Author Archives: Aidan Roberson - Tax Manager

About Aidan Roberson - Tax Manager

T +44 (0)20 7874 8845

Aidan helps company directors, partners and private individuals and families with their personal tax with an emphasis on inheritance tax. He enjoys bringing clarity to the complex problems which arise in these areas, providing people with clear, actionable advice.

The global response to COVID-19 has stranded some people in countries that they had expected to be able to leave. This is obviously inconvenient for everyone affected, but in certain situations could have an impact on tax residency.

Stuck in the UK

Tax residency in the UK is determined by the statutory residence test (SRT). This legislation allows for 60 days to be disregarded in “exceptional circumstances” each tax year (6 April to following 5 April). HMRC have confirmed that COVID-19 is exceptional in the following circumstances:

• You are quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus;
• You find yourself advised by official Government advice not to travel from the UK as a result of the virus;
• You are unable to leave the UK as a result of the closure of international borders; or
• You are asked by your employer to return to the UK temporarily as a result of the virus.

It is important to note, however, that the 60 day limit to disregarded days still applies. Unless you already had a high number of disregarded days in the 2019/20 tax year (to 5 April 2020) this is unlikely to be a problem in that year. However, if the crisis drags on for several more weeks then you could easily breach the 60 day limit in 2020/21. That would mean that further travel to the UK up to 5 April 2021 may have to be reduced if you are looking to be non-UK resident. It is possible that the UK tax authorities could amend the SRT if lockdown continues, but this cannot be relied upon.

If you work whilst in the UK, it is important to note that even if those workdays are disregarded as part of your overall number of days in the UK, they will still count as workdays for the “sufficient ties” test. This in turn affects the total number of days you can spend in the UK without becoming UK tax resident. Even if you do remain non-UK resident, the money you earn on such workdays may still be taxable in the UK. If you are a director of a non-UK resident company, you must take extra care not to become UK resident as this could result in your company becoming UK tax resident too. Another risk is creating a permanent establishment in the UK as a result of work carried out here. The OECD has issued guidance suggesting that they consider the risk to be low, but specialist tax advice is still recommended as the rules vary in each jurisdiction.

It may be that even if you become UK resident as a result of COVID-19 per the SRT, you could still be deemed to be non-UK resident if you are tax resident in another country with a double taxation treaty with the UK.

Stuck outside of the UK

If you are forced to remain outside of the UK, this may affect your tax residency in the country you are in. Certain countries, for example Australia and Ireland, have made provisions similar to the UK to prevent individuals becoming resident due to COVID-19. It is recommended that you get tax advice in the relevant country.

If you are stranded abroad and were UK tax resident before that and will only temporarily lose your UK tax residency, the OECD guidance recommends that this is disregarded by the countries involved. It is however up to the individual countries to implement this.

If you are intending on becoming UK tax resident but cannot meet the required day count due to COVID-19, then you will not be UK resident. This is true even if you would otherwise be resident in the UK under a double tax treaty, as this is predicated on being UK resident under UK domestic law.

Coming to the UK to tackle COVID-19

The UK Government to not wish to impede those coming to the UK to combat COVID-19. Becoming UK resident may bring your worldwide income into the UK tax net. The Chancellor has therefore announced that the SRT will be amended “to ensure that any period(s) between 1 March and 1 June 2020 spent in the UK by individuals working on COVID-19 related activities will not count towards the residence tests.” These activities will apparently be tightly defined, and the measure is most likely aimed at those in the medical and scientific community.

This is a complex and fast changing area, check our Covid hub for updates or get in touch to talk through your  specific circumstances.

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Offshore companies holding UK property have long been taxed in a different way to UK companies.

Difference in tax treatment between offshore companies and UK companies holding UK property

Capital gains tax

The main disparity had been that offshore companies did not have to pay tax on capital gains when selling UK property, whereas UK companies did. This changed in two tranches – firstly for residential property in April 2015, and then for commercial property in April 2019. My colleague Richard Verge covered the latter change in his article last year on UK commercial property owned by non-residents .

Income tax vs corporation tax

The second major difference is that offshore companies renting out UK property are subject to income tax on their profits, not corporation tax. From 6 April 2020 this is changing, increasing the alignment of tax treatment between offshore and UK companies. The new rules and their implications are detailed below.

Finally, this article will consider what differences remain between offshore companies and UK companies holding UK property.

The move to corporation tax for non-resident landlord companies

The 2019/20 tax year will be the last for which non-resident corporate landlords will need to file income tax returns (SA700). From 6 April 2020 such companies will instead need to file corporation tax returns. This involves different tax rules, transitional arrangements and an administrative burden.

New regime, new rules

For smaller companies the move to corporation tax is likely to be an advantageous one. Most notably there will be a drop in tax rates from 20% income tax to 19% corporation tax. Payment of tax will be simpler, with one payment due 9 months after the year end. However, large companies may fall into the more complex quarterly instalment regime.

Companies with significant finance costs (in excess of £2m per year for the group) will be hit by the corporate interest restriction rules. Broadly, these limit tax relief for finance costs to a percentage of taxable profits, potentially as low as 30%.

Financing costs will no longer be deductible as property business expenses; instead non-resident corporate landlords will enter into the loan relationship and derivative contract regimes.

Moreover, brought forward losses will only be able to be set off in full against the first £5m of profits in a given year; profits in excess of this can only be relieved by up to 50% using brought forward losses. There is no such restriction for income tax losses.

The transition

Existing income tax losses preserved in the switch to corporation tax. Although they can be set against profits under the corporation tax regime, they are still income tax losses and therefore their future use against profits will not be restricted as above. However, they cannot be set off against future capital gains.

If the company has profits in its final income tax return, HMRC have confirmed to us that no payments on account will need to be made and should be reduced to nil in the 2019/20 return.

Capital allowances are straight forward – the rules deem them to continue as normal.

Compliance

Non-resident corporate landlords will need to file a SA700 income tax return for the year ended 5 April 2020 by 31 January 2021, after which they will be in the corporation tax regime. HMRC are currently writing to all non-resident landlord companies to inform them about this change, issuing a unique tax reference (UTR) for corporation tax.

Where a company’s year end isn’t 5 April, the period will be split in two. For example, where the year end is 31 December, the period 1 January 2020 to 5 April 2020 will be in the old income tax regime and the period 6 April 2020 to 31 December 2020 will be in the new corporation tax regime. For the year ended 31 December 2020, they will need to:

• File an SA700 return by 31 January 2021 (and pay their final income tax payment) for the period 1 January 2020 to 5 April 2020; and
• File a corporation tax return by 31 December 2021 (and pay corporation tax by 1 October 2021 if not large) for the period 6 April 2020 to 31 December 2020.

Once in the corporation tax regime, all non-resident landlord companies will need to produce iXBRL-tagged accounts, for submission with the corporation tax return.

Non-resident landlord scheme

Currently, non-resident corporate landlords must apply to receive rents gross, otherwise tax at 20% must be withheld on rent payments. This will continue to be the case, although as the non-resident landlord scheme isn’t strictly compatible with the corporation tax regime, there are question marks about how it will apply in practice.

What differences remain between UK companies and offshore companies?

Inheritance tax

For non-UK domiciled individuals, who are not yet deemed domiciled, holding UK commercial property via an offshore company will keep it out of the UK inheritance tax net. However, such a structure is already ineffective for UK residential property, so it would not be surprising if UK commercial property followed suit in due course.

Stamp duties

The other difference is with stamp duties. SDLT can currently be avoided by selling the company holding UK land, rather than selling the land itself. Instead, shares in UK companies attract stamp duty. By contrast, shares offshore companies can in principle be sold without any stamp duty.

However, in February 2019 HMRC consulted on a 1% SDLT surcharge for non-UK purchasers of UK residential property, which was proposed to include offshore companies and certain UK companies with non-resident shareholders. This was quietly dropped, but was included in the Conservative manifesto in November 2019 at a rate of 3% so may be announced in the upcoming Budget.

The scales have long been tipped in favour of offshore companies; they may tip the other way in the not-too-distant future.

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Since 2015, non-UK residents have had to report and pay capital gains tax (CGT) on UK residential property within 30 days of completion (extended to UK commercial property from April 2019). This caught many people out, with late filing penalties reaching £1,600 for those who have not kept themselves up-to-date with tax rules.

Despite these issues, HMRC are now extending the reporting to UK residents disposing of UK residential property from 6 April 2020 as they seek to accelerate receipt of tax payments.

Who needs to file a return?

The new rules require a standalone CGT return to be made to HMRC in the following circumstances:

• A UK residential property is disposed of by an individual, trustee or personal representative; and
• A gain arises on the disposal; and
• The date of exchange is on or after 6 April 2020.

Partnerships disposing of UK residential property will also be affected, as their partners are taxed on their share of gains as individuals. Therefore these partners will need to complete the CGT return.

When does a return not need to be filed?

For UK residents, a return only needs to be filed for disposals of UK residential property on which a gain arises. Commercial property is not included, and neither is non-UK residential property (although disposals of these will still need to be reported on Self Assessment tax returns). Where there is no gain then a standalone CGT return does not need to be filed, for example:

• The gain is fully covered by principal private residence relief;
• There is a loss on the disposal of UK residential property;
• The gain is covered by the annual exemption; or
• The gain is covered by capital losses prior to the UK residential property disposal;
• No CGT will be due because of EIS deferral relief (or similar), so long as conditions are met at the time of disposal (i.e. the EIS investment has already been made).

The rules for reporting disposals on Self Assessment tax returns remain the same, whether or not a standalone CGT return is filed. In particular, where a claim or election is made, this must be done via the Self Assessment tax return.

Be wary when disposing of main residences on which principal private residence relief is claimed, as this relief can be limited in certain circumstances. If the relief does not fully cover the gain then a CGT return will still need to be filed if there is CGT to pay.

When do the new rules apply from?

The rules apply for disposals on or after 6 April 2020. The disposal takes place when an unconditional contract is signed (or where a conditional contract becomes unconditional), which is generally the date of exchange. If the date of exchange occurs before 6 April 2020, then a CGT return is not required even if completion is on or after 6 April. There is a large incentive to exchange contracts before this date, as the following example illustrates:

Example 1: timing of payment
John is selling a buy-to-let property, on which there is a gain of £200,000.

If he exchanges on 4 April 2020 and completes on 20 April, the gain occurs in the 2019/20 tax year and tax will be due on 31 January 2021.

If he exchanges on 10 April 2020 and completes on 20 April, the gain occurs in the 2020/21 tax year and the tax will be due on 19 May 2020, bringing forward the payment date by over 7 months.

However, it could still be advantageous for John to exchange on 10 April, if he will crystallise capital losses in the 2020/21 tax year (see example 3).

When does the return need to be filed by?

The CGT return must be made within 30 days of completion (rather than exchange, which remains the tax point in the majority of circumstances), with payment due by the same deadline. Both late filing and late payment will result in penalties, which are the same as for Self Assessment tax returns. A CGT return must be made even if the individual already submits tax returns.

Where there is a gap of many months between exchange and completion, and a Self Assessment tax return reporting the gain is filed within 30 days of completion, then a CGT return is not required. For example:

Example 2: delayed completion
Jane is selling her holiday home in Cornwall, realising a gain of £60,000. She exchanges on 23 December 2020, but completion is delayed until 3 June 2021.

Jane files her Self Assessment tax return on 20 May 2021, prior to completion. She reports the gain on the holiday home on this, so a standalone CGT return is not required. The CGT is payable on 31 January 2022, rather than 3 July 2021.

How do I file a return?

In order to make the return, an individual will need to sign up to HMRC online services and apply for a CGT account (to be made available on 6 April 2020). Those completing their own tax returns will already have an HMRC online account, but those who do not will need to factor in the time it takes to do this. Tax agents can submit returns on behalf of their clients, but HMRC have confirmed that taxpayers will still need to set up a CGT account and then provide a reference number to their agents to enable them to file on their behalf through the agent portal.

How much tax is payable?

The tax rate on gains on residential properties is 18% for basic rate taxpayers (until the basic rate is used up) and 28% for higher and additional rate taxpayers (and trustees and personal representatives). Up until now, capital gains have been reported alongside income, creating certainty of which CGT rates should be used. Presumably HMRC will request an estimate of income on the standalone CGT return, but this is yet to be confirmed.

In addition, other gains and losses in the year (e.g. on an investment portfolio) are pooled with residential property gains when calculating the overall CGT due for a given year. Where losses are incurred before a residential property gain, these can be taken into account on the CGT return. However, where losses are incurred after a residential property gain, these cannot be taken into account (unless they are UK residential losses). Instead, such losses must be claimed on the Self Assessment tax return for the year, which will lead to a repayment of tax. This is best illustrated with an example:

Example 3: timing of losses
We return to our example of John, who is selling a buy-to-let property standing at a gain of £200,000. He has capital losses in the 2020/21 tax year, so decided to exchange on 10 April 2020 and complete on 20 April 2020.

His losses are:

1. 7 April 2020: capital loss on sale of shares of £20,000.
2. 10 May 2020: capital loss on sale of commercial unit of £50,000.
3. 23 October 2020: capital loss on sale of residential property of £30,000.

John is a higher rate taxpayer, and has an annual exempt amount of £12,500 in the 2020/21 tax year. His tax is as follows:

1. The losses on the shares were incurred before the residential property gain, so can be taken into account on the CGT return required by 19 May 2020. This gives tax due on 19 May 2020 of £46,900 (being £200,000 gain less losses of £20,000 and exempt amount of £12,500 at 28%).

2. The capital loss on the sale of the commercial unit cannot be taken into account until the Self Assessment tax return is filed.

3. A CGT return is not required for the capital loss on the residential property exchanged on 23 October 2020, but one can be filed to claim tax back of £8,400 (being £30,000 at 28%).

When John files his Self Assessment tax return, his overall CGT is £24,500. He has paid £46,900 and been refunded £8,400, giving a repayment of £14,000 (the £50,000 loss on the commercial property at 28%). The earliest he can get this refund is 6 April 2021.

What if I don’t have the necessary information?

It pays to plan ahead, rather than wait until completion. Keep information on acquisition costs and enhancement expenditure on file, so that the tight timescales can be met. However, where information is not available, the rules allow for estimates to be made. These can then be updated with actual figures either by amending the CGT return or through the Self Assessment tax return.

What about non-UK residents?

There are similarities and differences with the position for non-UK residents as compared to UK residents:

Similarities:

• Non-UK residents will be required to use the new system (including setting up an HMRC online account).
• Non-UK residents must pay CGT within 30 days (i.e. they will lose the option to defer payment).

Differences:

• Non-UK residents must report all disposals, whether or not a taxable gain arises.
• Non-UK residents must report disposals of UK commercial property as well as residential.
• Non-UK residents must report indirect disposals of UK land and property via a “property rich entity”.

Planning points

The new rules are likely to catch many people unawares and may lead to cashflow issues for some. These may be alleviated by:

• Exchange before 6 April 2020 to delay the payment of CGT, unless it is otherwise disadvantageous.
• Crystallise losses before making UK residential property gains, where possible.
• Where claiming EIS or SEIS relief, make the investments before completion.
• If completion is delayed beyond the end of the tax year, file a Self Assessment return within 30 days of completion to delay payment of CGT.

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The UK may have officially left the EU on 31 January, but there are several EU directives which the UK is implementing into its domestic legislation. One is the 5th Anti-Money Laundering directive (5 AMLD), which builds on the transparency drive aimed at trusts introduced in the 4th Anti-Money Laundering directive (4 AMLD) .

A little history

In June 2017, 4AMLD heralded the introduction by HMRC of their trust registration service (TRS), which I wrote about at the time. Trustees were required to upload information to the register, including the names and other details of settlors, beneficiaries and trustees, but only where the trust had a tax liability or requirement to submit a tax return.

Widening the net

5AMLD broadens the scope of the TRS considerably by removing the link to UK tax. With limited exceptions, it is proposed that all UK express trusts will need to register with HMRC. Offshore trusts holding UK property or entering into a business relationship with an “obliged entity” in the UK will also be required to register.

Greater access

Currently only law enforcement (and HMRC!) have access to data held on the TRS. This will be extended to any third party where they have a “legitimate suspicion” of money laundering or terrorist financing. HMRC assert that “each request will be rigorously reviewed on its own merits”, but it remains to be seen how this will operate in practice.

Deadlines

New trusts will need to be registered within 30 days of being settled, and changes to trusts must also be updated on the TRS within 30 days. However, there is a two year transition period from the implementation date of 10 March 2020.

What’s next?

HMRC’s consultation on the new TRS closed on 21 February 2020, so more details are expected once the results of this have been published. For now, it is recommended that trustees prepare by ensuring that the data they hold on their trusts is up-to-date. We will report back with more information when it is made available.

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Bank accounts

If you had opened a euro denominated bank account in 5 April 2012, when the Brexit referendum was a twinkle in David Cameron’s eye, €10,000 would have cost you just over £8,000. Fast forward to the summer of 2019, and that €10,000 would have been worth over £1,000 more.

So what happens if you withdraw those valuable euros now? Back on 5 April 2012 the law said that you had to pay capital gains tax on the foreign exchange gains in bank accounts. Thankfully, the following day new rules came in which exempted gains (and losses) on bank accounts holding foreign currency.

Foreign cash

What if, instead of opening a euro denominated bank account, you’d simply bought €10,000 in cash? Then it depends on why you purchased it. If you foresaw the political chaos to come in the UK and bought euros speculatively, then your gain should be taxable when you convert the euros back into sterling. If, however, you bought them for personal expenditure outside the UK – say, on holiday – then any gain should not be taxable.

Other assets purchased in a foreign currency

Exchange gains and losses when buying assets in foreign currencies are generally subject to capital gains tax. For example, if you bought €10,000 of shares and then sold them sometime later for there are two potential gains which need to be considered:

• Any gain/loss on the shares themselves; and
• The foreign exchange gain/loss.

This is dealt with by simply converting the acquisition and disposal costs into sterling at the prevailing exchange rate at each time. If you bought the €10,000 of shares for £8,000 and sold them for £19,000 when they were worth €20,000, then your capital gain should be £11,000, i.e. £19,000 less £8,000.

Cryptocurrencies

Despite the name, cryptocurrencies are not considered to be foreign currencies by HMRC. Although it’s tempting to draw parallels between an e-wallet and a bank account containing foreign currency, cryptocurrencies are not exempt from capital gains tax. Broadly, investing in a cryptocurrency is should be subject to capital gains tax, although trading may be subject to income tax.

There are now a bewildering array of cryptocurrencies and crypto-assets. The starting point is to ascertain what the nature of the crypto-asset is, and then work out the tax treatment from there.

If you have been trading or investing in crypto-assets and would like tax advice specific to your circumstances, please get in touch.

*This article does not consider forex trading.

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What’s a PAYE settlement agreement?

PAYE settlement agreements (PSAs) are optional arrangements that allow employers to pay the tax and National Insurance contributions (NICs) for benefits-in-kind on behalf of their employees. They’re also useful when declaring benefits on P11D forms would be administratively burdensome.

PSAs have therefore proved popular with employers, even if they can be expensive; if you’re paying the tax and NICs on behalf of your employees, this is itself subject to tax and NIC.

However, this popularity is proving to be a headache for HMRC. Although it up to the employer (or their agent) to calculate that tax and NIC payable each year, PSAs are not strictly a self-assessment system. Each calculation needs to be approved by HMRC before the payment deadline of 19 October (22nd if paying electronically).

Processing delays

Over the past few years, HMRC have been getting further and further behind in approving PSA calculations sent to them by employers. For 2018/19 the situation has reached a new low. Less than two weeks before the payment deadline we have been informed by HMRC that they have not even started to process PSA calculations.

This means that employers won’t have a letter from HMRC confirming the amount to pay, where to pay it and, crucially, the payment reference to use. This reference is specific to each employer and tax year.

What to do

HMRC have told us that employers should not wait to receive confirmation of their PSA calculations. Instead, you should pay over the tax and NIC liability that you have calculated using the usual payment methods, detailed on HMRC’s website by the payment deadline above.

You must still use a payment reference, even though HMRC won’t have sent you a confirmation letter. Fortunately, a payment reference can be found in the letter from HMRC enclosing your countersigned P626 – the letter that put the agreement in place. Although it is not tax-year specific, it is unique to each employer and therefore HMRC have confirmed to us that it can be used in this situation. This is in the format XX0000123456789.

What next?

If you are in any doubt, we suggest that you contact the HMRC employer helpline on 0300 200 3200 to confirm your PSA payment reference as soon as possible, making sure that you have your PAYE reference number to hand.

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If there is one idea that everyone across the political spectrum agrees upon, it is that having a more skilled workforce is a good thing. However, at present our tax system is very inconsistent in incentivising work-related training.

The existing rules

Consider these three scenarios:

1) The good employer

Gemma works at a reputable accountancy firm, who value their employees and wish to train them up for the benefit of both the employees and the firm. Gemma wishes to move into a specialist area and therefore wants to study for a new qualification. Her employer is happy to pay her course fees and reimburse her travel costs. They receive tax relief on these expenses, and Gemma is not taxed on the cost.

2) The bad employer

Daniel works for a miserly accountancy firm. Like Gemma, he wishes to gain a new qualification but he must pay for it out of his own pocket. However, as he is not on a training contract he cannot claim tax relief for his costs.

3) The self-employed

Jordan is a self-employed accountant, and so pays for all his own training. He can get tax relief for his costs of continuous professional development. However, if he wants to join Gemma and Daniel in studying for a new qualification then tax relief for these costs is denied.

A new approach

As part of the Government’s 2018 Spring Statement, they have released a consultation on how to redress this imbalance. They are considering harmonising the tax treatment of work-related training, so that in all the above scenarios tax relief would be available. Although as a firm we of course fall into the first scenario, we would welcome this change as being both fair and good for the UK economy.

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For the vast majority of people the best tax planning is not complicated. A few simple steps carried out by the end of the tax year on 5 April can yield great results. We look at 5 of the most effective things you can do to reduce your tax bill.

1.  ISAs

ISAs have been around for nearly 20 years and remain one of the simplest and best ways to shield your investments from tax. The annual contributions limits have jumped up in the past few years, and there are now many types of ISA to choose from:

• Cash ISA
• Stocks and shares ISA
• Innovative Finance ISA
• Help to Buy ISA
• Lifetime ISA
• Junior ISA

Cash ISAs are simply savings accounts in which you do not pay tax on interest. Stocks and shares ISAs can contain shares, unit trusts, corporate bonds and gilts. Innovative Finance ISAs can contain new peer-to-peer loans and crowdfunding investments (debt only, no equity).

Help to Buy ISAs are aimed at first-time home buyers, and offer a 25% bonus up to £3,000 from the Government to be put towards buying a property worth up to £250,000 (£450,000 in London). They are being phased out in favour of Lifetime ISAs (LISAs), which are geared both towards first-time buyers and those looking to save for their retirement. You can put up to £4,000 into a LISA each year, and again you will receive a 25% bonus.

Thanks to the change from Help to Buy to Lifetime ISAs, there is a one-off opportunity in the current tax year. If you have a Help to Buy ISA and transfer the funds into a LISA before 6 April 2018 this will not count towards the LISA limit, allowing you to get a bonus twice.

You can contribute a total of £20,000 into a combination of these ISAs before 6 April 2018. There are various quirks and restrictions, especially around Help to Buy and Lifetime ISAs, so it is recommended that you seek professional advice.

2.  Pensions

In contrast to ISAs, the level of pension contributions which attract tax relief has been falling, particularly for high earners. However, they are still a useful tax planning tool, and with the increased options on how to take out funds they have become a more flexible investment vehicle.

Both ISAs and pensions provide a tax-free wrapper for investments, but pensions provide upfront tax relief. However, they are taxable when funds are withdrawn, unlike an ISA. This makes them useful for year-end tax planning, so long as you know what your income will be for the year. For example, extra pension contributions can be used to bring your effective taxable income down to £100,000 to preserve your personal allowance. The restriction of the personal allowance results in an effective marginal tax rate of 60%, so this can save a significant amount of tax.

However, there are restrictions on both how much you can contribute to a pension annually and over your lifetime. The annual allowance is £40,000 gross in 2017/18, including contributions made by employers. This tapers down to £10,000 for higher earners, typically those with income over £150,000. Fortunately you can utilise unused allowances from the three previous years. This is particularly valuable for those caught by the tapered annual allowance, as this was not introduced until the 2016/17 tax year. This means that the unused portion of the full annual allowance of £40,000 from 2014/15 and 2015/16 can be brought forward to 2017/18, even for higher earners.

Finally, those with no income can benefit from a 20% uplift on pension contributions. You can make a contribution of up to £2,880 and the Government will top this up to £3,600. For example, if you have a spouse/civil partner who has no earnings, or a child/grandchild at university, this is a useful free top-up.

3.  Inheritance tax gifts

The “7 year rule” for inheritance tax is widely known – if you gift money or assets then you need to survive 7 years for it to be free of inheritance tax. However, up to £3,000 can be given away each year which is immediately free of inheritance tax. If you have not gifted anything in the previous tax year then this can be brought forward, allowing £6,000 of gifts before 6 April 2018. This is per person, so a couple can give away up to £12,000 in a year. If one spouse/civil partner does not have sufficient funds to make their gift, the other can gift it to them first as a transfer between spouses is generally exempt from inheritance tax.

4.  Capital Gains Tax planning

Each person can make capital gains of £11,300 in 2017/18 before paying capital gains tax. If your investments have done well then it can be advantageous to sell some of these to crystallise a gain of up to £11,300 without paying tax.

There are rules which prevent you from selling shares on 5 April and buying them back the next day (so-called “bed and breakfasting”). However, although selling shares and buying back the same shares ones back is caught, buying shares of a similar company in the same industry is not. It is also possible for your spouse/civil partner to buy shares in the same company (but not your shares), although care must be taken where you gift them money to do so.

You should ensure that you and your spouse/civil partner both hold assets so that you do not waste the annual CGT allowance.

5.  VCT, EIS and Seed EIS investments

The Government encourages investment in riskier companies by giving tax advantages through the VCT, EIS and Seed EIS schemes. Such investments get income tax relief at 30% for VCT and EIS, and 50% for start-ups under Seed EIS. For example, if you subscribe for £10,000 of shares in an EIS-qualifying company before 6 April 2018 you should get £3,000 off your income tax liability in January 2019. Even better, you may be able to carry the relief back to the previous tax year and get a £3,000 refund from HMRC now.

If you have made a capital gain within the past 3 years, EIS and Seed EIS schemes can be used to provide relief from capital gains tax. For EIS schemes this is a deferral relief, delaying the payment of tax. Seed EIS schemes are more generous, exempting gain up to the value of 50% of the investment made.

The bigger picture

With all of these tips one must look beyond the tax advantages and ask if it is the right decision for you. VCT, EIS and Seed EIS investments can be risky. Equally, there’s no point in making a pension contribution or gifting money if you need the funds now.

If any of the above are right for you, we recommend that you seek professional advice to ensure that traps are avoided.

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There is a common misconception that the first £30,000 of termination payments are tax free. From April 2018 the rules are changing, and yet again a misconception may come to dominate – that the £30,000 exemption has been abolished. As this article will reveal neither is true, but from 6 April 2018 its availability will be severely restricted. This is to the detriment of both employees being made redundant and employers who need to let staff go.

Parting company

If an employee works in a sensitive area of a business, or there are concerns that they may try and take clients with them, an employer may not want them to work out their notice period. This can be achieved by continuing the employment and paying them their salary (gardening leave), or by paying them in lieu of their notice period (PILON).

As it is the continuing payment of salary, unsurprisingly gardening leave is taxed. However, the situation with PILONs is much less clear. There is a common misconception that the first £30,000 of termination payments are always tax free, but technically this doesn’t include PILONs.

The current rules

Like gardening leave, PILONs are fully taxable. But there is a loophole: if an employment contract doesn’t specifically state that a payment could be made instead of giving a notice period, then it can be argued that the payment is for breach of contract. The first £30,000 is then free of tax. This is valuable to employers, who also save NIC at 13.8% on the full amount.

Naturally the response of many employers has been to strip PILONs from contracts. However, this has led to a farcical situation where one employee faces a hefty tax bill because of a few words in their contract, whilst another employee enjoys £30,000 of tax free cash.

This loophole was partly closed by deeming that if a PILON is expected then it should be read into the contract of employment. Therefore it can’t be a breach of contract and the £30,000 exemption doesn’t apply. However, when a series of terminations is made the first employee out of the door might pay no tax on their first £30,000, but the third or fourth employee might find their PILON being taxed because an expectation that they will receive one has been created.

PILONs are out, “post-employment notice pay” is in

The Government has responded to this with new rules which sidestep the argument about whether a payment is for breach of contract or a PILON. This may lead to a misconception that the £30,000 exemption is being abolished. This is not true, but it will no longer apply as widely, meaning many employees will pay more tax and their employers will pay more NIC.

From 6 April 2018, when a payment is made but notice is not served, the employer must calculate the pay the employee would have received in their notice period had they carried on in employment. This “post-employment notice pay” is excluded from the £30,000 exemption.

How it works

In a nutshell, the “basic pay” in the employee’s final pay period is extrapolated over their notice period to give a notional “post-employment notice pay”. This amount cannot qualify for the £30,000 exemption. If the termination payment exceeds the post-employment notice pay, the excess may qualify for the exemption. Whilst this sounds simple in theory, in practice it is a potentially complex calculation.

“Basic pay” – potential trap or planning opportunity?

Confusingly, “basic pay” goes far beyond what would normally be considered basic pay, and includes benefits, bonuses, overtime and commission. Worse still, it also includes payments made in connection with the termination, and amounts treated as employment income in relation to shares and options. This creates a potential trap, but also a planning opportunity. By moving bonuses into the penultimate pay period and delaying payments related to the termination until after notice is given, the basic pay could be reduced thereby increasing the proportion of the termination payment which is tax free.

Into the fire

The uncertainty surrounding the treatment of PILONs has gone, only to be replaced with confusing new concepts and convoluted calculations. From 6 April 2018 the costs to both employees and employers will rise in the majority of cases, with traps for the unwary and poorly advised. If unfortunately it becomes necessary to part company with an employee, doing it sooner rather than later could be to the benefit of both parties.

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Driven by ever-increasing tax transparency, HMRC began a campaign to crack down on undeclared offshore assets back in September 2016, covered in an article by my colleague Michael Goldstein. He highlighted that HMRC is now receiving information about UK taxpayers from tax authorities all over the world, which started with the UK-linked islands such as Jersey, Isle of Man, Bermuda, British Virgin Islands and the Cayman Islands. Since September 2017 this list has ballooned to over 100 countries. And these aren’t the only ways HMRC have of finding out about offshore assets: the Paradise Papers leak is a topical example.

Going in for the kill

Perhaps unsurprisingly, we have seen a growing number of enquiries from people whom HMRC have written to, stating that they “may have” offshore assets and asking them to disclose details under their Worldwide Disclosure Facility. HMRC aren’t offering much in the way of carrots – the WDF carries normal penalties and no immunity from criminal prosecution – but plenty of sticks. There is a legal “Requirement to Correct” by September 2018, and anyone who does not do so will face penalties for “Failure to Correct” of between 100% and 200% of the tax at stake. In the worst cases there are additional penalties of 10% of the value of the offshore asset and naming and shaming on HMRC’s website.

Severe penalties: example

Tom has an investment portfolio based in Jersey worth £200,000, which yields £10,000 income each year. As a top rate taxpayer, Tom should have been paying tax on this at 45% but failed to declare it on his tax returns.

If HMRC deem his behaviour careless, they can go back 6 years, being £27,000 of tax. If Tom fails to declare this by September 2018 this he will face Failure to Correct penalties of up to 200%, or £54,000. However, if he volunteers this information to HMRC his penalty could be 0%. If HMRC prompt him with a letter as we’ve been seeing, the penalty will be between 15% and 30%, i.e. up to £9,100.

If HMRC believe Tom has acted deliberately, they can go back 20 years. Penalties could top £160,000, plus 10% of the value of the portfolio, giving total penalties over £180,000. By the time tax and interest are included, the total Tom has to pay may be north of £300,000. Tom’s name and address are published on HMRC’s website.

What to do

If you have received a letter from HMRC it is important to act. It may not necessarily be obvious what information HMRC have: we had a client recently whose grandmother passed away many years ago and left him an offshore account, which he did not realise he now owned.

It is also possible that structures put in place years ago are no longer effective for tax purposes – non-doms and UK residential property held in offshore companies spring to mind – and will now need reporting.

Even if you haven’t received a letter from HMRC, it is beneficial to get ahead of the game as this will reduce the penalties involved. Not only is the deadline of September 2018 closer than you might think, but international tax transparency will only increase.

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