Capital Taxes Update and Planning 2017 - 2020 InnovationCapital Taxes Update and Planning 2017...
Transcript of Capital Taxes Update and Planning 2017 - 2020 InnovationCapital Taxes Update and Planning 2017...
![Page 1: Capital Taxes Update and Planning 2017 - 2020 InnovationCapital Taxes Update and Planning 2017 Martyn Ingles FCA CTA • PPR refresher ... days in the tax year concerned to qualify](https://reader033.fdocuments.us/reader033/viewer/2022041901/5e60917a8990d00dc611ef5f/html5/thumbnails/1.jpg)
Capital Taxes Update
and Planning 2017
Martyn Ingles FCA CTA
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• PPR refresher
• Relief for gifts – business assets and using trusts
• Goodwill on incorporation – worth doing again?
• Transfer of rental business to Ltd company
• Entrepreneurs’ relief – watch 5% rule
• Liquidations – CGT or income tax?
• Making Seed EIS work for your clients
• IHT planning including the new “downsizing” relief
CGT Update - Agenda
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• Taxpayer’s main residence exempt
• Includes grounds of 0.5ha
• Or “required for reasonable enjoyment having regard to size and character”
• Includes servants quarters
• And buildings in “curtilage”
Private Residences
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• If 2 or more residences
• May elect which is principal residence
• Only one at time
• Switch back and forth
• Last 18 months owned then exempt (was 36m)
• Acceptable tax avoidance per GAAR guidance
Private Residence Planning
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• Moore v HMRC – FTT decision
• Property initially a “Buy to Let”
• Marriage break up – “moved in” to property 12.11.06
• Council tax records support this
• Property sold 22.7.2007 = 8 months later
• Put property on market with Estate Agent – 22.4.2007
• Date moved in with new girlfriend? – unclear
• Post delivered to girlfriend’s address (2nd wife)
Not a Residence for CGT PPR
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• HMRC’s view - Mr Moore’s occupation did not have
the degree of permanence, continuity or expectation
of continuity necessary for the property to qualify as
his only or main residence for the purposes of sections
222 and 223 TCGA.
• Goodwin v Curtis – “A person’s ‘home’ was to be
distinguished from a property which the person
temporarily occupied”
• FTT rejected taxpayers appeal – NOT PPR
Not a Residence for CGT PPR
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• Trustees get PPR if beneficiary lives in house
• Martyn’s daughter Hannah – buy flat in Manchester? 3
options:
• 1. Martyn buys – not PPR
• 2. Hannah buys, Martyn as guarantor (her PPR)
• 3. Buy via trust – PPR available to trustees
• (With 3, Martyn should not lend funds to trust – could
invoke the settlements rule – he should guarantee the
Trust borrowing or settle funds absolutely)
Child at University? Extra PPR
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CGT payable by non-
residents from 2015/16
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• Consultation in Summer 2014
• New charge from 6 April 2015 on disposal of UK
residential properties (dwellings)
• Applies to NR individuals, trustees and close companies
• Rebase at 6 April 2015
• Can they claim PPR relief?
• Report and Pay CGT within 30 days - HMRC online
calculator
CGT payable by non-residents
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• Example 2
• Frau Merkel lives in Germany bought a holiday cottage
in England April 2005 for £500,000, uses 2 weeks/ year.
• Sells the cottage in April 2020 for £650,000. Market
value of the cottage on 6 April 2015 was £550,000.
• Gain computed with ref to 6 April 2015 value £100,000.
• Time apportioned gain on cost £150,000 x 5/15 =
£50,000
• Elect to use the time apportionment basis
CGT payable by non-residents
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• PPR will still be available to non-residents disposing of
main residence in Uk
• Consultation considered 2 options:
1. Remove election - HMRC may seek evidence that de-
facto main residence – mail delivery, electoral roll.
2. A fixed rule to identify the main residence based on
number of days spent there
New legislation requires occupation for at least 90
days in the tax year concerned to qualify for PPR
Private Residence Relief for Non-Residents
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Relief for gifts
Business assets and
trust planning
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• Two alternatives
• S165 – gift of business assets
• Are the shares a business asset?
• S260 – transfers subject to immediate IHT charge
• Lifetime transfers to most trusts now
• Can be any asset
Hold over (gift) relief
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• Shares in trading company
• Up to 5.4.03 linked to retirement relief definition
• Trading company = “wholly or mainly” test
• CBA/CA restriction if personal company
• Now linked to “trading company” 20% test
S165 business gift relief
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• Where shareholder has >25%
• or personal company
• Restrict gain available for holdover
• To MV chargeable business assets portion
• Goodwill? Old or new?
CBA/ CA restriction
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• Business premises 300,000 CBA
• Fixed plant 50,000 CBA
• Goodwill 1,250,000 CBA?
• Investments 150,000 CA
• Other net assets 250,000
• Total value 2,000,000
• < 20% thus trading company
CBA/ CA restriction – Example
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• Business premises 300,000 CBA
• Fixed plant 50,000 CBA
• Goodwill 1,250,000 CBA
• 1,600,000
• Investments 150,000 CA
• Total chargeable assets 1,750,000
• S165 holdover restricted to 91.4%
• If £40,000 then £3,439 chargeable (< annual exemption)
Old Goodwill – Bloggs Trading Ltd
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• Business premises 300,000 CBA
• Fixed plant 50,000 CBA
• 350,000
• Investments 150,000 CA
• Total chargeable assets 500,000
• S165 holdover restricted to just 70%
• If £40,000 gain = £12,000 chargeable
New Goodwill – Bloggs Trading Ltd
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• Gift of any asset where there is immediate IHT charge
• Lifetime transfer to all trusts now
• If < £325,000 then no IHT (< nil band)
• Also transfers out of trust
• Planning opportunity?
S260 TCGA gift relief
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• S260 TCGA – hold over gain where there is IHT charge
e.g. transfer into and out of trust
• Simple planning technique – Example
• Dad wants to give daughter £300K investment property.
Base cost £60K
• CG = major deterrent
• Gain = £240,000 – 28% CGT = £67,200
Passing on a Buy to Let using a trust
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• Simple planning technique
• Dad transfers property into trust = if immediately
chargeable = CG holdover (s260 TCGA)
• IHT charge? – likely to be within nil rate band (£325K)
• Property into trust for daughter without tax charge
• No CGT, no IHT
Passing on a Buy to Let property
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• Simple planning technique
• Property in trust
• If trust is felt to be inappropriate…
• Wait at least 3 months…
• …. Or if trust suits, for longer but less than 10 years
• Appoint out property to daughter
• Holdover under s260 TCGA on way out – No CGT
• If gifted directly no holdover = CGT for Dad
Passing on a Buy to Let Property
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• S165 and s260 hold over denied
• Where transfer to settlor interested trust
• (= Settlor, spouse or minor child now)
• Relief also clawed back if becomes settlor interested
• Within 6 years of end of tax year of transfer
Self-settlement anti-avoidance
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• H W at no gain/ no loss
• No gain on transfer – banked IA if before 6.4.08
• Up to end of year of separation
• £11,100 annual exemption each
• £10,000,000 Entrepreneurs Relief each
CGT and gifts between spouses
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Rollover relief
Replacement of business assets
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• Replacement of business assets
• Reinvest proceeds from old asset within period 1 yr before to 3 yrs after disposal
• Gain either held over or deferred
• Depends upon type of asset
Rollover relief
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1.4.15 1.4.16 1.4.19
BUY NEW ASSET
SELL OLD ASSET
Rollover relief
36M 12M
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• Land and buildings
• *Goodwill
• Fixed plant & machinery
• Ships, aircraft, hovercraft
• Satellites and space craft!!
• *Quotas
• *Entitlement to farm payments
Rollover relief - qualifying assets
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• Expected life < 60 years
• E.G. Leasehold premises
• Gain on old asset merely deferred
• Deferred until earlier of
• Sale of asset
• Cease using asset in trade
• 10 years after acquisition
Depreciating assets
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CGT on
incorporation
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Mr Jones Mr Jones
TRADE AND ASSETS
SOLD TO A LTD
DR ASSETS CR LOAN A/C
USE MV TO COMPUTE GAINS
CGT on incorporation
Jones Ltd
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Mr Jones Mr Jones
TRADE AND GOODWILL
SOLD TO JONES LTD DR G/WILL £1million
CR LOAN A/C £1 million
Goodwill on Incorporation
Jones Ltd
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• Incorporate business 30 November 2014
• “Sell” goodwill to Jones Ltd leaving balance outstanding
on loan account
• Gain on goodwill £1,000,000
• With entrepreneurs’ relief just 10% CGT = £100,000
• Can then withdraw loan account “tax free”
• If post 1.4. 2002 goodwill could even claim a CT
deduction… say 10 years = £100,000
Goodwill – What we used top be able
to do…
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Mr Jones Mr Jones
TRADE AND GOODWILL
SOLD TO JONES LTD DR G/WILL £1,000,000
CR LOAN A/C £1,000,000
****CGT Entrepreneurs’ Relief no longer available from 3 December 2014 ****
Goodwill – Autumn Statement
Jones Ltd
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• Sole trader/ Partnership to Ltd company
• Related parties
• Thus no write off of OLD goodwill (pre 1.4.2002)
*** Can no longer write off if transferred from 3
December 2014 onwards ***
Goodwill – CT deduction also blocked
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• Small goodwill gains – covered by £11,300 annual exemption then 10%/20%
• S165 – gift of business assets
• Hold gain over into cost of assets
• Assets have low base cost
• Use if property to be retained personally
• S162 – transfer of a business in exchange for shares
• Hold gains into base cost of shares
• Assets at market value
• No gain if asset sold shortly after
Incorporation – CGT reliefs still available
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• Worth considering selling goodwill again now CGT rate only 20%?
• Share of goodwill valued at £1,000,000
• Transfer to Ltd company 30 June 2016
• CGT due 31 January 2018 = £200,000
• £1,000,000 credit to loan account
• Net cost £800,000
• No CT deduction for goodwill amortisation
• Say 10 years = £100,000 p.a. disallowed
• Sufficient profits to pay dividends?
Goodwill on incorporation - back on?
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• From 6 April 2017 buy to let interest restricted
• Companies will still receive interest relief against rental
and other profits
• Income and gains taxed at 20% => 17%
• Indexation available against gains
• Double taxation – taxed again when extract profit
• £5,000 dividend allowance
• Long term?
• No CGT or IHT relief on shares
Run Rental Business through a company?
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• Transfer existing rental business to company?
• CGT – properties transferred at MV + SDLT
• Hold over gain using s162 TCGA 1992
• Transfer of business in exchange for shares
• Gain held over into base cost of shares
• Is it a business?
• Mr and Mrs E M Ramsay v HMRC (UTT)
• 20 hours a week running rental business - YES
Run Rental Business through a company?
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• Ramsey v HMRC UKUTT
• S162 TCGA holdover applies on transfer of a business
• Does not have to be a trade
• Gains held over into base cost of new shares issued
• Property rental business transferred – 10 flats
• FTT agreed with HMRC that not operated as a
business!
• 20 hours a week arranging maintenance, collecting rent,
cleaning between lets
• Wrong decision? – Overturned at UTT
s162 incorporation relief – is it a business?
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10% CGT on first £10,000,000
gains now
Entrepreneurs
Relief
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• Disposal of all or part of a business
• Disposal of shares in or securities of a company, or
• Disposal of assets following cessation of a business (3
years)
(NB – C16 striking off now gone – must liquidate now)
Disposal of business assets
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Trading Liquidation
Entrepreneur relief on capital distribution if within 3 years
Entrepreneurs Relief
1 YEAR 4 YEARS
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• Shareholder conditions:
• Officer or employee
• 5% of shares and voting rights
• Company conditions:
• Trading company
Entrepreneurs’ relief – Shares
and Securities
Min 1 year
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• Asset used by partnership or personal company
• Relief available where disposal results from disposal of all or part of the business or shares AND
• Withdrawal from the business
• Just and reasonable apportionment of gain eligible if charge rent
Entrepreneur’s Relief
- associated disposal
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• HMRC guidance CG63995
• Associated disposal and material disposal of business
assets linked
• Relief not due unless the disposal is related to the
individual’s reduction of
• his interest in the assets of the partnership
• or holding in the company
• From 18.3.2015 – must dispose of at least 5% of
shares or partnership interest
“Withdrawal from Business”
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• Mr C held 5% of company’s ordinary shares
• The company had also issued a number of deferred
shares – no rights to dividends, no votes, limited rights
to capital on a winding up = worthless
• Should these shares be considered as ordinary share
capital? If so Mr C only had 4.9%
• Held: deferred shares are ordinary shares
• Issued for a genuine commercial purpose
• As < 5% held by Mr C no entrepreneurs’ relief
Entrepreneurs’ Relief – Castledine case
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• Mr and Mrs McQ each held 33% of company’s ordinary
shares (total 100)
• The company had also issued 30,000 redeemable non-
voting shares – representing a loan to company
• No voting rights, no dividend rights, redeemable at par
• Should these shares be considered as ordinary share
capital? If so Mr and Mrs McQ held <1%
• FTT: the redeemable shares not ordinary shares
• UTT: consider all shares unless have fixed return
• No entrepreneurs relief
Entrepreneurs’ Relief – McQuillan case
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• Shareholder conditions:
• Officer or employee
• 5% of shares and voting rights
• Company conditions:
• Trading company
Entrepreneurs’ relief – Shares
and Securities
Min 1 year
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• J K Moore v HMRC (2016) UKFTT
• Purchase by company of own shares
• Mr Moore owned 3,000 out of 10,000 shares
• Fell out with other directors – benefit company trade to
buy back 2,700 his shares (90% reduction)
• 300/7,300 after buy back (4.1%) = CGT
• But – entrepreneurs relief? - NO
• Resigned as director 28 February 2009
• Special resolution for buy back 29 May 2009
Entrepreneurs’ Relief – Not officer/employee
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Associated disposal?
BLOGGS LTD
MR BLOGGS
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Company distributions
CGT or IT?
52
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• Sections 35 in Finance Act 2016 - introduced Targeted Anti-
Avoidance Rule
• ITTOIA 2005 section S396B and s404A
• Certain distributions on a winding up taxed as income not
CGT = up to 38.1% rather than 10%
• Applies to transactions from 6 April 2016
• New HMRC Manual Guidance - CTM36300
HMRC Guidance on Winding up TAAR
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• A close company is wound up and an individual (S)
• with a material interest (5%) receives proceeds from the
shares
• Within two years of that distribution S (or a connected
person) continues to be, or becomes, involved in a similar
trade or activity; and
• One of the main purposes of the winding up is to obtain a
tax advantage
• Note – successor could be unincorporated business
Liquidations taxed as income if:
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• Company Liquidation previously taxed as Gain = 10% with
entrepreneurs relief
• Where income accumulated in company may now be taxed
as income? – Finance Act 2016
• Profits 1,000,000
• Less corporation tax 20% (200,000)
• Retained profit £800,000
• CGT @ 10% (80,000)
• Net cash to shareholder £720,000 28% tax
• Dividends taxed at 7.5%,32.5%, 38.1% now
Company distributions
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• If distributed as a dividend:
• Profits 1,000,000
• Less corporation tax 20% (200,000)
• Retained profit £800,000
• IT @ 38.1% (AR) (304,800)
• Net cash to shareholder £495,200 50.48% tax
Company liquidations – if income
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• Mrs F has been the sole shareholder of a company which
carries on the trade of landscape gardening for ten years.
Mrs F decides to wind up the business and retire. Because
she no longer needs a company she liquidates the
company and receives a distribution in a winding up. To
subsidise her pension, Mrs F continues to do a small
amount of gardening in his local village.
• Condition C – similar trade or activity, BUT
• CGT treatment would not apply if arrangements do not
appear to have tax as a main purpose (condition D)
“Similar trade or activity” - example 2
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Mr E is a builder who runs his business through two
companies
• Company 1 specialises in loft conversions, and
• Company 2 specialises in extensions.
Mr E winds up Company 1, but the trade of Company 2
continues.
As with Example 2, Mr E continues to be involved with
a trade that is similar to that of the company that is
wound up, and so Condition C is satisfied.
“Similar trade or activity” - example 3
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• Mrs C, an accountant runs her business through a
company. Her husband is a self-employed lion tamer. Mrs
C winds up her company and starts work for a newly-
formed company owned by her husband, providing
accountancy services.
• Mrs C continues to be involved with the same trade or
activity as the wound-up company was involved with (the
provision of accountancy services), even though she is
now an employee rather than business owner.
• She is connected to her husband and so Condition C is
met. Condition D will still need to be satisfied.
“Continues to be involved in similar trade or
activity”
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• S396B applies Condition D where:
• “it is reasonable to assume, having regard to all the
circumstances, that –
1. The main purpose, or one of the main purposes of the
winding up is the avoidance or reduction of a charge to
income tax, or
2. The winding up forms part of arrangements the main
purpose or one of the main purposes of which is the
avoidance or reduction of a charge to income tax”
Condition D – section 396B
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• Is there a tax advantage, and if so, is its size consistent
with a decision to wind-up a company to obtain it?
• To what extent does the trade or activity carried on after
the winding-up resemble the trade or activity carried on by
the wound-up company?
• What is the involvement in that trade or activity by the
individual who received the distribution? To what extent
have their working practices changed?
• Are there any special circumstances? For example, is the
individual merely supplying short-term consultancy to the
new owners of the trade?
Factors HMRC will consider:
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• How much influence did the person have over the
arrangements? Is it a reasonable inference that
arrangements were entered into to secure this advantage?
• Is there a pattern, for instance have previous companies
with similar activities been wound-up?
• What other factors might be present to lead to a decision to
wind-up? Are these commercial and independent of tax
benefits?
• Any events linked with the winding-up that might reasonably
be taken into account? For example, was the only trade
sold to a third party, leaving just the proceeds of the sale?
Factors HMRC will consider:
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• Distribution does not create chargeable gain
• Repayment of base cost of shares
• Distribution of irredeemable shares/ Demergers
• Where shareholder receives shares in a new company
and that new company receives all of the assets of the
old. Although it is arguable that there is a tax advantage
here, the chargeable gains legislation provides an
exemption for reconstructions
Exclusions:
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EIS and Seed EIS
and CGT planning
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• 30% income tax credit*
• Max £1,000,000 @ 30%
• Disposal CGT exempt*
• Deferral of gains
• * Provided not connected
• Capital loss relief v income
Tax breaks for EIS investor
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• Carry on qualifying trade, or
• Parent co of trading group
• Unquoted (includes AIM)
• Gross assets £15m before issue (was £7m)
• £16m after issue (was £8m)
• SP2/00 - gross assets per B/Sheet
Qualifying Trading Company
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• UK companies or those with UK PE (branch)
• Certain trades excluded (< 20%) :
• Dealing in land, shares, commodities, futures etc.
• Dealing in goods other than wholesale/ retail
• Banking, insurance, HP, financial
• Leasing, (royalties OK)
• Legal and accountancy
EIS - Qualifying Trades
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• Property development
• Farming, market gardening
• Woodlands and forestry
• Operating/managing hotels
• Operating/managing nursing homes
• Companies receiving Feed In Tariffs
• Providing services for non-qualifying trade
EIS – Excluded activities:
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• Unconnected investor
• Not > 30% of share capital (with associates)
• Not an employee of company (nor associates)
• May become a director however
• New issue of shares for cash
• Retain shares for 3 years or relief clawed back
• Clawback if “value received” from company
EIS / Seed EIS – Qualifying Individual
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• Spouse, parent, child or
• Remoter forebear or issue
• Trustees of settlement where individual (or above)
settlor
• Not brother, sister, in-laws
• Business partner
Seed EIS – “Associates”
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• Investors may become paid directors and qualify
• Unless previously connected
• Or involved in carrying on any part of trade carried on
by the company
• May make further investment within 3 years
“Business Angels”
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• Was to apply from 2012/13 for 5 years:
• 50% IT reducer up to £100,000 each tax year
• Plus CGT exemption on 50% of gains reinvested
• No CGT on disposal of shares (after 3 years)
• Total £150,000 investment per company
• Many rules based on EIS
• Unconnected investor
• New Qualifying trading company
Seed EIS relief made permanent
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• Newly incorporated company: < 2 years prior to issue of
shares
• < £200,000 gross assets prior to share issue
• < 25 employees when shares issued
• In good financial health – not company “in difficulty”?
• Unquoted companies only
• Must not be in partnership
• Carrying out qualifying business activity (as EIS)
• Max £150,000 share issue qualifies for relief
Seed EIS – Qualifying Company
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• Johnny starts a new software company
• Needs £20,000 for new computers, plant
• His aunty Betty has £20,000 in bank – minimal interest
• She buys shares in nephew’s company
• £10,000 income tax relief (50%)
• Gains up to £10,000 exempt
• No CGT on disposal of shares after 3 years
• Company goes bust – set loss against income (s131)
Making Seed EIS work for your
clients
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• New CGT relief for long term investors in unquoted
trading companies, not directors, employees
• 10% CGT on first £10m of lifetime gains
• Must be new issue of shares for new consideration
• Issued on after 16 March 2016
• Held for at least 3 years
• Anti-avoidance to ensure genuine commercial
investment
New CGT investors relief
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• Reinvest the property gain in EIS company shares
• Defers the gain until the shares are sold
• Gain comes back into charge at the general rate of
CGT, currently 20% for a higher rate taxpayer.
• No minimum holding period for EIS deferral relief
• (3 years for income tax relief and unconnected)
• The reinvestment must take place during the period of
12 months before to 36 months after the date of
disposal of the property.
Property disposals – 20% instead of 28% CGT
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• Cliff sells property in November 2016 for £300,000
making a capital gain of £100,000.
• Reinvest the £100,000 gain in EIS shares Jan 2017.
• The £100,000 gain would be deferred until the EIS
shares are sold and the £28,000 CGT not payable
• If unconnected deduct £30,000 (30%) IT liability
• Cliff sells the EIS shares in February 2020 for £105,000.
• £5,000 gain on the EIS shares exempt from CGT
• The £100,000 deferred gain comes back into charge at
the general rate 20%, so just £20,000 CGT payable.
Property disposals – 20% instead of 28% CGT
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Inheritance Tax
Refresher and Update
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• Tax on value of estate at death
• + Gifts within 7 years of death
• 40% tax after £325,000 => 2020
• Conservative manifesto £1,000,000 ?
• Therefore give away and live for 7 years
• Enough to live on?
• What about the house?
IHT Basics
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• UK domiciled – IHT on worldwide assets
• Remain UK domiciled for 3 years if emigrate
• Non UK domiciled – IHT on UK situs assets only
• Deemed UK domiciled for IHT if resident for 15 years
• Planning:
• Put Foreign assets into trust while non – Domiciled
• Assets were Excluded Property – No UK IHT
• Changed from 6 April 2017
IHT Basics – Importance of Domicile
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• Exemptions – what are there?
• Annual
• Wedding
• Normal expenditure (gifts out of income)
• Family Maintenance
• Charity
• Watch interspouse if one non dom (now £325K)
• Watch interaction between chargeable gifts and PETs = 14 year planning?
Annual IHT Planning
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• Annual exemption - £3,000
• Small gifts - £250
• Marriage exemption
• Parents - each £5,000
• Grandparents, remoter £2,500
• Spouses £2,500
• Others £1,000
• Normal expenditure out of income
Exempt transfers -lifetime only
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• THREE CONDITIONS - S21(1) IHTA 84
• “Part of the normal expenditure” of transferor
• “(Taking one year with another) it was made out of
his income”
• “Was left with sufficient income to maintain his
normal standard of living”
Gifts out of income
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• Applies to deaths after 6 April 2012:
• 36% IHT rate if bequeath >10% of estate to charity
• 10% of estate after exemptions, reliefs, NRB
• Add back charitable legacy = 10% of “baseline amount”
• Example:
• George, single man, dies leaving estate £2,325,000
after exemptions and reliefs
36% IHT if leave 10% to charity
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• No charitable bequest:
• IHT payable £2,000,000 @ 40% = £800,000
• Net estate £1,200,000 (+ £325,000)
• £200,000 left to charity:
• IHT payable £1,800,000 @ 36% = £648,000
• Net estate £1,152,000 (+ £325,000)
• £200,000 bequest saves £152,000 tax (76%)
IHT charity bequest example
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• Potentially exempt transfers:
• Outright gift to individual
• to life tenant trust to 22.3.06
• to A&M trust to 22.3.06
• Other transfers chargeable at time of gift,
• E.g. Transfer to discretionary trust
• Most trusts from 22.3.06
• Transfer of value by close company
Lifetime gifts
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• PETS – can be done very late in life – for IHT
• Gifts within annual exemptions - £3,000 pa
• Over 10 years - couple can give away £66,000
• Watch CGT on gifts – not if cash
• Hold over? S165 or s260 TCGA
• Take gain if within £11,300 AE
Lifetime gifts
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• From 9 October 2007
• Unused nil band (%) from first spouses death
transferred to survivor
• Utilised on second death
• No action required on first death
• Claimed by LPR on second death
Married couples & IHT nil band
transfer
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• Dad dies January 2008
• All of estate left to Mum, no lifetime gifts
• Nil band used = 0%, balance 100%
• Mum dies 2015, nil band £325,000
• Mum gets 200% = £650,000 nil band
Nil band transfer example
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• Dad died October 2007 – Nil Band £300,000
• £100,000 to children, balance to Mum
• Nil band used = 1/3, balance 2/3
• Mum dies 2025, say nil band £360,000
• Mum gets 166.7% = £600,000 nil band
Nil band transfer example
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• Additional £175,000 IHT relief for family home
• No IHT on transfer of family home <£1,000,000 =
(£325,000 + £175,000) x 2
• Also available if downsize
• Like NRB transferred to surviving spouse if unused
• Taper relief by £1 for £2 over £2,000,000 before IHT
reliefs – e.g. BPR, APR
• May need to review client’s Will’s and estate
planning
Additional Main Residence Nil Rate Band
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• Additional IHT relief for family home, phased in:
• £100,000 – 2017/18
• £125,000 – 2018/19
• £150,000 – 2019/20
• £175,000 – 2020/21
• Then increased with CPI
IHT Family Home Allowance
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• Taper relief by £1 for £2 over £2,000,000 before IHT
reliefs – e.g. BPR, APR
• Family home £900,000, business worth £5m would
mean no Family Home relief!
• Couple with £2m home plus £1m savings owned jointly
= £1,500,000
• Leave half share to spouse on first death
• On second death, estate = £3m, no relief
IHT Family Home Allowance -
tapering
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• Additional NRB available if downsize:
1. to a less valuable residence and that residence,
together with assets of an equivalent value to the
‘lost’ RNRB, has been left to direct descendants, or
2. sold their only residence, and the sale proceeds, or
assets of an equivalent value, have been left to direct
descendants, or
3. has otherwise ceased to own their only residence,
and other assets of an equivalent value have been left
to direct descendants
Residence Nil Rate Band - Downsizing
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• Individual dies on or after 6 April 2017
• The property disposed of must have been owned by
the individual and it would have qualified for the
RNRB had the individual retained it
• Less valuable property, or other assets of an
equivalent value if the property has been disposed of,
are in the deceased’s estate
• Less valuable property, and any other assets of an
equivalent value, are inherited by the individual’s
direct descendants on that person’s death
RNRB – Downsizing Conditions
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• Downsizing or the disposal occurs after 8 July 2015
• No time limit on the period in which the downsizing or
the disposals took place before death
• Any number of downsizing moves between 8 July
2015 and the date of death of the individual
• Would also include disposing of part of a property
(including land occupied and used as a garden or
grounds) or a share in it
• Where a property is given away, assets of an
equivalent value to the value of the property when
the gift was made must be left to direct descendants
RNRB – Downsizing – Further
Conditions
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Business and
Agricultural Property
Relief
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• 100% on unquoted shares + AIM
• 50% for control of quoted co.
• 100% on partnership interest, sole trader
• 50% on assets used in company (controlled) or
partnership
• Not investment, dealing cos – IRC v George, Farmer
• Own relevant property for 2 years
Business property
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• 100% relief against agricultural value, where:
• Occupied for agricultural purposes throughout 2
years prior to transfer (owner/ farmer)
• Owned by him throughout a period of 7 years ending
with that date has been occupied throughout that
period (by him or another) for agricultural purposes.
• Must have right to vacant possession within 2 years
• Now applies to all new agricultural tenancies from 1995
• If above does not apply then only 50% APR
Agricultural Property Relief
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• Relief denied if binding contract for sale
• Lifetime gifts
• Asset must still be owned by donee at donor’s death
• Must qualify for BPR/APR at death
• Excepted assets – cash? Barclays Bank Trust Co
• Assets used by family company?
Business property (APR) - danger
areas
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Own property personally -
BPR?
BLOGGS LTD
MR BLOGGS
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• Relief denied if binding contract for sale
• Lifetime gifts
• Asset must still be owned by donee at donor’s death
• Must qualify for BPR/APR at death
• Excepted assets – cash? Barclays Bank Trust Co
• Assets used by family company?
Business property (APR) - danger
areas
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The End
Any Questions?