Budget & Finance Bill Update Mike Hayes & Geraint Lewis

Transcription

1 Budget & Finance Bill Update Mike Hayes & Geraint Lewis

2 Main topics Personal tax allowances & rates Inheritance tax New residence rules Mansion tax Anti-avoidance VAT & other indirect taxes Business & corporate tax

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4 Income tax rates 2012/ / /15 Personal allowance 8,105 9,440 10,000 Income limit 100, , ,000 Basic rate 20% 34,370 32,010 31,865 Higher rate 40% 34, ,000 Additional rate 50% 50% > 150K 32, ,000 45% > 150K 31, ,00 45% > 150K

5 National insurance rates 2013/14 Employer s NIC 13.8% Employee s NIC 2% Class 4 NIC 2% Note: highest rates only

6 Capital gains tax 2012/ /14 Annual exemption 10,600 10,900 Basic rate tax payers 18% 18% 40% & 45%/50% tax payers 28% 28% Entrepreneurs relief 10% 10 million 10 million Trust capital gains tax rate 28% 28%

7 Inheritance tax 2013/14 Nil rate band 325,000 Life time gifts 20% On death 40% Rate on death where 10% of net estate left to charity 36%

8 Inheritance tax Nil rate band was to go up Now to be capped at 325,000 until April 2018 To fund cap on reasonable care costs of 72,000 from April 2016

9 Inter spouse exemption Applies to transfers to spouses & civil partners Lifetime or on death Limit - But where donee is non-domiciled the limit is 55,000 From 6 April 2013 to be increased to 325,000

10 New election New election - to be treated as UK domiciled for inheritance tax purposes only: Benefit is that inter-spouse exemption is uncapped Can be made at any time after marriage/registration of civil partnership Can be effective for up to 7 years earlier - not before 6 April 2013 Can be made within 2 years of death Effective from immediately before death

11 Example Arkwright (Yorkshire domicile!) married Mlle Geneviève (French domicile) in 2012 She retains her French domicile of origin Arkwright dies suddenly in November 2013 He leaves his entire estate of 5M of freehold property to Geneviève Inheritance tax on 5M less nil rate band & capped exemption ( 650,000) = 1.74M

12 Example If Geneviève elects to be treated as UK domiciled within 2 years of Arkwright s death: Effective from immediately before death Unlimited inter-spouse exemption available 1.74M inheritance tax saving If Geneviève goes back to France & is NR for more than 4 years, the election will cease to have effect She still owns UK assets, but can convert these

13 Inheritance tax - liabilities Liabilities are deductible from an individual's estate for inheritance tax The liability is deducted from the property on which the loan is secured Important where reliefs available on some property: Business property Agricultural property Woodlands

14 Example X s estate comprises a house worth 2.5M Potential IHT liability - 1M He buys a farm for 1.5M, funded with a loan The loan is secured on his house

15 Example Business property House X owns a house 2,500,000 Borrows to buy a farm 1,500,000-1,500,000 Net estate 1,500,000 1,000,000 APR - 1,500,000 Taxable estate Nil 1,000,000 Inheritance tax 400,000 Saving 600,000

16 But from Royal Assent Business property House X owns a house 2,500,000 Borrows to buy a farm 1,500,000-1,500,000 Net estate Nil 2,500,000 APR Taxable estate Nil 2,500,000 Nil Inheritance tax 1,000,000

17 Debts & inheritance tax Applies to deaths & chargeable transfers after Royal Assent Therefore existing arrangements caught Also debt must be paid (eg after death) unless commercial reason for not doing so

18 Statutory residence test New rules from 6 April 2013 Need to review cross border workers as residence may change under new rules Need to keep very accurate records

19 Part A Always non resident if either: Visitor - not resident in any of the previous 3 tax years and < 46 days in the UK in the year Hardly here at all resident in one or more of previous 3 tax years and < 16 days in the UK in the year Full time working abroad

20 Full time working abroad At least a full UK tax year working outside of UK Will allow up to 90 days in the UK pa Including up to 30 working days (more than 3 hours per day) in the UK in any one tax year No significant breaks from overseas work Full time an average of 35 working hours pw

21 Part B If Part A tests not satisfied - always UK resident if either: In the UK for more than 182 days in the year A home in the UK for more than 90 days: Present at that home for at least 30 separate days; & No overseas home in which you were present for more than 30 days in the tax year

22 Part B Full time working in the UK for a period of 365 days: All or part of period falls within tax year No significant breaks More than 75% of the work days in the tax year when more than 3 hours are worked are UK working days

23 Part C Arrivers - anyone who has not been UK resident in any of the previous three tax years Leavers anyone else Days spent in UK Days spent in UK Arrivers 0-45 Not resident All 4 ties Leavers or more ties Non resident More than or more ties Non resident Non resident 4 or more ties All 4 ties 3 or more ties or more ties 2 or more ties More than or more ties 1 or more tie

24 UK ties Family tie: Spouse, civil partner, significant other or minor children resident in UK Some relaxation in the rules if: Child here for full time education; or Taxpayer sees them in the UK on 60 days or less

25 UK ties Accommodation tie: Available accommodation in the UK for at least 91 consecutive days; and used in the year (only needs to be for 1 night a year) If the home is of a close relative - up to 15 nights can be ignored Work tie - works in the UK (employed or self employed) for 40 days (> 3 hours) or more in the tax year

26 UK ties 90 day tie - more than 90 days spent in the UK in either or both of the two previous tax years Country tie if the UK is the country in which you were present at midnight for the greatest number of days in the tax year does not apply to arrivers

27 Other issues UK day here at the end of it: In transit? Exceptional circumstances Deemed UK day: P has at least 3 UK ties for a tax year, The number of days in that tax year when P is present in the UK at some point in the day but not at the end of the day is more than 30, and P was resident in the UK for at least one of the 3 tax years preceding that tax year

28 Other issues What counts as work including travel Split year basis Ordinary residence abolished Overseas work day relief put on statutory footing - 3 years only

29 Comment Good to have some statutory rules Mainly fair compared with previous position Complicated Need to review current arrangements Need to keep records But..

30 Temporary non-residence Capital gains realised whilst NR taxed on return to UK if not out of UK for 5 tax years Now same rule to be applied to: Certain lump sum pension benefits Distributions from close companies Release of a loan to a participator Chargeable event gains

31 Mansion tax Properties valued at over 2M held by nonnatural persons: SDLT from 21 March 2012 at 15% Annual residential property tax from 1 April 2013 (now to be known as annual tax on enveloped dwellings ATED) Capital gains tax at 28% on any disposal from 6 April 2013

32 Spot the mansion? Which is worth more than 2 million?

33 Non-natural person Examples given: A company (could be a UK company) A collective investment scheme (including a unit trust) A partnership with corporate partners above

34 Exclusions from 15% charge From Royal Assent 2013 Property developers 2-year rule removed Property rental businesses Property traders No relief where property occupied by a nonqualifying individual Someone connected with beneficial ownership of the property

35 Exclusions from 15% charge Dwellings open to the public for at least 28 days a year on a commercial basis Occupation by certain employees or partners < 5% interest in property or company owning it Residential properties owned by charities & used for charitable purposes Working farmhouses Diplomatic properties Other publicly owned residential properties

36 ATED Property Value 2m- 5m 5m - 10m 10m - 20m > 20m Annual Charge 15,000 35,000 70, ,000

37 Property values & returns Owned on 1 April value on that date Property acquired subsequent to 1 April value on acquisition Revaluation - each 5 th anniversary of 1 April 2012 First return due 1 October 2013 Tax due 31 October 2013

38 Capital gains tax The CGT charge applies to non-natural persons (NNPs) on disposals after 5 April 2013 Where the owner of the property has been within the ATED charge at some time during its period of ownership Exemptions that apply for ATED also apply for CGT Allowable cost for CGT purposes will be increased to the market value of the property as at 6 April 2013

39 Capital gains tax There is a further relief where the proceeds are close to 2M Gain restricted to 5/3 of the excess of the sale price over 2 million The CGT charge can apply to UK companies Tax rate will be at 28% rather than the usual corporation tax rate of 23% (for 2013/14) Intra-group transfers taxable!

40 Cap on reliefs From 6 April 2013 annual cap on deductions from personal income of: 50,000; or 25% of adjusted total income if greater Gift aid excluded

41 Capped reliefs Trade losses against general income Early trade loss relief Post-cessation trade relief Property loss relief against general income available for property business losses arising from capital allowances or agricultural expenses Post-cessation property relief Employment loss relief against general income

42 Capped reliefs Former employees deduction for liabilities Share loss relief on non-eis/seis shares Losses on certain deeply discounted securities Qualifying loan interest

43 GAAR From Royal Assent Hopefully will not need to be involved!

44 Loans from close companies Loans to participators Corporation tax under s455 CTA 2010 at 25% of loan Can catch indirect loans Now being made clear to apply to close companies advancing money to partnerships in which they are participators Stop bed & breakfasting of loans

45 More joy! Misuse of partnerships Remove presumption of self-employment in an LLP? Counter manipulation of profits/losses by partnerships including a company Offshore payment intermediaries High-risk promoters naming & shaming

46 2013 Budget VAT Update Geraint Lewis VAT Principal

47 The Budget 2013: TINA

48 Budget Headlines Playing Now From 1 st April 2013 VAT Threshold increases to 79,000 from 77,000 VAT de-registration threshold increases to 77,000 from 75,000 2,000 increase in line with inflation, smaller than 2012 There will also be similar increases in the fuel scale charges, again in line with inflation

49 Budget 2013 VAT Changes At first blush, that was pretty much that, no mention of VAT in the speech and apparently no son of the pasty tax, but The devil, as so often was in the detail

50 Budget 2013: Coming Soon

51 Budget 2013 VAT Changes Coming Soon: NFP End of the exemption for research provided by one eligible body to another 1 August 2013? Transitional Relief? End of the reduced rate for energy efficient materials in relevant charitable purpose buildings, 1 August 2013

52 Budget 2013 VAT Changes: Coming Soon: Electronic Services FA 2014 will see new legislation (effective from ) to tax the supply of B2C e-services, telecoms etc. by reference to where the customer is based Potentially this means UK businesses having to register across Europe, and deal with different rates of VAT etc. HMRC to introduce a mini one stop shop (the VAT equivalent of Tesco Local) which would allow UK businesses to account for non UK VAT via a single return filed with HMRC Compliance issues, VAT recovery, etc. Use and enjoyment?

53 Budget 2013 VAT Changes Coming Soon: VAT Free Shopping HMRC to consult on changes to the VAT free shopping system for overseas visitors Looking to make the system easier and simpler Possible electronic system? Changes are well overdue, system is unchanged since in the 1970 s

54 Budget 2013 VAT Changes: Coming Soon: Manufacturer Refunds FA 2014 to include legislation to allow manufacturers to claim VAT relief on refunds, compensation etc. given to customers. Puts them on the same footing as retailers making similar repayments What about distributors, or wholesalers?

55 Budget 2013 : Plan B a missed opportunity?

56 Corporate & business tax

57 Corporation tax rates 2013/ / /14 Small company 20% 20% Marginal company 25% 23.75% Large company 24% 23%

58 Corporation tax rates 2013/ / / /16 Small company 20% 20% 20% Marginal company 25% 23.75% 20% Large company 24% 23% 20%

59 Effective tax rate 2013/14 Small company Marginal company Large company Salary 53.43% 53.43% 53.43% Dividend 44.44% 47.05% 46.53% Interest or rent 45% 45% 45% Self employment 47%

60 Effective tax rate 2015/16 Small company Marginal company Large company Salary 53.43% 53.43% 53.43% Dividend 44.44% 44.44% 44.44% Interest or rent 45% 45% 45% Self employment 47%

61 NIC employment allowance From April ,000 allowance for all businesses & charities Offset against employer s class 1 NIC Will be deducted throughout year Targeted at smaller businesses but available to all

62 SEIS & EIS One unforeseen pitfall removed: The issuing company must not at any time in period A be under the control of any other company Period A starts with incorporation & ends 3 years after SEIS shares issued SEIS companies formed with a company formation agent as a subscriber failed! Rule now changed so that subscriber shares disregarded where company has not begun to trade or to prepare to carry on a trade

63 SEIS reinvestment relief Gains realised in 2012/13 can be exempted if reinvested under SEIS HMRC confirmed that SEIS investment could be in 2013/14 & carried back to 2012/13 Same exemption for capital gains realised in 2013/14 but limited to ½ amount reinvested

64 Example George sells a second home realises a capital gain of 130,000 in 2013/14 George reinvests 100,000 of this into SEIS shares in 2013/14 Exempt amount = 100,000 x ½ = 50,000 Amount remaining taxable = 80,000 It is assumed that SEIS investments made in 2014/15 can be carried back to 2013/14

65 EMI & entrepreneurs relief Entrepreneurs relief requires a holding of 5% of ordinary shares giving 5% of votes FA 2012: Extended entrepreneurs relief to shares acquired under EMI options exercised on or after 6 April 2012 Still had to own shares for 12 months to qualify Exit only options?

66 EMI & entrepreneurs relief FB 2013: The option period will count towards the 12 months Applies to options: Exercised on or after 6 April 2012 Shares sold after 6 April 2013 Going through the EMI process can be preferable to issuing shares immediately where employee obtaining < 5%

67 Employee shareholder status From 1 September 2013 Surrender certain employee rights In exchange for shares Between 2,000 & 50,000 worth of shares Deemed payment of 2,000 for the shares Corporation tax deduction for the company Capital gains tax free on a sale

68 Rights to be given up Statutory redundancy pay Right to claim unfair dismissal (except where the dismissal is automatically unfair or relates to anti-discrimination law) Not automatically unfair for an employer to dismiss an employee owner who requests flexible working Limited right to flexible working

69 Rights to be given up 16 weeks' notice of their intention to return early from maternity or adoption leave, Right to request training under section 63D of the Employment Rights Act 1996

70 Deemed payment Value of shares given to employee Deduct deemed payment Amount liable to income tax & NIC A B 2,000 25,000 2,000 2,000 Nil 23,000

71 Employee ownership New CGT relief in 2014 on sale of a controlling interest of a business into an employee ownership structure Also measures targeted at indirect ownership models OTS review of partnerships simplification of taxation

72 Employment related loans A cheap or interest free loan to an employee will give a benefit in kind No benefit if loan below 5,000 throughout year Limit increased to 10,000 from 6 April 2014

73 UK as a corporate tax destination New corporation tax rates Will be the joint lowest in the G7 & G20 Holding company reliefs: Dividends exemption Substantial shareholdings exemption Relaxed controlled foreign company rules Patent box Tax credits

74 R&D tax credits - SMEs SME: Uplift of 125% of spend Repayable credit = 11% of surrenderable loss Large company: Uplift of 30% of spend

75 From 1 April 2013 Large companies will be able to claim a 10% above the line (ATL) credit Optional for now mandatory from 1 April 2016 It will be a taxable receipt Paid net of tax for non-taxpayers Treated as a reduction of corporation tax liability

76 Film tax relief British films intended to be shown commercially in cinemas 25% of the total production costs of the film must relate to activities in the UK Only available to film production companies within the charge to UK corporation tax FPC can claim FTR on the lower of either: 80% of total core expenditure; or the actual UK core expenditure incurred

77 Film tax relief Enhanced tax deduction 100% of the qualifying expenditure for films with core expenditure of 20 million or less (known as limited budget films) 80% of the qualifying expenditure for films with core expenditure in excess of 20 million (known as bigger budget films) Payable tax credit as a % of losses surrendered: For limited budget films 25% For bigger budget films 20%

78 Similar credits from 1 April 2013 Video games High-end television & animation production Look at one in some detail Video games

79 Culturally British Test % of the video game set in UK or another EEA state The number of characters depicted in the game from the UK or another EEA state - having a character in a game that looks like Sherlock Holmes for example! Whether the video game depicts a British story or a story relating to an EEA state

80 Culturally British Test % of original dialogue recorded in English or a recognised regional language The level of contribution of the video game to the promotion of British culture Whether certain personnel (being the project leader, at least one scriptwriter, the lead composer, one of the lead actors, the lead programmer and the lead designer are citizens of, or ordinarily resident in an EEA state)

81 Taxation of video game companies Each video game is treated as a separate trade Trade starts when: the design of the video game begins or, if earlier, when it receives any income from the video game In its first period of account, the company must: Record the proportion of the estimated total income from the video game treated as earned at the end of that period; less the costs incurred to date

82 Taxation of video game companies In later periods of account, the company must record the new total income and costs incurred since the previous period

83 The relief For the first period of account additional deduction = 80% of the lower of: Qualifying UK expenditure; 80% of total amount of qualifying expenditure For subsequent periods of account, the additional deduction is the difference between the amount calculated by the formula above and the amount of additional deductions given for previous periods

84 Repayable credit 25% of surrenderable loss

85 Plus Consultation on tax support for the visual effects industry

86 Plant in buildings New rules from 1 April 2012 s198 election fixes value of CAs which vendor has claimed But supplementary claim possible until 1 April 2014

87 Case study Client buying commercial buildings worth 8M S198 election amount: Cost - 50K Tax WDV - 15K Purchaser can apportion price to assets: Ordinary plant which vendor has not claimed Integral features acquired before April 2008

88 Don t forget Annual investment allowance increased from 25,000 to 250,000 from 1 January 2013 For 2 years only

89 And finally......any questions?