Expect more from your Tax Partner

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1 Expect more from your Tax Partner IFA London branch meeting Tuesday 5 February 2018

2 IFA Tax Portal 2

3 Key property tax changes Caroline Fleet Gabelle

4 SDLT First time buyers relief Conditions for relief Purchaser (or all of the Joint Purchasers) must be a First Time Buyer An individual Not previously owned a major interest in a dwelling anywhere in the world Major interest does not include a lease with less than 21 years to run from the effective date of transaction Purchasing of a major interest in a single residential dwelling Not linked to any other transaction except for land that forms part of the garden or grounds of the dwelling Consideration up to 500,000 Applies to Transactions with effective date of 22 November 2017 onwards Rates are altered as shown: 4

5 SDLT First time buyers relief Relief doesn t apply First time buyers where consideration is greater than 500,000 (normal rules apply) Transaction where two or more dwellings purchased at the same time Joint purchasers and one party has previously owned a property Purchases by companies and discretionary trusts (higher rates will apply) Individual who has inherited a major interest in a residential property but never owned their own home Joint purchases where only one party is going to use the property as their main residence 5

6 SDLT First time buyers relief Consider: Your client, Jane is looking to purchase her first house and has never previously owned a property. She intends to live in this property. She offers to purchase the property for 500,000 First time buyers relief available - SDLT of 10,000 She offers to Purchase the property for 500,001 First time buyers relief no available SDLT of 15,000 1 of additional consideration costs 5,000 of SDLT! 6

7 SDLT First time buyers relief Jane changes the offer back to 500,000 but mentions that the property she is looking at has a self contained unit above the garage First time buyers relief not available as more than one dwelling SDLT of 15,000 Not a self contained dwelling as no kitchen SDLT of 10,000 Jane decides again this property and looks at purchasing a new flat. However she decides to buy this with her boyfriend, Peter. Peter has sold his flat so that they can buy jointly. Peter has previously owned a dwelling so First time buyers relief not available SDLT of 15,000 If Peter had only rented property prior to purchase, relief would be available SDLT of 10,000 Jane decides not to buy jointly with Peter but turns to the Bank of Mum and Dad. The Bank require Mum and Dad have an interest in the property. Mum and Dad own their own home. As above, First time buyers relief not available Mum and Dad act as guarantors and lend funds to Jane Relief available 7

8 SDLT First time buyers relief Jane decides against Bank of Mum and Dad and turns to her sister who has never owned a property but is interested in having an interest in property. She wants to continue to live with Mum and Dad First time buyers relief not available if sister is not going to use as Main Residence SDLT of 15,000 If sister intends to use the flat her main residence but it is impossible or impractical to immediately occupy the dwelling, relief would be available SDLT of 10,000 Jane recalls that her grandmother has recently passed away, leaving her holiday cottage valued at 85,000 to Jane and her sister. If the holiday cottage has been transferred to Jane and her sister before they purchase the flat, no relief available SDLT of 15,000 If the holiday cottage has not been distributed to Jane and her sister, then relief would be available 8

9 Higher rate of SDLT The higher rates of SDLT (the 3% surcharge residential rate of SDLT for additional dwellings) applied in some unexpected situations Some changes made to amend some anomalies. Effective from 22 November 2017: Individuals purchase an additional interest in their main residence or extend a lease on their main residence (provided main residence is lease in excess of 21 years) Interests in residential properties are transferred between spouses An individual purchases a new dwelling following a divorce, where property interests are retained by a former spouse or former civil partner in accordance with property adjustment orders relating to the dissolution of the marriage or partnership Trustees purchase a residential property for children whose affairs are subject to the Court of Protection Also now requires all of previous residence to have been disposed of, and to someone other than a spouse to claim replacement relief 9

10 Example: Remortgaging of family Home Mr X Mr X Mrs X Family Home 1,000,000 They wish to remortgage current mortgage of 200,000 to build extension on the home. Additional mortgage on home 50,000. Bank require Mrs X on mortgage BTL 75,000 Paragraph 3, Sch 4ZA Condition A: Chargeable consideration in excess of 40,000 (Assuming 50:50 mortgage) Condition B: At effective date the purchased dwelling is not subject to a reversionary lease or subject to a lease but leave has an unexpected term of more than 21 years Condition C: At the effective date, the purchaser has a major interest in a dwelling other than the purchased dwelling Condition D: The purchased dwelling is not a replacement for the purchaser s only or main residence Prior 22 November SDLT of 3,750 10

11 Example: Remortgaging of family Home Mr X Mr X Mrs X New para 9A (1) A chargeable transaction is not a higher rates transaction (a) there is only one purchaser, (b) there is only one vendor, and (c) on the effective date of the transaction the two of them are (i) married to, or civil partners of, each other, and (ii) living together. After 22 November no SDLT Family Home 1,000,000 BTL 75,000 They wish to remortgage current mortgage of 200,000 to build extension on the home. Additional mortgage on home 50,000. Bank require Mrs X on mortgage 11

12 Example: Lease extensions before 22 November 2017 Mr Y owns a flat in London worth 600,000 and a Dorset cottage worth 250,000. The interest in London flat is a 125 year lease with 80 years left to run. Mr Y is offered by the freeholder the chance to buy a 999 year lease for 200,000. FA 2003 Sch 17A para 6 should applies so only 200,000 should be chargeable condition (surrender and regrant) Does Paragraph 3, Sch 4ZA apply? Condition A: Chargeable consideration in excess of 40,000 Condition B: At effective date the purchased dwelling is not subject to a reversionary lease or subject to a lease but leave has an unexpected term of more than 21 years Condition C: At the effective date, the purchaser has a major interest in a dwelling other than the purchased dwelling Condition D: The purchased dwelling is not a replacement for the purchaser s only or main residence Interest acquired is not in another dwelling so can not qualify as replacement at his existing interest 12

13 Example: Lease extensions before 22 November 2017 New clause 7A inserted such that 3% does not apply where purchase has a prior interest in the purchased dwelling provided: Existing interest was a major interest immediately beforehand (an unexpired lease term of more than 21 years) The dwelling has been the purchaser s only or main residence in the previous 3 years The Purchaser is not a joint tenant in respect of the dwelling with more than 3 others The Purchaser is a tenant in common beneficially entitled to more than a quarter of the prior interest Now Mr Y would pay no SDLT 13

14 On the horizon No indexation for companies from January 2018 SDLT filing and payment window to reduce to 14 days for transactions with effective date on or after 1 March 2019 ATED rates increased by CPI for year ended 31 March 2019 Non-resident companies to fall within the scope of CT for rental income, from April 2020, rather than income tax. Further details to be published shortly after the Budget but likely to include quarterly payment regime and corporate interest restrictions 14

15 On the horizon Capital gains tax on all types of property Announced Consultation that from April 2019, it is intended that all gains from all types of UK land should fall within the scope of UK tax, with the only exemption being for qualifying institutional investors In addition, gains arising from the disposal of property rich entities will be also subject to UK tax from this date NR companies to pay CT. All other chargeable to CGT Direct disposal of land by non-residents For non-residential land, only gains attributable to the increase in value from 1 April 2019 (for companies),6 April 2019 (for other persons) will be taxable Rebasing to the April 2019 value will be the default position Possible to elect to compute the gain/loss using the historic cost as the base cost of the property 15

16 On the horizon Capital gains tax on all types of property continued Indirect disposal of land by non-residents Where, at the time of disposal, 75% or more of the value of an asset is derived from UK land (either residential or commercial) and the nonresident holds 25% or greater interest in that entity (or did at any point in the previous 5 years), this disposal will also fall within the scope of UK tax Rebasing to the April 2019 value however unlikely direct disposal it is not proposed to allow for alternative computation methods The value test will be applied based on a gross asset value i.e. not including any debt within the entity For indirect disposal, it is also proposed that a reporting requirement will be placed on UK based advisors who are aware of the transaction Other matters An anti-forestalling rule will be introduced to be applied and a TAAR 16

17 ATED new service ATED digital service mandatory from 1 April So register now Benefits for clients stressed first But then advantages for agents Can t submit 2018/19 until 1 April 17

18 Change in HMRC guidance on withdrawal of capital from BTL business Previous Guidance If you increase your mortgage loan on your buy-to-let property you can also treat interest on the additional loan as a revenue expense but only up to the capital value of the property Revised Guidance If you increase your mortgage loan on your buy-to-let property you may be able to treat interest on the additional loan as a revenue expense, as long as the additional loan is wholly or exclusively for the purposes of the letting business 18

19 Change in HMRC guidance on withdrawal of capital Example Mr X takes out a mortgage for 600k to purchase property worth 800k. Two years later, BTL valued at 1,000k, Mr X remortgages and takes out a mortgage for additional 300k. If 300k is used to purchase another BTL: - Interest on the loan up to 800k will be tax deductible - Interest on 100k non-deductible If 300k is used to withdraw capital e.g. fund Mr X s home purchase - No tax deduction for interest on additional 300k of mortgage. 19

20 Key direct tax changes Paul Howard Gabelle

21 Allowances and exemptions Income tax Personal allowance - 11, /19 ( 11,500 17/18) Basic rate limit - 34, /19 ( 33,500) 2017/18 Higher rate threshold ie 40% 45,000 Capital Gains tax 11, /19 ( 11,300 17/18) Individuals 5, /19 ( 5,650 17/18) Trustees 21

22 On the horizon Knowledge Investment companies Legislate to improve reliefs under the EIS and VCT scheme from 6 April 2018: Limit on qualifying investments is being increased to 2 million from 1 million, provided the additional 1 million is invested in one or more knowledge intensive companies The shares will be eligible for relief in the knowledge intensive companies receiving investments where the annual investment limit for EIS and VCT s does not exceed 10 million (current limit at 5 million) The lifetime limit will, however, remain at 20 million The permitted maximum age rules will be amended to allow a knowledge-intensive company to use the date from which its annual turnover exceeded 200,000 instead of the date of its first commercial sale, when determining the date from which the end of the initial period is calculated 22

23 VCT amendments etc Loans Must be unsecured Commercial rate is no more than 10% on average Can t front load in first five years Exchange New draft regulations Exchange one lot of non-qualifying investments for another Missed when non-quals were prohibited except for transitional provisions Clearance Response to consultation is to limit it Still no clearance on individual aspects Now no clearance on alternative applications No opinion given on the new capital preservation rules 23

24 On the horizon Consultations Withholding tax on Royalties With effect from April 2019, WHT to be extended to royalty payments, and payments for certain other rights, made to low or no tax jurisdictions in connection with sales to UK customers. The rules will apply regardless of where the payer is located Entrepreneur s Relief Consultation in Spring 2018 on how access to the relief might be given to entrepreneurs whose holding is reduced below 5% qualifying level as a result of raising funds for commercial purposes Off payroll working reform Consultation in Spring 2018 on IR35 in the private sector. One suggestion would be to extend the recent public sector reforms to the private sector 24

25 Trust register Anti Money Laundering rules implemented last year have resulted in new trust reporting requirement Where a trust has a UK tax liability then needs to register in the first year that arises Report may be on line but must be filed normally by 31 January following relevant tax year 25

26 Trust register 2 The taxes that trigger registration are: 1. Income Tax 2. Capital Gain Tax 3. Inheritance Tax 4. SDLT or Scottish equivalent (Welsh too?) 5. Stamp Duty Reserve Tax 26

27 Trust register 3 If any of these taxes apply then detailed information is required Settlors name and full details including passport numbers etc. Beneficiaries name, full details and tax reference number Full details of trust assets 27

28 Trust register 4 HMRC have confirmed to Law Society that it is only liabilities in the trust that are applicable Liabilities in underlying companies do not trigger the registration Offshore trusts are caught and with new IHT rules for UK residential property will give rise to registration 28

29 Trust benefits Legislation in place to assess trust benefits received Previously benefits such as paintings were reported on a random basis Now all benefits that cannot be quantified must apply the Official Rate Fine whilst 3% but as base rate increases 29

30 IHT DOTAS regulations Relevant property trusts Grandfathering OK New descriptions Extended hallmark Guidance coming 30

31 Disguised remuneration Close company gateway Co funded transaction Response to concern Loan information provisions 31

32 TaxDesk Our telephone advice TaxDesk service operates Monday to Friday from 8am to 6pm. Call the TaxDesk on Each call is routed to one of our specialist consultants each of whom has many years experience answering the tax queries of, and providing strategic planning advice to, our professional clients. We aim to answer all queries by telephone where we can but if we need to undertake research, review background papers or provide complex advice in writing we will always agree a fee for our additional time in advance. Pricing Our calls are charged at 60 plus VAT for the first 12 minutes and 30 plus VAT for each additional 6 minutes or part thereof. Firms using us regularly can also purchase one of our TaxDesk loyalty cards. TaxDesk25 costs 950 plus VAT per calendar year and gives a 25% discount on the cost of TaxDesk calls. TaxDesk50 costs 2,500 plus VAT per calendar year and gives a 50% discount on the cost of TaxDesk calls. 32

33 Disclaimer While care has been taken to ensure the accuracy of the contents of this document, no responsibility for loss occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the lecturer. Delegates should take specialist advice before entering into any specific transaction. Gabelle is a trading division of Abbey Tax and Consultancy Services Limited (ATCS). Registered Office: 20 Fenchurch Street, London EC3M 3AZ. Markel Corporation is the ultimate holding company for ATCS. Gabelle

34 Thank you

35 Thank you for listening Caroline Fleet & Paul Howard Gabelle Contact Details Tel:

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