There has been much speculation as to how the special rules for taxing non-doms might change. On Budget Day we found out – at least for this parliament.

The good news for non-doms is that they will be able to remit income and/or capital gains tax free for the purpose of commercial investment in UK businesses. This effectively gives up to 50% tax relief on the amounts remitted. We await the outcome of consultation to establish what investments will qualify but in general this is good news for those who want to invest in the UK.

Outside the world of tax, there is further good news for individuals who want to settle in the UK. Only a week ago, the Border Agency also announced a relaxation of the immigration requirements to attract foreign investors and entrepreneurs to the UK. The changes mean that those with significant wealth to bring to the UK will be given a fast track to settlement in the UK. For example, those with £10 million to invest can settle in the UK after only 2 years. Previously, they would have had to wait at least 5 years to apply to settle in this country.

Of course, residence for tax purposes and residence for immigration purposes are not necessarily the same and have to be considered separately. Following a number of tax cases in relation to residence, the Government have finally announced a long-awaited statutory residence test and there will be consultation on this, too, over the summer with a view to implementation from April 2012.

The not-so-good news is that there is a proposed increase to the charge some non-doms need to pay in order to access the remittance basis. Currently, those non-doms who have been here for 7 out of the previous 9 tax years have had to pay an annual £30,000 charge in order to benefit from of the remittance basis. From April 2012, those who have lived in the UK for 12 years will have to pay £50,000 per year instead.

Finally, we have been promised some simplification of the technical rules on remittances but we must, once more, wait for further details to be released.

The big message is, though, that non-doms are welcome in Britain.

Lisa Spearman is a partner at Mercer & Hole. If you would like to discuss the contents of this post with Lisa you can call her on 020 7353 1597.

 

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With the removal of higher rate tax relief on pension contributions for those with total earnings over £130,000 what options do you have?

Pensions

You can make a contribution of £20,000 (or £30,000 if you have made large single contributions in the past) this tax year , which will benefit from higher rate tax relief. The coalition government is currently consulting on pension rules and it's looking likely that from next tax year the annual allowance will be reduced which means the maximum contribution will be somewhere between £30,000 to £45,000. We'll have to wait and see.

If you are on the cusp of £130,000, look at your income sources. Consider diverting savings income to a lower earning spouse/civil partner. You can also consider gift aid to reduce your earned income (well for the moment anyway).

Can you contribute to a spouse/civil partners pension instead, eg husband and wife own company, make pension contribution in wife name only?

ISA

Max out your ISA allowance. You can invest £10,200 now in ISAs , that’s £20,400 for a couple. £5,100 in cash and £5,100 in stocks and shares ISA. It is better to do this at the beginning of the tax year as opposed to the end. Clients often think this doesn't amount to much, but if a married couple both did their ISA allowance for 10 years and achieved 6% growth during that time, you would expert a fund of c. £285,000.

Stocks an Shares ISAs grow free from Capital Gains Tax and if you take home an income, it is not added in when working out your income tax bill.

(Also useful for things like age allowance when you're retired)

Venture Capital Trusts (VCT)

Offer 30% tax relief on the contribution, maximum £200,000.

This is high risk as they are investing in SME companies, having said that some providers are catering for concerns by concentrating on structures that preserve your capital to give you the requisite return. You need to hold them for five years to keep the tax relief. A rolling plan programme is worth considering

Offshore Bonds

For lump sum investments, it can be worth considering bonds, growth is taxed as income, but the liability comes at the point when cash the investment in, so if you go from being a higher rate tax payer to a lower rate tax payer you can mitigate some of the tax, or even better assign (sign it over) it to a spouse who might not pay any tax at all, or the children when they go to university (they have got to be eighteen for this to work).

This is a snapshot as opposed to definitive list and there are other options available. The point is to explore a variety of tax wrappers, and with careful planning keep share less of your returns with the tax man.

Anne McClean is a senior Financial Adviser at Nightingale Associates. The views given in this blog are personal to the author.  If you would like to discuss the contents of this post with Anne you can call her on 020 7353 1597.

M&H LLP trading as Nightingale Associates is authorised and regulated by the Financial Services Authority.

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By George, was it as bad as I thought it might be? No... and there's even the odd bit to be optimistic about.

Pensions

Well it's all change again in the world of pensions with the third set of changes in as many months, on top of simplification introduced back in April 2006. The anti-forestalling measures for 2009/10 and 2010/11 introduced previously remain unchanged, however, complexity reigns and taking advice should be the default position.

For those high earners building pension funds, it's worth noting there will be consultation over the next few months to review the changes due in April 2011. The pensions industry has been fairly vocal with regards to 'doing away' with higher rate relief for those earning over £130,000. The likelihood is that the current annual allowance will be reduced from £255,000 to between £30,000 to £45,000.

For some clients this is an opportunity to keep contributing to pensions, where previously we anticipated this year was 'going to be it' in terms of new payments. If you are a director/shareholder of a business and in a position to make large employer contributions (up to £255,000 - deductible expense), I strongly advise you to explore your options in the coming months, to either rule in or rule out a large contribution while you have the chance.

The detail is to be confirmed but if you are caught by the £130,000 earnings limit keep your ears and eyes open.

Changes are afoot for those who are about to take benefits, this could prove to be quite interesting, although again, the devil is going to be in the detail and we don't know what that is yet. Up until yesterday when you reached the age of 75, you must have made a decision about taking your pension benefits - whether that was buying an annuity, or taking income via alternatively secured pension income. Under the new proposals this compulsion is being reviewed and new rules will come into effect 6 April 2011. Please note there is no compulsion to purchase an annuity, however you have to take income at the age of 75 and this is the most common option for doing that.

As an interim measure, those who reach the age of 75 on or after 22 June 2010 will not have to buy an annuity or otherwise secure a pension income until the age of 77. However, they will still have to take their lump sum and become entitled to income drawdown immediately before their 75th birthday.

Until the changes come into effect, a tax charge of 35% will be imposed on lump sum death benefits paid, if an individual dies with income drawdown on or after 22 June 2010 aged 75 or over. This will replace the charges applicable on lump sum death benefits in alternatively secured pensions, which previously could amount to 82% in total, although you would be lucky to get a provider to pay them in the first place as it's an unauthorised payment. This means the option of a lump sum payment is now possible, this certainly broadens out who can receive the benefits now up to age 75 , which has got to be a good thing!

For individuals with money purchase arrangements that reach the age of 75 on or after 22 June 2010, and have not yet purchased an annuity, the strict minimum and maximum limits associated with alternatively secured pension will now apply from their 77th birthday and not their 75th birthday.

The details are to be announced shortly when the consultation finishes.

The good news as far as the state pension is concerned, is this will now increase in line with earnings. This is also seen as a way of reducing the impact of means testing on savings.

ISAs

The ISA allowance will be increased in line with RPI from April 2011, rounded to the nearest £120. This is not massively exciting but every little bit helps. More important is that you try and use your allowance consistently.

Long term, stocks and shares have got to be the better bet, whereas cash is good for liquidity. The best rate for cash ISA's at the moment is Santander.

Child Trust Funds (CTFs)

Further government contributions are to cease from August 2010 for those aged seven and new CTFs will cease from Jan 2011. For those with existing accounts the legislation around contributions remains the same. Generally, we like Children's Mutual for CTFs.

Capital Gain Tax (CGT)

After much speculation the rate will go up from from 18% to 28% for higher rate tax payers. Thankfully everyone gets to keep their annual allowance of £10,100. The rate change came into effect last night at midnight and there are no retrospective charges for those who have made disposals between 6 April to 22 June.

Great news for Entrepreneurs' relief, where the limit goes from £2 million to £5 million.

EIS & VCT

From our perspective there is nothing in the Budget that will change our stance on EIS & VCTs, we were concerned that the emergency Budget would upset the opportunity for clients to invest in lower risk VCTs and EISs, again thankfully there doesn't appear to be anything that will change this moving forward. Moreover, these types of investments can, in the right circumstances, be an alternative vehicle to pensions for those caught by anti forestalling.

Anne McClean is a senior Financial Adviser at Nightingale Associates. The views given in this blog are personal to the author.  If you would like to discuss the contents of this post with Anne you can call her on 020 7353 1597.

M&H LLP trading as Nightingale Associates is authorised and regulated by the Financial Services Authority.
 

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Although some trustees are technically only liable to basic rates of income tax, it has been announced that the CGT rate for all trustees will be 28% for gains on or after 23 June 2010 (except where entrepreneurs' relief applies). This is also the case for personal representatives of deceased persons.
 

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Below are some key upcoming tax deadlines that you may need to consider. These dates cover the period June – August 2010.

19 June 2010 - PAYE and NIC due for the month ended 5th June 2010. Submit Construction Industry Scheme return for the month ended 5th June 2010.

5 July 2010 - Final date for agreement of 2009/2010 PAYE Settlement Agreements.

6 July 2010 - Final submission date for returns of expenses and benefits (forms P11D and P9D) for the year ended 5th April 2010.  Relevant employees to be provided with copies of forms P11D and P9D.

6 July 2010 - Submission date for annual share scheme returns (form 42) for the year ended 5th April 2010.

14 July 2010 - Deadline for submission of forms CT61 and payment of any associated income tax for the quarter ended 30th June 2010.

19 July 2010 - PAYE and NIC due for the month ended 5th July 2010.  Quarterly PAYE and NIC due for the quarter ended 5th July 2010 for qualifying small employers. Due date for payment of Class 1A NIC arising on relevant benefits in kind for the year ended 5th April 2010. Submit Construction Industry Scheme return for the month ended 5th July 2010.

31 July 2010 - Second payment on account due in respect of 2009/2010 personal tax. Second penalty of £100 applied where 2009 self-assessment tax return has not yet been submitted. Second 5% surcharge applied where 2008/2009 tax has not been settled in full by this date.

2 August 2010 - Submission date for forms P46 (Car) for changes during the quarter ended 5th July 2010 to car or fuel benefits provided to employees.

19 August 2010 - PAYE and NIC due for the month ended 5th August 2010. Submit Construction Industry Scheme return for the month ended 5th August 2010.

Another key date that everyone is waiting for with anticipation is Tuesday 22 June 2010.  Chancellor George Osborne has confirmed that the new Conservative-Liberal Democrat coalition government's emergency budget will be unveiled on this date. 

We will be blogging on SME Plus Blog and Tax Plus Blog on Budget day.  If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens.

Barry Hallam is a senior manager at Mercer & Hole. If you would like to discuss the contents of this post with Barry you can call him on 020 7353 1597. 

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Cathy Corns author on our sister blog SME Plus has highlighted some tax policies which have been announced following the formation of the Conservative-led coalition government - the key issues are highlighted below.  

I will also be posting further blog posts as the detail becomes clearer.  In the meantime, if you would like to discuss these and other tax planning opportunities available to you, please do not hesitate to contact me. 

Tax planning opportunities in uncertain times

We are living in interesting and uncertain times. We do now know who is governing Britain and that we will have a Budget within the next 50 days. There is a lot of speculation, but tax is going to change.

Some measures announced in the 2009 Pre Budget and the (first) 2010 Budget have not yet hit the statute books, so there is uncertainty over which will be retained. The coalition agreement makes specific mention of some tax policies which may affect you.

Capital Gains Tax

This tax is about to change again with CGT rates being aligned with income tax rates on non-business assets. The end result could be significantly more tax for higher earners, but with, possibly, extended entrepreneurs’ relief. Where this relief is not available, now may be a good time to look at realising gains to take advantage of the current rate of 18%. It is important though to consider all angles balancing earlier tax payment with the benefit of a lower rate of tax. It is not clear whether the change will be introduced from the date of the emergency budget or next 6 April.

Pension contributions

There are already rules to restrict the amount of higher rate relief that anyone earning over £130,000 can claim on pension contributions. The Lib Dem manifesto proposed the removal of all higher rate relief on pension contributions. I do not know when or if this measure will be introduced, but if you planned on making contributions in the current tax year, now may be a good time to do this.

Other changes

The inheritance tax threshold is not now going to be increased significantly in the short term at least but there will be an increase in personal allowances. These points will have a bearing on how your family organises its financial affairs in the round.
 

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Before the election the Conservatives promised that if they came to power there would be an emergency Budget within 50 days of an election . Today’s publication of the initial agreement between the Lib Dems and Conservatives, which will be followed by full coalition agreement, refers to such a Budget being within 50 days of signing any agreement. It is not clear if the clock starts with this initial agreement or with the full agreement when it appears. The Budget may not be as soon as we may think.

Also mentioned in the initial agreement is an indication that capital gains tax will rise to 'rates similar or close to those applied to income'. There is no indication from what date this may take effect but there is a reference to generous reliefs for business gains so we wait to see what form that will take.

Barry Hallam is a senior manager at Mercer & Hole. If you would like to discuss the contents of this post with Barry you can call him on 020 7353 1597.

 

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As Budget Day approaches, there has been speculation that the Chancellor is thinking about reintroducing some form of apportionment for close companies. In my opinion, an additional charge on dividends and other sources of investment income would be a much more effective way of dissuading owner managers from their present low salary high dividend regime.

In 1989, the then Conservative Government under Margaret Thatcher abolished the so-called close company apportionment rules which had been around since the 1920s. These provisions were intended to ensure that, where the directors of a successful family company decided not to distribute a substantial part of their post-tax trading and investment profits, they were deemed to have done so, subject to the retention of a reasonable sum for the working capital requirements of the business.

Given that the Chancellor of the Exchequer, Nigel Lawson, had recently harmonised income tax and capital gains tax rates at a maximum of 40%, it was considered that a measure designed to ensure that taxpayers should not benefit from a lower (or nil) rate on capital gains when the money could have been distributed as more highly taxed income in the form of a salary or dividend was now redundant.

In recent months, there have been rumours emanating from the Treasury that the present Chancellor is considering the possibility of re-enacting this former legislation. Presumably, the thinking is that, with effect from 6 April 2010, a high income individual will be taxed at up to 50% on his salary or 36.1% on his dividends, but that he only faces a capital gains tax charge of 18% (or sometimes 10%) on the disposal of his shares. Although it seems almost certain that capital gains tax rates will have to rise in the next year because of the gap between the top income tax and capital gains tax rates, the Government would probably wish to retain the present modest charge for those who qualify for entrepreneurs’ relief.

Accordingly, a tax scenario which encourages the retention of profits in owner-managed businesses – which is presently the case – is likely to be stopped. And one way of doing this might be to introduce a Mark II version of the close company apportionment regime.

Another consideration is that, with the impending introduction of higher rates of income tax, many existing unincorporated businesses will be turning themselves into limited companies in order to try and shelter profits at lower rates of tax than would be possible had they remained sole traders or partnerships. In other words, there will be a rush to incorporate not dissimilar to that which occurred in the early 2000s so that taxpayers can enjoy the advantage of extracting business profits via dividends more tax-efficiently than would otherwise be possible.

My own view is that the reinstatement of an apportionment procedure for close companies would have little or no effect on this latter situation other than perhaps forcing some business owners to distribute more profits than they were otherwise minded to do. Nor would it deal satisfactorily with the problem of the disparity between income tax and capital gains tax rates.

Although I do not personally like the idea (nor would many of my clients!), there is no doubt in my own mind that the most effective approach to discouraging owner-managed companies from pursuing the low salary high dividend routine which has been widely practised in the past is to introduce an additional levy on dividends and other forms of unearned income similar to the investment income surcharge which was abolished by the Finance Act 1984. A charge of, say, 15% on investment incomes above a specified threshold would almost certainly put a stop to tax planning of this sort.

This year's budget will be held on 24 March 2010. Commentary from Robert Jamieson, partner with Mercer & Hole and past President of the Chartered Institute of Taxation.

The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Robert you can contact him at robertjamieson@mercerhole.co.uk or call 020 7353 1597.

We will be blogging on Tax Plus Blog andSME Plus Blog on Budget day. If you do not already subscribe to our blogs click here for Tax Plus Blog or here for SME Plus Blog to ensure you get our comment and analysis as and when it happens.
 

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Ahead of tomorrow’s Pre-Budget Report the Treasury has announced the restructuring of Northern Rock.

This is a timely reminder for those who held shares in the company that it may be possible to make a claim for the loss to set against other capital gains. Full details can be found on the HMRC website.

A similar situation arises for shareholders in Bradford & Bingley.

We will be blogging on SME Plus Blog and Tax Plus Blog on Pre-Budget Report day. If you do not already subscribe to our blogs click here  for SME Plus Blog or here  for Tax Plus Blog to ensure you get our comment and analysis as and when it happens.

Barry Hallam is a senior manager at Mercer & Hole. If you would like to discuss the contents of this post with Barry you can call him on 020 7353 1597. 

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It has been thought for some time that the rate of Capital Gains Tax (CGT) must increase to reduce the difference between it and the top rates of income tax. It was – and perhaps is – more a question of when than if. However, rumours are now flying that the rate of capital gains tax will go up with effect from the pre-budget report rather than the more usual 6 April. It would be rare although not entirely unheard of for a direct tax rate to increase during a fiscal year.

Clearly these are only rumours and we won’t know until the Chancellor’s speech on 9 December but if the 18% rate is important to you and you are in a position to do so you may wish to ensure that any capital gains tax transactions go through before 8 December. 

Stay in touch with our blogs during and after the Chancellor’s speech to find out what is actually announced.

We will be blogging on SME Plus Blog and Tax Plus Blog on Pre-Budget Report day.  If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens.

Lisa Spearman is a partner at Mercer & Hole. If you would like to discuss the contents of this post with Lisa you can call her on 020 7353 1597. 

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Even before the Chancellor’s Pre-Budget Report 2009 on 9 December the Conservative Party has indicated that they will have an 'emergency' Budget within fifty days of winning the general election next year.

Highlights of their proposals are:

• a reduction in corporation tax to 25% (20% small companies)
• increasing the stamp duty land tax threshold to £250,000
• raising the transferable IHT nil rate band to £1million
• a simple annual levy on all non-domiciles who want to avoid paying tax on their offshore income, in return for a promise not to change their tax regime for a Parliament.

It remains to be seen whether the Pre-Budget Report picks up on any of these ideas.

We will be blogging on SME Plus Blog and Tax Plus Blog on Pre-Budget Report day. If you do not already subscribe to our blogs click here  for SME Plus Blog or here  for Tax Plus Blog to ensure you get our comment and analysis as and when it happens.

Barry Hallam is a senior manager at Mercer & Hole. If you would like to discuss the contents of this post with Barry you can call him on 020 7353 1597. 

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Chancellor Alistair Darling has confirmed that he will make his Pre-Budget Report statement on Wednesday 9 December 2009. We will be providing full analysis of Pre-Budget Report announcements on the day.

We will be blogging on SME Plus Blog and Tax Plus Blog on Pre-Budget Report day.  If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens.

Lisa Spearman is a partner at Mercer & Hole. If you would like to discuss the contents of this post with Lisa you can call her on 020 7353 1597. 

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With less than a week until Chancellor Alastair Darling’s second Budget statement the speculation as to what may be announced on Wednesday 22 April 2009 is mounting.

Political  commentators such as www.politics.co.uk suggest that on one hand it should be a neutral Budget, but on the other hand spending is now part of the Government’s DNA. The British Retail Consortium (BRC), is reported in The Telegraph as saying that, “the high street is in need of some retail therapy”.

The Times reports that, “the Budget will make or break renewable energy” and the BBC is giving its own predictions here.

From a tax perspective much has already been announced in respect of the current tax year, but there may be changes announced for later years. Those dealing with the taxation of non-domiciled UK residents would welcome some simplification of the horrendously complex new rule introduced in Mr Darling’s first Budget last year. 

As usual, we will just have to wait and see! 

We will of course be blogging on SME Plus Blog and Tax Plus Blog, providing analysis on the key highlights next Wednesday.    

If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens. 

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The Chancellor will make his Budget statement on Wednesday 22 April 2009.  We will be providing analysis of Budget announcements on the day.
 

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HMRC Revenue & Customs announced yesterday that they are taking steps to close a “highly contrived” tax avoidance scheme. The arrangements involve complex structures including both companies and trusts (possibly offshore). Some details can be found on the HMRC website and a ministerial statement will be made in Parliament today.

Maybe this will help plug the shortfall in tax receipts discussed in The Times on Saturday. The article indicates that HMRC are stepping up there investigations into Self Assessment Tax returns. The returns for the year to 5 April 2009, if not already filed, are due by the end of the month.

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Please find below a blog which you might find of interest from my colleague Cathy Corns, who writes for our sister blog SME Plus...

HMRC has published new guidance on the new penalty provisions that will apply from April 2008.

HMRC states that it has designed the new penalties so that:

• If people take reasonable care when completing their returns they will not be penalised.
• If they do not take reasonable care errors will be penalised, and the penalties will be higher if the error is deliberate.
• Disclosing errors before HMRC find them will substantially reduce any penalty due.

The new penalties initially apply to VAT, PAYE, National Insurance, Capital Gains Tax, Income Tax, Corporation Tax and the Construction Industry Scheme.

Further information can be found at:
http://www.hmrc.gov.uk/about/new-penalties/penalties-leaflet.pdf
http://www.hmrc.gov.uk/about/new-penalties/faqs.htm

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A recent decision from the Special Commissioners has highlighted the fact that UK advisers should not take too much of a hands on approach with regard to offshore trusts. The particular case (Trustees of the Trevor Smallwood Trust and HMRC) involved a tax scheme to avoid UK capital gains tax.

Briefly the facts were:

• A Jersey trust held shares that were pregnant with gain which would have been assessed on the UK resident settlor if they were realised. 
• On the advice of UK tax advisers new trustees were appointed who were resident in Mauritius.
• The plan was that the Mauritian trustees would sell the shares and subsequently, but in the same UK tax year, the Mauritian Trustees would resign in favour of UK trustees. 
• Under the Double Tax Treaty with Mauritius the gains would have assessable in Mauritius (with no tax payable) and not in the UK.
  
  

Continue Reading...

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The Telegraph is reporting a further climb-down on the proposed changes. According to senior HM Revenue and Customs officials.

“…non-doms will now be able to elect to make a "deemed sale" to rebase the value of their British and overseas assets.”

This appears only to relate to assets held with in offshore trusts and seems to have arisen following the letter from Dave Hartnett which stated…

“….there will be no retrospection in the treatment of trusts and the tax changes will not apply to gains accrued or realised prior to the changes coming into effect.”

No official announcement has been made and none is likely before the Budget on 12 March. So, if the trustees of your offshore trust were considering a “bed & breakfasting” exercise before 6 April 2008 they may want to put it on hold until the Budget.

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My fellow partner and renowned tax lecturer Robert Jamieson has provided me with the following note about “banking” indexation allowance ahead of the new capital gains tax rules which come into force on 6 April 2008.

Shortly after the Chancellor’s announcement that he was abolishing the indexation allowance for individuals with effect from 6 April 2008, tax advisers realised that clients who had accrued substantial indexation up to April 1998 could, in many cases, ‘bank’ the relief by making a simple inter-spouse transfer of the relevant asset before 6 April 2008. Following the no gain no loss transfer under S58 TCGA 1992, the recipient spouse would hold an asset at a revised base cost which was no longer deemed to include an indexation component.

It was then spotted that there was a problem if the asset fell into the rebasing regime on account of the wording in Para 1 Sch 3 TCGA 1992. This states that the recipient spouse will pick up the transferor’s rebased cost and accrued indexation so that the latter would still be lost on a disposal after 5 April 2008. It now appears that HMRC are of the opinion that the draft CGT legislation published on 24 January 2008 deals with this difficulty. If that is the case, it is still not clear which provision addresses the matter.

Reference can be made to the first of HMRC’s FAQs on the CGT reform proposals which reads as follows:

Q. If I make a no gain no loss transfer on or before 5 April 2008, for instance a transfer to my husband/wife, will he/she retain the benefit of any indexation allowance due on the transfer?
A. Indexation allowance will not be stripped out when the person who acquires the asset under a no gain no loss transfer disposes of it after 5 April 2008. For example, in the case of an inter-spousal transfer, indexation allowance will continue to be included, where applicable, in arriving at the allowable cost to the transferee spouse.’

This would seem to bear out HMRC’s professed intention, although astute observers will note that there is no express reference in the FAQ to a 31 March 1982 holding date for the transferor spouse. Interestingly, in the trusts discussion forum, Matthew Hutton has recently mentioned that he saw ‘non-confidential minutes’ of a meeting in November 2007 where HMRC put on record their view that the March 1982 holding period represented ‘an unfairness to the taxpayer which would be corrected by legislation’.

None of the above is very satisfactory for those who want to give definitive advice to their clients (unless they are content to rely on HMRC assurances). However, at the end of the day, what does a taxpayer lose by making an inter-spouse transfer of an asset such as land or shares which predates 31 March 1982?

Robert Jamieson MA FCA CTA (Fellow)

As Robert says there is nothing to lose by making such a transfer but it might be wise to make preparations but wait until the Budget on 12 March to see if the point is clarified.

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HM Revenue & Customs released findings from research on the tax advantaged “EMI” share option schemes, earlier this month (more details are available at http://www.hmrc.gov.uk/research/report41-summary.pdf).

The research followed discussions with employers and employees where EMI schemes have been introduced and it is no great surprise that the majority of people questioned were aware of some of the benefits of offering EMI options to key employees. Or that nearly all of them regarded EMI options as a key element in keeping their most valuable employees.

Even with the proposed abolition of taper relief, EMI options remain an important means of recruiting, rewarding and retaining key members of staff. We have spoken with a number of new clients who, with the benefit of hindsight, would have offered senior staff the opportunity of a relatively small stake in their companies but who had lost those employees – and with them a substantial part of their business.

If you could be in a similar position and your company is one for which EMI might be possible, EMI share options are well worth considering. Please contact us to discuss whether they might be the right option for you.

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Following my blog of yesterday it now appears that the Chancellor has retreated on some of his proposals for the taxation of Non-Doms. Dave Hartnett, the Acting Chairman of HM Revenue and Customs has posted a letter on the Revenue website to clarify the Government’s intention in four areas where concerns have been raised.

According to the letter Hartnett wants….

“to make clear that the Government’s intention – which will be set out in legislation to be brought forward – has always been to ensure that:

• those using the remittance basis will not be required to make any additional disclosures about their income and gains arising abroad. So long as they declare their remittances to the UK and pay UK tax on them, they will not be required to disclose information on the source of the remittances; 
• there will be no retrospection in the treatment of trusts and the tax changes will not apply to gains accrued or realised prior to the changes coming into effect;
• money brought into the UK to pay the £30,000 charge will not itself be taxable;
  
  and
  
• it will continue to be possible to bring art works into the UK for public display without incurring a charge to tax.
  
  In addition, we will continue to discuss with the US authorities how the £30,000 charge can become creditable against US tax.”
  
  

The full text of Hartnett’s letter can be found here.

This clarification is being interpreted as a retreat or a climb down by the Chancellor. However, a Treasury spokesman has been quoted as saying that the intentions have not changed it is just that the draft legislation has gone “slightly awry”. There are still a number of issues to be resolved and I expect we will have to wait until the Budget on 12 March to get further details.

Keep on watching this space.

 

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As the Chancellor’s proposals on taxing the so-called “non doms” (people born overseas or with foreign parentage) become clearer, it is apparent that his £30,000 annual levy is the tip of what could be a very large iceberg.

Media coverage over the past few days has highlighted the very real prospect of many non doms leaving the UK, as the potential impact of some of Mr Darling’s other ideas hit home.

 

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It is being reported in The Times and elsewhere that Chancellor Alistair Darling is considering a rethink on the Non-Doms changes. According to The Times officials at the Treasury are:

“…considering introducing provisions to assure non-doms that the Treasury’s aim was not to pry into their world-wide tax affairs, but only to tax the earnings they bring to Britain.”

Watch this space...

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Please find below a piece from Cathy Corns posted on our sister blog SME Plus Blog.

HMRC has recently confirmed one very important point on assets that have been owned for a number of years. Such assets will have accrued a substantial amount of indexation relief (over 100% to date on assets held on 31 March 1982). Where an individual owns such assets on 5 April 2008 the indexation relief is irretrievably lost.

However HMRC have now confirmed (http://www.hmrc.gov.uk/cgt/faqs-cgt-reform.htm) that where an asset is transferred to a spouse or civil partner on a no-gain no-loss transfer the indexation relief is captured as part of the new owner’s base cost for tax purposes. This is an important planning possibility.

Regrettably though life in tax is never 100% straightforward – if the original owner would qualify for the new entrepreneurs relief and the new owner would not then the value of the historic indexation has to be compared with the value of the new relief before any transfer is made.

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We have now had a chance to digest the draft legislation issued last week although it cannot be said to sit easily in the stomach. It is complex and retrospective in some key respects. I am chairing a working party of the ICAEW to lead its responses and meet with parliamentary and treasury representatives to lobby on our particular areas of concern. We will keep you posted of developments in this blog but it appears that the fundamental points of policy are fixed.

A detailed summary of the changes and how you might be affected are found in our latest edition of Tax Plus issued on Friday. You can read Tax Plus by clicking here.

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The following was posted on SME Plus blog regarding today's announcement by the Chancellor. 

The Chancellor has just announced a new capital gains tax relief for entrepreneurs to ameliorate the effect of the new 18% flat rate that comes into force from 6 April.

The relief will be targeted to the owners of small businesses as well as employees and directors who, very broadly, hold at least 5% of the shares in a trading company. The relief is said to apply on the sale of the shares.

The relief reduces the tax rate on the first £1 million gains but as a lifetime limit. For gains over £1 million the standard rate of 18% will apply.

Further details are promised but at the time of writing this are still not available. The details so far available can be seen in full at http://www.hm-treasury.gov.uk/newsroom_and_speeches/press/2008/press_05_08.cfm  

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After some considerable wait HM Revenue & Customs and customs have finally published the draft legislation covering changes to rules for taxing UK residents who are not domiciled in the UK.

These are more wide ranging than expected and will have a significant impact on not only Non Doms but also beneficiaries and settlors of offshore trusts whether or not they are Non Doms.
Continue Reading...

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Following reports of further meetings with business leaders it now seems that Mr Darling’s long delayed announcement regarding the capital gains tax regime will not now appear until next week according to the FT.

We are also still waiting for the draft legislation for the new Residence and Domicile rules. In a little over 10 weeks both sets of new rules are due to take effect and the uncertainty makes it very difficulty to plan.

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Although January is traditionally the busiest time of year for tax professionals we are eagerly awaiting further details on the proposed changes in the rules for Residence, Domicile and Capital Gains which are rumoured to be available next week.

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It is being reported by the Daily Telegraph that the Government is considering a number of options relating to concessions on the new capital gains tax regime. One of these seems to be the ability to “opt for a deemed sale” before 5 April 2008 to lock into the favourable business taper and indexation relief. Presumably this would be a way of crystallising a gain without resorting to such devices as trusts.
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It is being reported that Chancellor Alastair Darling will not be able to announce his revised proposals in the three weeks that had been promised. He told MPs today:

"It is not now going to be possible to conclude that process until the New Year,"

This is because he needed more time to study various, differing representations.

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The Chartered Institute of Taxation has highlighted the fact that a Private Members’ Bill (Disqualification from Parliament (Taxation Status) Bill) has been tabled in Parliament which proposes that those electing for the non-domiciled remittance basis of taxation will be disqualified from acting as an MP or Member of the House of Lords. Continue Reading...

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Having indicated that the promised consultative document on Residence and Domicile would not be issued until the New Year it was surprising to see it appear on the Treasury website this morning. Continue Reading...

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As I am sure you are aware the last Budget and the recent Pre-Budget Report introduced some significant changes to our tax system that will have a major impact on the tax affairs of UK resident non-domiciled taxpayers. Regrettably, many changes have been announced but without any detailed, or draft legislation; I had hoped to have more concrete information to give you but as the changes are significant it is useful to provide some general pointers now. Continue Reading...

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Below is a blog written my colleague and Mercer & Hole partner Cathy Corns on SME Plus blog, in relation to the government's retreat on key tax reforms.

According to The Times the Government are looking to mitigate the changes proposed in the Pre Budget Statement three weeks ago. Apparently the plan is to introduce a form of retirement relief of £100,000, aimed to assist small businessmen who are selling up and retiring. As of the time this was posted the HMRC website had no details on this and so we do not know if it is accurate and, if so what is meant by small or retiring or what tests have to be met to qualify.

Any mitigation of the tax is welcome and I will be in touch again when more details are available.

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There has been much debate since the Pre Budget Report about the proposed changes to the capital gains tax rules and the taxation of Non –Domiciled UK residents. The chancellor is meeting with business leaders today when he will be asked to scrap his proposals. Continue Reading...

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In response to the Pre Budget Report 2007, please find below the thoughts of Cathy Corns, Partner at Mercer & Hole and contributor to SME Plus Blog...

From 6 April 2008 there is to be a dramatic change in the calculation of Capital Gains Tax (CGT). Essentially there will be a flat rate of tax of 18% based on the difference between sale proceeds and cost. This applies irrespective of the type of asset held; the length of time held; removes relief for indexation totally (effectively halving the tax base cost for assets held pre March 1982) and removes a few other mitigation measures.

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The immediate reaction to the Chancellor’s speech is that much of what he said was smoke and mirrors – The Inheritance Tax doubling of the nil rate band is not quite what it seems – 2 x 300,000 is still 600,000 so far as I know…

The capital gains tax simplification represents a significant increase in tax in a number of cases and if you are non UK domiciled and UK resident then keep checking this page. We are writing frantically as I type and a more detailed and coherent response will follow shortly….

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A tax avoidance scheme to generate a loss for capital gains tax purposes has been defeated by the Special Commissioners. Continue Reading...

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With less than 10 days to go to the first deadline of the Offshore Disclosure Facility of 22 June HM Revenue & Customs clearly think that not enough people are taking advantage of the so-called “amnesty”. HMRC are taking the unprecedented step of writing to and estimated 200,000 people suggesting that they might want to make a disclosure. The letter will be posted tomorrow and should dispel any reservations people may have had about whether HMRC already know about their accounts. Further details can be found on the BBC News website.

If you receive one of these letters – speak to your accountant without delay.

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In the Pre-Budget report of December last year the Government announced a “targeted anti-avoidance rule” (TAAR) aimed at the use of losses for capital gains tax that have been realised as a result of any “arrangements” the main purpose (or one of the main purposes) of which is to secure a tax advantage. A similar rule was introduced for corporation tax purposes a year earlier and the new rule extended this to individuals, trustees and personal representatives.

The intention of the rule is to stop the use of contrived capital losses to set against capital gains. At the time of the Pre-Budget Report HM Revenue & Customs (HMRC) issued guidance that indicated that normal tax planning would not be caught by the rule. One example given was of transactions between husband and wife under which the husband had made capital gains and his wife transferred a loss-making asset to him. The Original Guidance described this transaction as straightforward and not intended to be caught by the TAAR. However, when the draft legislation was published in the Finance Bill 2007 HMRC issued revised guidance, this example was removed.

This caused some worry in the tax world as what had previously been considered standard tax planning between spouses and civil partners would now be considered unacceptable tax avoidance. The Chartered Institute of Taxation (CIOT) and other professional bodies expressed concern that the legislation itself was far more widely drawn than the guidance suggested and made representations to the Government.

Clause 27 of the Finance Bill which contained the TAAR was debated by the Finance Bill Committee last week.  The opposition tabled several amendments to this clause including a clearance procedure and a de minimis of £25,000.  However, all the amendments were subsequently withdrawn and the clause will now enter the statute as originally drafted.

Throughout the debate, however, the Government insisted that the TAAR was not targeted at normal tax planning but is only intended to catch contrived and complex arrangements.  Ed Balls, The Economic Secretary to the Treasury, said:

“I explained two examples in which a fall in the value of FTSE 100 shares gives rise genuinely to a loss, which can be offset elsewhere on gains, where the tax advantages are incidental but the transactions are genuine. I also explained the straightforward way in which statutory tax relief can be passed between husband and wife in a way that allows a loss to be set against a gain. The clause does not interfere with that normal tax practice and planning.”

Hopefully this will be reflected in the expected Revenue Guidance that will accompany the Finance Act 2007.

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We have dealt with half a dozen cases in as many weeks where it has been advantageous to make a 'PPR' election and reduced clients potential tax bill by many thousands of pounds.  So what is a PPR election?

Everyone is usually exempt from tax on a gain arising on the sale of a property that is their 'principle residence.'  If someone has, or has had, more than one residence at the same time it maybe necessary to decide which of them is the 'principal' private residence (PPR).

It is possible to make an election for one or other of the residences to be the PPR for a particular period.  HM Revenue & Customs call this an 'only or main residence nomination' and handled correctly it can produce significant tax savings.

Provided a property has at some time been a PPR, either by election, or as a fact, then the final 36 months of ownership automatically exempt from Capital gains tax.  If the property has been let at some point then there can be additional relief of up to £80,000.00 (for a married couple / civil partnership) of tax relief.

There are time limits for making elections and it is important that professional advice is sought

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