Asset Protection examples…
Company Assets – Ring Fencing
Client A wished to remove a commercial property from his business as part of an asset protection planning exercise. The property was demerged away from the trading business and effectively ring fenced; this transaction was commercially driven. There was limited stamp duty exposure of 0.5% on this transaction and no other taxes.
Comment: Asset protection is fundamental consideration when entering or embarking on new ventures, it is key that the transactions to protect assets are commercial/investment driven.
Private Assets – Trusts
Client B wished to gift assets to his family members whilst retaining an element of control. The client was concerned about potential claims against the beneficiaries in the future by spouses, trustees in bankruptcy etc, therefore the gifts were made into a relevant trust which provided the desired protection.
Comment: In order to provide real protection the trust has to be properly constituted, the correct type of trust must be used and not be a sole beneficiary trust as the courts have looked through such trusts in recent cases.
Offshore and Domicile
X individual had a sizeable portfolio of residential investment properties. We restructured the tax affairs to transfer the properties into an offshore company without triggering any taxes, all with HMRC clearances (which in our mind are essential for comfort).
As the individual was non UK domiciled for inheritance tax purposes, the strategy avoid IHT on the portfolio immediately, hence saving £2.1M, whilst operationally not affecting how the business was operated.
Latest news & blogs…
Businesses in the UK now have less than nine months to prepare for wide-ranging new rules requiring them to manage their accounts and submit tax returns digitally.
The government’s long-anticipated and controversial Making Tax Digital regime, hailed as the biggest tax and accounts shake-up in a generation, finally comes into effect in April 2019.
Experts in the accountancy world have warned the changes could catch many businesses off-guard. Shipleys Tax have urged business owners to begin researching and investing in digital reporting software that’s compliant with the new rules.
What is Making Tax Digital (MTD)?
Making Tax Digital for VAT is being brought in by the government as an attempt to streamline and simplify the tax reporting system. Making Tax Digital for business (MTDfb) begins on 1 April 2019 with MTD for VAT. From that date, VAT-registered businesses above the threshold of £85k (currently) will have to keep digital records and submit VAT returns using compatible software.
There will be specific rules for how business will report digitally and the software used to do this has to comply with HMRC’s guidance. Gone are paper records and spreadsheets (to a certain extent), in its place will be digital books and records stored online in the cloud.
This may come as a culture shock for many small businesses who are used to doing it the traditional way.
Businesses that exceed or expect to exceed the VAT registration threshold will need to consider:
· are they exempt from the requirement to file returns electronically under MTD (charities, local authorities, government departments and overseas businesses will not be exempt from MTD for VAT)?
· what records will need to be kept digitally
· what the digital VAT account should look like
· how to submit their digital VAT return in line with MTD requirements
· whether to submit their digital VAT account to HMRC
· penalties for late filing and payment of VAT, and for not keeping digital records or having digital links.
It is also worth noting that the government has plans to roll out MTD requirements for all other taxes in 2020.
What are the key dates to look out for?
· April 2018 – HMRC opened pilot for businesses to volunteer to submit their VAT returns
· Spring 2018 – HMRC launches consultation on MTD for corporation tax
· 1 April 2019 – start of first VAT period where MTD is mandatory
· 7 June 2019 – submission deadline for first monthly VAT returns under MTD
· 7 August 2019 – submission for first quarterly returns under MTD
· 1 April 2020 – MTD mandatory for all taxes (planned)
What can you do now to get ready for MTD?
Reports suggest some businesses have not heard about MTD. There is less than 12 months to go until MTD is implemented, many are still uncertain about the requirements and how specifically these requirements will apply to their business.
HMRC is still publishing further guidance on specific definitions and how MTD will work in practice. However, what businesses can do now is to review existing VAT accounting systems and processes in relation to the preparation of VAT returns.
Our recommended steps
To ensure that your business is ready for MTD, we would recommend the following steps:
1. Review your internal reporting systems, processes and controls. Liaise with your advisers/software providers and internal IT teams to get a view on what they can do to help to get ready for MTD.
2. Consider likely costs and potential disruptions to your business. Agree additional budgets for changing and maintaining your systems, seeking specialist advice.
3. Test the integrity of your data and consider whether your VAT-related data is accurate, current and complete.
4. Consider what information you wish to submit to HMRC and how the API connection will work. Do you need to develop or acquire additional software? Is it easier to outsource the submission of VAT returns to a third party?
Accounts and IT system changes may take 9 to 12 months to review and implement. HMRC advise that failure to meet the necessary MTD requirements could result in penalties although there will be a 12 month grace period (‘soft landing’) after MTD goes live to enable businesses to ensure that they have the necessary processes in place and digital links. It is important therefore that all affected businesses start reviewing their systems, processes and VAT adjustments now.
If you have any queries regarding the above, please contatct us on 0114 275 6292
In most small family trading companies it is not unusual for the husband and wife to own all the shares. Where a family member works in the business they may wish to give them shares in the company as recognition for their input and hard work.
However, giving shares isn’t as easy as it sounds. There are various taxes that need to be considered on a gift of shares to a family member, including income tax, capital gains tax, inheritance tax and stamp duty.
If an employee of a company receives “free” shares, for example, or if you make a gift of shares to a family member who works in the business, an income tax charge could arise on the market value of the shares gifted. If, however, it can be demonstrated that the transfer of shares is for reasons of family or personal relations, the income tax charge may be avoided.
A gift of shares to a family member is also a deemed to be a disposal of shares for capital gains tax purposes. As the gift is being made to a connected party, it is a deemed disposal at market value. In the case of a gifts it is typical that the person making the disposal receives no monies out of which to pay any capital gains tax which may arise (the gift is treated as a sale at market value). This could discourage family members from making gifts as part of any family tax planning mitigation exercise.
Therefore, capital gains tax is potentially payable on any gain arising even though no consideration is paid. However, providing certain conditions are met, it may be possible to reduce the capital gain on the shares gifted to Nil by way of gift relief. This allows the capital gain (and thus any tax liability) which is deemed to arise on gift of the shares at market value to be postponed. It does this by effectively transferring the capital gain to the recipient of the gift. To claim this relief appropriate submissions must be made to HMRC at the right time.
Stamp duty is also normally payable on the issue or sale of shares and is payable by the person receiving or acquiring the shares. However, if the shares are gifted and no consideration is paid, a stamp duty gift exemption relief can be claimed which is likely to reduce the stamp duty costs to nil.
For inheritance tax (IHT) purposes, a gift of shares to a family member would constitute what is known as a lifetime transfer. Based on current legislation, if you survive 7 years from the date of the gift, there should be no inheritance tax consequences on the transfer of shares to the family member. In the event of your death within 7 years of the gift, IHT relief may be available on the transfer providing certain conditions are met. This could also reduce any potential exposure to inheritance tax to Nil.
Before any transfer of shares takes place, we would recommend that you seek professional advice to ensure that the available reliefs are applicable to your particular circumstances and also to ensure that the various conditions for each tax relief are fulfilled.
The advice above is general guide only and does not constitute any advice whatsoever. You must seek professional advice before taking any action.
For more information please contact us on 0114 275 6292 or email@example.com.
Deductibility of receiver’s and legal fees
In a recent case the First-tier Tribunal (FTT) has held that the fees of a receiver appointed to sell properties forming part of a letting business and legal fees in challenging the receivership and claiming against the bank for their actions in relation to the loan were not allowable expenditure under TCGA 1992, s. 38.
The FTT found that both a receiver’s fee and legal fees effectively paid by the taxpayers on the forced disposal of properties were not deductible for capital gains tax (CGT) purposes.
The taxpayers owned ten properties, nine of which were let out. It was decided to consolidate the various related loans in place into a single loan with one bank.
Two of the properties were sold, with the bank’s permission. The taxpayers intended to use the proceeds to reduce the loan. However, the bank did not do this. It claimed that the taxpayers were in breach of the terms of the loan as the reduced rental income dropped to less than a predetermined percentage of the interest.
A receiver was appointed who subsequently arranged sale of the remaining eight properties. The taxpayers incurred various legal fees to prevent the forced sale and subsequently to claim against the bank. The bank also deducted the receiver’s fees from the sale proceeds.
The FTT found that the receiver’s fee on the forced sale of the properties was not wholly and exclusively in relation to the sale as the receiver carried out other tasks. This was therefore not deductible. This follows the decision in the recent case of O’Donnell v HMRC  UKFTT 347 (TC).
The taxpayers argued that the legal fees fell within TCGA 1992 s.38(1)(b) and were incurred wholly and exclusively in establishing, preserving or defending title to, or a right over, the asset. The FTT disagreed; the work to prevent the forced sale and the litigation with the bank were concerned with their rights and liabilities under the loan agreement with the bank. The expenses were not allowable. The FTT suggested that the fees were all in fact of an income nature.
If you need advice with capital gains tax on properties please contact us on firstname.lastname@example.org or call 0114 275 62 92 and ask for a tax consultation.