[PDF] - These requirements have been removed w.e.f. 6 April 2016. PDF Document

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FINANCE ACT 2016 – PRACTICAL ASPECTS

Robert Jamieson MA FCA CTA (Fellow) TEP 4 October 2016 PERSONAL SAVINGS ALLOWANCE

Hitherto banks, building societies and
ther financial institutions have had to

deduct 20% tax from interest which they pay.

Similar rules for NS&I.
These requirements have been removed

w.e.f. 6 April 2016.

Introduction of new personal savings

allowance from same date.

PERSONAL SAVINGS ALLOWANCE (CONT)

Operates in conjunction with 0% starting

rate for first £5,000 of savings income.

0% starting rate is only in point for those

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

Personal savings allowance = £1,000 for

basic rate taxpayers.

Limited to £500 for higher rate taxpayers

(and nothing for top rate taxpayers).

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PERSONAL SAVINGS ALLOWANCE (CONT)

Interest within ISA will continue to be tax-

free – it does not need to be covered by personal savings allowance.

Interest

credited to director’s loan account = savings income (but company must still pay this under deduction of tax).

Dividend income falling under £5,000 nil

rate band has to be taken into account in determining marginal rate of tax.

PERSONAL SAVINGS ALLOWANCE (CONT)

Personal savings allowance operates like

dividend nil rate band – savings income covered by allowance attracts zero rate of tax.

Unfortunate cliff-edge effect.

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 referred to earlier.

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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” regime –

verall tax rate is 6% higher in 2016/17.
Dividends to non-working spouses are

still advantageous.

With fall in corporation tax rates to 19% in

2017 and to 17% in 2020, will some owner managers seek to retain profits rather than pay them out?

DIVIDENDS – END OF ERA (CONT)

More own share purchases on retirement.
Bonus v dividend for 2016/17.
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%).

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DIVIDENDS – END OF ERA (CONT)

Impact
n

restriction

f

personal allowances.

Impact on incorporations – tax-motivated

incorporations are being targeted.

CLOSE COMPANY LOAN WRITE-OFFS

Income tax charge under S416 ITTOIA

2005 on amount written off.

Still classified as “dividend income”.
Therefore, use dividend rates (including

£5,000 nil rate band).

S416 ITTOIA 2005 takes precedence over

S188 ITEPA 2003.

DIVIDENDS AND GIFT AID IN 2016/17

Revised dividend regime took effect on 6

April 2016.

Trap for individuals who have previously

used tax credits to frank basic rate tax deducted from Gift Aid payments.

But tax credits have been abolished for

2016/17 onwards.

Problem is for donors whose main source
f taxable income is from dividends.

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DIVIDENDS AND GIFT AID IN 2016/17 (CONT)

If BR tax which is deemed to be deducted

from Gift Aid payments cannot be covered by dividend tax credits, it must be paid over to HMRC.

Illustration of wealthy benefactor.
For 2016/17, problem may be able to be

resolved by carry-back election under S426 ITA 2007.

Important caveat.

DIVIDENDS AND GIFT AID IN 2016/17 (CONT)

This election can only be made on or

before filing of individual’s 2015/16 tax return.

See Cameron v HMRC (2010).
Therefore, it may make sense to delay

filing affected donors’ tax returns until January 2017.

TRUST DIVIDEND INCOME

For IIP trusts, trustees pay BR tax on all

trust income.

Thus, in respect of their share of trust

income, beneficiaries may:

btain refund;
suffer no further tax; or
be liable for higher and additional rates.

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TRUST DIVIDEND INCOME (CONT)

Position to date has been that, with

dividend income, tax credit covered trustees’ BR income tax liability.

W.e.f. 6 April 2016, trustees have to pay

7.5% on all dividend income – they are not entitled to £5,000 dividend allowance.

But

IIP trusts are “transparent” – therefore, 7.5% dividend tax charge will be credited to life tenant.

TRUST DIVIDEND INCOME (CONT)

Life tenant may be entitled to tax refund if

payment falls within his £5,000 dividend nil rate band.

Possibility of mandating such income to

beneficiary.

Rules for discretionary and accumulation

trusts are rather different.

W.e.f. 6 April 2016, such trusts are also

unable to utilise £5,000 allowance.

TRUST DIVIDEND INCOME (CONT)

Discretionary and accumulation trusts will

suffer tax of 38.1% (7.5% where standard rate band applies) on dividend income.

This is credited to trust’s tax pool and will

be available to frank income distributions.

But discretionary and accumulation trusts

are not “transparent” – trust distribution counts as annual payment in hands of beneficiary.

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TRUST DIVIDEND INCOME (CONT)

This will not attract £5,000 allowance – it

does not represent dividend income.

When

making income payment to beneficiary, trustees will have to deduct 45% tax and so they are likely to end up having to pay further tax to HMRC.

Will it now be preferable to appoint IIPs to

many discretionary beneficiaries, given that there should be no CGT or IHT?

IS IT “FAIR BARGAIN”?

Normally, where employee reimburses his

employer for any benefit in kind, cash equivalent is reduced on £-for-£ basis.

However, if employee receives goods or

services at same cost and on same terms as member of public, he will have struck “fair bargain” with employer.

No benefit will have arisen – this follows

from decision in Mairs v Haughey (1993).

IS IT “FAIR BARGAIN”? (CONT)

But employers have been using these

rules to override standard benefit tax charges – see Apollo Fuels case in 2016.

Therefore, for 2016/17 onwards, no “fair

bargain” let-out for:

living accommodation;
cars (but note exception); and
loans.

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DIESEL CAR BENEFITS

3% diesel supplement was not after all

abolished on 6 April 2016.

Retained for further 5 years.
But what about employers who have

already ordered cars (on assumption that there would be no diesel supplement)?

ZERO-EMISSION VANS

Nil rate charge for zero-emission vans

came to end on 5 April 2015.

For 2015/16, benefit in kind charge was

20% of normal van benefit (£3,150).

Planned that rate would then rise on

tapered basis.

This will now take place more slowly, with

20% remaining in place for 2016/17 and 2017/18.

ZERO-EMISSION VANS (CONT)

Standard van benefit charge for 2016/17 =

£3,170.

But any van driver who meets restricted

private use condition in S155(4) ITEPA 2003 will still have van benefit of nil.

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TRIVIAL BENEFITS

OTS

recommendation – statutory exemption for “trivial” benefits in kind provided for employees.

Replace previous concessionary practice.
New S323A ITEPA 2003 to apply w.e.f. 6

April 2016.

No income tax or NIC charge where 4

conditions are satisfied – they are:

TRIVIAL BENEFITS (CONT)

benefit must not be cash or cash

voucher;

cost of providing benefit must not

exceed £50 per person (if necessary, simple average can be used);

benefit must not be provided as part of

salary sacrifice arrangement (or similar); and

TRIVIAL BENEFITS (CONT)

benefit

must not be provided in recognition of services performed (or to be performed).

No limit to number of “trivial” benefits for

most employees in any 1 tax year.

However, if company is close and if

recipient is director, there is annual cap of £300.

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PENSIONS – LIFETIME ALLOWANCE

Lifetime

allowance reduced from £1,250,000 to £1,000,000 for 2016/17 and 2017/18.

Thereafter, index-linked by reference to

CPI for 12 months to previous September.

Problem where pension pot is greater

than lifetime allowance.

Is there already protection?

PENSIONS – LIFETIME ALLOWANCE (CONT)

If not, what about FP16 and/or IP16?
FP16 allows taxpayer to retain old limit,

but no further contributions can be made.

Under IP16, taxpayer has limit equal to

value of pension savings on 5 April 2016 (up to £1,250,000), but can continue to make payments.

Both forms of protection can be held, but

FP16 has precedence.

PENSIONS – LIFETIME ALLOWANCE (CONT)

In order to obtain protection, taxpayer

must apply for reference number from HMRC before he takes his benefits.

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SPORTING TESTIMONIAL PAYMENTS

Intention to bring receipts from sporting

benefits or testimonials into income tax regime w.e.f. 6 April 2017.

Reed v Seymour (1927).
Nowadays benefit events are organised

by independent committee – need to take great care that receipts are not treated as arising from “trade” (which would automatically become taxable).

SPORTING TESTIMONIAL PAYMENTS (CONT)

Where right to benefit is written into

player’s contract or it is customary for such events to take place, proceeds are taxable under S62 ITEPA 2003.

However, case law has established that,

where benefit is organised to demonstrate public’s affection and regard for sportsman’s personal qualities, proceeds will be tax-free.

SPORTING TESTIMONIAL PAYMENTS (CONT)

HMRC have suggested that this should no

longer apply in light of “disguised remuneration” legislation (which targeted EBTs), but benefit receipts have continued to be tax-free by concession.

Could such receipts also have been

caught by benefit in kind provisions?

Examples of tax-free benefits.
New S226E ITEPA 2003.

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SPORTING TESTIMONIAL PAYMENTS (CONT)

Applies only to employed sportsmen.
No relevance in context of self-employed

individuals.

Tax charge will come into effect where:
announcement of benefit is made on or

after 25 November 2015; and

relevant activities take place on or after

6 April 2017.

SPORTING TESTIMONIAL PAYMENTS (CONT)

Modest income tax exemption under

S306B ITEPA 2003 (£100,000).

If player enjoys 2 or more benefits,

£100,000 exemption only extends to first set of arrangements.

Class 1 NIC rules also to be changed.

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 (S24 F(No2)A 2015).

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FINANCE COSTS FOR PROPERTY BUSINESSES (CONT)

In 2017/18, deduction for 75% of finance

costs, with 25% being relieved as BR 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 BR tax reduction.

FINANCE COSTS FOR PROPERTY BUSINESSES (CONT)

These rules do not apply to owners of

FHLs nor to landlords who rent commercial property.

Note restriction where finance costs are

greater than business profits.

But any unrelieved finance costs will now

be able to be carried forward.

FINANCE COSTS FOR PROPERTY BUSINESSES (CONT)

Confirmation in FB 2016 that:
beneficiaries
f

deceased persons’ estates are subject to BR reduction; and

unrelieved tax reduction can be carried

forward, even if there is no restriction in that later year.

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FINANCE COSTS FOR PROPERTY BUSINESSES (CONT)

Should property letting businesses with

high gearing now be incorporated?

Corporate landlords can still obtain full

tax relief for their interest payments.

PROPERTY LETTING DEDUCTIONS

New deduction for landlords replacing

furnishings, appliances and kitchenware in rented residential properties.

W.e.f. 1 (or 6) April 2016.
S311A ITTOIA 2005 conditions:
person carries on residential letting

business;

replacement of domestic item;

PROPERTY LETTING DEDUCTIONS (CONT)

expenditure is capital; and
no capital allowances are available.
But rules do not apply to any residential

property which qualifies:

as FHL; or
for rent-a-room relief.
Relief will cover:
movable furniture or furnishings;

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PROPERTY LETTING DEDUCTIONS (CONT)

televisions;
fridges and freezers;
carpets and floor coverings;
curtains;
linen; and
crockery and cutlery.
However, replacement of integral fixtures

still counts as “repair”.

PROPERTY LETTING DEDUCTIONS (CONT)

Replacement item must be “substantially

the same” as old item.

“Incidental” expenditure also allowed.
10% wear and tear allowance legislation

repealed.

So, too, have renewal allowance rules in

S68 ITTOIA 2005 and S68 CTA 2009.

VENTURE CAPITAL SCHEMES

As far as EIS, SEIS and VCT rules are

concerned, all energy generating activities are removed from relief for shares and holdings issued on or after 6 April 2016.

This
verrides

existing subsidised renewable energy generating let-out.

Exclusion applies to both non-renewable

and renewable sources.

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VENTURE CAPITAL SCHEMES (CONT)

Irrelevant whether or not there is subsidy.
These changes will also apply to SITR

when that scheme is enlarged later in 2016.

PEER-TO-PEER LOANS

Service connecting investors who have

money to lend with individuals

r

businesses who need to borrow.

Investor puts in lump sum using peer-to-

peer platform and this is then lent out in small sub-loans to different borrowers.

Spreads risk of default.
Regulated by Financial Conduct Authority

since 2014.

PEER-TO-PEER LOANS (CONT)

Interest received is taxed on current year

basis under S370 ITTOIA 2005.

For 2016/17 onwards, automatic loss relief

for irrecoverable loans against interest received on loans made through same platform.

If loan went bad in 2015/16, formal claim

must be made.

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PEER-TO-PEER LOANS (CONT)

2 further forms of relief if bad debt

exceeds interest received:

sideways claim against any interest

received from other platforms; or

carry amount forward for offset against

interest received on FIFO basis in next 4 years from any platform.

Personal savings allowance available, but
nly for interest after bad debt relief.

COMPANY DISTRIBUTIONS

Following liquidation, shareholder will

receive capital distribution liable to CGT – preferable to receiving income payment.

Informal dissolutions – S1030A CTA 2010.
Government believe shareholders are

increasingly seeking tax advantage of being charged to tax on gains rather than income.

New anti-avoidance – individuals only.

COMPANY DISTRIBUTIONS (CONT)

But consultation about more wide-ranging

approach to stop future conversion of income to capital (eg. reintroduction of close company apportionments).

W.e.f. 6 April 2016, new TAAR will apply to

distributions in respect of share capital

n winding up (S396B ITTOIA 2005).
No statutory clearance procedure.

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COMPANY DISTRIBUTIONS (CONT)

Treats distribution on winding up as

income receipt where:

individual, having interest of at least

5%, receives distribution on winding up;

company was close when it was wound

up (or had been at some point in previous 2 years);

COMPANY DISTRIBUTIONS (CONT)

within 2 years following distribution, he

(or connected person) is involved in similar trade or activity; and

it is reasonable to assume that main

purpose is avoidance or reduction of income tax liability.

Aimed at “phoenixism”.
HMRC’s examples:

COMPANY DISTRIBUTIONS (CONT)

landscape gardener;
IT contractor; and
accountant.
Exemption from TAAR where distribution

received by individual:

does not exceed his CGT base cost; or
nly comprises irredeemable shares.

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COMPANY DISTRIBUTIONS (CONT)

In addition, “transaction in securities”

rules changed and updated w.e.f. 6 April 2016:

new “connected parties” regime;
look at reserves on group-wide basis

rather than on company by company basis;

“fundamental change of ownership” let-
ut made tougher; and

COMPANY DISTRIBUTIONS (CONT)

liquidation to be treated as transaction

in securities.

Procedural rules for counteraction to
perate

in similar fashion to self- assessment compliance provisions.

CGT RATE REDUCTION

Unexpected CGT rate reduction – for

2016/17 onwards:

18% rate falls to 10%; and
28% rate falls to 20%.
This applies to all gains except for:
gains accruing on residential property

which do not attract PPR relief; and

gains arising on “carried interest”.

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CGT RATE REDUCTION (CONT)

ATED-related gains continue to be taxed

at 28%.

Taxpayers are being encouraged to invest

in companies rather than in property.

ER AND ASSOCIATED DISPOSALS

Relief under S169K TCGA 1992 for

associated disposals.

Requirement

to “withdraw from participation” – used to be simple test of reducing equity stake in business.

“5% rule” brought in w.e.f. 18 March 2015

by FA 2015.

But problem where there was, say, gift to

son or daughter.

ER AND ASSOCIATED DISPOSALS (CONT)

This difficulty has been removed where

associated disposal takes place before material disposal.

For partnerships, 5% requirement has

been dropped as long as:

material disposal is disposal of entire

partnership interest; and

claimant had 5% interest for at least 3 in

last 8 years prior to material disposal.

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ER AND ASSOCIATED DISPOSALS (CONT)

New rule: associated asset must have

been owned by claimant for at least 3 years prior to its disposal, but this requirement

nly

applies to assets acquired on or after 13 June 2016.

All other amendments are backdated to 18

March 2015.

ER AND DISPOSAL OF GOODWILL

S169LA TCGA 1992 removed entitlement

to ER in connection with transfers of goodwill to related close company w.e.f. 3 December 2014.

Intended to stop common incorporation

practice of sole trader selling goodwill to new company for full value in return for credit to director’s loan account.

ER AND DISPOSAL OF GOODWILL (CONT)

This provision has been retrospectively

amended so that it only applies if person disposing of goodwill holds 5% or more

f company’s O.S.C. and voting rights.
Shares and rights held by connected

companies and trustees (but not by connected individuals) are taken into account for purpose of this test.

Original legislation was too wide-ranging.

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ER AND DISPOSAL OF GOODWILL (CONT)

Even if individual holds 5% or more, ER

will still be due if transfer of business is part of arrangements under which close company is to be sold, within 28 days, to new independent owner.

Possible for this 28-day limit to be

extended by agreement with HMRC.

MEANING OF “TRADING COMPANY”

New definitions of “trading company” and

“trading group”.

Set out in S169SA and Sch 7ZA TCGA

1992.

They deal with:
joint venture companies; and
corporate partnerships.

MEANING OF “TRADING COMPANY” (CONT)

Joint venture company is company:
which is trading company or holding

company of trading group;

where at least 75% of O.S.C. is held by 5
r fewer persons.
In order for “look-through” provision to

apply with joint venture companies, claimant must have at least 5% interest in joint venture company.

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MEANING OF “TRADING COMPANY” (CONT)

This interest can be direct or indirect and

covers both O.S.C. and voting rights.

For this purpose, fractional ownerships

within group of companies of which investing company is member are treated as 100%.

See illustration on next slide.

MEANING OF “TRADING COMPANY” (CONT)

DAVID 20% A LTD 60% B LTD 40% JV LTD

MEANING OF “TRADING COMPANY” (CONT)

Where corporate partnership is involved,

“look-through” rule will only apply if disponor is entitled to at least 5% of partnership assets and profits (if different, always take lower percentage) and controls at least 5% of voting rights in corporate partner.

These

amendments take effect for disposals made on or after 18 March 2015.

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INVESTORS’ RELIEF

New

CGT relief for investments in qualifying shares in unquoted trading company.

Lifetime limit of £10,000,000 – this is

separate from ER limit.

Main conditions are:
shares must be new ordinary shares;
shares must be subscribed for;

INVESTORS’ RELIEF (CONT)

shares must have been issued by

company on or after 17 March 2016;

shares must have been held by investor

for minimum 3-year holding period following 6 April 2016;

at time of issue, none of company’s

shares or securities were listed on recognised stock exchange;

INVESTORS’ RELIEF (CONT)

company must be trading company or

holding company of trading group throughout share-holding period; and

neither investor nor any connected

person should have been employee of company (or any connected company).

This relief is relevant for disposals in

2019/20 and subsequent years.

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INVESTORS’ RELIEF (CONT)

Ahead of Committee of Whole House

Proceedings

n

28 June 2016, Government announced 30 amendments to their original proposals.

Joint holders can qualify for investors’

relief.

Trustees of IIP settlement can also qualify

provided:

INVESTORS’ RELIEF (CONT)

at least 1 beneficiary has held IIP in

shares throughout previous 3 years and has not been employee of company;

beneficiary must notify trustees that he

agrees to participate; and

joint claim must be made by usual time

limit.

Trustees’ relief comes out of beneficiary’s

£10,000,000 limit.

INVESTORS’ RELIEF (CONT)

Certain officers (and employees) can now

benefit from investors’ relief – aimed primarily at “business angels”.

Normal prohibition is set aside if investor

is “relevant employee”, ie:

“unremunerated director”; or
becomes employee more than 180 days

after share issue (+ no reasonable prospect of this outcome).

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INVESTORS’ RELIEF (CONT)

Definition of “unremunerated director” =

no involvement with company before making investment and no receipt of “disqualifying payments”.

Special matching rules for qualifying and

potentially qualifying shares.

Important

provisions for company reorganisations and takeovers.

INVESTORS’ RELIEF (CONT)

Relief denied where investor has received

value from company

f

more than “insignificant” amount.

Note

that there are no “trading” exclusions, ie. shareholders in farming and property development companies can qualify for investors’ relief.

NRCGT RETURNS

NRCGT return has to be submitted within

30 days of completion (+ tax paid).

If non-UK resident is registered for self-

assessment, normal CGT payment date applies.

Even where no tax was due, return still

had to be filed.

No longer – amendment backdated to 6

April 2015.

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PCTA 1968

Importance of PCTA 1968.
Because CGT is ordinarily payable after

end of tax year, there was no need for CGT to be included in list of taxes covered by PCTA 1968.

But change in FA 2015 for non-UK

residents disposing of UK residential property.

PCTA 1968 (CONT)

W.e.f. 6 April 2019, same 30-day time limit

is to apply to UK-resident taxpayers disposing of UK residential property which is not wholly exempted by PPR relief.

IHT AND MAIN RESIDENCES

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;
£125,000 for 2018/19;
£150,000 for 2019/20; and

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IHT AND MAIN RESIDENCES (CONT)

£175,000 for 2020/21.
“Taper

threshold”

f

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

Meaning of “estate”.
Unused residential enhancement can be

transferred to surviving spouse (but always in percentage terms).

IHT AND MAIN RESIDENCES (CONT)

Maximum amount 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 (+ lineal descendants and spouses).

IHT AND MAIN RESIDENCES (CONT)

Property can be inherited in variety of

ways:

under will;
via deed of variation;
n intestacy;
by survivorship; and
when settled on IPDI trust.

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IHT AND MAIN RESIDENCES (CONT)

Problem with discretionary trusts, but can

use S144 IHTA 1984.

Where value of property is less than

deceased’s residence nil rate band, relief is limited to value of that property, but any unused excess can be transferred.

IHT AND MAIN RESIDENCES (CONT)

Where estate does not include qualifying

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

Calculation
f

transferable amount broadly follows rules in S8A IHTA 1984.

Usual time limit for claims on second

death.

IHT AND MAIN RESIDENCES (CONT)

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.
Special relief if deceased lived in job-

related accommodation.

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IHT AND MAIN RESIDENCES (CONT)

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.

Property

needs to be

ccupied

as “residence” – see CGT case law.

IHT AND MAIN RESIDENCES (CONT)

Beware effect of “asset bunching” re

taper threshold of £2,000,000.

Further relief for those who downsize or

dispose of their homes on or after 8 July 2015 so that residence nil rate band is not wasted – see legislation in Cl 82 and Sch 15 FB 2016.

3 main situations when this downsizing

addition will be available:

IHT AND MAIN RESIDENCES (CONT)

deceased

has downsized to less valuable residence and sale proceeds (or other assets of equivalent value) have been left to direct descendant;

deceased has sold his home and sale

proceeds (or other assets of equivalent value) have been left to direct descendant; or

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31

IHT AND MAIN RESIDENCES (CONT)

deceased has otherwise ceased to own

his home (eg. because he gifted it) and assets of equivalent value have been left to direct descendant.

Qualifying conditions for this downsizing

addition are:

death occurred on or after 6 April 2017;
property would have been eligible for

standard residence nil rate band;

IHT AND MAIN RESIDENCES (CONT)

less valuable property (or other assets
f equivalent value) is included in

deceased’s estate; and

this less valuable property (or other

assets of equivalent value) is inherited by deceased’s direct descendants.

No tracing provisions.

IHT AND MAIN RESIDENCES (CONT)

Downsizing or disposal must take place
n or after 8 July 2015, but no limit to

length of time thereafter until death.

There can be more than 1 downsizing

move over this period.

Downsizing will cover disposal of part of

property (including garden or grounds).

Assets of equivalent value = net value of

property.

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32

IHT AND MAIN RESIDENCES (CONT)

This downsizing addition is also subject

to taper.

Downsizing addition must be aggregated

with standard residence nil rate band – maximum limit (eg. £175,000) will still apply.

IHT AND PENSION DRAWDOWN FUNDS

S3(3) IHTA 1984 – deliberate failure to

exercise favourable right or option.

Not taking up pension rights when they

could have been taken up was potentially caught by this anti-avoidance rule.

Issue thought to have been resolved by

FA 2011 which introduced S12(2ZA) IHTA 1984.

IHT AND PENSION DRAWDOWN FUNDS (CONT)

But still problematic, especially following

launch of flexi-access pensions regime on 6 April 2015.

Did let-out apply where member’s funds

had been designated to drawdown but had not been fully drawn at date of death?

Probably not.
Therefore, see new S12A IHTA 1984 which

is retrospective to:

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33

IHT AND PENSION DRAWDOWN FUNDS (CONT)

6 April 2011 in case of member’s and

dependants’ drawdown pension funds;

r
6 April 2015 in case of flexi-access

drawdown funds.

HIGHER RATES OF SDLT

W.e.f. 1 April 2016, higher rates of SDLT

for residential properties purchased by:

individuals who already own another

dwelling (and are not replacing their main residence); and

any person who is not individual.
Set at 3% above normal SDLT rates.
Relevant for properties in England, Wales

and Northern Ireland.

HIGHER RATES OF SDLT (CONT)

Purchases of caravans, mobile homes

and houseboats are not affected.

Nor are properties costing less than

£40,000.

3% surcharge does not apply if, at end of

day on which transaction is completed, buyer only owns 1 property (irrespective

f intended use).

SLIDE 34

34

HIGHER RATES OF SDLT (CONT)

If, at end of day on which transaction is

completed, buyer owns 2 (or more) properties, higher rates will be in point.

But not if he is replacing main residence.
3-year rule before and after.
Transitional measure: no higher rates if

contracts exchanged on or before 25 November 2015.

HIGHER RATES OF SDLT (CONT)

Married couples are treated as single unit

– they can only have 1 main residence between them at any time.

Property owned by either party (+ minor

children) is taken into account.

Problem for joint purchasers.

HIGHER RATES OF SDLT (CONT)

If, at end of day on which they complete,

any of joint purchasers has 2 or more residential properties (and is not replacing main residence), 3% surcharge will apply.

Parents and children – how to structure

property transactions.

No SDLT election where there are 2 or

more residences – question of fact.

SLIDE 35

35

HIGHER RATES OF SDLT (CONT)

This differs from CGT treatment.
Properties located abroad are counted as

main or additional homes.

No special treatment for FHLs.
Life tenant of property held in IIP trust is

treated as owning trust property.

This rule does not extend to interests

under discretionary trusts.

HIGHER RATES OF SDLT (CONT)

Discretionary

trustees are always required to pay higher rates when buying residential property.

Property

situation

f

discretionary beneficiaries is irrelevant.

No let-out for large-scale investors (eg.

companies) in residential property.

SDLT AND NON-RESIDENTIAL PROPERTY

SDLTA 2015 abolished “slab” system for

acquisitions of residential property.

W.e.f. 17 March 2016, this regime has

been extended to non-residential (ie. commercial) and mixed property.

Maximum SDLT rate = 5%.
Transitional rule, eg. contracts exchanged

and contract “substantially performed” before 17 March 2016.

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36

NEW SDLT RELIEFS

15% SDLT charge where “expensive”

residential property is acquired by NNP (eg. company).

“Expensive” = more than £500,000.
But there are several reliefs (eg. purchase
f rental property) where only standard

SDLT rate is payable.

3 new reliefs w.e.f. 1 April 2016 where:

NEW SDLT RELIEFS (CONT)

property is acquired for purposes of

providing living accommodation to employee of property rental business or tenant-run management company buys flat for caretaker;

authorised equity release organisation

buys property under regulated home reversion plan; and

NEW SDLT RELIEFS (CONT)

trader acquires property:
for conversion into non-residential

use; or

in order to demolish it permanently

for use in his trade.

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37

ATED IN 2016

ATED is annual tax payable by companies

and other NNPs who own UK residential property valued at more than £500,000.

No change to tax figures for FY 2016

(other than introduction of new band).

New ATED reliefs w.e.f. 1 April 2016:
flats for caretakers; and
equity release scheme properties.

NON-MONETARY INCOME

Decision in Gold Coast Selection Trust

Ltd v Humphrey (1948) – “money value”

f

non-monetary assets received in course of trade to be treated as income.

For transactions entered into on or after

16 March 2016, there is now statutory rule which has same effect.

Covers trading and property businesses.
Income tax and corporation tax.

NON-MONETARY INCOME (CONT)

See also Para BIM40051 of Business

Income Manual.

Why, then, do we need new provision?
If trader receives non-monetary benefit

which is not convertible into money, it does not have to brought in as trading receipt.

SLIDE 38

38

USE OF HOME FOR BUSINESS

Fixed rate deduction for business use of

home under S94H ITTOIA 2005.

Based on number of hours worked, with

calculation done on monthly basis.

Specifically now applies to partners and

their firms, but consistent treatment for all partners using their homes for work.

Also changes to S94I ITTOIA 2005.

USE OF HOME FOR BUSINESS (CONT)

Where premises are mainly used for

business purposes but, from time to time, they are also used as home, full expenses

f property allowed as deduction, subject

to adjustment for number of residents.

This provision applies to partners.
Again there must be consistency of

treatment if firm has more than 1 set of premises.

AVERAGING FOR FARMERS

2-year averaging rules retained following

consultation (but with modifications).

Additional option of averaging over 5-year

period.

For 2016/17 onwards, marginal relief

formula has been abolished.

Full averaging where profits of 1 year are

less than 75% of profits of other.

SLIDE 39

39

AVERAGING FOR FARMERS (CONT)

New facility to average over 5-year period,

subject to meeting “volatility condition”.

5-year averaging claim can be made if

either of following is less than 75% of

ther:
average of profits for first 4 tax years;

and

profits for last (ie. 5th) tax year.

AVERAGING FOR FARMERS (CONT)

Alternatively, 5-year averaging claim can

be made if profits of any 1 tax year are nil (ie. because of loss).

Commencement rule: 5-year averaging

applies if final tax year is 2016/17 or later.

Amendments

to 2-year averaging provisions have effect where second year is 2016/17 or later.

LOANS TO PARTICIPATORS

Rate of tax on charges under Ss455 and

464A CTA 2010 increased from 25% to 32.5% w.e.f. 6 April 2016.

Now specifically linked to dividend upper

rate.

If there have been charges at both rates,

is there any specified

rder
f

repayment?

Clayton’s case (1816)?

SLIDE 40

40

LOANS TO PARTICIPATORS (CONT)

Any loan made to trustees of charitable

trust on or after 25 November 2015 is exempt from charge provided loan is applied wholly for purposes of charitable trust.

CAPITAL ALLOWANCES

100% ECAs for expenditure on plant or

machinery in “designated assisted areas” within enterprise zone.

No upper limit of £200,000.
Deadline extended from 31 March 2020 to

8 years from date on which area was so designated.

Anti-avoidance

legislation involving manipulation of disposal values.

R&D RELIEF

230% “super-deduction” for small and

medium-sized companies.

130% relief for large companies stopped

w.e.f. 1 April 2016 – all such companies must now use 11% ATL regime (“R&D expenditure credit”).

SLIDE 41

41

PARTNERSHIPS AND IFAs

New rule in Cl 48 FB 2016 to clarify

position when IFA (eg. goodwill) held by partnership (or LLP) comes within intangibles regime.

Only relevant when partnership includes

company.

Normally, intangibles regime only applies

if IFA was acquired from “non-related” party on or after 1 April 2002.

PARTNERSHIPS AND IFAs (CONT)

But CTA 2009 does not spell out precisely

how partnerships should be treated in this context.

Important point is that, in order to allocate

corporate partner its share, partnership profit must first be calculated

n

corporation tax lines.

This will take intangibles rules into

account.

PARTNERSHIPS AND IFAs (CONT)

Prior to 25 November 2015, it was thought

that IFA starting date was not relevant for this purpose.

In other words, even if, say, partnership

goodwill had been acquired before 1 April 2002, it could still qualify for amortisation relief in calculating company’s share.

Therefore, “related party” definition in

S835 CTA 2009 has now been expanded.

SLIDE 42

42

PARTNERSHIPS AND IFAs (CONT)

Definition includes any person who meets

“participation condition”, ie. because they are directly or indirectly involved with management, control or capital of another person.

New

rule applies not

nly

to IFA transactions taking place on or after 25 November 2015 but also to accounting debits (or credits) straddling that date.

PARTNERSHIPS AND IFAs (CONT)

Time-apportionment basis is used for this

latter aspect.

PROPERTY DISPOSALS

7 new clauses tabled on 5 July 2016 at

Committee Stage.

Part of series of measures to make
ffshore property developers pay tax on

their UK portfolios.

Main concern has been that this anti-

avoidance provision could catch ordinary buy-to-let investors.

SLIDE 43

43

PROPERTY DISPOSALS (CONT)

They would then have to pay income tax

rather than CGT on their disposals.

But only if 1 of their main purposes in

acquiring property was to make profit.

Criticism from Law Society and NLA.
Financial