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Creaseys' Autumn issue of On the Right Track, looks at up to date financial issues, client case studies and company news.
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ON THE RIGHT TRACK
AUTUMN 2011
GOOD NEWS FOR GROWING COMPANIES
SAVING INCOME AND CAPITAL GAINS TAX
YIPPEE! FOR OUR CHARITY OF THE YEAR
IN BUSINESS
PERSONALPLANNING
IN BRIEF
CONTENTS
Accountant on the run
Russell cycles 100 miles for charity
RIP Land Remediation Relief
Don’t forget EIS
Our international reach extends
Yippee! for our charity of the year
iXBRL - We can tag for you
On the winning team
IN BRIEF
Something to celebrate
Good news for growing companies
New term, new decisions
Continued confusion over VAT on temps
Commercial property: Act now to claim tax relief
IN BUSINESS
Watch that 28% rate
Inheritance Tax - some helpful changes
Pensions - ten tax planning points
Some clarity at last on tax domicile
Stamp Duty Land Tax - and how to avoid it
VAT golf judgement ‘swings’ against HMRC
Breaks for owners of furnished holiday lets
PERSONAL PLANNING
Front cover: Stephen Bishop of Pinden Limited. www.pindenltd.co.uk
Welcome to the latest edition of ‘On The Right Track’. This time last year - and, for that matter, in 2009 - I wrote that there was ‘still a sense of economic uncertainty in the UK’. Today, it is very much the same situation. Just as signs of confidence seem to be emerging we encounter a Sovereign debt crisis in the Eurozone, a downgrading of America’s credit rating and outbreaks of rioting in our cities. Whoever said business was meant to be easy?...
Having said all this, here at Creaseys, we are seeing signs of increased activity. There is movement in the mergers and acquisitions market and new business enquiries are on the up. Whether this is an early sign of confidence returning or people just realising that things are going to be like this for a while, and getting on with business, is difficult to say.
Many of our clients have an increasingly international focus and we have responded to this by extending our own international reach. Earlier in the year, IGAF - the global association of independent accountancy firms, which we have been a member of for a while - merged with Polaris International and Fidunion International to form IGAF Polaris.
The IGAF Polaris network now comprises 843 offices in 89 countries, which means that we are even better placed to look after those of our clients with interests outside the UK. You can read more about the merger in our ‘In Brief’ section.
While we are extending our national and international reach, we are still very committed to and involved with local businesses, private clients and the local community around Tunbridge Wells. Our ‘charity of the year’ for 2011 is Tunbridge Wells-based Yippee!, which provides a social network for young people (aged 16 to 35) with acquired brain injury. The charity organises a variety of get-togethers and trips and our team has come up with a variety of ways to raise money to support this good work. You can read more about Yippee! in our ‘In Brief’ section.
As a firm, we are continuing to invest in the future and to develop our own talent. Our trainee programme continues to be central to our people strategy and we hope to recruit six or seven new trainees this year,
EMMA ROBERTS - FOREWORD
The articles in this publication provide a broad overview of the latest legislation and the opportunities it can create. By their very nature, the articles cannot take account of individual circumstances. They are based on the latest available information and are published without responsibility on the part of Creaseys for loss occasioned to any person acting or refraining from action as a result of any information published herein. Readers are advised to seek professional guidance on any issues that they believe might be relevant to them.
as well as encouraging everyone in our team to reach their full potential. We are also about to appoint a new tax director and look forward to sharing more details about this appointment soon.
I hope you find this latest issue of ‘On The Right Track’ a useful and interesting read. If there is an issue or topic which particularly catches your attention – please don’t hesitate to get in touch with any member of the team. We are happy to answer any questions or provide advice.
Chief Executive
IN BRIEF
Marathon man: Creaseys’ partner Roger Ward.
IN BRIEF
Land Remediation Relief (LRR) is one of a number of tax reliefs that the Government has announced will be abolished in the next few years.
LRR is likely to be abolished sometime after next year. A qualifying LRR claim provides a company with an additional 50% tax deduction for the costs of removing harmful substances from buildings and land, for example asbestos, oil, chemicals and Japanese Knotweed.
We have made several successful claims on behalf of clients over the years, including a claim for the cost of removing and replacing a roof containing asbestos. Fortunately, the advance warning of the abolition of the relief gives us the opportunity to still make claims. We are advising clients to accelerate qualifying expenditure wherever possible, as once LRR goes, it is likely to be gone for good.
RIP LAND REMEDIATION RELIEF
Russell Smith, a trainee accountant with Creaseys, recently completed the arduous Castle Ride 100 in aid of the charity, Action Medical Research. He came 16th out of a field of 625 riders, finishing the 100 mile event in a time of 6 hours, 3 minutes and 29 seconds.
Russell is a keen cyclist and has previously ridden to Belgium in one day – which saw him clock up 120 miles – but this is the first organised bike ride he has taken part in.
“I really enjoyed being in an event with other riders – as that’s something I have not experienced until now,” said Russell.
The route started and finished in the grounds of Tonbridge Castle and took in a swathe of Kent, including a mile long climb up Hollingbourne Hill. Through his endeavours, Russell raised more than £300 for Action Medical Research, the medical research charity dedicated to helping babies and children.
“The event was a success for me,” said Russell. “I prepared well and was lucky to avoid punctures, injuries and crashes, allowing me to finish with a very respectable time and position. I thought the event was well organised and the weather was fairly kind to us. I am now keen to take part in another similar and maybe more challenging event.”
Added Emma Roberts, “We are really proud of Russell’s efforts in the Castle Ride 100 – to come 16th in such a large field of riders, and in his first
RUSSELL CYCLES 100 MILES FOR CHARITY
group ride, is an amazing achievement. We have a very strong corporate and social responsibility programme at Creaseys and fully support our team doing things which make a difference.”
Russell Smith
Creaseys partner Roger Ward completed his first London Marathon earlier this year and raised more than £6000 for the Alzheimer’s Society. He completed the race in 4:27:13 and came 15,605 (out of 34,710).
“I’ve taken part in a number of 10k races and two half-marathons previously – but this was a huge challenge,” said Roger. “It was a fantastic experience and I’d like to thank everyone who supported me.”
He added: “My father-in-law suffers from dementia and he visits the Alzheimer’s Society once a week, not only does he seem to enjoy these sessions but it gives my mother-in-law (who is his full-time carer) a well deserved break.”
ACCOUNTANT ON THE RUN
The Enterprise Investment Scheme (EIS) was introduced in the early 1990s to incentivise investment in smaller, qualifying companies by offering a range of Income and Capital Gains Tax reliefs to individual investors.
Reforms announced in this year’s Budget increase the tax benefits for those investing in the current tax year and should also extend the relief to investments in significantly larger companies from April 2012.
For individual investors, EIS investment potentially offers:
DON’T FORGET EIS
Staff and partners at Creaseys have chosen Tunbridge Wells-based charity Yippee! as its ‘charity of the year’. Yippee! provides a social network for young people (aged 16 to 35) with acquired brain injury.
“Acquired brain injury is the largest cause of acquired disability in the working age population. After a brain injury, people may look and act the same as they did before, but may have hidden disabilities which can make socialising difficult,” explained Gill Leandro of Yippee!
Yippee! - which was formed in 2004 and established as a charity in 2007- organises a variety of get-togethers, ranging from cinema visits to days out and weekends away.
“We don’t financially support our members as such; those attending pay their own admission fees and buy their own drinks, for example,” said Julie Reynolds from Yippee! “However, as a result of their injuries,
YIPPEE! FOR OUR CHARITY OF THE YEAR
Income Tax relief of 30% (previously 20%) on the amount invested up to a maximum of £500,000 in the current tax year. The maximum annual investment from 6 April 2012 will be £1 million
Tax free capital gains when the shares invested in are eventually sold
Deferral of existing capital gains by reinvesting into EIS shares so that the tax is only payable after the EIS shares have been sold
Inheritance Tax exemption.
For companies, we will frequently seek advance assurance that their shares will qualify for EIS relief, which gives them a real edge when seeking external investment.
Qualifying conditions must be met by both the investor and the company issuing the shares for an EIS claim to be successful. Most independent trading companies should qualify, providing they are using EIS to raise funds to build their business. Unfortunately, certain trades such as property development and leasing are excluded from EIS and we can give guidance on this.
Currently, HMRC is consulting on reforms to EIS, including: proposals to simplify some of the rules relating to investors; reviewing the list of excluded activities; and improving the focus of the scheme. They propose that from April 2012, companies with gross assets of up to £15 million will be able to use the scheme to raise funds. EIS is being seen as a real incentive to promote growth in the economy.
If you would like to know more about how to raise finance using EIS, or you are interested in how making an EIS investment can save tax, please contact Elizabeth Robertson on email: [email protected]
IGAF – the global association of independent accountancy firms, which Creaseys has been a member of for a number of years - has merged with Polaris International and Fidunion International to form IGAF Polaris.
“We are seeing a substantial growth in our tax practice and, in particular, expatriate work and businesses expanding overseas,” said Richard Holme, International Tax Partner at Creaseys. “The increased size of our international grouping means that we can improve the very good service that we already offer still further.”
The IGAF Polaris network now comprises 843 offices in 89 countries. This substantial increase in size for the merged organisation will enable IGAF Polaris member firms, such as Creaseys, to provide the necessary resources to meet growing international client demands.
OUR INTERNATIONAL REACH EXTENDS
some of our members are left unable to drive and so public transport or relying on friends to provide transport is sometimes their only way of getting to some of our events. Where this is the case, Yippee! can assist with these travel costs.”
Louise has benefited from the support which Yippee! offers, she explained: “Following a car accident seven years ago, I was in a coma for five weeks and in hospital for a further seven months. After leaving hospital, life for me was very isolated.”
She continues: “I needed support to help my life return to normality and Yippee! offered me just that. I am able to spend time with other young adults in a similar situation and we can enjoy our independence with the security of having helpers there able to give support when needed. Yippee! offers us a light at the end of a long and often arduous tunnel.”
Creaseys has been associated with Yippee! for a number of years now, with Roger Ward preparing the charity’s accounts and providing ongoing advice.
“We are really grateful to Creaseys for supporting Yippee!” says Gill. “We have a number of goals which will hopefully come to fruition with more funds onboard.”
Since 31 March 2011, there has been a fundamental change in how corporation tax returns and accounts have to be submitted to HMRC. Now, the return and accounts have to be submitted with electronic tags attached to the data so that HMRC can automatically process the information. This set format is called Inline Extensible Business Reporting Language, or iXBRL for short.
iXBRL – WE CAN TAG FOR YOU
YIPPEE! FOR OUR CHARITY OF THE YEAR
We are delighted to welcome Chris Winning of The Winning Partnership (TWP) as an ambassador for Creaseys. Chris brings with him a wealth of corporate and private banking experience, predominantly in the City and West End of London, and latterly setting up the Clydesdale Bank operation here in Tunbridge Wells, which he ran for six years.
The ambassador concept is a new one for Creaseys, and fits well within the business development activities of the firm.
With Chris’ significant contacts in London and the South East, we are seeing real benefits from the initiative. Chris represents the firm to his contacts and at networking events and brings both sides together when mutual opportunities can be seen to exist. Alongside his ambassadorial role, Chris runs a financial brokerage business which, in itself, is generating many openings for new business for both Creaseys and TWP.
The synergies between the two businesses mean that we are able to work closely with Chris on some of his projects, and, with our clients’ express permission, he can work on ours. We see real value from the association, not only for our firm, but also for our clients, and our contacts.
We wish Chris much success in his new venture and look forward to a long and successful working relationship.
If you wish to speak to Chris, he is based at our offices in Tunbridge Wells, and can be contacted on email: [email protected]
ON THE WINNING TEAM
Creaseys partner Roger Ward completed his first London Marathon earlier this year and raised more than £6000 for the Alzheimer’s Society. He completed the race in 4:27:13 and came 15,605 (out of 34,710).
Paper returns and accounts are no longer accepted, and even accounts prepared in MSWord or MSExcel have to be tagged.
Accounts and returns produced by Creaseys are all suitably tagged. However, if you produce your own accounts or Corporation Tax computations, we can provide the iXBRL service for you. We can tag a set of accounts produced in either MSWord or MSExcel and provide you with the correct file ready to submit to HMRC. We can also check and tag the Corporation Tax return.
For more information or a quote, please contact Jonathan Flett on email: [email protected]
OUR INTERNATIONAL REACH EXTENDS
IN BUSINESS
Richard Woodhouse of English Wines (left) with James Pearce of Creaseys
We meet Creaseys’ client English Wines, the award-winning wine maker
SOMETHING TO CELEBRATE
IN BUSINESS
It’s official, the best Rosé Brut sparkling wine in the world doesn’t come from France or even Australia – but from Kent! Chapel Down, the Tenterden-based winery owned by English Wines recently won a Gold Medal at The International Wine Challenge – the wine world’s ‘Oscars’ - for its Chapel Down Rosé Brut.
Listed company English Wines has been an audit client of Creaseys for a number of years now.
“English Wines is a fascinating client and we are really proud of how the company has developed and the recognition it has received due to its successes,” said James Pearce, a partner at Creaseys, who looks after the English Wines account.
Chapel Down is now the largest winery in the UK by sales, producing in excess of half a million bottles a year. There are 22 acres of vines in Tenterden and 70 at Kit’s Coty, near Aylesford in Kent – where the soil is very similar to that found in the Champagne region. Grapes are also sourced from other growers in Kent, Sussex, Essex and Hampshire.
In addition to the Gold Medal for its Rosé Brut at the International Wine Challenge, other award-winners were its Pinot Noir Chardonnay 2006 and Bacchus Reserve 2009, which both won Silver Medals; while Bronze Medals were awarded to its Vintage Reserve Brut, the Pinot Reserve 2004, the Lamberhurst Estate Bacchus Reserve 2009 and the Trilogy 2008.
One particular success is its Bacchus grape, which English Wines views as England’s answer to New Zealand’s iconic Cloudy Bay Sauvignon Blanc.
As the business develops, English Wines increasingly needs a team of trusted advisers – such as Creaseys – by its side.
“Creaseys always reacts very quickly when we need them and responds well,” said Richard Woodhouse, finance director at English Wines. “Our annual accounts always present a number of challenges – particularly having to hit the fairly tight deadlines – but we all pull together and work through that. Creaseys is very much part of the team.”
English Wines is very proud of its home in Tenterden and takes its responsibilities as a wine producer very seriously. It supports farmers by offering long-term contracts to grow grapes, giving them greater
security; and it works to improve the quality of both the fruit and the winemaking by employing the best people available and encouraging them to share that knowledge with its partners.
The company also supports other local businesses whenever it can and stocks a wide range of produce from local suppliers in its winery shop – such as beer, juices, handmade chocolate, ice-cream and smoked meats.
“It is important to us that Creaseys is a local Kent firm,” said Richard. “Why go to London when we can receive excellent advice on our doorstep? I’d also say that we get a really personal service from Creaseys and I doubt that we could say the same of working with a City firm.”
English Wines welcomes around 40,000 visitors each year to the Chapel Down winery. Not only can people enjoy guided tours and various ‘gift experiences’ but there is an opportunity to rent your own vines. Each lease includes the opportunity to harvest your own grapes, attend an annual ‘vine lease holders’ event and, in time, enjoy your very own wine with personalised labels.
The profile of Chapel Down has also risen over recent years with the opening in 2008 of the “Richard Phillips at Chapel Down” Restaurant & Bar. Already well-known for his success with Thackeray’s in Tunbridge Wells and Hengist in Aylesford, at Chapel Down Richard offers high quality, modern English cuisine in a contemporary restaurant. The restaurant has already been awarded two AA rosettes.
Today, Chapel Down wines can be enjoyed in some of the best hotels and restaurants in the UK, as well as bars, restaurants and wine stores in Paris, Tokyo and Hong Kong. Customers can also purchase the wines in some of the country’s most popular supermarkets including Waitrose, M&S and Morrisons.
“We are really proud to have English Wines as a client and enjoy seeing them receive the accolades they deserve for their many years of hard work,” said James Pearce.
Added Richard Woodhouse: “I like the continuity of working with Creaseys and building a long-term relationship with the team. We are a complex business and Creaseys has taken the time to get to know us well and understand what we do.”
The headline change to company taxation this year has been a further reduction in corporation tax rates
GOOD NEWS FOR GROWING COMPANIES
IN BUSINESS
Many companies look for a tax system that allows for structural changes without significant tax costs. The tax legislation contains a number of reliefs for company re-organisations that are done for genuine commercial reasons, including the ability for a trading group to sell a holding of 10% or more in another trading company tax free, provided that it has been owned for at least 12 months. This substantial shareholdings exemption has been extended in this year’s Finance Act, making it easier to sell, not only subsidiaries, but also divisions and part-trades, tax free.
Groups of companies already have the ability to move assets from one company to another without incurring a tax charge, but tax could be imposed retrospectively if a company was sold out of a group, having had assets transferred to it within the previous six years. Changes to this rule have now been made so that, in most circumstances involving trading groups, no tax charges will arise.
As companies grow and develop their businesses, it is not unusual to reach a point where commercially it is desirable to split the business into two and keep different trades entirely separate. For property investment companies too, the different desires of shareholders may mean that a separation of interests is desirable.
Although splitting companies potentially leads to significant tax charges, with the right planning, we can use the demerger provisions or reconstructions legislation to achieve the desired result with minimal cost.
Given continuing high personal tax rates, the diversion of income and gains to companies by individuals may be helpful – it is better to pay 20% corporation tax short term than 50% on cash in your hands. The subsequent extraction of profits from companies needs careful consideration, but may be achieved at a further 10% tax cost at most. We have advised many clients on the intricacies of introducing corporate partners to their businesses with a view to considerably reducing overall tax liabilities.
If you would like to speak to someone about the structure of your business, please contact Elizabeth Robertson on email: [email protected]
From 1 April 2011, companies paying corporation tax at the full rate have seen this fall to 26% and for companies paying tax at the small profits rate, this has now fallen to 20%. The full rate is scheduled to fall annually by 1% for a further three years, so that by 1 April 2014, it will be just 23%. This should make the UK more competitive internationally and, hopefully, an attractive location for global businesses.
The rate of tax is not the only thing that affects business decisions over where to locate and how to structure.
Left to right: Graham Turpin of Creaseys, Peter Osmond and Stephen Bishop of Pinden Limited www.pindenltd.co.uk
Creaseys acts for a number of educational establishments, helping them with their year-end reporting and also advising on matters such as good governance, internal controls and VAT
NEW TERM, NEW DECISIONS
IN BUSINESS
We have now extended our service provision to help those schools seeking to convert to Academy status. Although conversion to Academy status is largely a legal process, there are many accounting matters and additional responsibilities to consider, matters that would previously have been dealt with by the LEA. For example, academies will be accountable for pension scheme administration and the payment of employer contributions.
As well as dealing with the year-end audit, we can advise on the accounting treatment of the General Annual Grant, Young People’s Learning Agency (YPLA) returns and accounting for transferred assets.New academies qualify for charitable status, but are exempt from registering with the Charities Commission.
Our Charities Unit has been operating as a specialist group for over 13 years and has extensive experience in the complexities of Restricted and Unrestricted
Funds and the tailoring of Financial Statements for accounting, auditing and other financial reporting purposes.
VAT is one of the most significant issues for newly formed Academies to consider and our VAT director, Sharon Crush, is already engaged in advising one school. Although Academies have an entitlement to reclaim VAT, care has to be taken if the Academy carries out any activities beyond providing state funded education.
Our Academies Focus Group is planning a series of breakfast meetings, during which a key topic affecting Academies will be discussed. So, whatever stage your educational establishment is at in the conversion process, if you are interested in joining the Group, please let us know.
Contact Roger Ward. [email protected]
There continues to be confusion surrounding VAT for recruitment companies dealing with temporary staff
CONTINUED CONFUSION OVER VAT ON TEMPS
IN BUSINESS
Before 1 April 2009, there was a VAT concession that allowed businesses involved in the provision of temporary staff (‘employment businesses’) to only charge VAT on the commission amount and not on the salary element.
This was particularly welcome for recruiting organisations who could not recover the VAT due to their activities being predominantly exempt from the tax. This included charities, care homes, the health and welfare sector, financial institutions and housing associations.
This concession was withdrawn from 1 April 2009 and employment businesses were supposed to account for VAT on the full value of the charge i.e. salary plus commission. This produced a potentially heavy and irrecoverable VAT burden for the types of businesses detailed above.
From the change in 2009, many employment businesses either did not amend their practice or tried to use a new concession called the ‘nurses agency concession’, the basics of which are that the employment agency is registered with listed organisations and the staff concerned supply some direct form of medical care. The concession was stated not to apply to general personal care such as catering, washing or dressing.
The result is confusion. Some employment businesses are charging VAT and others are not for identical services. Those charging VAT have experienced a
loss of business in the affected sectors and others encounter a refusal to pay the VAT charged.
A recent decision from the VAT Tribunal in Reed Employment has cast even further doubt. Reed succeeded in arguing that VAT was only due on the commission element.
VAT practitioners were expecting to hear HMRC was to appeal the decision, but it now appears they are not going to. The cynical amongst us wonder whether HMRC is taking a tactical position on this. A first tier tribunal decision is only persuasive and may be of limited assistance to businesses who wish to challenge the HMRC policy. Also, HMRC might be looking for a better case on which to argue their published viewpoint.
With litigation being so expensive, there are few businesses in the current financial climate that will be willing to take this on. Certainly, employment businesses working in these sectors need to examine their position. Do changes need to be made to charging policy, or are there sufficient grounds to now warrant a back claim?
At this time, there is a lot to consider. If you would like help talking through the options, we are happy to review your business operations and the possibilities before you act.
For more information please contact Sharon Crush email: [email protected]
A member of the team at Pinden Limited
From next April, commercial property owners will no longer be able to obtain previously unclaimed capital allowances. We recomend reviewing your property interests now.
COMMERCIAL PROPERTY: ACT NOW TO CLAIM TAX RELIEF
IN BUSINESS
All companies and individuals will have to claim capital allowances on their property purchases within a one to two year period of acquisition. Failure to do so will mean losing the right to make a claim altogether. (There will also be a related administrative requirement to notify HMRC of the agreed consideration attributable to fixtures within a building purchased second hand).
Capital allowances can provide tax relief of up to 100% of the expenditure incurred for qualifying environmentally friendly costs, a 20% annual allowance for plant and machinery or a 10% annual allowance for expenditure on integral features such as heating and ventilation systems.
Currently, a company or individual may choose when to claim capital allowances on historic expenditure in order to best utilise the tax relief. In some cases, this can be many years after the property was built or purchased.
Going forward, this will no longer be possible. If, for example, you purchased a commercial property in 2005, you could lose the entitlement to make a retrospective claim for valuable tax relief on items such as heating or electrical installations by April 2013.
Full details of the changes in the law will be issued later this year and we recommend that urgent attention is given to reviewing your property interests now. We can undertake this review for you; working with a capital allowances specialist who will survey your property and compile a thorough report detailing and costing the items on which capital allowances can be claimed.
Depending upon the building and the nature of the business, typical items on which capital allowances can be claimed include: lifts, hoists, electrical installations, fire and intruder alarms, heating systems, air-conditioning and ventilation units, floor coverings, data connection points and decorative features. Significant tax savings or repayments canbe generated ranging between 10% and 30% of the purchase price or construction costs of a building.
Please contact Jonathan Flett email: [email protected] to discuss how we can save you tax before it’s too late.
PERSONAL PLANNING
Watching golf at Dale Hill; Rob Blundell of Creaseys and Barry Lewis of Dale Hill Hotel and Golf Club
Since 23 June 2010, individuals and trusts have generally had to pay Capital Gains Tax (CGT) at 28%. In many cases, with advance planning, they can take advantage of a 10% rate by claiming Entrepreneurs’ Relief
WATCH THAT 28% RATE
PERSONAL PLANNING
In a lifetime, any individual can make up to £10 million of qualifying gains for Entrepreneurs’ Relief to apply and it is, therefore, especially important to ensure that the qualifying criteria are complied with at all times.
Normally, an individual who has 5% or more of the shares and voting rights in an unquoted trading company will qualify for Entrepreneurs’ Relief (ER) provided they are a director, officer or paid employee of the company. These conditions must be satisfied in a 12 month run up to any disposal.
Sometimes, shares have been transferred to a spouse to achieve a lower tax rate on dividends. In that scenario it is vital that the spouse is a director, officer or paid employee.
The company must also satisfy the rigorous requirements of being a “trading company”. Consideration may need to be given to potential problem areas such as excessive cash retained in the business or premises now sublet to third parties. In some scenarios, we have seen directors or employees with less than 5% of the shares spread the shares around the family prior to a sale to reduce the CGT substantially. On a start-up, it may be possible to engineer the conditions for a 10% CGT rate through use of an intermediate holding company.
Sole traders or partners should be able to obtain ER on a disposal of all or part of their businesses, as should owners of holiday lets in the UK or EEA. Particular care would be needed for assets or premises held outside the business as there are complex provisions which may prevent ER applying, particularly if rent is paid for their use by the business or if they have not been wholly used for business purposes. The timing of any disposal here may be crucial.
Discretionary trusts and estates of deceased persons do not qualify for ER and will always be liable to CGT at 28%. Changing the terms of certain trusts or transferring assets or shares out to family beneficiaries may be appropriate in these circumstances. Significant tax benefits may accrue as a result.
Care is needed on disposals of corporate businesses where, for example, the vendors receive shares and/
or loan notes in the acquirer. In some cases, it may be appropriate to pay 10% tax ‘up front’ in order to get the benefits of ER.
Entrepreneurs’ Relief is, however, not the only way that the 28% CGT rate can be mitigated.
Owners of land need to consider whether they can benefit from a 10% rate on a sale.
In some situations, tenanted land, or indeed bare land, may qualify if trading activities commence more than a year before sale or current arrangements are restructured. This can be extremely fruitful as a vendor of land selling for a £5 million gain could save £900,000 tax in this way. Advice needs to be sought if arrangements are entered into with a developer so that income tax is not suffered on any disposal.
Most non UK residents will be in the fortunate position of not paying CGT on disposals of UK or other investments. They need, however, to be careful not to sell assets if they are away from the UK for less than five complete tax years. Prior to returning to the UK, it may be appropriate to dispose of assets or to transfer them to a trust in order to substantially mitigate the CGT which may arise on subsequent disposals after the return.
Non-doms have the ability to set up offshore trusts which may make tax-free gains in the first instance. This is still a very fruitful area for planning.
For more information please contact Richard Holme on email: [email protected]
Dale Hill
INHERITANCE TAX – SOME HELPFUL CHANGES
PERSONAL PLANNING
Inheritance Tax (IHT) continues to be a major burden for many families. For example, an estate of £1 million will bear a liability of £270,000 in the absence of planning. There are, however, many things that can be done to reduce this burden
The family home is the major asset for many families. Through careful planning for married couples or civil partners, it may be possible to significantly reduce the liability on the second death through the use of specific trusts in wills.
Many clients in these difficult times are wary of making significant gifts to the next generation, but there are financial products available which permit these to occur and yet allow the donor to receive some ongoing benefit in certain circumstances.
A helpful change in the last Budget was the announcement in respect of gifts to charities. For deaths after 5 April 2012, the rate of IHT will fall from 40% to 36% where 10% or more of the estate is left to charity. Whether any tax saving from the lower rate will pass to the charity concerned or to the family is not yet totally clear.
The relief needs to be looked at carefully if you are thinking of leaving a significant amount to charity and are keen to get the resulting tax benefits. Some redrafting of your Will may be necessary. Care needs to be taken that the benefiting charity is UK or EEA based and in some cases we have looked to form new UK charities through our Charity Unit to facilitate this. Please remember that charities outside the UK and EEA do not normally benefit from UK tax benefits.
Generous IHT exemptions apply for certain business and agricultural property. The conditions for taking advantage of the exemptions are, however, complex and have been challenged in the Courts recently, in many cases by HMRC.
Advice is generally needed when contemplating whether business premises should be held inside or outside of a business. The advantages in one tax may be outweighed by the disadvantages in another. For example, premises held outside of a business will, at best, qualify for a 50% IHT exemption under the Business Property Relief provisions.
Care will, however, be needed when transferring the property into the business as other non-taxation factors may be pertinent. Another angle is that if a rent is charged to the business for use of the premises, it may mean a much larger Capital Gains Tax liability
on an ultimate sale of the property concerned.
Many owner managers have looked to finance their business through directors’ loans and yet, unlike the shares in the underlying company, directors’ loans do not qualify for any IHT exemptions. Consideration might be given to capitalising the loans to get the IHT benefit, particularly as the new “return of capital” provisions make it easy for share capital to be reduced in appropriate cases.
Although a large IHT charge may seem a distant prospect for many families, simple planning can assist to reduce the impact in the majority of cases.
Please contact Stephanie Parker on email: [email protected] if you think you need help.
The UK pension regime has changed several times in the last three years. Further Government announcements have brought in changes from 6 April 2011 which favour many, but disadvantage others. Some interesting issues arise under the new rules
A UK resident individual should be able to pay £50,000 (or earnings if less) into an approved pension scheme in any tax year and get full tax relief. Normally, it should also be possible to use any unused relief for the previous three years, subject to certain conditions. Thus an individual who has only been making pension contributions of, say, £5,000 annually could make a total payment of £185,000 in 2011/12, assuming he or she had earned income of at least this amount.
Pension funding is not for everyone and we appreciate many clients have chosen to fund their retirement through other means, for example, through accumulating an investment or property portfolio. Careful consideration needs to be given to the merits of this given the favourable change noted in 1. above.
Contrary to earlier proposals, it will now be possible for high earners to get full Income Tax relief on large contributions. Individuals with income above £100,000 may be able to get 60% tax relief on some of their contributions!
The split of contributions between spouses needs to be considered carefully in order to maximise available tax reliefs. Consideration also needs to be given to how the pension will be taxed in retirement, assuming the individual continues to live in the UK. Funding of pensions for both spouses may mean that the family’s pension in retirement is taxed at overall lower rates.
Company contributions will generally be better than the individual paying out of a salary, which has already been subject to both employer’s and employee’s National Insurance. (Company contributions are broadly also covered by the £50,000 rule noted in 1. above and this limit will apply to the aggregate of company and employee contributions).
Those on lower income, or no income, may be able to contribute to stakeholder pensions which allow £2,880 (net) to be contributed annually, regardless of the level of income.
PENSIONS – TEN TAX PLANNING POINTS
PERSONAL PLANNING
The Government will top this up with a £720 tax credit. Some clients have chosen to make pension payments of this amount for children or grandchildren or non-working spouses, thus providing useful (albeit long term) pension provision and potential Inheritance Tax savings.
Care needs to be taken to ensure that the death benefit on any pension scheme is properly nominated or written in trust to avoid Inheritance Tax.
A quarter of any approved pension fund can normally be taken as a tax free lump sum on retirement. Larger amounts may be available in the case of retirement through ill-health or injury. Returning expatriates who receive lump sums from overseas approved pension schemes may be able to have these free of tax altogether by virtue of an HMRC concession.
Pensions received in respect of foreign service may also be tax free depending on the terms of the UK’s Double Taxation Agreement with the particular country concerned. One example is that, in most cases, pensions received from Hong Kong by UK residents should be tax free from April 2011. In addition, lump sums from certain foreign pension schemes may be tax free, where lengthy foreign service is concerned.
There are special rules for defined benefit schemes, which may result in unexpected tax charges.
For more information about pension planning and possible referral to a specialist provider, please speak to Richard Holme email: [email protected]
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At long last, there are plans for a statutory definition of Tax Residence for individuals – which may apply from next year...and changes for Non Doms
SOME CLARITY AT LAST
PERSONAL PLANNING
17 June 2011 saw the publication of two groundbreaking proposals by HM Revenue & Customs (HMRC). The first, and perhaps most interesting, was the proposal for a statutory definition of Tax Residence for Individuals which may apply from 6 April 2012.
Historically, there has been considerable confusion in the area of tax residence, with a number of Court cases going in favour of the taxman and harsher practice being introduced by HMRC as a consequence. Reliance on tests such as physical presence in the UK were often not enough to justify non-residence status and other factors had to be considered, such as personal and family connections.
Persons leaving the UK will now often be in a much more favourable position.
Under the new proposals, people should quite easily be able to assess for themselves whether they are tax resident or not. This is an important issue, as a UK tax resident is liable, prima facie, for UK tax on their worldwide income and gains, whereas a non-resident may only be liable on certain UK income (eg rent).
The proposals set out a number of quite clear tests, which are based on physical presence, family connections, full time employment, accessible accommodation, UK work and whether the individual spends more days in the UK than in any other country.
Example – Brian leaves the UK in March 2014 and returns in May 2015, but comes back for 98 days in the year to 5 April 2015. He is single, does not work in the UK, has no UK accommodation and spends the remainder of his time equally between France and Belgium.
Present treatment – he would almost certainly be resident in the UK in 2014/15 due to the level of return visits.
Proposed treatment – as he has been in the UK for between 90 and 119 days in the year to 5 April 2015, he needs to have two connecting factors or more to be deemed a UK resident. His only connecting factor is that he was in the UK for 90 days or more in 2013/14 and hence he is non-resident in the UK for 2014/15.
Most people leave the UK for bona fide employment or retirement reasons, but in some cases they will do it to utilise the tax advantages. For example, it may be possible for someone to leave the UK for just one complete tax year and return for less than ten days and still be non-resident. This may permit, for example, the receipt of a tax-free bonus or salary from a UK company, or the tax-free surrender of a UK endowment policy or an offshore insurance bond.
The corollary is that people who live overseas and visit the UK regularly may find themselves tax resident if they are not careful. Advance planning and advice is, as ever, essential.
Our large number of non-dom UK resident clients are faced with some new tax privileges from April 2012, including the ability to remit overseas income and gains tax free, provided they invest in a UK business. The latter will include, not only trading operations, but also the development or letting of commercial property. There were also a number of technical changes relevant to non-doms.
Our commentary on the new proposals for both non-doms and non-residents can be found as breaking news on our website at www.creaseys.co.uk or contact [email protected]
STAMP DUTY LAND TAX - AND HOW TO AVOID IT
Stamp Duty Land Tax’s (SDLT) ‘big brother’, Stamp Duty, has been with us for over 400 years, being introduced in the reign of King Charles II. SDLT is a much newer ‘creation’ and is a self assessed transfer tax charged on land transactions. The rate was increased from 6 April 2011 to 5% for residential properties costing over £1 million.
Considerable care needs to be taken to avoid SDLT. Sometimes the use of companies to hold properties can be helpful if the company, rather than the property, can be sold on at a later date.
One piece of good news in the 2011 Finance Act is a relief for bulk purchases of residential property. There is no longer any need for the value of properties to be aggregated together, which means, for example, if somebody buys ten properties for £200,000 each,
STAMP DUTY LAND TAX - AND HOW TO AVOID IT
VAT GOLF JUDGEMENT ‘SWINGS’ AGAINST HMRC
BREAKS FOR OWNERS OF FURNISHED HOLIDAY LETS
The First Tier Tax Tribunal has passed a judgment in the case of Bridport & West Dorset Golf Club, an exempt members club, ruling against HMRC over whether VAT is chargeable on the fees paid by non-members.
Owners of furnished holiday lets have seen the useful tax advantages of these investments eroded in the last year or so. However, providing the right conditions apply, there are still valuable benefits to be had.
A 10% Capital Gains Tax rate on sale and the availability of generous capital allowances on new expenditure such as white goods, furniture and electrical appliances lead the list of available reliefs. Any planned expenditure on capital items might be accelerated to before 5 April 2012 when these allowances will be reduced. Unfortunately, since 6 April 2011, it is no longer possible to offset holiday let losses against other income, but careful consideration still needs to be given to the ownership of the holiday let in a family situation.
In some scenarios, we have seen individuals using a company to buy the holiday let now that the loss relief against personal income is no longer available. Where additional services are provided, there may be scope for getting further tax benefits (e.g. the ability to offset losses against other income) on the basis that a trade is being carried on.
There is more change on the way. As from 6 April 2012, it will normally be necessary to let out the property for at least 105 days in the year (as opposed to 70 at present) and have it available for letting for 210 days each year, to fall within the favourable tax rules.
The advantages of holiday lets are still considerable and with careful planning, large amounts of tax can be saved on both UK and EEA properties. VAT aspects and also Inheritance Tax must be considered where specific conditions apply. Please contact Richard Holme on email: [email protected]
PERSONAL PLANNING
If you would like any further information about making a claim, or assistance with calculating the benefit of a claim, please contact a member of our VAT department.
Please note that HMRC has sought permission to appeal to the Upper Tier Tribunal against the decision and states that any claims submitted will be rejected at this time. Nevertheless, as the decision may go against HMRC, the submission of a claim now is still worthwhile.
the normal SDLT liability of £100,000 will be reduced to just £10,000. We believe that the ‘bulk purchase’ relief will also reduce SDLT on mergers and Section 110 liquidations of property companies.
Care might be needed in the transfer of properties used in a business where it is thought by HMRC that goodwill attaches to the premises (e.g. a hotel). HMRC may endeavour to charge SDLT, even on the goodwill element pertaining over and above the building’s ‘bricks and mortar’ value.
We can only expect SDLT rates to rise in the future and one consolation is the relatively low level we face in the UK. China, for example, has recently introduced a Special Stamp Duty (SSD) of 15%!
Always consult us on ways to mitigate SDLT and don’t accept it as an inevitable cost of the transaction concerned. We can provide information on more agressive plans to avoid its impact.
For more information please contact Elizabeth Robertson on email: [email protected]
Members’ fees have been exempt from VAT since 1990 for such clubs, but HMRC has always taken the view that ‘green fees’ payable by non-members should be subject to VAT at the standard rate. Many golf clubs disagreed with this policy and have argued that HMRC’s distinction between members and non-members contravened European Law.
As a result of the ruling, the charges made to both full and temporary members are exempt from VAT. If you are an exempt members’ golf club, and have not done so already, you can make a claim for a refund of VAT overpaid on green fees going back four years. Naturally, there is a corresponding reduction in VAT recovery which needs to be taken into account, but a claim may still prove to be financially beneficial.
Dale Hill
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Creaseys LLP is a limited liability partnership (registered in England with the number OC319671) whose registered office is at 12 Lonsdale Gardens, Tunbridge Wells, Kent TN1 1PA. Creaseys is a trading name of Creaseys LLP.
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