant is received on or after 1 (or 6) April 2015;

• expenditure has been incurred before 1

(or 6) April 2015 and State aid grant is received on or after 1 (or 6) April 2015;

• r

ECAs AND ZERO-EMISSION GOODS VEHICLES (CONT)

• expenditure has been incurred on or

after 1 (or 6) April 2015 and State aid grant is received before 1 (or 6) April 2015.

• In other words, business has to decide

whether to claim 100% ECA or to receive grant which ranks as State aid – not possible to have both.

LOSS REFRESH PREVENTION

• Anti-avoidance legislation in S33 and Sch

3 FA 2015 targets tax-motivated ploys where companies seek to “refresh” accumulated tax losses b/f by effectively converting them into current year deductions.

• This typically involves creation of:
• taxable profits; and
• current year tax-deductible amounts.

LOSS REFRESH PREVENTION (CONT)

• Latter can be offset against other profits
• f company concerned or surrendered by

way of group relief.

• Following b/f items are caught:
• trading losses;
• non-trading loan relationship deficits;

and

• management expenses.

LOSS REFRESH PREVENTION (CONT)

• New regime will apply where:
• company has profits arising as result of

arrangements against which it can

• ffset accumulated losses;
• these arrangements give rise to losses

in company (or connected company);

LOSS REFRESH PREVENTION (CONT)

• main purpose is to secure corporation

tax advantage involving creation of allowable tax deductions and offset of b/f amounts; and

• it would have been reasonable to

assume that resulting tax benefits of these arrangements were greater than any non-tax benefits.

• If so, b/f amounts are disallowed.

LOSS REFRESH PREVENTION (CONT)

• Measure has effect for APs beginning on
• r after 18 March 2015.
• If AP straddles 18 March 2015, necessary

to time-apportion results.

• Rules aimed at “contrived” arrangements

– they will not catch “simple” ploys like shifting profitable trade

• r

income- producing asset into company with accumulated tax losses.

LATE PAID INTEREST

• “Late paid interest” rules brought in by FA

1996 as anti-avoidance measure to prevent mismatches between timing of relief for interest in debtor company and its taxation in hands of creditor.

• Interest is normally accrued in accounts
• f company which is due to pay it, but,

with group companies, there is possibility

• f not paying this interest until much later

(and only then will it be taxed).

LATE PAID INTEREST (CONT)

• Accordingly, Ss372 – 379 CTA 2009 say

that, where accrued interest is paid more than 12 months after end of AP, it is only allowable in AP in which it is paid.

• But scope of these rules was found to be

incompatible with EU law.

• Changes were introduced in FA 2009.

LATE PAID INTEREST (CONT)

• Since then, companies have been able to
• btain relief on accruals basis for all

interest payable to UK and overseas group members and affiliates (unless they were located in tax haven jurisdiction), irrespective of when interest is actually paid.

• Groups with subsidiaries in tax havens

have started to exploit this situation.

LATE PAID INTEREST (CONT)

• Interest is deliberately not paid until much

later to subsidiary in tax haven – this is timed to coincide with profits arising elsewhere in group which can absorb these deductions (now relieved on “as paid” basis).

• This sidesteps intention behind group

relief rules, namely that relief should only be available for in-year loss etc.

LATE PAID INTEREST (CONT)

• Ss374 and 377 CTA 2009 have been

repealed for loans entered into on or after 3 December 2014.

• For

loans which started before 3 December 2014, previous legislation will continue to apply for interest accruing up to 31 December 2015.

• Material changes.

EXPENDITURE ON R&D

• W.e.f. 1 April 2015, R&D super-deduction

for SMEs increased from 225% to 230%.

• Repayable tax credit rate remains at

14.5%.

• For large companies claiming ATL credit,

rate has been increased from 10% to 11% for expenditure incurred on or after 1 April 2015.

DOTAS

• W.e.f. 26 March 2015, promoters must

notify HMRC within 30 days if name of scheme or name and address of promoter changes after SRN has been issued.

• HMRC have 90 days (was 30) in which to

allocate SRN to notifiable arrangements.

• Arrangements involving employees.
• HMRC can now publish information about

promoters and notified schemes.

DOTAS (CONT)

• HMRC required to publish information

about final court rulings in relation to notified schemes.

• Significant increases in penalties for

users of tax avoidance schemes who fail to supply correct information about SRNs.

ACCELERATED PAYMENTS AND GROUP RELIEF

• Accelerated payment legislation brought

in by FA 2014.

• Requires upfront payment of disputed tax.
• Where group member has losses deriving

from arrangements which meet FA 2014 criteria, APN might still not require company to make upfront payment.

• Therefore,

disputed loss might be surrendered by way of group relief.

ACCELERATED PAYMENTS AND GROUP RELIEF (CONT)

• W.e.f. 26 March 2015, such amounts can

no longer be surrendered while dispute is in progress.

• Similar rules for corporate member of

partnership (or LLP) which generates disputed loss.

REDEMPTION OF UNDATED GOVERNMENT STOCKS

• Several undated Government Stocks will

now be redeemed, provided at least 3 months’ notice given in London Gazette (eg. 2½% Consols).

• Further undated Government Stocks also

to be removed from debt portfolio (eg. 3½% War Loan) following announcement

• n 3 December 2014.

DIVIDENDS – END OF ERA

• Imputation system to end on 5 April 2016.
• W.e.f. 6 April 2016:
• dividend received = gross amount;
• no 1/9th tax credit; and
• £5,000 dividend allowance.
• This new dividend allowance is separate

from £1,000 allowance for savings income which also comes into force in 2016/17.

DIVIDENDS – END OF ERA (CONT)

• Table of rates for 2016/17:
• BR – 7.5% (Nil for 2015/16);
• HR – 32.5% (25.0% for 2015/16); and
• AR – 38.1% (30.6% for 2015/16).
• Important to make inter-spouse transfers

to ensure full use of £5,000 allowance.

• Breakeven

points for higher and additional rate taxpayers.

DIVIDENDS – END OF ERA (CONT)

• Problem for owner managers following

“low salary high dividend” profit extraction model – overall tax rate will be roughly 6% higher in 2016/17.

• Dividends to non-working spouses will

still be advantageous.

• Accelerate dividend payments, where

possible, so that they fall into 2015/16.

• Money can always be loaned back.

DIVIDENDS – END OF ERA (CONT)

• With fall in corporation tax rates to 19% in

2017 and to 18% in 2020, will some owner managers seek to retain profits rather than pay them out?

• More own share purchases on retirement.
• And what about loans or advances caught

by S455 CTA 2010?

• Bonus v dividend for 2016/17.

DIVIDENDS – END OF ERA (CONT)

• HMRC factsheet dated 17 August 2015.
• This confirmed that £5,000 dividend

allowance was not exemption.

• Dividends within £5,000 allowance still

use up relevant part of BR or HR band (even though they are taxed at 0%).

• Impact
• n

restriction

• f

personal allowances.

DIVIDENDS – END OF ERA (CONT)

• Impact on incorporations.
• Tax-motivated incorporations are being

targeted.

AIAs GOING FORWARD

• New limit of £200,000 for qualifying

expenditure incurred on or after 1 January 2016.

• Transitional rule for businesses with

chargeable periods which straddle 31 December 2015 – time-apportionment.

• But watch restriction for expenditure in

period commencing on 1 January 2016.

GOODWILL AMORTISATION

• Goodwill

amortisation relief available when company buys trade and assets directly.

• Or creates goodwill.
• This applies either where expenditure is

written off under GAAP or via 4% election.

• But

not permitted for companies acquiring shares in other companies.

GOODWILL AMORTISATION (CONT)

• Relief can no longer be claimed for

amortisation of goodwill and customer- related intangible assets acquired or created on or after 8 July 2015.

• In addition, any loss on realisation of

such assets is regarded as “non-trading”.

• Utilisation of such debits is now much

more limited.

• Definition of “relevant assets”:

GOODWILL AMORTISATION (CONT)

• goodwill;
• customer information;
• customer relationships;
• unregistered trademarks; and
• Iicence or other right in respect of any
• f above.
• This mirrors “incorporation” definition in

S26 FA 2015 which is now defunct.

GOODWILL AMORTISATION (CONT)

• Changes do not apply where relevant

asset was acquired before 8 July 2015.

• No equivalent let-out for relevant assets

created before 8 July 2015.

• Expenditure on intellectual property and
• ther intangible assets is still eligible for

relief.

REPLACING 10% WEAR AND TEAR ALLOWANCE

• Prior to April 2013, landlord of furnished

letting could choose, when he came to replace items, between:

• renewals basis; or
• 10% wear and tear allowance.
• If property was not fully furnished, he

could not claim 10% wear and tear allowance – renewals basis was only

• ption.

REPLACING 10% WEAR AND TEAR ALLOWANCE (CONT)

• Following publication of technical note
• n 6 December 2011, HMRC announced

that renewals basis would not be available for replacement expenditure incurred from April 2013 onwards.

• This meant that landlords of partly

furnished accommodation could not claim tax relief for cost of replacing items like cookers and fridges.

REPLACING 10% WEAR AND TEAR ALLOWANCE (CONT)

• Letter sent to HMRC on 4 February 2014

from CIOT and Tax Faculty.

• HMRC replied on 7 April 2014 and some

elements

• f

their response were encouraging.

• For

example, expensive built-in appliances are normally regarded as fixtures and so are deductible as repairs when replaced.

REPLACING 10% WEAR AND TEAR ALLOWANCE (CONT)

• However, in HMRC’s view, S68 ITTOIA

2005 does not provide alternative deduction for free-standing white goods.

• Nor do carpets and curtains qualify.
• It is only smaller items such as toasters,

crockery, cutlery and glassware which are regularly replaced and which qualify as “trade tools”.

REPLACING 10% WEAR AND TEAR ALLOWANCE (CONT)

• Survey

by Residential Landlords Association in early 2015 asked if:

• landlords were aware of change in tax

rules;

• change would impact on frequency with

which items would be replaced; and

• they

would be reorganising their businesses so as to become fully furnished or totally unfurnished.

REPLACING 10% WEAR AND TEAR ALLOWANCE (CONT)

• Results of this survey were interesting –
• ver 75% of landlords were unaware of

scrapping of renewals basis and nearly all currently provide white goods, carpets and curtains in non-fully furnished rental properties.

• Lack of tax relief would certainly have

effect on frequency with which such items are replaced in future.

REPLACING 10% WEAR AND TEAR ALLOWANCE (CONT)

• Tax Faculty calculated that, if landlords

changed to having fully furnished lets, this would cost Government more than allowing renewal costs in non-fully furnished properties!

• Announcement on 8 July 2015.
• 10% wear and tear allowance to be

abolished w.e.f. 6 April 2016.

REPLACING 10% WEAR AND TEAR ALLOWANCE (CONT)

• Instead, deduction will be allowed for

actual amount spent on replacements for all landlords (other than of FHLs).

• Consultation document confirms that this

will cover:

• movable furniture or furnishings;
• televisions;
• fridges and freezers;

REPLACING 10% WEAR AND TEAR ALLOWANCE (CONT)

• carpets and floor coverings;
• curtains;
• linen; and
• crockery and cutlery.
• Fixtures which are integral to the building

(eg. baths, loos and boilers) are not included in this list – their replacement will still be classified as repairs.

REPLACING 10% WEAR AND TEAR ALLOWANCE (CONT)

• No element of improvement will be

allowed – adjustments needed.

• This

is welcome improvement

• n

previous regime, certainly for landlords of non-fully furnished properties, but do not forget why 10% wear and tear allowance was originally introduced.

FINANCE COSTS FOR PROPERTY BUSINESSES

• At present, full tax relief for finance costs

such as mortgage interest relating to property letting businesses.

• Due to change for 2017/18 onwards.
• W.e.f. 6 April 2017, landlords will be

unable to deduct all finance costs from their property income, but limit will be phased in over 4 years.

FINANCE COSTS FOR PROPERTY BUSINESSES (CONT)

• In 2017/18, deduction for 75% of finance

costs, with 25% being relieved as basic rate tax reduction.

• In 2018/19, figures are 50% and 50%.
• In 2019/20, figures are 25% and 75%.
• For 2020/21 onwards, all finance costs

incurred by landlord will be given as basic rate tax reduction.

FINANCE COSTS FOR PROPERTY BUSINESSES (CONT)

• In addition to mortgage interest, this will

cover:

• interest on loans to buy furnishings and

white goods; and

• fees incurred when taking out and

repaying mortgages or loans.

• Note restriction where finance costs are

greater than business profits.

FINANCE COSTS FOR PROPERTY BUSINESSES (CONT)

• Any unrelieved finance costs can be

carried forward.

• These changes do not apply to FHLs.
• Similar

restrictions for loans to partnerships.

IHT AND MAIN RESIDENCES

• Nil rate band frozen at £325,000 for

2018/19, 2019/20 and 2020/21.

• Introduction of additional residence nil

rate band when home is passed on death to direct descendants.

• W.e.f. 6 April 2017.
• Maximum “residential enhancement” is:
• £100,000 for 2017/18;

IHT AND MAIN RESIDENCES (CONT)

• £125,000 for 2018/19;
• £150,000 for 2019/20; and
• £175,000 for 2020/21.
• “Taper

threshold”

• f

£2,000,000 – residential enhancement is withdrawn at rate of £1 for every £2 of excess.

• Unused residential enhancement can be

transferred to other spouse.

IHT AND MAIN RESIDENCES (CONT)

• Maximum amounts of residence nil rate

band and taper threshold index-linked to CPI for 2021/22 onwards.

• Deceased’s estate must include qualifying

residence which is left to 1 or more direct descendants.

• This

includes children, stepchildren, adopted children and foster children (+ their lineal descendants).

IHT AND MAIN RESIDENCES (CONT)

• For estates valued at or below taper

threshold, where value of property is less than deceased’s residence nil rate band, relief is limited to value of property – any unused excess can be transferred.

• For estates valued at or below taper

threshold, where value of property is greater than (or equal to) deceased’s residence nil rate band, full residence nil rate band has been used – no transfer.

IHT AND MAIN RESIDENCES (CONT)

• Appropriate adjustments where value of

estate is greater than taper threshold.

• Where estate does not include qualifying

residence or where no part of such property passes to direct descendants, unused residence nil rate band can still be transferred.

• Calculation
• f

transferable amount broadly follows rules in S8A IHTA 1984.

IHT AND MAIN RESIDENCES (CONT)

• Usual time limit for claims on second

death.

• Definition of qualifying residence.
• If deceased’s estate includes 2 or more

residences, PRs have to make appropriate nomination.

• Garden and grounds are included in value
• f residence.

IHT AND MAIN RESIDENCES (CONT)

• Special relief if deceased lived in job-

related accommodation.

• Property does not have to be deceased’s

PPR.

• No restriction on size of garden or

grounds attached to property (unlike CGT rules).

• Sufficient that property was at some stage

deceased’s residence.

IHT AND MAIN RESIDENCES (CONT)

• Further relief for those who downsize or

sell their homes on or after 8 July 2015 – this will be included in FA 2016.

• Worked example.
• Beware effect of “bunching” re taper

threshold of £2,000,000.

• Why did Chancellor not choose more

straightforward alternative by simply extending nil rate band for all assets?