With America getting tough on tax haven abuse the authorities in Washington are tightening up on the reporting (to the US Treasury) of the existence of non American bank accounts held by United States persons.

A 'United States person' is:

• a citizen or resident of the United States
• a person in, and doing business in, the United States.

The term 'person' includes individuals and all forms of business entities, trusts, and estates.

This definition has been widened and could include a UK company doing business in the US. The rules for these reports (known as FBAR reports) have been around for some time but I understand that the US Treasury are becoming more vigilant in this area. There is a de-minimis amount of $10,000 so if the amount in the account does not exceed this amount at any time in the year it does not need reporting otherwise it must be disclosed.

If you hold any non American accounts and are a 'US Person' I suggest you contact your US advisers as soon as possible as there is a deadline of 30 June 2009 to file a report for the 2008 calendar year.   It is not possible to get an extension and any late report must be explained. There can be significant penalties for failing to make a report.

At Mercer & Hole we do not offer advice on US matters but we can put you in touch with an appropriate firm via our membership of TIAG.

Comment on this blog in the space provided below. Barry Hallam is a Senior Tax Manager at Mercer & Hole. 

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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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This is a general reminder that the period in which repayment claims can be made is to reduce from 6 years to 4 years. The Irish revenue have issued a reminder for their purposes and it is important that UK claims for older years are made as soon as possible to avoid missing the cut off date in the UK.

 

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It has always been a worry that those who buy holiday homes abroad through a company could be liable to a tax charge as a benefit in kind. In the 2007 Budget it was announced that the Government would introduce legislation to remove this possibility provided that there was no tax avoidance involved and all that the company did was hold the property.

The legislation has finally made the statute book in the Finance Act 2008 and provided the conditions are met the exemption is deemed to have always had effect. H M Revenue & Customs have indicated that if tax has been paid in the past on such a property then a claim for a refund can now be made.

Details of how to make a claim can be found here.
 

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Included in the Finance Act 2008 was a provision to enable HM Revenue & Customs to charge a fee for certain methods of payment of tax liabilities. This has enabled a Statutory Instrument be issued which introduces a charge of 0.91% for tax payments made by credit card. The regulation comes into force on 13 August and only relates to credit card payments made by telephone. This may be extended to other methods of payment in due course.

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Now the dust is settling – a little – on Finance Act 2008, HMRC has issued an updated version of IR20.

The revised booklet has some deletions from the previous versions and an extended text about the operation of the new remittance basis charge. Most usefully there is a flow chart which shows how the charge works. I have a copy pinned to my office wall for quick reference!

There will undoubtedly be continuing uncertainty about the new rules but at least we will know what HMRC’s view is in the main areas. Nonetheless so much of the rules relating to residence are a matter of interpretation and it is wise to seek advice if you are unclear about your personal situation.

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This year’s Finance Bill is close to gaining Royal Assent and the Chartered Institute of Taxation (CIOT) has already submitted its “wish list” for the 2009 Budget. One of the suggestions put forward is that income tax and National Insurance Contributions (NIC) should be merged into one tax. Failing that “radical” change, the CIOT suggests that there should be further alignment between the two taxes.

The wish list forms part of a submission by the CIOT to Dave Hartnet the acting head of HM Revenue & Customs. Other items on the wish list include:

• A Statutory Residence Test,
• A small benefits exemption (£25) so that trivial employee benefits are tax free and need not be reported,
• An “Elderly Care Vouchers” exemption based on the current Child Care Vouchers system,
• An extension of the Gift Aid system to include non-UK charities, and a similar extension for inheritance tax purposes, and
• A suggestion that the proposed “income shifting” provisions, currently postponed until next year should be “quietly dropped”.
  

Full details of the CIOT’s submission can be found here

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Under current rules taxpayers generally have up to five years and ten months, after a particular tax year, to correct errors and make claims that may have been overlooked. Similarly, except when there is fraud or neglect, HM Revenue & Customs (HMRC) can only raise assessments for outstanding tax for a period of six years after the year in question. Buried deep in the Finance Bill are proposals to reduce and align these limits to only four years in both cases.

Where there has been “fraudulent or negligent conduct” under the current rules HMRC can raise assessment for up to twenty years. The proposals are that where there is a “loss of tax brought about carelessly” the limit will be reduced to six years but will remain at twenty years where this is “deliberate”

Whilst the general shortening of the time limits are welcome the Low Income Tax Reform Group has picked up on the point that there are many cases where HMRC have been “careless” with a taxpayer’s affairs and will have six years to recover any tax. However HMRC will only make repayments going back four years.

The proposals are due to be debated in Parliament in the coming weeks and, if they remain unchanged, will form part of the Finance Act which should receive Royal Assent later this summer. The rule changes will come into effect once the Treasury issue the relevant Statutory Instrument which could be soon after Royal Assent.

This means that any outstanding claims for the tax year 2002/2003 and 2003/2004 which are currently “in-date” will become “out of date” overnight (unless some transitional rules are also introduced). Such claims might include:

• Age related personal allowances (including married couple’s allowance)
• Blind person’s allowances
• Pension contributions
• Qualifying loan interest
• Capital losses.

If there are any outstanding claims for these years it would be prudent to consider these sooner rather than later.

There is one situation where the proposal is to increase the time limit. In the case where someone dies HMRC currently only have three years and ten months after the year of death to raise an assessment and this will be extended to four years.

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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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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.

 

Continue Reading...

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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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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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Given the Revenue’s dummy spitting response to the House of Lords’ judgement in the Jones v Garnett (Arctic Systems Limited) case, it was a safe bet that any attempt to stop husband-and-wife businesses shifting income between spouses would be hard hitting and wide ranging. Continue Reading...

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Further to my post earlier today the Chancellor of the Exchequer, Alistair Darling, has now made his statement to MPs about a “major operational problem” at HM Revenue & Customs.

In his statement he confirms the loss of personal details relating to 25 million individuals not 15 million as reported earlier.

A full report of the Chancellor’s statement can be found here.

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The BBC are reporting that the Chancellor of the Exchequer, Alistair Darling, is to make a Statement to MPs about a “major operational problem” at HM Revenue & Customs later today.


Continue Reading...

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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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As mentioned on my colleagues SME plus blog , The Chancellor of the Exchequer, Alistair Darling, will be presenting his 2007 Pre-Budget Report and the outcome of the Comprehensive Spending Review on the afternoon of Tuesday 9th October.

Cathy Corns will post details of important announcements here shortly after the end of his speech.

Subscribe today to receive regular email updates on the latest business news and views from the partners of Mercer & Hole.

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It has been reported by Bloomberg that Shadow Chancellor of The Exchequer, George Osborne is proposing a flat £25,000 levy on UK Residents who are not domiciled in the UK. He is quoted as saying that

“You can either register for this levy, or you can take your tax affairs elsewhere”

As Richard Murphy says in his blog this sounds like an own goal as, according to Treasury figures, the average amount of tax currently paid by non-domiciled residents is £26,800

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The BBC reports that HMRC is to expand its enquiries into offshore accounts beyond the High Street banks. Many people received letters this summer explaining that their bank had given details of customers with offshore accounts to HMRC and this process has led to the so-called amnesty which was set up for people to come forward before 22 June 2007.

It now appears that HMRC has turned its attention to other private banks and investment houses. If you receive a letter from your bank and/or HMRC about this and you have any reason to be concerned please contact us for further advice.

In the majority of cases there will be nothing to report because the account holder may be taxable only when funds are brought to the UK.

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The Sunday Times reported yesterday that Alastair Darling was proposing a “purchase tax” on high polluting cars (4x4s etc). Details were obtained from a leaked Treasury document which also revealed that the top rate of road fund tax is also due for a large increase.

The surcharge has apparently been set at £2,000 while at the other end of the scale buyers of very green cars will be able to claim a rebate of £2,000 off the purchase price.

The proposals are strikingly similar to those put forward by the Conservatives as reported in Motor Trader last week.

No doubt all will become clear in next months Pre Budget Report.

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A Friday lunchtime check on the Internet to see what the market was doing led me to an article at http://news.bbc.co.uk/1/hi/business/ indicating that the current version of Butterworth’s yellow tax handbook is now being printed in small print to keep it to under 10,000 pages.

The Yellow Book as we know it is the bible of all UK tax legislation and not so very long ago was in two volumes – now it is in five…

The burning question is whether we should be able to claim tax relief for our exercise classes or magnifying spectacles??? May be we should own up that we use the electronic version.

More serious is the obvious length and complexity of the legislation and whether it is now possible for anyone to look after their own tax affairs? The recent tax credit debacle would suggest that even simple matters and people with lower incomes need professional advice.

With the pre budget report expected in October it will be interesting to see if Mr Darling is more succinct than his predecessor.

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An article by Vannessa Houlder in the FT this morning has sparked further debate on the question of Domicile for UK tax purposes.  This was picked up by Continue Reading...

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Cathy Corns, Corporate Tax Partner at Mercer & Hole wrote this article for her SME Blog earlier today.

This all seems to have been going on for so long you may need reminding of what all the fuss is about; so 

 - Mr and Mrs Jones ran a small IT company of which Mr Jones was the sole director. They each owned one share in the company took a small salary and extracted the majority of their required funds by way of dividend. These, of course, were paid in line with the shareholdings, on a 50:50 basis.

Continue Reading...

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There has been further press coverage in the The Times online newspaper over the weekend about the taxation of non domicilaries in the UK.  The debate was sharpened when the director of the CBI, Richard Lambert, raised questions about the fairness or otherwise of the UK’s tax laws.

Continue Reading...

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Where an individual is subject to an income tax charge under the pre-owned assets tax (POAT) rules it is possible to elect for the assets from which the benefits derive to be treated as forming part of their estate for inheritance tax purposes.

The time limit for such elections is currently 31 January following the year of assessment in which the POAT charge first arises. For those individuals who first became liable to the charge in 2005/2006 the deadline came and went on 31 January this year.

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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The long running tax case of Jones v, Garnett has reached the House of Lords today. The story so far is summarised in the Times and a more technical summary can be found on accountingweb. I will keep you informed of developments in what is sure to be a landmark judgement either way.

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On 17 April HM Revenue and Customs announced the launch of the Offshore Disclosure Facility which enables those with undeclared tax liabilities to come clean and tell the Revenue all about it.  You neec to  calculate the tax, interest and a fixed 10% penalty and pay it over to the Revenue.  This has been labelled a “Tax Amnesty” but it is nothing of the sort.  The incentive for using this facility is the fixed 10% penalty.  HMRC have made it known that outside this facility they will be looking for a minimum 30% penalty and possibly the maximum 100%.

It should be noted that although the facility refers to disclosures with an offshore element it is possible for any disclosure to attract the same terms.  This applies to individual, trustees, executors as well as companies and employers.

The vital date to remember is 22 June 2007.  If by midnight on that day HMRC have not received a “notice of intention to disclose” then the terms of the facility will not be available.  There are just over three weeks to go.  If you think you may have something to declare take professional advice as soon as possible.

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Our spring bulletin incorporating our views on some of the hot Budget topics can be located in our publications section here and is available in pdf format for immediate download.

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At the end of last year there was much press speculation that HMRC might be proposing a tax amnesty for undisclosed off-shore bank accounts. HMRC believe there is around £1.8 Billion of undisclosed bank accounts which should be subject to UK tax. The Times revisited this subject last week.

Following various rulings by the Special Commissioners HMRC now have access to information relating to bank accounts and credit cards. In addition HMRC now automatically receive details of interest credited to accounts held by UK residents in most European countries and some tax havens such as Switzerland and the Channel Islands following the introduction of the European Savings Directive. Because of the sheer volume of information that will be available it is likely that HMRC will be unable to cope.

Some sort of amnesty from penalties is likely to encourage early voluntary disclosure of such accounts. It is unlikely that such disclosure would be completely free of penalties, which under current rules could be 100% of the tax at stake, there might be a cap of say 10% - 25% of the tax. This maybe something that Gordon Brown will announce in his final Budget on 21 March 2007

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In January this year STEP alerted the tax profession to a new interpretation by HM Revenue & Customs of the tax treatment of bare trusts for minor children. This was followed by a paper in February by the ICAEW covering the same concerns. These concerns have been brought about by changes in the legislation for trusts introduced by last year’s Finance Act
According to the ICAEW if HMRC’s analysis is correct:: 

• A lifetime gift to someone who is unable to hold the assets for himself will be a chargeable lifetime transfer, rather than a potentially exempt transfer.
• 
  The property will be subject to ten-yearly and exit charges
• 
  If the child dies, the trust will no longer be treated as part of their estate for IHT purposes but there will be a exit charge where someone becomes absolutely entitled under the intestacy rules
  
• When the minor child reaches age 18 (or in Scotland 16) or marries or enters into a registered civil partnership, ie his or her incapacity to own assets comes to an end, there will be an exit charge

This would have a huge impact on families, or godparents, who wish to establish a bank account or share portfolio for a child and have already used their nil rate bands or want to make a gift in excess of the nil rate band.

Worse still, there will be cases where significant gifts to minors have been made since the FA 2006 rules took effect, which was on 22 March 2006, but where the donors will be unaware that the tax implications of their gifts have potentially changed.

Both STEP and ICAEW have written to HMRC but in the meantime the advice must be not to make any significant gifts to minor children until HMRC have clarified the position.

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A number of scams have come to light where people are targeted by criminals by means of official looking e-mails (or sometimes telephone calls) attempting to elicit details of bank accounts from unsuspecting taxpayers. HM Revenue & Customs are aware of several such ‘phishing’ scams and have published a warning on their website.

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