We help organisations and their owners and directors.
The organisations are UK based as well as international groups looking to invest into the UK. They tend to be established and growing entities.
We love working with clients across a broad range of sectors but have particular expertise in the areas listed. We also work with private individuals and families with their own personal tax matters, whether their wealth is UK-based or international.
Goodman Jones are not just Chartered Accountants and Auditors – but advisers who are passionate about providing an outstanding tailored service to each of our clients.
Our range of services are our response to listening to what our clients value.
We are not just Chartered Accountants and Auditors – but business advisers who are passionate about providing an outstanding tailored service to each of our clients.
Fiona has extensive experience in advising HNWI and UHNWIs on UK tax matters. She works regularly with advisers in other jurisdictions to assist clients with overseas tax issues.
She is a specialist adviser to the globally wealthy, whether from a UK or overseas background, on a range of complex issues. You can read her full bio here.
Draft legislation was provided at the Budget: Domicile will indeed be abolished and will be replaced with a residence-based system with effect from 5 April 2025.
Since Jeremy Hunt initially stole the Labour Party’s thunder last January by announcing a proposed abolition of the domicile regime, and Labour put forward amended proposals after the election, UK resident foreigners have been waiting to see the final detail.
Draft legislation was provided at the Budget. Domicile will indeed be abolished and will be replaced with a residence-based system with effect from 5 April 2025.
Under the current draft legislation, some UK residents stand to benefit from very favourable provisions. Brand new arrivals can benefit from a regime that allows 100% tax relief on their offshore income and gains for their first four years of UK residence. There are also provisions that would allow non-doms who have previously claimed the ‘Remittance Basis’ to shelter their overseas income or gains from UK tax, to bring that sheltered income to the UK at low tax rates for a limited period. Some non-doms will have the option to re-base the acquisition cost of their personal assets to their April 2017 value. This could be beneficial for long-held assets whose value was higher in 2017 than at the time of acquisition.
However, on the downside, those non-doms who have been resident in the UK for the longer term will face the prospect of their overseas assets being caught by the Inheritance Tax (IHT) net after 10 years of residence rather than 15 years as at present. The proposals also bring offshore trusts settled with offshore assets into the IHT net if the settlor has been resident for more than 10 years – a major departure from any previous rules, and not a welcome one amongst those affected.
It is important to remember that these summaries are based on the draft legislation as it currently stands in November 2024. It still needs to go through Parliament and there may be changes before it finally comes into effect in April. We will keep you updated on new developments as soon as we have news.
0
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.
Comment on this...
Share
Goodman Jones will be keeping a close eye on developments throughout the campaign.
After months of speculation, now we know. The Prime Minister has called a snap General Election for Thursday 4th July. We at Goodman Jones will be keeping a close eye on developments throughout the campaign. Whilst we are still waiting for news of manifesto pledges and detail on policy, we do have some information to share at this stage:
Timeframes
24 May – completion of ‘wash-up’ period to deal with extant legislation and prorogation of Parliament. Bills, including the Finance (No2) Bill 2024 will either be fast tracked through Parliament on the basis of agreement between all Parties, or will be dropped. The Finance Bill had its third reading on 23 May and is likely to be passed as it stands. Details included are income tax and Corporation Tax rates for the current tax year 2024/25, SDLT and CGT measures on property, and creative reliefs
30 May – dissolution of Parliament followed by election campaign of 25 working days before Election Day
4 July – General Election
9 July – New Parliament will meet for first time
17 July – Expected date for State Opening of Parliament
What do we know about policies?
Conservatives
At the Spring Budget, the Conservatives announced a 2% cut to employee National Insurance rates. Changes to the taxation of non-domiciled individuals were also announced, as set out in our article .
Labour
In an interview on 24 May, Keir Starmer confirmed that he would go ahead with the proposed introduction of VAT on private school fees as an immediate priority if Labour win the election. Other policies that have been mooted include the reintroduction of the Pension Lifetime Allowance, changes to the taxation of carried interest for the Private Equity sector, possible windfall taxes for energy companies and increases to SDLT rates for overseas property owners. A recent publication also proposes changes to the taxation of non-domiciled individuals which go further than those proposed by the Conservatives and may even extend to the inclusion of offshore trusts within the UK IHT net.
After the General Election
Following recent General Elections, the new Government has introduced legislation via an Emergency Budget. This may take place following the State Opening but may more likely take place when Parliament returns in the Autumn following the summer recess. Labour has already said that it would want to hold a single Budget each year in the autumn and so a September Budget would sit in line with this. The Autumn is also set to bring a Spending Review for the three years from April 2025 which should take place by November, whichever party wins the Election.
Check back to our website for new policy details, and in the meantime please feel free to get in touch with your usual Goodman Jones contact if you would like to discuss how announcements may impact you.
0
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.
Comment on this...
Share
Please get in touch with any points you would like us to make and we will do our best to put them forward in the meeting with HMRC.
As readers may have seen in our recent article ‘Non-dom tax abolished: what’s next’, the Conservative party announced far reaching changes to the taxation of UK residents who have come to live here from overseas, in this year’s Budget back in March.
The proposed removal of the 200-year old non-dom regime and implementation of a new, residence-based set of measures, has been met with no shortage of comment not only from within the accountancy and legal world but also from the currently resident UK non-doms who will be impacted by the measures.
The Government is in listening mode, however. HMRC is seeking input from the professions at a series of ‘engagement events’ where HMRC is taking face-to-face feedback about the new proposals. Representatives from Goodman Jones will be attending engagement events in mid to late May which will give us the opportunity to raise questions about the proposed measures relating to Foreign Income and Gains, Overseas Workday Relief, Inheritance Tax.
We are keen to hear from our clients and contacts with any questions that you would like us to raise on your behalf. Please send us an email to nondoms@goodmanjones.com with any points you would like us to make and we will do our best to put them forward in the meeting. If we can’t raise your questions with HMRC during the events, we will apparently have the opportunity to submit them by email so all isn’t lost if we aren’t able to put your concerns to HMRC on the day. Please do take this opportunity to have your voice heard! We look forward to hearing from you.
0
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.
Comment on this...
Share
The Chancellor has announced that the non-dom tax regime will be abolished with effect from April 2025 but it would be sensible for non doms to contact their advisers now to review their position and consider possible action to be taken.
In a move that has swept away a system that has existed in some form since the late 1700s, the Chancellor announced yesterday that the non-dom tax regime will be abolished with effect from April 2025. A residence based regime will take its place.
The proposed regime is intended to put the UK on a competitive footing with other jurisdictions that offer tax advantaged regimes for new residents from overseas. There is full relief from UK tax for foreign income and gains (FIGs) that new arrivals receive in their first 4 years of residence. This contrasts with the ‘lump sum’ regime in Italy, for example, where new residents pay a fixed sum of EUR100,000 per annum on all overseas income. However, the proposed 4 year tax advantaged period is not as long as some had been hoping for.
When previous changes to the non-dom tax regime were introduced in 2008, 2015 and 2017, there were extensive consultations with the professions before the measures were finalised. In this instance, it is notable that there is only a limited consultation to be held in relation to proposed IHT changes.
It is important to keep in mind that a General Election will have to take place before these measures are due to come into effect. We don’t, as yet, have any detail of the regime Labour is proposing for non-doms if elected. We are also awaiting draft legislation concerning the new proposals announced on Budget Day.
It would be sensible for non-doms to contact their advisers now to review their position and consider possible action to be taken. However, it would seem prudent to wait at least until we have sight of draft legislation, a date for the election and details of Labour’s proposals, before doing anything especially regarding setting up or dismantling offshore structures.
In the meantime, the main elements of the proposed regime are:
Individuals coming to the UK from overseas will not pay tax on their foreign income and gains (FIGs) for their first four years of UK residence, as long as they have not been resident in the 10 consecutive years prior to their arrival. This is subject to a claim and the decision of whether or not to claim can be made on a yearly basis for those first four years.
From the start of the fifth year of UK residence, they will pay tax in the UK on their worldwide income and gains in the same way as a UK domiciled resident would currently.
Transitional provisions will apply as follows:
Transitional provisions will apply to non-doms moving from the remittance basis to the arising basis on 6 April 2025 so that, for 2025/26, those individuals will pay UK tax on only 50% of their foreign income – this provision does not apply to foreign gains.
Non-doms who have previously used the remittance basis prior to 6 April 2025, and are not UK domiciled or deemed domiciled at that point, can rebase personally held assets to their value as at 5 April 2019. The reasons for choosing that as the rebasing date are not known.
There will be a Temporary Repatriation Facility (TRF) for 2025/26 and 2026/27 under which previous remittance basis users will be able to elect to remit income from those remittance basis years at a special reduced rate of 12% rather than the usual income or gains rates. This only applies to personal income or gains and not to income or gains matched with offshore trust benefits received in remittance basis years.
Offshore trust protections, which effectively allow income and capital gains to roll up within the trust without being subject to UK tax until distribution to UK resident beneficiaries, will no longer apply. Trust income and gains arising, and income and capital gains matched to offshore trust distributions, will be exempt from UK tax for the first four years of residence. From the fifth year, FIGs arising in settlor interested offshore trusts will be taxed on UK resident settlors as they arise. Pre-April 2025 income and gains will only be subject to UK tax when matched to a distribution to a UK resident beneficiary.
IHT will also move to a residence based regime where new residents will become subject to IHT on their worldwide assets once they have been resident in the UK for 10 years, a 10 year ‘tail’ would apply. A consultation is to be held on the IHT reforms, in contrast to the other measures announced above.
It has been confirmed that non-UK assets settled into a trust by non-UK domiciled settlors prior to 6 April 2025 will remain outside the scope of IHT, so there is an opportunity for non-doms to settle offshore trusts prior to April 2025 to benefit from longer term IHT protection even if the current beneficial income and capital gains regime is lost.
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.
Comment on this...
Share
It would be sensible for non-doms who have presently been in the UK for less than 15 years to review their current arrangements without delay, in particular their offshore wealth structuring, so that they are ready to take action when appropriate for them to do so.
With the next General Election looming, discussion in the Private Client world has inevitably turned to what the Conservative and Labour Parties might do to reform the UK’s current tax system in the event of a win. Current polling figures, and many commentators, predict a resounding Labour victory. So what do we know, at present, about what they plan to do? Neither party has published a manifesto as yet and so we do not have formal policies, or details setting out how they would achieve their intentions. However, a particularly hot topic for political parties at the moment is the taxation of non-domiciled individuals who are resident in the UK (‘res non-doms’).
What is domicile?
Domicile is a general law concept that refers to the country or legal system where an individual would consider they have their roots, or that they consider to be their permanent home. The concept of domicile has existed in UK law since the time of George III over 200 years ago.
Domicile is not the same as residence, nationality or citizenship, and an individual can only have one domicile at a time. Individuals can be resident in the UK for long periods under current rules, but retain an overseas domicile, on the basis that they do not intend to remain permanently or indefinitely in the UK and will ultimately return to their ‘home’ jurisdiction. Domicile is acquired at birth and is very adhesive. An individual can acquire a new domicile during their lifetime, but the birth domicile (‘domicile of origin’) is difficult to displace. The individual would have to show that they have permanently severed links with the country of their domicile of origin, and establish a permanent and irrevocable intention to remain in their new home country.
Non-doms who come to the UK would need to retain strong links to their country of origin, and to be clear that they do not intend to remain in the UK indefinitely. Although domicile of origin is very adhesive as outlined above, longer term residents run the risk of being treated as having acquired an UK domicile of choice in the absence of strong links to their home country and plans to return there.
What is the current regime that applies to ‘res non-doms’
Res non-doms are able to opt to access a favourable basis of taxation that is not available to UK resident and domiciled individuals. This favourable basis of taxation is known as the ‘Remittance Basis’. In common with UK resident and domiciled individuals, res non-doms who opt to use the Remittance Basis are subject to UK tax on their UK income and gains in the year they arise. However, res non-doms who use the Remittance Basis will only be taxed in the UK on overseas income or gains if the overseas income or gains are remitted here. As a result of this, res non-doms enjoy a potential tax advantage over resident and domiciled individuals in relation to their offshore wealth, and this has become an increasing bone of contention in recent years.
Under the current regime, res non-doms are not required to pay any charge to access the Remittance Basis in the first 7 years of their UK residence. They simply pay UK tax in overseas income and gains that are remitted to the UK. Once a res non-dom has been resident for more than 7 out of the previous 9 tax years, they need to pay a Remittance Basis Charge (‘RBC’) of £30,000 per tax year simply to access the Remittance Basis. Tax is paid on chargeable remittances of overseas income and gains on top of the payment of the RBC. Once res non-doms have been in the UK for more than 12 out of the previous 14 tax years, the RBC increases to £60,000 per tax year. Once they have been resident for more than 15 out of 20 tax years, res non-doms are no longer able to access to Remittance Basis and become ‘deemed domiciled’ for UK tax purposes. At that point, they are taxed on their UK and overseas income and gains as they arise.
If a res non-dom is found to have acquired a domicile of choice in the UK, they will be taxed on their worldwide income and gains as they arise without the option to access the Remittance Basis.
What are the main political parties proposing for non-doms?
The Conservative Party made a number of changes to the tax regime applicable to res non-doms in 2015 and 2017, to remove permanent access to the Remittance Basis and tighten rules in relation to the taxation of non-doms and offshore structures. We are not aware of any proposed changes to the non-dom rules from the Conservatives.
However, the Labour Party have confirmed that they want to scrap the current system. Instead, they are proposing ‘a modern scheme for people who are genuinely living in the UK for short periods to allow us to continue to attract top international talent’. We do not know at present whether this will mean changes to the concept of domicile or whether there will simply be limitations on the period during which res non-doms can benefit from an advantageous tax environment that would be introduced to replace the Remittance Basis. Rachel Reeves has mentioned a possible duration of 5 years for any new favourable regime but that consultation would take place with the business community on this point. In any event, the current UK legislation surrounding non doms is complex and may take time to unwind. It is possible that there could be some delay before a wholesale change to the non-dom regime could be implemented, if that is indeed the eventual policy.
The Labour Party is currently positioning itself as a friend to the business community and is making concerted efforts to woo the City. If Labour do want to encourage entrepreneurs to come to the UK from overseas to build businesses, generate profits and offer employment opportunities in the UK, then a 5 year window for a favourable tax regime would seem a little short for business to grow to those levels. A 10-year timeframe is being suggested as an alternative, which would allow the business the time they need to grow from the point of startup to generating profits. A 10-year timeframe would also sit in harmony with timeframes for tax-favoured regimes regimes offered by other countries such as Italy and Spain. Although an extension of a currently-proposed 5 year tax favoured regime to 10 years might not meet with the approval of all sections of the Labour Party as well as some element of British society more widely, it still represents a reduction from the current 15-year window for the favourable non-dom regime.
It has been pointed out that, when Labour have considered the abolition of non-dom status in the past, the proposals were quietly shelved. It seems very unlikely that this will be the case this time round, as the political and social climates have changed in the intervening period. It would be difficult for Labour to row back completely from this widely-publicised proposal which plays favourably with significant sections of the electorate.
What should res non-doms do?
The General Election has to take place by the end of January 2025. Elections are usually held in May or June and so it is anticipated that it will take place next Summer.
It is of course difficult to plan in an uncertain environment when the outcome of the election remains to be seen and detailed proposals are not yet available. However, it would be sensible for non-doms who have presently been in the UK for less than 15 years to review their current arrangements without delay, in particular their offshore wealth structuring, so that they are ready to take action when appropriate for them to do so. If you would like to arrange a review or discuss your situation, please contact Fiona Clark at Goodman Jones in the first instance to see how we may be able to help.
0
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.
Comment on this...
Share
Our tax team were joined by Garry White, Chief Investment commentator at Charles Stanley and R&D expert Andy Royce from Kene Partners to dissect the Spring Budget.
Fiona Clark: Good morning, everybody. It’s 11 o’clock. And so, let’s get started with our webinar. Good morning to everybody. My name is Fiona Clark. I’m a private client tax partner here at Goodman Jones. A warm welcome to everybody who’s joined us for our Spring Budget webinar this morning. We are delighted to be joined by two special guests on the panel. We’d like to welcome back Garry White, who’s the Chief Investment commentator at Charles Stanley. Garry has spent most of his career as a financial journalist and is a specialist in equity markets. In addition to his weekly roundup Last Week in The City. He’s now heard regularly on Nick Ferraris’ program on LBC. And hopefully, he will find our questions no less incisive today.
Also with us, we have Andy Royce. Andy has a background in law and insurance, and over six years of experience in advising clients in the R&D tax environment. Andy joins us from Kene Partners where he works as a senior R&D manager and specializes in advising on current and future applications of the R&D scheme. And of course, we have with us Graham Blair Goodman Jones’s head of business tax, and Richard Verge our head of private clients.
So, a warm welcome to everybody. And thank you to all our panellists for joining us today. We do have a full set of questions already to work with. But if you would like to pose a question, or the panel to respond to, please feel free to do so in the Q&A function which you’ll find at the bottom of your screens next to participants just click on that. And we will be able to see any questions you might raise. Also, to let you know that this session is being recorded and will be sent out to everybody who registered. Tech, support I think you’re already aware that you can ask a direct message in chat, and we’ll provide assistance as best we can. So, let’s start off. Garry. Good morning.
Garry White: Hi, Fiona.
“We’re witnessing the emergency shoring up of the banking sector. How are you seeing the primary issues that are impacting our economic outlook?” (1:55)
Fiona Clark: We had the Prime Minister announce last week in his budget that we wouldn’t be in a technical recession last Wednesday. And now we’re witnessing the emergency shoring up of the banking sector. How are you seeing the primary issues that are impacting our economic outlook?
Garry White: So, if we leave the Spring Budget to one side for a second, and deal with the banking crisis that has really gone quite swiftly out of the left field, as the chancellor was speaking last week in the house, events were happening in the city, which meant a lot of people weren’t really paying attention to what he said because you know the things were coming to a head. The banking sector has seen a few casualties in the last few weeks, including US regional banks and the largest of them, Credit Suisse.
Now, this has impacted confidence, which has had an impact on markets and on valuations. And if unchecked, this is a cause for concern. But we do not believe this is a repeat of 2008. The banking system is well capitalized, and authorities have moved rapidly central bankers in combination with regulators and governments to try and get things done quickly because that is what will maintain confidence in the stability of the financial system.
Banking is all about confidence, when rumours spread about a bank being in trouble depositors obviously want to withdraw their money because of their deposit-to-guaranteed schemes but in America, deposits are only guaranteed for £250,000. And the first bank we saw with SVB 90% of their customers had deposits in excess of £250,000. And they’re all tech sector companies. The technology sector has been really, really impacted by the rise in interest rates from the Federal Reserve. The steep rise in interest rates happened because they rely on debt funding. Most technology companies need a lot of debt today just to fund their paper clips and emails. It’s all about jam tomorrow with a lot of these companies and profits are way into the future.
So, they’ve had a lot of stress, they’ve been withdrawing a lot of their money. Silicon Valley Bank, the first one, had a lot of its own assets in long-dated US Treasuries, which have an inverse relationship with interest rates. So as interest rates were going up, they were falling. So the pressures on this bank were: its customers and its depositors wanted to take more money out at a time when the value of its assets was falling, so there was a black hole, and it had to make a cash call. And that caused a lot of people to bolt.
A number of smaller US regional banks have been experiencing problems as well. I learned that two of them were exposed to the cryptocurrency sector. And as you sort of saw over the last year or so as well, this is a sector that has imploded because of a series of high-profile frauds. And again, a loss of confidence in that sector. So, there are a lot of idiosyncratic reasons why these American banks got into problems. Credit Suisse has been a bit of an issue. I was going to say a bit of a basket case for some time, but that’s probably a little bit unfair. It’s had lots of various issues, there was the Greensill scandal, if people remember that. And so it’s not a surprise that of the European banks, this one has been experiencing problems.
It is systemically important to the Swiss economy, there’s no way that that bank was going to be allowed to fail. And UBS is, I would say that Goodman broke a dealer, or the Goodman coerced UBS into purchasing the bank to resolve this. And it all seems to be going well. The most important thing to note is, all this has been resolved really quickly, really efficiently in order to try and ring-fence all the concerns about the banking system. Now, it is probably going to be some other smaller US banks that are going to experience problems in the next few weeks. This is probably not the last of this, because the Federal Reserve is raising interest rates so much, there have got to be issues with other smaller, weaker US banks.
And if you think of some European banking systems, Italian banks that have been teetering on the edge for most of my career, I seem to recall. And that could be some fallout over there. But this isn’t to say that there’s a systemic problem here like we saw in 2000, 2008. Banks are well-capitalized, and regulators have got their eyes on what’s going on. And they’re going to sort this out swiftly to maintain confidence. The press like to add things up, and there’s been lots of talk about: is this a new financial crisis? Is this a new credit crunch? Is this 2000, 2008 all over again? If I was pushed into a corner, I’d say, absolutely not. I would say, never say never but this is very, very different.
Major crises don’t tend to come from where everybody’s looking at everybody’s been focusing on the health of the banking system for most of the last decade. So, while everybody’s looking over here, the next crisis is coming this way. So, I don’t really believe that it’s too much of a problem, it’s going to impact markets, it’s going to impact confidence. But it’s also going to impact what the Federal Reserve does next. So, interest rates have been raised, but inflation is still an issue. But it’s caused problems at these regional banks. They’re making their next interest rate decision on Thursday of this week.
And we expect to see some sort of rolling back of their quite hawkish position. Interest rates in the UK, we’ve not expected them we’ve got a decision for the UK as well not expected to rise so quickly, but the crisis in the banking system has already tightened financial conditions. What this means is banks are looking at their counterparties, and their lending criteria it’s probably going to be a little more difficult to get a loan without even putting interest rates up because of these events. So, we look out towards the rest of the year.
What does this mean? Well, it means that the Fed is going to have to ease off but then keep its own inflation because inflation is still an issue. It still needs to be dealt with and it needs to be stamped out thoroughly. These events do not mean a cut in interest rates this year. They mean that there’s a quantitative tightening program where they’re shrinking their balance sheet by getting rid of the stuff they bought in the financial crisis and the COVID crisis that might be put on the back burner. But that’s really the only impact because inflation remains a problem.
Now, we have some good news on inflation from the UK, in the budget, and in the ONS did a costing in a study, and they’re predicting inflation is going to come down to 2.9%, by the end of this year, which would be generally really positive for the economy. It sounds quite punchy, but I believe it’s probably possible. We’ve got the emerging, and rising inflation, as summer already peaked, thank God, we didn’t have a very cold winter, and the flow of gas around the world has been actually maintained pretty well. So, it’s positive on that front, but hopefully, food inflation is going to ease but we’re not going to have a recession in the UK.
Apparently, no, this is the latest prediction. And that’s another positive there. I don’t know if many of the people listening here, run businesses, they probably do. But there’s a feeling that unemployment on both sides of the Atlantic isn’t going to be as bad because it’s been so difficult to get good employees. There’s been a tightness in the labour market that has been partly inflationary because they call it the great appearance since COVID-19, that many people retired and didn’t want to come back into the workforce, and they’re still absent. We want to increase participation right now as well, to have an impact on wage inflation.
But overall things could be very bright, provided we don’t get another major blowout in the banking system. The data that the government had been saying is business is positive, but the asset prices… And if you look at the longer term, some of the proposals that were announced about incentives for these high growth businesses in quantum computing, in AI is even at a 1 million a year price. But the best ideas in AI have come from the Spring Budget. They see the change in the regulation of medicines and med tech and all these. These are all the areas of high growth; these are all future growth areas. And these are the right areas to be trying to encourage people with. We’ve also had the incentives to try and get people back into the workforce. So, we’re looking at a more positive 2024, shall we say, providing the banking system is kept in check by the regulators and confidence is maintained.
Fiona Clark: Thank you for that. That’s very interesting. You talked a bit about, obviously, the issues around Credit Suisse. And that wouldn’t be allowed to fail and some issues possibly with some smaller US banks.
“Do you foresee any particular issues with the UK banks?” (12:25)
Fiona Clark: We have had a quick question in: do you foresee any particular issues with the UK banks?
Garry White: No. Not really, we’re pretty well capitalized. The good thing about British banks is they’re well-diversified. If you think about SPB. It was focused on the technology sector. And when the technology sector blew open, its customers are having problems. It faced problems. If you look at Silvergate and some of the other ones, they were focused on the cryptocurrency sector. British banks are large and well-diversified. We have a good regulatory system, and they are well-capitalized. I don’t foresee any problems in the UK.
“What do you think the outlook at the moment means for the UK property sector?” (13:10)
Fiona Clark: Fantastic. That’s good news for all of us. Lovely. And in terms of the overall picture and the budget, what do you think the outlook at the moment means for the UK property sector?
Garry White: Well, obviously brightness in the economy is brightness for the property sector. So, when things like optics start to improve there. The property sector, as you know has been through turmoil for a few years and I mean if you look at real estate investment trusts now we know even the ones that are exposed to the shopping centres where footfall was being terrible from COVID-19. Even they are now starting to turn around. Valuations are at a sensible level, and we had a hit last year to sort of like commercial warehouse property and a few comments from Amazon. So there has been a bit of a readjustment evaluation there.
The housing market with this potential because of the high-interest rates you’re going to see a dip in house prices for the rest of this year. But we’re not going to see a slump. The forecasts I’ve been looking at are down by up to maybe a maximum of 8%. So, there’s nothing really serious going on there. I think that we all should be looking forward to 2024. Really, because last year, it was terrible. We’ve come through the worst of it. This year, which you know, we were just dusting ourselves down and getting ready for next year when things start to look brighter and improve. The sun will come out in 2024.
Fiona Clark: I think we will be looking forward to that. Fantastic. Garry, thank you very much for your thoughts there. Moving over to Andy. Andy, thank you very much for joining us this morning. We have had a few questions in relation to the R&D sector.
Will the government still merge the R&D credit regimes for small and large companies despite no announcement from the Chancellor’s speech? (14:40)
Fiona Clark: One question is: I’m aware that there is a suggestion that the government intends to abolish the differential between the R&D credit regimes for small and large companies, I did not notice any announcements about this in the Chancellor’s speech, is this merger of the two regimes still likely to happen?
Andy Royce: Okay. Yes. Thanks very much, Fiona for having me on, and for everyone to attend as well. In relation to the question. The question is great, there were no announcements within the current spring statement regarding the merging of the two schemes. The government had opened a consultation into this and other matters, which are closed very recently, on the 13th of March, they are currently considering the responses with a view to publishing draft legislation on a merged scheme, alongside the publication of the draft Finance bill in the summer. And there should be a summary of the responses to the consultation within that as well.
Regarding the attention given the language used, I would say it seems likely that it’s the current intention of the government to merge the schemes in the near future. What we don’t know is how this will look. But the consultation did give the opportunity for suggestions to be made as to the structure. I can see there have been some potential advantages in simplifying the scheme from an administrative perspective that the government but were they to look to bring the SME rate of relief in line with the (inaudible 17:19) and potentially restrict the inclusion of subcontracted costs, it would definitely adversely and disproportionately impact SMEs.
So, it’s hoped that the consultation is taken into account. I do hope they look to keep the different rates of relief for SMEs and (inaudible 17:37) because of the extent you’ll have better access to alternative finance and SMEs enjoyed the additional support of them, maintaining the subcontractor expenditure. Eligibility would be very useful to SMEs as often they didn’t have the expertise in hospitality before with R&D themselves. It’s hoped that clarification will be provided on this, but it doesn’t like the general direction is toward a merged scheme. But as usual, there’s little clarity on the format of it.
Has the Chancellor confirmed that outsourced work will no longer qualify for R&D tax credits? (17:21)
Fiona Clark: Thank you very much, Andy. We’ll have to wait and see what comes out of things there. Another question we’ve had in: we outsourced work overseas and understood that this cost was no longer going to qualify for tax credits, has the chancellor confirmed that outsourced costs will no longer qualify? Talked a little bit about that in relation to subcontractors just now but how about this one?
Andy Royce: Yes, this is a more specified restriction on overseas expenditure for subcontractors, and as in the previous budget and has been part of HMRC’s efforts to reduce fraud and error within the system. I know it was originally intended to be enacted and come into effect from the 1st of April 2023. It has now been delayed coming into effect from the 1st of April 2024. Specifically, in relation to overseas subcontracted work, the outline scope of the restriction is very restrictive. The only limited exceptions are where you’re on these conditions to perform the R&D you’re not present and in the UK.
The conditions aren’t present in the location where the R&D is undertaken. And thirdly, there would be wholly unreasonable to replicate the conditions in the UK. And among the very, very limited examples they give is where it would be necessary. The R&D wouldn’t necessitate placing sensors on an active volcano, which clearly is a condition it’s not present in the UK and one which will be wholly unreasonable to replicate. At the moment as it currently is intended, it is heavily restrictive, it adds another layer of uncertainty and there is further consultation on this.
I think the pushing back of this to 2024 will give them more time to consider this because as it currently exists, it would discourage innovation away from companies that necessarily need to perform some of their R&D abroad because the skills aren’t there, they may consider not doing so which would potentially help the entire project. It’s global what the intention scheme is. By keeping the costs within the UK. And that’s the idea of it to stimulate growth and innovation within the UK. But this is a rather clumsy measure. So, I think putting back the delaying of it, until next year, will allow them to consider the consultation, listen to feedback, and alongside the potential merge scheme, hopefully, give consideration to and provide some clarification on that as well.
Fiona Clark: Yes, well, hopefully, that will. Your 40s will listen to the representations that have been made and allow these where they genuinely are not skills with all the opportunities in the UK to carry out the work that’s necessary. Thank you, Andy.
What are the administrative changes to make an R&D credit claim, and when will they apply? (19:58)
Fiona Clark: Another one that we’ve had in: I believe there are to be administrative changes to the mechanisms to make an R&D credit claim, what are those changes, and from when will they apply?
Andy Royce: (Inaudible 21:22) again, (inaudible 21:23) some measures announced in the autumn budget come into enactment, come into force. Now, add a bit more clarification on them within the spring statement, splitting them into two parts, I suppose, what may be relevant for some but less relevant for others, there’s now a requirement to notify HMRC with an intention to claim R&D relief within their tax return in advance. So, the notification must be made within six months of the end of the company accounting period. So not in advance of the R&D itself, but in advance of making the claim. They can react to that and the good thing about that EEC only applies to those new to claiming R&D tax relief or those companies that haven’t paid for a period of three years.
Most companies tend to make a claim each year because R&D projects span accounting periods, and the companies performing R&D tend to do so regularly. So, for regular payments, no notification will be required, which is good news. However, a company that fails to notify within the six months’ time limit will lose out. For those new to R&D tax relief, and for those new claimants, particularly some who haven’t been previously aware of the scheme will lose the opportunity as they’ve previously had to look back to prior accounting periods when making their first R&D claim.
So, it’s the main change on the notification side. Additionally, all claims now, whether they’re for a reduction of tax or for credit they’ll have to be made digitally, which isn’t a new thing, but there’ll be accompanied by a compulsory additional information form. And this is a strict requirement, the additional information form, they’ll be required to break down the costs across the qualifying categories and provide a description of the R&D. Generally, this is something that should be provided to HMRC. In any event, this form, I suppose formalizes the requirement to do so. It shouldn’t be an additional massive administrative burden because the information if they are put in properly and advised well, they should look to gather that information and split it out in that way, anyway, and the information should be readily available in HMRC.
That’s (inaudible 23:39) expectation now that the information is available. So, you’ll just formalize the format in which it’s provided. In addition to that, a couple of other things would need to be endorsed by a named senior officer at that company. (Inaudible 23:54) but it is expected to be the MD or the CFO in most circumstances. And finally, include any details of any agent who has advised the company in compiling the claim. And those additional information forms will be required for any claim made after the 1st of August 2023. So not a massive additional burden there. And its stuff that should be available in any event, but it’s important that if you aren’t claiming, keep those records and work with an advisor if you have one, and provide the information in a timely way, because it will be required when submitting the claim in particular, you’re coming up against a deadline. It’s important to have those lined up.
Fiona Clark: Yes, absolutely. And that all seems to make sense, really. And especially these days, it’s very important to have all the information at your fingertips regardless. So just formalizing it and putting it in with the claimants that started the thing when it’s fresh in everyone’s mind makes a lot of sense and hopefully will make fewer inquiries down the line.
Which sectors are likely to benefit from the announcement that companies with more than 40% of their costs qualifying for R&D will be able to make enhanced claims? (23:40)
Fiona Clark: Another question that we’ve had: the newspapers wrote that companies with more than 40% of their costs, qualify for R&D will be able to make enhanced levels of claims other than perhaps start-up IT companies, what sectors are likely to benefit from this announcement?
Andy Royce: So yes, a third question. The changes somewhat welcomed this announcement, as the rate for SMEs in terms of their relief for credits has been restricted to 10% for any expenditure claim from the 1st of April 2023. For R&D-intensive companies this is where they’ve outlined 40% of costs, the overall cost base will be deemed as R&D costs, and they’ll be entitled to an enhanced payable credit rate of 14 and 1/2% rather than 10%. So, what that will equate to is a benefit rate of 27% for loss-making R&D-intensive SMEs. So, for every £100 invested in R&D, they’ll see a tax benefit or cash credit of £27. He sees reductions in the current maximum rate of 33% for loss-making on these. That will be an improvement on the new loss-making SME rate of 19%.
So, it’s like lifeline now be quite restricted. The corrector as well seemed more aimed at start-up IT companies than any other SMEs. It’s very rare for a company, however, innovative, to devote regularly 40% of its expenditure to R&D, it’s very difficult money to spend 40% in any company with a headcount of over 10, 20 employees regularly because logistical managerial time is needed. So, I think it’s a welcomed move to soften the blow of last Autumn’s rate reduction, how much impact we haven’t practiced will remain to be seen. Additionally, it’s only affecting a small number of businesses, it will also only affect loss-making SMEs, since any enhancements to the credit rate rather than any expenditure rate. And it will add needless complexity to the system, which is probably crying out for a bit more clarity in some areas.
Having introduced these measures, (inaudible 27:24) over the last couple of years, these changes, if they are pushing towards a single scheme, if they do introduce this change as well, they’ll have to administer it and find ways to implement it in their processes. But it might all become moot anyway if they like to displace it with the implementation of a single scheme. So, it’s good that they’re looking to potentially grow back on that complete SME reduction rate. But it’s hoped that they continue to support SMEs along the scheme to create skilled jobs in the UK to help drive innovation. And I think the extension of some of that measure to quote an expenditure rate will be useful, as well as just some more clarity on the regime itself.
Fiona Clark: Absolutely. Well, it does seem to be a little bit of a case of wait-and-see. But hopefully, we’ll see the right measures in place to drive forward the growth that the chancellor is very keen to promote. Andy, thank you very much for those insights.
Andy Royce: Thank you.
What announcements have been made to reduce the impact of the April increase in corporation tax?
(27:37) Fiona Clark: Moving on to some questions we’ve had on the business and corporation tax side, Graham. First one: the April increase in corporation tax had been pre-announced. But I’m now hearing about announcements to reduce the impact of the increase. What are they? What will it mean for my business?
Graham Blair: Thanks for that. And, while I answer that question, questions come up on the Q&A that I can cover at the same time. Broadly, we’re talking about the capital allowance regime. And sometimes it’s easiest to understand tax in context. So, if we take ourselves back in a time machine to last autumn, when Liz Truss was in the government, you may recall that she reduced corporation tax rates or reversed the increase, and that spooked the markets. And so, the current government has confirmed that the increase is going ahead. But of course, they have that dichotomy that they’re trying to be pro-business and increase corporation tax rates so that just doesn’t work particularly well.
So, what they’ve tried to do is soften the blow about the increase by giving extra deductions. And the deduction we’re talking about here is the deduction you get for plant and machinery and fixtures and fittings and physical things that you use within your business. The Chancellor said in the budget announcement that the UK underinvests in assets that generate efficiency compared to other developed nations. So, what the announcement effectively says is, if you spend money on physical equipment, or which you claim capital allowances, it doesn’t matter what sector you’re in, it doesn’t matter how much you spend, you will get 100% immediate tax relief on the cost of that asset.
So, if you were thinking about replacing the machine in the corner of your factory, or the machine or the piece of equipment that you use in your business, and you were thinking, Well, you know, what’s my payback period, actually, suddenly, the payback period gets massively compressed because you get immediate tax relief. This incentive to invest in equipment lasts for three years for assets bought between the 1st of April 23 and the 31st of March 26. And why three years? Well, I think that there are two reasons. Firstly, it gives a timeframe for people to make investment decisions, because you don’t make investment decisions overnight. You look at the budgets and the forecasts, etc., etc.
And if those assets are things that are part of a building, for example, then you might actually have to plan that in the building of the building or the design of the building. And so there needs to be lead time. And also, the second point is, in three years’ time, we will be posting the next election. And I suspect the cynic in me suggests that there’s a bit of a giveaway in a new parliament. All of that is good news, some sort of detail. Whilst there’s no limit on the quantum of the claim under the current regime. So, before that was announced in the budget, companies could get a million pounds of deduction.
And I remember there was a stat that said that million pounds cover 96% of all businesses that invest in physical assets. And so actually, this Budget Day announcement, although it is welcome, I think for most businesses, is not really that relevant. And whilst everyone talks about the 100% deduction, there’s a 50% deduction for some specific items that deal with specific industries, generally, things that last very, very long periods of time, and certain assets that are within a building. So, all in all, the government has listened to the markets and they have listened to businesses who want a bit of certainty, a bit of longevity, and some tax reliefs to reduce the impact of rate rises.
(32:30) Fiona Clark: That’s always welcome to know that the government is listening to what business has to say. A further question that we’ve had. We issue share options and understand that there are changes to the rules of options. Am I correct? And if so, what are the changes?
Graham Blair: Yes. The writer is correct. I think before I answer the specific question, again, a bit of context. I think inflation, as it is with people needing more remuneration options, has moved back on the table in a way that they maybe weren’t a few years ago. We saw during the Covid crisis when people still had employment income, but businesses didn’t necessarily have the cash to pay to pay the salary. The options were non-cash considerations. And I’m wondering if, in these inflationary times, we are seeing more of that. And in answering the specific questions: there were two changes, one was preannounced, and one was included in the budget day notes.
I’ll deal with the budget day notes first, and that’s enterprise management incentive options EMI which are by far the most popular in my experience. And there was a curiosity about EMI options that you had to report their issue to H M R C within 92 days of them being issued. And that was a hard deadline. If you missed that hard deadline, what would otherwise be a set of options with great tax breaks suddenly lose all their great tax breaks simply because a piece of paper wasn’t filed to H M R C on time. The government understood that that was less than satisfactory. And so, from the 6th of April, 2024 one only needs to do an annual notification by the 6th of July following the tax year of issuing the options. So, what that means is that options that get issued at, say in the next 12 months are following the 92-day rule, but from then on, it’s an annual thing, in the summer. And that seems a lot more sensible.
However, there are businesses who sort of known in any one tax year, that they’re only going to issue one round of options. And the question that we in the industry are asking is, notwithstanding that there’s this sort of summer requirement, can one file early? Because if we’re going to do options in a period of time, we then don’t want to necessarily wait 12 months to file a piece of paper and misfile that piece of paper. So, there’s a bit of uncertainty there. The other change for share options, as I say, was pre-announced companies share ownership plan CSOP. I qualified as a tax professional in the mid-nineties, and the limit under which CSOP could be issued was £30,000. It still is £30,000. And if you’re talking about inflationary drag, there’s a classic example.
Well, what was preannounced is that, that £30,000, is doubled to £60,000. So you can issue CSOP shares to employees up to a value of £60,000 per employee. And that can only be a good thing. And I would dread to think what that limit must be if it had kept up with inflation over the last X number of years.
Fiona Clark: Yes, I remember that £30,000 limit from more years ago than I care to count back when I was doing my tax exam. So, there we go. Welcome that it has been increased, but as you say, who knows where it would be had it gone up with inflation?
“The budget was branded the back-to-work budget. But what does this mean for me as an employer?” (36:30)
Fiona Clark: Moving on, another one we’ve had in we are all painfully aware of the resource crisis affecting the country.
Graham Blair: This is quite an interesting one because there’s a stat that says the cost of childcare represents about 30% of the cost incurred by the average household. Which is a considerable percentage of most household budgets, and I have been informed that it’s about twice the O E C D average. The practical impact is that many workers who typically were women were removed from the workforce because it’s just uneconomic for them, to work. The salary they bring in would not necessarily cover the cost of childcare, they would then be expended. If you recall the budget day discussions the chancellor was saying there are about a million vacant roles in the UK. And I’ve read a stat that says there are an estimated 500,000 workers removed from the workforce due to childcare requirements for children of three years or under.
And therefore as an employer, this back-to-work budget is trying to provide support to parents of young children in the hope that many of the 500,000 workers who could otherwise work will come back into the workforce and help fulfil the 1 million roles that are out there. There was one other thing that caught my eye, I don’t recall if it was announced in the budget per se, and that was really for the construction industry. Some of the visa requirements for five very, very specific sectors in the construction industry are being relaxed. And that makes it easier to bring workers into the country. And I guess they’re representative of areas that we’re undemanding.
Fiona Clark: Absolutely. I can absolutely identify with the issue, the decision-making, and the fun and games that go with people who had to try and fund childcare as well as work, I know many people who’ve been affected by that issue. So, these announcements by the government are very welcome and will help and support childcare to enable people to work must be welcomed. Graham, thank you very much for those insights. That was very valuable. And we’ve talked about company issues and how company ownership and incentivization can work. But if we look a little bit further, we could think about how company owners could extract profits.
(39.43)How will the change to the higher rate tax band and no increases in allowances affect high earners?
Fiona Clark: So, Richard, we have had some questions about how people could extract profits in related matters in terms of income tax rates we have one individual who said, I’m a fairly high earner with the change to the higher rate tax band and no increases in allowances. How does the budget affect me?
Richard Verge: Yes, good question. The budget itself didn’t actually change any of the rates at all for personal tax. But there was one preannounced from the autumn, which reduced the rate at which the 45% additional rate comes in. It went down from £150,000 to £125,140. There was a particular reason for that because that links in with the point at which the tapering away of your personal allowance stops. And it gives us a rather strange kind of variation of rates where we go from a 40% rate up to a hundred thousand. We then have this effective 60% rate between a hundred thousand and a hundred and twenty-five, 1-4-0 and then we did go down to 40% and then back up again, but now we just go straight back up to 45% of that rate.
So how does that affect someone? Well, let’s look at a quick example. Let’s just assume we’ve got someone as an employee, who owns 140,000, and let’s just assume that, well, the media effect is that they’re going to pay another 5% on £14,860. Okay? So that’s another £743. Doesn’t sound like a huge amount for someone at that level, but obviously, it’s a bit of an extra tax. If we look at someone who’s on 150,000, they’re going to pay another £1,243, a bit more. But again, someone earning that much money, that’s the sort of manageable level. But if we take into account the effects of inflation and the fact that the other rates were all staying the same, there’s no movement in the low, you end up with a bit of fiscal drag on that, which makes it look quite different.
So again, extending that example, let’s just assume this particular person has been fortunate enough to get an inflation-matching 10% pay raise. If we look at overall rates for 2022-23 that person would be paying an overall rate, including national insurance contributions of just over 39%. But if we move into 2023-24 with its inflation-matching pay raise that comes out to 40.33%. Again, doesn’t sound like a massive difference, but when you look at the marginal rate, that’s actually over 52% on that increase. Or if we look at the same scenario for someone who’s got started on 150,000 you end up with a marginal rate of 55% on that increase. So that’s a 55% tax increase on a pay raise which is only inflation matching. So, it does actually make quite a big difference.
And then this is all down to this fiscal drag. And there were some statistics that were stated in the budget impact notices, which suggested that the overall effect on physical drag, let’s not forget that this affects everybody and not just the high earners. In fact, I think it affects everyone everywhere to pinch one of the chancellor’s catchphrases it’s going to bring in another about 3 billion worth of tax. So not an insignificant amount of money simply by not increasing rate bans or personal allowances.
Fiona Clark: Yes. fiscal drag is hitting people pretty hard it looks like. So, although yes, very much so.
What has happened to the changes to the CGT regime for divorcing couples from April 6th? (43:54)
Fiona Clark: Another question has come in. I’ve heard that there are going to be changes to the CGT regime for divorcing couples from the 6th of April. What has happened about that? I’ll take this one.
Richard Verge: Okay.
Fiona Clark: And that is correct. Under current rules, the position is that transfers of assets between spouses in relation to a divorce or determination of a civil partnership are treated as made on a nil gain, nil loss basis if the transfer is made in the year of permanent separation. And what a nil gain, nil loss basis means is that if one spouse has acquired let’s say a property worth £10,000 when it was purchased, the property is now worth £20,000 for the sake of argument when the transfer is made in the year of a permanent separation, the recipient spouse will inherit that property at the value of £10,000 i.e. what the transferring spouse paid to acquire it in the first place.
So the effect of transfers being made on a nil gain, nil loss basis in the permanent year of separation is that the spouse who transfers the asset doesn’t have to pay capital gains tax in relation to the transfer. And the capital gains tax liability will come into effect later on when the recipient spouse comes to sell the asset they’ve received. At the moment, if that asset were to be transferred after the tax year of separation, current rules would provide that the sparsity makes the transfer will be subject to capital C capital gains tax when the asset is transferred. So in the example I’ve just given the donor spouse is transferring a property worth £20,000, he purchased it for £10,000. So there’s going to be a chargeable gain there of £10,000 that CGT will have to be applied to.
And given that the transfer is being made on a nil consideration basis in most instances of divorce he’s going to have to fund that liability somehow from somewhere. What is going to be changing is that new provisions will be introduced to extend this nil gain nil loss transfer window for separating spouses and civil partners with effect from the 6th of April. And under the new provisions, there will be a window of up to three years from when couples cease to live together within which assets can be transferred on a nil gain nil loss basis. Now, that window becomes an unlimited window. The nil gain, nil loss transfers are made under a formal divorce agreement, which in practice most couples would obtain via their solicitor as part of the divorce process. So this is a very welcome change in that it will relieve pressure on spouses who might be separating late in a tax year to have to make quick decisions which ultimately might prove detrimental, and it will allow the proper time for advice to be sought and will allow for potential court delays.
So all in all, this is a very welcome change, which falls in line with the government policy that was brought in with the no-fault divorce provisions that came not so long ago to make the process of divorcing, although an awful situation in itself for those who are going through it, hopefully, a little bit less painful as a result of these rules. There are a few rules also that are coming into principle private residences which mean that spouses or civil partners who retain an interest in the main home after divorce will still be able to claim main residence relief on any gain arising on the eventual sale unless they’ve acquired a new main home so that is good news for them. So, I think that is welcome. I think that people will find this beneficial. Other than that there is not a huge amount to say about the CGT regime this time around.
How will the increase in pension allowance affect me? (48:18)
In terms of other changes in the personal tax side, we have a question in Richard regarding pensions. My pension pot is currently 1.8 million. Can I cash in 25% tax-free now and then replenish 60,000 per year over the next eight years? And in fact, we’ve had another live question come in. Does the increase in pension allowance from 40 to 60,000 apply this tax year? I.E. would it be a good idea to pay in an extra £20,000 into one’s pension by the 5th of April?
Richard Verge: Perhaps I can deal with that first, that extra question first. No, comes in from the 6th of April, so don’t go and put in an extra 20K, in now. But coming back to the first question, well what has happened, one of the surprises in the budget, we were expecting something to happen to the pension lifetime allowance, but we weren’t expecting to have it abolished completely. Historically if we go back to 2006 before we had the lifetime announced at that time someone looked at the overall amount of relief being given across the board for pensions and established that they seemed to be far too much relief going to a fairly small minority of very wealthy people. So how to counter that, they brought in this lifetime allowance to sort of cap the total pension fund on which anyone can get tax relief.
It came in originally at 1.5 million. It then went up and down, so it’s gone either way over the years. And we are now down to a position where it’s just over 1 million. Now, this is causing certain problems because in getting people back to work, we’re finding that certain people are being disincentivized because they’re getting hit with such big pension charges that they’re thinking, well, why don’t I just retire now? And in particular this has affected consultant doctors which are particularly poignant for the budget, considering the junior doctors were out on strike and we’re relying on the senior doctors to cover them at that point. Okay. So it’s just… how does the lifetime allowance cap the pension relief?
What it does is it says that it doesn’t immediately stop you from having a bigger fund, but it says, we’ll actually measure your pension fund against the lifetime allowance at certain strategic times. And when we do that, if there’s anything over the lifetime allowance will charge you 55% on that excess. And typically those sort of crystallization events they call them would be when you start to sort of draw down your pension or alternatively, when you get to 75 are the main ones where all your funds will be checked. So suddenly having that removed if anyone’s got a large pension partner that’s clearly good news because you’re not going to get that fairly penalizing 55% hit on some of your pension funds.
So what else has changed? We have the annual allowance, which the question asked earlier that’s going up from 40,000 to 60,000. Now, the annual allowance was the other way that helped to cap what you could put into a pension fund. And so what you can put in now is up to the annual allowance or up to your… you still have to have net relevant earnings to be relieved. So if you’ve got reasonably high net worth earnings, you can put in up to 40,000 a year now. That’ll become 60,000 a year after the 6th of April. There are certain provisions to allow you to use up the last three back years in certain circumstances. So that’s sort of generally good news. And that might sound an awful lot, but if you think about a lot of people, particularly in the sort of self-employed area I think they can’t really afford in the early years of their career to put away very much into pensions at all.
So it’s only when they’re getting closer to retirement they suddenly need to put in fairly chunky sums of money to top up their pension funds and it might be seen as unfair to not allow them to do that. So, the 60,000 I think is a sensible move. We shouldn’t ignore the fact that there are also tapering provisions which again are aimed at stopping very wealthy people from putting too much into their pensions. If you have an income over 260,000 you can put that 60,000 cap. It gets reduced by one pound for every two down to a minimum of 10,000. So, people on very large incomes are actually restricted not to 60,000 a year, but actually 10,000 a year. And the other cap is if you actually get into a situation where you start to draw your fund, suddenly you are restricted to what you can put in, to 10,000 only.
And that’s really to stop people from recycling by sort of psyching out funds and then putting them back into the pension which would seem to be an unfair thing to do. And lastly, regarding the issue that this question raises about the tax-free lump sum, I think most people have become aware of the fact that you can take up to 25% of your pension pot out tax-free. The lump sum has now been capped. It’s a bit of a historical anomaly why can’t you take 25% out of your pension? Well, it got introduced many, many years ago and no one seems fit to remove it. And every year we think is this vulnerable? And I guess now it is because it’s been fixed at the current lifetime limit of 1.7 3 million.
So you can only take 25% out of that, and I expect that will be frozen forever more. So grossly over the years that will sort of wither away to a lower sum. Obviously, it doesn’t affect too many people at the moment because there are not that many people who have got million-pound pension funds. But it will affect some. Okay. So really if we come back to our question yes, you can take out a lump sum from your pension now. You can’t take out 25% of the 1.8 million. You can take out 25% of the current lifetime allowance tax-free. If you do take out more than that the excess is going to be taxed as income. So, it’ll be taxed at your marginal rate.
Can you start putting it straight back into your pension? No, you can’t because you’ll be capped at a maximum of 10,000 a year. But what I go on to say is when we’re looking at pensions a lot of people have been talking about, whether we should take out our excess funds now to avoid the 55% charge, particularly in light of the fact that the Labour party have already stated that they’re going to reverse this policy. So it sort of gives like a potentially a short window depending on how likely you think there’s going be a change of government in the next election. But before you start rushing to take out your pension fund let’s not forget about inheritance tax. Now the 30 sorts of standard advice being given to people who have large pension pots is that amount of money is not within your inheritance tax estate.
So do you really want us to take it all out and increase your overall estate that’s subject to inheritance tax? Now it may be the right thing to do for some people because you are saving yourself potentially 55% now against 40% later. But it’s worth sort of pausing and thinking about this properly rather than just going straight ahead and saying, let’s take my fund now. And also the other thing of course is pension funds have tax advantages. So your investments in a pension fund are growing tax-free as well. I think lastly, this was announced in the budget as an incentive to stop people from retiring early. Will it do that? It may do for some, but we’ll see. But I don’t think that’s going to be a major incentive for many people. And perhaps considering we are looking at a fairly sort of small sector of the working force, there could have been other things that could have been done to incentivize that better. Who knows? Okay.
Fiona Clark: Absolutely. We shall see what happens out of all of this. But given where Labour is in the polls at the moment, one might not unreasonably anticipate that there will be a Labour government at the next election. So rather it is a short timeframe for people to look at their affairs and think about what they want to do.
Fiona Clark: We’ve had a question about charities. The Prime Minister mentioned support for charities, and we hear the coronation will also be trying to help increase the number of volunteers. What has changed for the sector? So, I’ll take this one.
So the chancellor’s speech highlighted the role that charities play in helping people navigate the cost of living pressures. And he’s announced a package of support for local charities and community organizations, as well as £10 million towards charity for grant funds prevent suicide prevention for people who are dealing with mental health crises and funding towards charities is going to be targeted towards organizations which are particularly at risk due to increased demand from vulnerable groups and high delivery costs, as well as providing some investment in energy efficiency measures to reduce future operating costs.
And the Chancellor has committed 63 million over two years for swimming pool providers to help with the media cost pressures and again, make facilities more energy efficient. But in terms of downsides, there are some restrictions and the government’s going to change the tax definition of a charity and of community amateur sports clubs so that charitable tax relief will be restricted to UK charities and amateur sports clubs. So, for charities, this means that only those that come within the jurisdiction of the high court in England, Wales, or Northern Ireland or the court of sessions in Scotland will qualify for tax relief, and for sports clubs, it will change the location condition so that the sports club must be based in the UK and provide facilities for eligible sports in the UK. So this was actually an immediate impact for organizations that haven’t previously qualified for charitable tax relief.
For those that have qualified for tax relief before the 15th of March, there’s going to be a transitional period running up to April 24, during which they will still qualify for reliefs, but with effect from April, 2024, all non-UK charities and amateur sports clubs will no longer be eligible for UK charitable tax reliefs. This is expected to raise, say, about 5 million extras in tax revenues in 24, 25, and maybe 10 million or so in subsequent years. So, the aim is, to get relief into, I think, the UK charitable sector rather than people potentially making donations to overseas charities. But certainly, the individuals who want to claim gift relief on gift aid will have to make donations to UK charities in order to get that relief. If overseas charities do want to continue to benefit from UK taxpayers and claim relief in the UK, they’ll need to establish a UK presence of some sort if they want to continue to do that.
So, that’s one for going forward. And whilst we’re looking at international matters a moment to think about the ever-present non-dom question, now as people will know the chancellor did announce that there would be a review of the UK tax treatment and regime applicable to non-domicile individuals. We haven’t heard anything further on that as far as I’ve seen. There was certainly nothing announced in the budget or within the fine details. So we wait to see, we know that Labour hasn’t said they will abolish the non-dom tax regime. So we have a little bit of uncertainty, but the good news is that in the meantime, we do still have a favourable tax regime that will apply to resident non-domicile individuals so that they can claim a favourable basis of taxation if they want to, that will allow them to pay tax in the UK on their UK source income and gains only if they choose to do so.
They are of course allowable to access the same worldwide basis of UK taxation as the rest of us use if they wish to do that. So, it’s a choice that’s available to them. And we’ve hit the hour. It’s now 12 o’clock. So, I think we did have a couple of very brief questions for Garry if we’ve got a moment to answer them.
“Do you see any further tightening of deposit requirements for banks?” (1:02:49)
Fiona Clark: Firstly, do you see any further tightening of deposit requirements for banks? Do you see anything to do with that at all, Garry?
Garry White: Every single action that regulators of central banks will take will be aimed at protecting depositors. We’ve seen that and what’s happened so far. So, as we’ve seen with the Credit Suisse transaction where some tier-one bondholders were wiped out, which wasn’t expected. So there will be a focus on depositors in all of these cases.
Fiona Clark: Okay, thank you very much. And last question. It is often said that the market reflects the future rather than the present, but how do you see the volatility of the market as a foretaste of the economy?
Garry White: Well, the volatility is down to sentiment really. And the sentiment is more short-term. If you take the volatility in the market away from what I see about the progression of the economy, the volatility doesn’t really reflect the slow, upward, gentle positive slope that I see. But we can expect continuing market volatility for the next few months really until confidence in the financial stability of the whole banking system is restored, which my main assumption is that it will be.
Fiona Clark: Thank you very much, Garry, and I think we will draw proceedings to a close there. I’d like to thank our panellists, Garry and Andy, our external panellists for attending. Richard and Graham, thank you very much as well for your insights. It’s been lovely to hear from all of you. Thank you to all our guests for joining us today. We hope you found our webinar helpful and that you enjoyed it. If there are any further questions you’d like to raise, please don’t hesitate to get in touch with our tax team or your usual Goodman Jones contact. You can find our emails on our website, goodmanjones.com. Thank you very much again, all of you, for joining us. Have a good day and we hope to see you at the next one. Thank you very much indeed. Bye-bye.
0
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.
Comment on this...
Share
Under the proposed new rules, an extended window will be available within which couples can dispose of assets as part of their financial settlement, without incurring a CGT charge at that point.
Changes to the Capital Gains Tax (CGT) regime for divorcing spouses/civil partners are set to be introduced with effect from 6 April 2023. Under the proposed new rules, an extended window will be available within which couples can dispose of assets as part of their financial settlement, without incurring a CGT charge at that point. This offers a much fairer regime which will allow time for proper advice to be taken and due consideration to be given to all angles of a settlement and should result in CGT on financial settlements no longer being an issue for the majority of couples. However the 2023 Finance Act, which received Royal Assent on 10 January, did not include legislation on these measures. Where does this leave us?
The Finance Bill 2022-23 received Royal Assent on 10 January to become Finance Act 2023. It is a brief document which enacts 11 measures. Notably absent among those provisions is one relating to Capital Gains Tax (CGT) and separating couples. It was expected that legislation addressing this would be included, given that a policy document setting out draft legislation was published in July and the measure was included in the Autumn Statement. The proposed legislation, which is set to be introduced with effect from April 2023, makes changes to the CGT treatment of transfers of assets, and transfers of the couple’s main home, between divorcing spouses and civil partners whose partnership is to be dissolved.
Changes to CGT rules on transfer of assets between spouses on divorce
The current position is that transfers of assets between spouses in relation to a divorce or termination of a civil partnership, are treated as made on a nil gain/nil loss basis if the transfer is made in the year of permanent separation. The effect of asset transfers on a nil gain/nil loss basis is that the spouse who transfers the asset does not have to pay CGT in relation to that transfer. The CGT liability only arises later on, when the recipient spouse comes to sell the asset they receive. If the transfer is made after the tax year of separation, current rules provide that the spouse who makes the transfer would be subject to CGT when the asset is transferred.
Current position
By way of an example, suppose that Henry and Catherine are divorcing in the current tax year 2022/23, having separated in 2020/21, and are currently finalising the financial settlement. Catherine owns a portfolio of shares that were purchased in 2000 at a cost of £50,000. The portfolio has a current market value of £200,000. Catherine agrees to transfer 50% of the share portfolio to Henry as part of their financial settlement. Under current rules, the transfer from Catherine to Henry is treated as being made at current market value, and not on a nil gain/nil loss basis as the year of separation has already ended. In this situation, Henry would be treated as acquiring 50% of the portfolio at its current market value of £100,000 on the date when it is transferred to him. A capital gain would arise to Catherine as at the date the 50% share of the portfolio is transferred to Henry. Accordingly, she would be subject to CGT on the increase in value of £75,000 in the 50% share in the portfolio she has transferred to Henry. As the transfer would be made for nil consideration, she would have to find cash from elsewhere to fund the CGT charge.
Position under new rules
The Autumn Statement confirmed that new provisions to extend the nil gain/nil loss transfer window for separating couples would be introduced, with effect from 6 April 2023. Under the new provisions, there would be a window of up to 3 years from when couples cease to live together within which assets can be transferred between them on a nil gain/nil loss basis. There is an unlimited timeframe for nil gain/nil loss transfers which are made under a formal divorce agreement, which in practice most couples would obtain via their solicitor as part of the divorce process. If Catherine and Henry finalised their divorce settlement and the transfer of the 50% interest in the portfolio was made to Henry after 6 April 2023, the extension of the nil gain/nil loss window would apply and he would be treated as acquiring his 50% share in the portfolio at its original cost of £25,000. Catherine would have no CGT to pay when she transfers the 50% portfolio interest to Henry.
Changes to Principal Private Relief (PPR) rules for divorcing spouses
There are further new provisions set to be introduced which would apply to PPR relief. Our divorcing couple, Henry and Catherine, need to decide what to do with their family home. They plan to continue to own it 50:50 and Catherine would like to continue to live in it with their children until the youngest has gone to university and this is set to be agreed and recorded in their divorce settlement.
Current rules mean that, if Henry moves out of the family home whilst retaining his 50% share and Catherine stays living there, Henry would not be able to benefit from PPR relief for the period he does not live at the property, when it is eventually sold. Catherine would benefit from PPR in full if she remains living in the property until it is sold.
The new proposed rules mean that spouses or civil partners like Henry, who still hold an interest in the couple’s former main home after divorce, will be able to claim PPR relief on any gain arising on the eventual sale, unless he has moved into a new Principal Private Residence.
A further extension of PPR relief is to be introduced for spouses or civil partners who have transferred their share in the couple’s former home to the partner who remains living in that property, but are entitled to a share in the proceeds when the couple’s former home is eventually sold. Under current rules, relief will be given only for the period in which the departing spouse occupied the former home and for the last 9 months of ownership.
Under the proposed PPR relief extension, the departing spouse will benefit from the same tax treatment of the sale proceeds that they would have had when they transferred their interest in the home to the former spouse or civil partner. Assume that, in our example, Henry had transferred his interest in the family home to Catherine but was granted a share of the proceeds on a future sale. When the property is eventually sold, PPR relief would apply to the whole of any gain arising on Henry’s share of the sale proceeds on the basis that he had been living at the property until his interest was transferred to Catherine.
Why these changes matter
Under the current system, couples can face pressure to make rushed decisions to agree on a settlement before the end of the tax year of their separation in order to benefit from nil gain/nil loss transfers and mitigate CGT liabilities arising from disposals that they may need to make as part of their settlement. The pressure is particularly great for couples who separate towards the end of the tax year.
The proposed measures to extend the window for transfers of former main residences and other types of assets on a nil gain/nil loss basis will offer a fairer process for the division of assets between couples who are separating or divorcing. As matters stand currently, any delays in agreeing financial settlements or matters coming to Court may leave transferring spouses with significant tax liabilities in relation to disposals they make as part of the financial settlement on divorce.
It is important to remember that nil gain/nil loss transfers mitigate a CGT liability only at the point the transfer or disposal is made. If assets are transferred and are later disposed of by the recipient at a gain, that gain would be subject to CGT in the usual way. It is true that latent gains within any assets to be transferred will need to be considered to ensure an equitable result across the two parties, but the extension of the nil gain/nil loss window will allow time to consider how best to reach a fair and reasonable settlement taking into account the position in the round.
It is also important to remember that the changes only apply to spouses and civil partners, and will not apply to cohabiting couples.
Will the changes still be enacted?
There have been no announcements from HMRC or the Treasury to suggest that the measures will not be implemented. It is believed that any measures that have been announced to come into effect from 6 April, but have not yet been enacted, will be included in new legislation to be passed after the Spring Budget. However the uncertainty is unhelpful and clarification of the position from the Government would be welcomed. If there are to be any delays in the introduction of the legislation this should also be clarified so that advisers can consider the timing of any settlement. Likewise, if there are to be any changes to the proposals these will need to be clarified without delay to enable couples and their advisers to plan effectively. If a couple is in the year of separation, and they are nearly at the point of being able to agree a settlement or anticipate being able to do so by 5 April, it may be sensible to agree a settlement if possible before then so as to be able to ensure that they are able to make any disposals or transfers between each other on a nil gain/nil loss basis, thus avoiding triggering a CGT liability at the point the transfers are made.
CGT rates have changed since this article was written and more up to date information can be found in our 2024 Spring Budget response.
0
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.
