Author Archives: Richard Verge - Tax Director

About Richard Verge - Tax Director

T: +44 (0)20 7874 8856

View Richard's Linkedin profile

Richard is a personal tax expert and is able to advise high net worth individuals on either immediate tax concerns or a long term plan to ensure that their affairs are structured to take advantage of the tax reliefs available.

His experience from working with HMRC ensures that he is more than adept at understanding the view from the other side, to the benefit of his clients. Richard advises entrepreneurs, owners of family businesses and partners in professional practices and provides advice on planning from both a personal and worklife perspective.

For overseas owners of UK land and property, the tax rules have become more complicated over recent years – and for the most part, less beneficial.

Many of the changes introduced affect not just non-UK residents, but also foreign-domiciled UK residents (known as ‘resident non-doms’, or RNDs). They apply to residential and commercial

property; and to direct and indirect ownership (i.e. property ownership via a company, partnership, trust or other entity).

The resulting tax landscape is complex, with hidden risks for overseas non-resident property developers.

It’s important to understand the new rules, and their implications for your portfolio strategies. And it’s vital that your ownership structures take account of the risks, while being as tax efficient as possible.

Tightening the net

A slew of measures have all but eliminated the tax benefits of indirect foreign ownership of UK residential property.

This is now subject to:

• the maximum rate of Stamp Duty Land Tax (SDLT) at 15%
• a dedicated tax charge, called the Annual Tax on Enveloped Dwellings (ATED)
• new rules to bring it more fully into the UK inheritance tax (IHT) net

In addition, the Finance Act 2019 has widened the scope for foreign indirect ownership of UK land and property to incur capital gains tax (CGT).

Meanwhile, a new tax-avoidance rule specifically targets disposals of foreign entities with at least 75% of their value in UK land and property. It allows to HMRC to counteract any tax advantages derived from such disposals.

Indirect disposals have also lost their protection from economic double taxation, meaning they could potentially be taxed twice under different sets of rules .

Future changes

On the plus slide, there’s a change in the offing that may be positive for non-resident owners of UK land and property.

From April 2020, income from company-owned property assets will attract corporation tax – which falls to 17% at the same time. This compares favourably to today’s situation: overseas companies currently pay basic-rate income tax on proceeds from UK property, at 20%.

But inevitably, it’s not all good news. The government is consulting on a 1% SDLT surcharge for non-resident property purchases, likely to apply to direct and indirect structures.

And there’s speculation that they’ll go further, closing existing gaps between the tax treatment of foreign-owned residential and commercial property; and between direct and indirect ownership. That could end the eligibility of indirect structures to avoid IHT and SDLT on UK property in certain circumstances.

Key decisions

Faced with an increasingly difficult tax landscape, non-resident property developers must consider two crucial questions – neither of which have simple answers:

1. Should new investments in UK property be made via foreign entities?

Under current rules, there can be tax advantages to purchasing UK commercial property via an overseas company.

But the opposite is the case for residential property, thanks to ATED, the higher SDLT rate, and greater IHT exposure. Unless, that is, the property being purchased is to be redeveloped, or let on commercial terms to a third party with no connection to the owner.

2. Should properties held in foreign corporate entities stay that way?

If acquiring a property for their own use, non-residents should consider collapsing any existing property-owning companies, to avoid ATED and other potential tax liabilities.

Selling a company’s shares (as opposed to the property itself) will attract a much lower SDLT rate than a property sale. But the gains will likely be eroded by the commercial risks and higher transaction costs of selling a company.

The tax rules affecting these decisions are highly complex; and there will be a combination of commercial and personal priorities to weigh up alongside the tax implications. Expert technical advice will be essential when structuring your foreign-owned UK property portfolio.

The Goodman Jones property team can help you find the right strategies in light of the recent changes, and keep your portfolio optimised in an evolving tax landscape.

 

0
Comment on this...

Non-Residents’ Capital Gains (NRCGT)

With effect from 6 April 2019, the scope of capital gains tax for non-residents has been extended to include UK commercial property as well as residential property. Prior to this date only residential property had been within the charge to NRCGT, but from 6 April 2019 onwards the sale of any UK land and property by a non-resident will be subject to capital gains tax.

How Capital gains tax is calculated

Where commercial property is already owned prior to 6 April 2019, the chargeable gain will be calculated by reference to the increase in value from the rebasing date of 6 April 2019 (for residential property the rebasing date is 6 April 2015). An election is available to ignore revaluing at 6 April 2019 which will be beneficial if the original cost was higher than the April 2019 value (a similar election is available for residential property).

For companies, any gains will be taxed at the corporation tax rate which is currently 19%. For individuals the rate is 20% (28% for residential property).

Indirect Holdings

The sale of shares in a company owning UK property can also be caught by the NRCGT charge. Gains on the disposal of closely held indirect interest in property-rich companies are also now taxable with effect from 6 April 2019. Broadly speaking, a closely held interest is 25% or more in the relevant entity and a property-rich entity is one in which 75% or more of the gross asset value of the company is UK land. The fact that measure is of the gross asset value means that borrowing costs cannot be offset against the property value.

There is an exemption from the charge for disposals of indirect holdings where what is being sold are shares in an ongoing trading company which has UK land amongst its assets. The exemption will apply where all or most of the land is being used in the course of a qualifying trade.

Reporting requirements

Any tax due needs to be paid and a NRCGT return submitted online to HMRC within 30 days of completion of a sale. Failure to submit a return and pay the tax due will be subject to penalties and interest.

Valuing your property

We recommend that non-resident individuals and companies holding UK commercial property consider valuing their property assets now in order to get a contemporaneous value which can be used to calculate and plan for future tax liabilities on disposals of their property or shares in property rich companies. If you would like to consider valuing your property, we can help put you in touch with local surveyors.

Temporary non-residence

Existing rules which catch gains made by individuals who are temporarily non-resident continue to apply. Where an individual makes a disposal during a period of non-residence and returns to the UK within five tax years of their departure, gains made of UK assets during that period of non-residence will be taxable on their return. Relief will be given for any NRCGT paid during that period.

 

 

0
Comment on this...

Goodman Jones Spring Statement 2019

With continuing uncertainty surrounding Brexit and forecasts dependent on whether there is an orderly withdrawal from the EU, Philip Hammond was only prepared to make a modest number of spending commitments in his Spring Statement, but promised us a full spending review in advance of the summer recess to be completed in time for the Autumn Budget.

Announcements made in the Spring Statement included:

  • The promise of further Infrastructure spending on transport, digital networks and science and technology.
  • Publication of two reports setting out achievements on tackling tax avoidance and evasion and setting out HMRC’s updated strategy for offshore compliance.
  • Publication of draft legislation on new capital allowances for non-residential structures and buildings.
  • Improvements to the Apprenticeship Levy.
  • A commitment to the introduction of Making Tax Digital (MTD) for VAT but also a promise of a delay in the introduction of MTD for income tax previously set for April 2020.

We have also been promised further documents for the coming months including:

  • Reports and consultation on housing planning reform.
  • A consultation on the changes to capital gains tax private residence relief announced in the 2018 budget.
  • A consultation on the corporate loss restriction.
  • New guidelines on the conditions for approval of Enterprise Investment Scheme funds.
  • A crack down on late payers for small businesses.

We will have to wait to see what happens to the economy post Brexit before we know how much the Chancellor will have available to him for his spending review, but in the meantime we can share with you our Spring Statement Summary which includes a recap of the key changes for the forthcoming 2019/20 tax year already announced and passed into Law.

0
Comment on this...

The continuing uncertainty surrounding Brexit presented Philip Hammond with a difficult task when he stood up to deliver his Spring Statement today. With forecasts dependent on whether there is an orderly withdrawal from the EU his response was to announce a full spending review in advance of the summer recess to be concluded before the Autumn budget when hopefully we will have greater clarity on our future relationship with Europe.

With no significant announcements made on taxation we decided to make good use of the experience of our tax team and its diversity in terms of age, gender and political views to come up with our wish list of tax reforms for the Chancellor which in no particular order are as follows:

1. Increase in Research and Development (R&D) tax credits

With Brexit fast approaching there is a concern about a potential brain drain of highly skilled persons who undertake research and development  across many sectors. Enhancing the existing  R&D tax credits regime would help to offset that loss by making the UK a more attractive place to work whilst simultaneously encouraging further research projects.

2. Amendment to the Stamp Duty Land Tax (SDLT) regime

The large increases in SDLT on residential property have been effective at dampening down the property market at the high end and discouraging buy-to-let landlords, but the Stamp Duty legislation was never designed to work for such high levels of tax and with such discrepancies between residential and commercial rates. There is now widespread unfairness in the system which needs a ground roots review.

3. Delay making tax digital

With so much focus on Brexit the implementation of Making Tax Digital should be delayed. This is because there is inevitably going to be a change in process and reporting for importers and exporters. Forcing that change on business at the same time as the implementation of Making Tax Digital is inequitable and against the government’s stated policy of reducing red tape.

4. University Tuition Fees

There has been net emigration from the UK in advance of Brexit of individuals from key public sector roles. Scraping tuition fees for key courses such as nursing and midwifery would help to offset the difficulties in recruiting post Brexit.

5. Student loans

Write off student loans after 10 years for all those who have worked in the UK for that period of time to encourage those who have learned in the UK to earn in the UK as well and help to reduce the brain drain.

6. Shared ownership property and SDLT exemption

Help key sector workers to buy properties by allowing first time buyer exemption for those purchasing their first home jointly with others where the joint purchaser does not qualify. Also to exclude previous minority holdings in property for the purpose of defining first time buyer.

7. Reducing the complexity of the tax legislation

General review of the tax legislation to reduce complexity

8. Reduce inequality in the National Insurance system

Currently the burden of National insurance falls disproportionately on those with low to middling income. A review of the National Insurance system to remove inequality, align with income tax and reduce complexity is long overdue.

9. Reduce Inheritance tax

The UK currently appears to be out of step with most other countries in having a high level of inheritance tax with a relatively low entry level. Reducing the rate of tax and abolishing the current complex system of reliefs would be fairer for everyone, encourage money into the country and may even increase the overall tax take to the Treasury.

10. VAT zero rate on sanitary products

The chancellors announcement of the provision of free sanitary products at schools and colleges is welcome, but sanitary products remain subject to VAT. The government has previously stated that it “remains committed to applying a zero rate of VAT to women’s sanitary products” but EU VAT legislation has always stood in the way. Hopefully one benefit of leaving the EU will be that this change can now be implemented.

 

And finally, once all of the above has been implemented we wish for a long period of calm and stability with minimal tax changes so we can plan for the future with certainty.

 

0
Comment on this...

Increases in the rate of Stamp Duty Land Tax over the past few years have created a number of anomalies in the legislation which, if applicable to your circumstances, can substantially reduce the amount of SDLT payable on the purchase of a property. When originally introduced, the rates of SDLT were sufficiently low that these anomalies were of little consequence, but now the rates have been increased to much higher levels, there can be substantial savings to be made.

Multiple Dwellings Relief

One such anomaly is the effect of Multiple Dwellings Relief (MDR). The purpose of this relief is to simplify the calculation of SDLT when a single transaction includes the purchase of more than one dwelling. Rather than separately calculating the SDLT on each unit acquired, a simple averaging is applied and SDLT calculated on the average unit price arrived at by dividing the total transaction price by the number of individual dwelling units.

MDR Claims

When SDLT rates were low, an MDR claim usually made little difference to the overall SDLT payable and was a sensible and pragmatic simplification for purchase of multiple dwellings. This is still the case where dwellings purchased in a single transaction are of similar value. But with the current much higher rates of SDLT for more expensive properties, where a purchase consists of an expensive dwelling and a much cheaper dwelling, then by averaging the unit price, this can create a substantially lower overall SDLT charge.

This effect can be particularly significant when buying a property which may have a separate annexe such as a granny annexe. For example, the standard rate of SDLT due on a property purchased for £1.2million would be £63,750. If the same property has a self-contained annexe which qualifies as a separate dwelling and an MDR claim is made, then the combined SDLT charge falls to £40,000. This is because the SDLT would be calculated based on two properties valued at £600,000 each. Such properties are often under a single title and the fact that there could be more than one dwelling within the property can sometimes be missed. Contrast this with the SDLT on two separate purchases of properties with values at say £900,000 and £300,000 (i.e. the same overall total of £1.2 million) and there is a different combined SDLT charge again of £42,250.

Can I recover overpaid SDLT?

If you have purchased a property within the last twelve months which contained a separate dwelling, but you paid SDLT on the full purchase price, then you may still be able to submit an amended SDLT Return to make an MDR claim and recover the overpaid SDLT.

We are seeing an increasing number of firms trawling through the Land Registry records for property purchases of the types of property that are frequently converted into multiple dwellings. These might typically be large terraced town houses which are often split into separate flats. Those firms are then mailing the purchasers recommending that they make MDR claims on a no-win-no-fee basis.

If you receive such a letter, I would recommend caution as there are many reasons why an MDR claim may not be applicable and may have costly repercussions for you further down the line.

Distinct Separate Dwelling

For a claim to be successful, the transaction must involve more than one distinct separate dwelling. HMRC accept that a single building can contain more than one dwelling but state their view as follows:

“A self-contained part of a building will be a separate dwelling if the residents of that part can live independently of the residents of the rest of the building including independent access and domestic facilities”.

This will require an annexe say to have its own separate entrance and separate kitchen and bathroom facilities.

Converting the number of dwellings

Another trap for the unwary is that if an MDR claim is made on a transaction and there is subsequently a change in the number of dwellings subject to the claim within a period of three years from the transaction, then there will be a claw-back of MDR claimed. If, say, a property was purchased that was separated into more than one flat with the intention of converting it back to a single property, then any Multiple Dwelling Relief claimed will have to be repaid.

HMRC Enquiries into MDR claims

Finally, it should be noted that a Stamp Duty Land Tax Return is a Self-Assessment Tax Return and as such any claim is likely to be processed without a detailed initial review, but HMRC have the power to enquire into such Returns and accordingly an apparently successful claim may be challenged and fail once it has come under proper scrutiny. This might be an issue if you have already paid out on no win fee basis.

3
Comment on this...

Goodman Jones Budget Summary 2018

Download the Goodman Jones 2018 Budget Summary

Last year Philip Hammond promised us fewer frequent tax changes and more consultations and this years budget appears to have delivered on that promise.

Many of the announcements were minor changes to existing legislation or confirmation of matters which have already been subject to public consultations.

New measures include the increase of the personal tax higher rate threshold to £50,000, the introduction of a new capital allowance for the construction of commercial property, a temporary increase in the annual investment allowance and help for the high street by way of a business rate reduction and money being made available for infrastructure spending.

Some of the minor amendments to existing legislation which may have a significant impact include changes to capital gains tax relief for the main residence, the restriction of the capital gains tax relief for residential letting which will make this relief unavailable in most cases and changes to the qualifying conditions for Entrepreneurs relief including extending the qualifying period to 2 years.

Matters which had been the subject of previous consultations and were expected include extending capital gains tax for non-residents to include sales of UK commercial property and bringing the private sector into the off payroll working rules to counter avoidance of PAYE tax.

For a full review of the budget download our pdf.

0
Comment on this...

Download the Goodman Jones Budget summary

We were expecting a budget for housing and Philip Hammond’s announcement of 300,000 new homes a year has been backed up with a package of measures including the promise of billions more on infrastructure spending, planning reforms and help for first time buyers. The increase in the Stamp Duty Land Tax (SDLT) nil rate threshold for first time buyers was a particular highlight and will mean no SDLT on the first £300,000 for properties valued at up to £500,000.

Other tax measures included adjustments to the SDLT higher rates legislation to remove certain anomalies which were unfairly bringing a lot of people within the higher rate; the removal of indexation allowance for capital gains within companies and capital gains tax on non-resident investors will be extended to include commercial property.

The Chancellor restated the government’s commitment to a low-tax economy and unusually for any budget there were no tax increasing measures announced. We were also given a welcome promise of less frequent tax changes and more consultations in advance of any changes.

We generally expect a list of new anti-avoidance measures and this budget didn’t disappoint. Further measures were introduced to tackle perceived abuse of the tax system in connection with the National Insurance employers allowance, disguised remuneration, profit fragmentation and double taxation relief to name a few. Consultations were promised on extending the “off-payroll working rules” introduced for the public sector last year to the private sector; the taxation of trusts and the use of rent-a-room relief.

Overall whilst there were not a lot of headline grabbing measures this time around, there were many less obvious changes announced in the budget publications and I think it will be sometime yet before we understand fully the impact of this budget.

For a full review of the Budget, download our pdf.

0
Comment on this...

Political battle lines are increasingly being drawn up along the age divide and Philip Hammond is under pressure to introduce policies to attract the young voters in his first Autumn budget. I was interested to see a definition of young voter this weekend describing anyone between the ages of 18 to 40! This might sound alarming for anyone within a few years of either side of the boundary, but it divides the population approximately into a young half and an old half. So what changes might we see in the budget that attract the younger side of the dividing line without upsetting the traditional older Tory supporter?

Here are 5 questions to think about as we approach Budget Day:

1. Stamp Duty Land Tax (SDLT) – Should residential transactions be delayed in anticipation of a reduction in SDLT?
2. Income Tax – How might a reduction in income tax for younger workers affect you or your staff?
3. National Insurance (NIC) – How would an increase in NIC for the self-employed impact on your business?
4. Pensions – Should you consider taking a lump sum from your pension before the budget?
5. Inheritance Tax (IHT) – Should you take action in anticipation of a change to IHT business property relief?

Stamp Duty Land Tax

Most commentators now think the current high levels of SDLT are causing a blockage in the housing market. Those already with a home and perhaps thinking of downsizing are being discouraged to do so due to the high SDLT cost of moving, and those seeking to get on the housing ladder or upsizing are also struggling. A decrease in SDLT across the board would help both sides, but would it be affordable? A policy aimed only at the young, say an exemption for first time buyers might help, but it would be likely to push up prices unless the housing supply increased. Perhaps a “downsizer” exemption would help free up supply? We have previously seen the short term effect of any expected change in SDLT rates which has either accelerated transactions or completely suspended them depending on whether rates are about to go up or down. Any change, which would almost certainly be a reduction is therefore likely to be implemented with immediate effect.

Income tax

Not so long ago we had higher personal tax allowances for the older generation, so it is not too much of a stretch to imagine a higher allowance for younger people. Introducing a lower rate of tax for the young would be very difficult to implement, but a higher personal allowance would be comparatively simple to introduce.

National Insurance

The last attempt to increase NIC by a modest 2% for the self-employed helped the Conservatives lose their Commons majority so it would be understandable if there was a reluctance to revisit this area. However this is no longer a manifesto promise and a rebalancing of the NIC rates between the employed and self-employed is long overdue. There is scope for change here. A possible increase in the age at which NIC liability starts being payable could be paid for by an increase in the self-employed rate.

Some change to discourage the increasingly widespread use of service companies as an NIC avoidance mechanism is likely. A first step towards this was the introduction last year of the “off-payroll working rules” for the public sector. A similar rule for the private sector could be on the cards, but a more radical move might be to charge NIC on family company profits at the point of earning rather than at the point of extraction (a move back towards close company apportionment for those in the older camp and with long memories). Either way this could be a big money earner for the exchequer.

Pensions

Pensions have been hit hard in recent times but the sheer size of the accumulated pension funds makes them a tempting pot for any chancellor to dip their hands in to. The one aspect of pension relief that no one has dared touch to date is the 25% tax free lump sum. This allowance has no particular justification and is a historical quirk with its origins lost in the passage of time. Outright abolition would be political suicide for any party but a brave chancellor might get away with a tinkering at the edges say a percentage or two reduction if sold on the rebalancing of the age divide ticket.

Inheritance tax

The likelihood of IHT being reduced in a young people’s budget is remote. An increase is far more likely and there is already a lot of speculation around the high cost to the exchequer of business property relief (BPR). The principle behind BPR is sound, allowing businesses to be kept intact without having to be sold off to pay IHT bills. However, this does encourage people to hold onto their businesses and business assets until death, rather than passing them on to the next generation early. In the past BPR has been at lower rates than the currently very generous 100%, so it would be easy to reduce that rate. There would however be knock on effects, for example an industry of AIM listed funds has built up around the availability of BPR for IHT planning, so a reduction would be likely to have a serious impact on the value of those funds and the availability of funding for those underlying companies.

What was in the Chancellor’s Spring Budget?

0
Comment on this...

The incorporation of buy-to-let businesses remains a hot topic given the many changes to the tax treatment of residential lettings. I have previously discussed the potential tax charges arising on the incorporation of an existing buy-to-let business, but am revisiting them here as this is one of the questions I get asked most frequently at the moment.

There are many landlords now sitting on mature investment portfolios and are asking themselves the questions of whether they should be moving that into a corporate structure. The tax issues to consider are Capital Gains Tax, Stamp Duty Land Tax, Inheritance Tax and in some instances VAT.

Capital Gains Tax (CGT)

Transferring a property to a company can create a tax point for Capital Gains Tax purposes. The disposal will be deemed to take place at market value. In some instances it may be possible to roll over the capital gains, however to do so you need to be able to take advantage of business roll over relief.

HMRC do not generally accept that passively owned property is a “business” for these purposes, but it appears that size does matter, as was borne out in the upper tribunal case of Ramsey v HMRC. In this case Mrs Ramsey owned a block of 15 flats. The case turned on the amount of activity that Mrs Ramsey spent in managing the “business”. This turned out to be around 20 hours per week plus she had no other occupation during that period. The tribunal ruled in her favour confirming that she was running a business.

I take from this that it is not the quantity of properties that any landlord owns that determines whether a business is being pursued but rather the active participation they take in running the business. As always with such matters the details will be important.

Stamp Duty Land Tax (SDLT) and incorporating via a partnership

As with all property transactions, SDLT has become a major factor. A corporate buying property would be subject to the higher rate of SDLT on residential property.

The reason why this may work is that special rules apply to the transfer of properties into and out of partnerships. The incorporation of a partnership owning property would be such a transfer. Broadly, provided the ownership of the corporate matches the ownership of the partnership prior to incorporation, and provided all qualified conditions apply the value of the transaction for SDLT purposes would be nil.

The problem being encountered by landlords attempting this route is that establishing an effective partnership is not necessarily so straight forward. If partnerships are to exist there must be a business being carried on. This brings us back to HMRC’s view that the passive ownership of property does not constitute the business. Arguably using a Limited Liability Partnership may be a more robust route for incorporation, but this creates an additional degree of complexity. Also it should not be overlooked that there is general anti-avoidance legislation for SDLT purposes which may be brought into play if it is considered that the introduction of a partnership as a route to incorporation is purely an SDLT avoidance mechanism.

Inheritance Tax (IHT)

Quite often overlooked in the context of transferring property to a corporate structure is that in certain circumstances this can constitute a transfer of value for Inheritance Tax purposes. As such there is a risk that an immediate lifetime chargeable transfer may take place which would give rise to a 20% Inheritance Tax charge.

VAT

VAT will only be an issue for incorporation of a buy to let business where there is commercial property involved on which an option to tax had been made. It is likely that this could be dealt with by way of a transfer of a going concern; however this is something that would need consideration before an incorporation would take place.

Summary

In my previous article I said that the incorporation of a buy-to-let business was most likely to suit a business which had low borrowing requirements, low turnover of properties and can afford to roll up profits to take advantage of low corporate tax rates. My view is that this remains the case. The route to incorporation is alive with complexity and potential tax traps for the unwary, but in the right circumstances incorporation could be the best route. As always, each person’s circumstances will be different and you should take full advice before taking any action.

1
Comment on this...

The annual maximum an individual can invest into their pension is currently set at £40,000. For the 2016/17 tax year onwards this maximum is tapered for ‘high-income individuals‘ (those with income in excess of £150,000). The taper works by reducing the annual allowance by £1 for every £2 of “Adjusted income” in excess of £150,000, with a minimum tapered annual allowance of £10,000.

Guidance

HMRC have published guidance on determining whether the reduction applies and calculating the amount of the tapered allowance, available at https://www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance

Adjusted income and Threshold income

The taper provisions introduce two new income definitions: “Adjusted income” and “Threshold income”.
Adjusted income is an individual’s income after all reliefs except pension contributions, plus any employer pension contributions. This means that for employees it effectively measures the whole remuneration package including pension contributions made by the employer. This ensures that employees are placed on a level playing field with the self-employed who have to fund their own pension contributions.
Threshold income is income after all pension contributions have been deducted. Where “Threshold income” is £110,000 or less, the annual allowance will not be tapered irrespective of the level of pension contributions. Note, adjustments need to be made to the calculation of Threshold income where “relevant salary sacrifice arrangements” have been made.
Example
Scott has adjusted income of £175,000 and threshold income of £130,000 for 2016–17. As he is a high income individual, the annual allowance of £40,000 is reduced by the following amount:
(£175,000 – £150,000) / 2 = £12,500.
The annual allowance will therefore be £27,500 (£40,000 – £12,500).
As the annual allowance cannot be reduced below £10,000, if adjusted income exceeds £210,000 for 2016–17 the annual allowance will be £10,000.
Note: anti-avoidance provisions apply where arrangements are put in place to artificially reduce the Adjusted income so as to reduce the amount of taper to be applied.

0
Comment on this...