Davis Burton Sellek Blog

The budget seems a long time ago now and while I never like to consider its proposals in too much depth until at least the announcements have made it through to a green paper, now is probably as good a time as ever to consider its proposals.

A number of measures have been introduced to limit the availability of the remittance basis of taxation to Non UK domiciliaries and while it is clear that things will never be the same again, there have been a number of concessions made in the drafting of the finance bill/ act in relation to trust structures. It will not be clear until after the Finance Act has received Royal Assent and the legislation has been properly considered, how the land lies; but for those individuals using trusts to manage their wealth the position may not be as bad as had been feared.

The proposed legislation to counter income shifting has been postponed (no doubt because there are problems with the drafting). This provides individuals who have set up family companies and partnerships the opportunity to enjoy the benefits until at least next April. Whether these problems are resolved by then (and the effects of a looming general election factored in) will remain to be seen.

There’s good news and bad news on the Capital Gains Tax front. Our friends involved in the private equity industry are going to have to look for more cunning ways of finding tax efficiencies as Business Asset Taper Relief (providing a 10p rate of tax) on gains has been abolished.

As a concession an entrepreneurs relief has been introduced which will provide an effective 10p rate on the first £1m over an investor’s lifetime. Nowhere near as good as taper relief but better than a poke in the eye with a sharp stick!

The good news on gains is that where entrepreneurs relief is not available the rate of CGT has been dropped to 18% for both basic rate and higher rate taxpayers, which historically, is about as good as it gets!

Labels: Written by Mark Busby

Tectonic plates appear to be moving within the Treasury in response to pressure from employer and business organisations alike campaigning against the proposed changes to Capital Gains Tax (CGT).

It is far too early to comment on the outcome, but it has been suggested by various factions of the press that we will see a re-introduction of something akin to Retirement Relief which provided exemption for the first £250,000 to individuals aged over 55 and was abolished in the 1998 Finance Act.

It is also suggested that various new rollover and holdover reliefs could be introduced to encourage entrepreneurs, so taking the whole thing together we may well end up with a CGT regime which, for the business owner at least, is even more impenetrable than the system we have at present.

Roll on the Budget!!

Labels: Written by Mark Busby

The 9th October 2007 is clearly going to stand out in many Tax Advisers’ minds as one of those key dates in tax history, but unfortunately for all of the wrong reasons.

Dealing with the plus side first; the Inheritance Tax nil rate band is now transferable between spouses, which is good but only reflects what could be achieved with tax effective will drafting. The claim is available to surviving spouses and therefore provides backdated relief.

Now onto the real business!

Taper Relief & Frozen Indexation Allowance Abolished
So just 10 years after one of the biggest shake ups in the history of Capital Gains Tax (CGT) it is decided that taper relief should be withdrawn in favour of a flat rate of 18% regardless of how long an asset has been held or whether or not it is a business asset. So, for example, the tax due on an asset qualifying for the business rate of taper relief, taking a gain of £100,000 will almost double from £10,000 to £18,000 (an 80% rise). These proposals will not however take effect until 5 April 2008, providing a short window for planning.

Clearly action will be required, and those most likely to be affected are individuals, executors and trustees owning business assets and/or non business assets which have been held for several years. Although details of the proposed legislation will not be available until December, this should be possible with advance planning to “bank” claims to both Taper and Indexation Allowance.

Non Resident / Non Domicile
UK non domiciles will be faced with an annual tax charge of £30,000 on top of the tax due on income remittances, if they wish to continue to enjoy this basis of assessment. The tax charge will not bite until seven years have been spent in the UK and it is currently proposed to be applied to those who are UK resident but not domiciled. It remains to be seen how the proposed legislation will be extended to assets settled on trust or if, by becoming non resident for a year, this will then trigger a new seven year period in which remittance basis can be applied. Again, we will have to wait until December before the picture becomes clearer.

As if these plans were not enough, residency rules are to be tightened so that days of arrival & departure must be counted and the most popular methods of remittance planning outlawed.

If you would like to discuss any of these issues further please call and make an appointment with one of our personal tax experts.

Labels: Written by Mark Busby

Whilst in the media, the broadsheet headlines have been dominated with the increase in the IHT threshold for married couples, and the tabloid headlines with accusations of Darling stealing Osborne's thunder, it has been relatively easy to overlook the proposed changes to Capital Gains Tax (CGT).

A complete reform of CGT by abolishing taper relief and indexation and introducing a single rate of 18 per cent from 2008/09.

No more 40% CGT rates? No more 20% CGT rates?? The changes seem generous at first glance, but is there more to it?

Yes is the answer! Particularly for owners of small businesses where the effects of the withdrawal of indexation and business asset taper relief could be enormous.

Take, for example Mr X, a sole trader who sells his business thereby crystallising a gain of £100,000. Providing he has owned the business for more than 24 months the sale will currently attract business asset taper relief at 75%, leaving £25,000 chargeable to CGT. Should Mr X be a higher rate tax payer the effective rate on the gain is therefore 10% (CGT at 40% of £25,000 = £10,000 from the overall £100,000 gain). Of course should Mr X remain a basic rate taxpayer the effective rate of CGT is 5%.

When we take into account the fact that any assets owned pre April 1998 currently attract indexation allowance, which effectively increases the cost in line with indexation and takes the inflatory element out of a gain, the rates mentioned above can be pushed lower still.

However as from April 2008 taper relief and indexation allowance are to be withdrawn and the CGT due on Mr X's gain will be a straight 18% of £100,000. Almost double for higher rate taxpayers and more than treble for basic rate taxpayers!

Whether it was Mr Darling's intention to attack small businesses or not, it is clear that it is the entrepreneur and business community that are left to pick up the bill from this pre budget statement.

Labels: Written by Dean Hardy

After six months "penalty-free" under the new CIS regime, the penalties will finally kick in on 19th October. Any contractor's monthly returns (CIS300) due by that date, but not filed by then, will attract a minimum penalty of £100 each.

We say "minimum" because, in some cases, this could be grossly understated. The actual rules for late filing are that each return attracts a £100 penalty:

1. Per month
2. Per 50 subcontractors.

Let's say, for example, that ABC Ltd has 60 subcontractors and the June 2007 return went astray and was subsequently not filed on time. If this return is not filed by 19th October, this will attract a penalty of £800. Don't believe us? See below:

• The June 2007 return covers the tax period 6th June to 5th July. This is due for filing by 19th July. Late filing would attract a penalty of £100 but, as there 60 subcontractors (i.e. more than 50) this increases by a further £100.
• This penalty applies per month that the return is late. Missing the 19th July deadline will incur a penalty of £200 (see above). Missing 19th August, 19th September and 19th October deadlines as well will total £800.

The official statistics are worrying too. Since new CIS came into existence, only a maximum of 59% of all contractors have managed to file their return on time. (Source: HMRC press release) This information suggests that the late/non-filing trend over the summer could have netted HMRC at least £62million!

October also sees the commencement of the compliance review process. This presents a further problem: those contractors who haven't got up to date yet, but who are registered for gross payment, could lose their gross payment status. Under the review process, contractors will be reviewed annually to ensure that they have complied with their tax obligations throughout the period since 6 April 2007. Failure to comply could make things difficult, both from a commercial and financial perspective.

The rules allow certain breaches to be overlooked, and the following will not compromise gross payment status:

Any, or all of the following in any twelve month period will be ignored:

• Three late submissions of your CIS monthly return - up to 28 days late.
• Three late payments of CIS/PAYE deductions - up to 14 days late.
• One late payment of Self Assessment tax - up to 14 days late.
• Any employer's end of year return (form P35) made late.
• Any late payments of Corporation Tax - up to 28 days late, including where any shortfall in the payment has incurred an interest charge but no penalty.
• Any Self Assessment return made late.

To read more about retaining your gross payment status, have a look at our news article on the subject.

If you need help with your CIS filing obligations, contact Tanya Matheson at our office today for assistance.

Labels: Written by Tanya Matheson