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…
AT SHIPLEYS TAX, we like to make life easier for everyone. In today’s tax note we highlight a nifty tool which can help you identify which support is available to you. Even with the plethora of support announced by the government, there are those who have unfortunately been left out and the tool does not cover all circumstances.
For the lucky few, Coronavirus (COVID‑19) support is available to employers and the self-employed, including sole traders and limited company directors. You may be eligible for loans, tax relief and cash grants, whether your business is open or closed.
Support finder tool
The government has developed this business support finder to see what support is available for you and your business. The ‘support finder’ tool will help businesses and self-employed people across the UK to quickly and easily determine what financial support is available to them during the coronavirus pandemic.
Government support in a nutshell
To support business, workers and the self-employed during the coronavirus outbreak, government has:
• made up to £330 billion of loans and guarantees for businesses
• offered to pay 80 per cent of the wages of furloughed workers, up to £2,500
• deferred the next quarter of VAT payments for firms, until the end of June – representing a £30 billion injection into the economy
• introduced £20 billion in tax relief and cash grants to help businesses with cash flow
• introduced the Coronavirus Business Interruption Loan Schemes for both SMEs and larger businesses to make it easier to access vital financial support • offered to cover the cost of statutory sick pay
• entirely removed all eligible properties in the retail, hospitality and leisure sector from business rates temporarily
• introduced the Self-employment Income Support Scheme, offering a taxable grant worth 80% of trading profits up to a maximum of £2,500 a month • deferred Self Assessment payments due in July 2020 until 31 January 2021
• allowed companies required to hold AGMs to do so flexibly, which may include postponing them or holding them online
• suspended wrongful trading provisions for company directors to remove the threat of personal liability during the pandemic; and
• offered a 3 month extension for filing accounts to businesses hit by coronavirus.
Access the new business support finder tool on the link below, to see what support is available to you in your business or as a self-employed person:
If you need help with any if the above government support, please call us on 0114 272 2984 or email firstname.lastname@example.org.
WITH REPORTS THAT a mini house-buying boom post lock-down is leading to house prices increasing, Shipleys Tax looks at one of the reasons for the mini-boom – the Stamp Duty cut. To increase confidence and gain momentum in the property market, the government cut stamp duty until 31 March 2021. In today’s tax note we look at how who benefits, and whether now is a good time to buy or sell a house.
The Stamp Duty Cut
From 8 July 2020 until 31 March 2021, residential Stamp Duty Land Tax (“SDLT”) threshold is increased from £125,000 to £500,000. Above £500,000 the normal residential rates as previously apply. SDLT applies to properties in England and Northern Ireland.
The rate of residential SDLT applying from 8 July 2020 to 31 March 2021 are as shown in the following table.
|Property value||Main home||Additional properties|
|Up to £500,000||Zero||3%|
|Next £425,000 (£500,001 to £925,000)||5%||8%|
|Next £575,000 (£925,001 to £1.5 million)||10%||13%|
|The remaining amount (over £1.5 million)||12%||15%|
Residential properties only
The increased threshold applies only to residential properties; the threshold for non-residential and mixed properties remains unchanged at £150,000.
For SDLT purposes a residential property is defined as:
- a building used or suitable for use as a dwelling, or is in the process of being constructed or adapted for use as a dwelling;
- the garden or grounds of such a building, including buildings of structures on such land;
- an interest or right over land that subsists for the benefit of such a building or land (for example, a right of way).
The test is at the effective date of the transaction.
Prior to the reduction, the non-residential and mixed rates were lower than the residential rates, so it was in HMRC’s interests for the property to be classed as a dwelling. Be aware what HMRC may consider to be a ‘dwelling’ may differ from what a lay person may regard as being suitable for use as dwelling. However, this approach may help the taxpayer to benefit from the lower residential rates applying until 31 March 2021.
A 3% supplement applies to second and subsequent residential properties. As this is applied to the reduced residential rates, those looking to buy a second home or an investment property in England or Northern Ireland will also benefit from the cut.
Winners and losers
Whilst the impact of the changes are yet to be felt, the overall impact of the SDLT cut is seemingly pushing up house prices to the extent that any stamp duty savings may not make a difference in reality. However, there are some winners.
Prior to the reduction, a higher threshold of £300,000 applied to first-time buyers, as long as the purchase price was not more than £500,000. While some first time buyers have lost their advantage, those paying less than £300,000 are unaffected by the reduction, but those buying residential properties costing more than £300,000 will benefit from the reduction.
On the surface the changes look like fantastic news for this group, especially in London where the average first home costs £415,000, meaning buyers are in line for a potential tax saving of £5,750.
However, most mortgage lenders will not currently lend more than 80 per cent of the purchase price, meaning the bulk of first-time buyers will need to stump up a 20 per cent deposit, rather than the 10 or five per cent required before the pandemic – a gap which may not be bridged by any stamp duty savings.
The most significant saving will be for home movers who previously would have had to pay stamp duty starting from £125,000. They could now save a maximum of £15,000 on a property costing £500,000 or more.
Properties that are both residential and non-residential (for example where there is both a residential and a business element) pay SDLT at the non-residential rates. This is usually beneficial but means such properties will not benefit from the temporary increase in the residential SDLT threshold.
Properties in Scotland and Wales
The residential threshold for land and buildings transaction tax in Scotland is increased 145,000 to £250,000 from 15 July 2020 until 31 March 2021 and the residential threshold for land transaction tax in Wales is increased from £180,000 to £250,000 from 27 July 2020 until 31 March 2021. However, unlike the rest of the UK, purchasers of additional properties in Wales do not benefit from the increase; the supplement is applied to the rates applying prior to 27 July 2020.
If you are thinking of buying or selling a house and you need help with Stamp Duty or Capital Gains Tax, call us on 0114 272 4984 or email email@example.com.
AT SHIPLEYS TAX we have been seeing a rise in so called “nudge” letters from HMRC enquiring about offshore matters. If you have received this letter, why have you got it? What should you do and not do? In today’s tax note we look at how an innocent letter can turn nasty.
What’s a nudge letter?
Since 2017, HMRC has been sending letters to UK individuals who they have identified as having received income or gains from overseas accounts or investments that they may have to pay UK tax on. These are prompted by information HMRC receives from overseas tax authorities under Automatic Exchange of Information (AEOI) agreements and more recently, as a result of the Common Reporting Standard (CRS).
HMRC’s aim in sending these letters is to:
- nudge or prompt taxpayers to review their tax returns to check that they are complete and correct;
- encourage those who need to rectify mistakes to make voluntary disclosures to HMRC;
- encourage all recipients to update HMRC on whether their tax position is up to date to enable.
So what’s in these nudge letters?
Broadly, the July 2020 version of the letter states that HMRC compared the information received under the above information exchange with the individual’s tax record and tax return(s) before sending the letter. It says that HMRC believes that the individual may not have paid the right amount of UK tax. Crucially, the new form includes a “certificate of tax position” form which needs addressing.
- The letter is not speculative; HMRC is taking a risk-based approach and only contacting taxpayers where they are unable to reconcile the figures received under information exchange agreements to tax records and tax returns.
- They acknowledge that there may be a reasonable explanation for this but the individual should review their affairs and let HMRC know if they need to correct their tax position.
- They recommend getting professional tax advice if the person is not sure whether they have declared all their overseas income or gains which are taxable in the UK to HMRC.
- They warn recipients that HMRC regularly carries out checks and that if HMRC later finds out that the individual did not tell HMRC everything, HMRC will view this very seriously and could carry out an investigation which could result in significant penalties or prosecution.
- All the letters include a “certificate of tax position” form which HMRC asks the individual to complete and return whether they have additional tax liabilities to disclose or not. We understand that one reason why HMRC uses the “certificate of tax position” is because it helps them minimise the number of “no response” cases they would otherwise need to follow up.
What should you do if you have received one of these letters?
It is important not to panic. But do not ignore the letter altogether either. It is imperative the right course of action is taken to minimise any fall out and not to put the proverbial “foot in it”.
There is official guidance provided on handling these letters – in summary these point out:
- The certificates provided by HMRC should not be completed in most cases, because they are unlimited to time and amounts – i.e. they apply to all tax years and for any size of mistake;
- Instead, letters are an acceptable way to respond to HMRC;
- Care must be taken to check the client’s actual position (i.e. check the facts) as a first step.
- Get specialist professional advice!
Some important points to bear in mind when dealing with nudge letters:
- HMRC does not issue such letters to all taxpayers whose returns may be wrong or have not been submitted – it may instead open an enquiry or a more serious tax investigation.
- Just because HMRC sent a letter does not mean that the person’s tax returns are wrong – there may be an innocent explanation.
- HMRC could open a criminal investigation with a view to prosecution for mistakes involving offshore matters that arise as a result of careless (as well as deliberate) behaviour. Alternatively, the taxpayer may face tax-geared penalties of up to 300% (plus asset-based penalties) due to a combination of Failure to Correct penalties and other penalties for offshore matters/transfers.
The letters also advise using what is known as the “Worldwide Disclosure Facility” to rectify tax mistakes for earlier years. However, this may not be appropriate for some and alternatives are available, including making a voluntary disclosure. Bespoke tax specialist advice is imperative.
If you need help with the above please contact Shipleys Tax’s Investigation Team for further information, or for assistance in dealing with a nudge letter or making a voluntary disclosure on 0114 272 4984 or email firstname.lastname@example.org.