Author Archives: Richard Verge - Tax Director

About Richard Verge - Tax Director

T: +44 (0)20 7874 8856

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.

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The measures to keep staff in place shows a welcome understanding of the real problems businesses are facing.

Summer Statement 2020

Richard Verge - Tax Director - rverge@goodmanjones.com

Posted on 9th July 2020

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Not many people knew very much about Rishi Sunak at the beginning of this year, but 6 months later and he has become one of the most well known faces in British politics. Eventually he will need to turn his attention to how we will all pay for the measures introduced to protect the economy through the Coronavirus crisis, but for the moment the emphasis remains on spending money to protect jobs.

Given that the wealth of any nation and its people can be measured in terms of the productivity of its workforce, I don’t think many people will disagree with the importance of trying to protect the jobs market, and as every employer knows, it is far more difficult to recruit new workers than retain existing ones, so the measures to keep staff in place shows a welcome understanding of the real problems businesses are facing.

The measures introduced in the Chancellor’s summer statement were categorised into three areas:

Supporting jobs – aimed at the whole business workforce with a job retention bonus for furloughed employees, the Kickstart program to provide work placement for 16-24 year olds, traineeships and payments to employers hiring new apprentices.
Protecting jobs – aimed mainly at the hospitality and leisure sector including a temporary VAT cut on meals, non-alcoholic beverages, accommodation and attractions and the “Eat out to help out” scheme providing discounts on eating out.
Creating jobs – aimed mainly at the housing and construction sector with a temporary increase in the Stamp Duty Land Tax threshold to £500,000 (although no reduction in the second home higher rate charge) and the “Green Homes Grant” of up to £5,000 for making homes more energy efficient.

For more details of the measures introduced, see our summary of the Chancellor’s Summer_Statement_July_2020

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.

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his first budget speech which was understandably dominated by the potential threat of the coronavirus on the economy

2020 Budget Summary

Richard Verge - Tax Director - rverge@goodmanjones.com

Posted on 12th March 2020

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Rishi Sunak gave an assured performance in his first budget speech which was understandably dominated by the potential threat of the coronavirus on the economy. Amongst the large package of spending measures the tax announcements were surprisingly few and far between given that many were expecting a new government with a large majority to take the opportunity to introduce changes and get some of the more difficult news out of the way early on in its cycle.

Goodman Jones Budget Summary 2020

Many of the tax announcements were already widely anticipated but here are a few of the highlights:

Entrepreneurs relief – Despite calls from many sides of the political spectrum to completely abolish entrepreneurs relief, the government instead reduce the lifetime limit from £10m to £1m which takes us back to the level at which it was first introduced in 2008.
Stamp Duty Land Tax (SDLT) – Many were hoping for an easing of the currently high SDLT burden, but the only announcement was a new surcharge of 2% on non-residents purchasing UK residential property will apply from April 2021. This is currently planned to apply to partnerships and trusts where at least one member is non-resident so may catch some people by surprise.
Pension – There was no raid on pensions this year as some had been speculating. However, the tapering of pension relief for higher earners was significantly eased at least partly in response to NHS doctors and consultants complaining that it was making taking on extra work uneconomical.
Corporation tax – Corporation tax which had previously been due to fall to 17% this April has been kept at 19%.
Personal tax allowances – The personal tax allowance has remained unchanged at £12,500 but as already announced the lower national insurance threshold has been increased to £9,500.

These are just some of the announcements made yesterday. To read more please see our budget summary at the top of this page or download the PDF document.

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.

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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.

Foreign ownership of UK property: What do the new rules mean for your investment structures?

Richard Verge - Tax Director - rverge@goodmanjones.com

Posted on 24th September 2019

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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.

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.

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Previously 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.

UK Commercial Property owned by non-residents

Richard Verge - Tax Director - rverge@goodmanjones.com

Posted on 25th June 2019

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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.

CGT rates have changed since this article was written and more up to date information can be found in our 2024 Spring Budget response.

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.

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Philip Hammond was only prepared to make a modest number of spending commitments in his Spring Statement

The 2019 Spring Statement – Summary

Richard Verge - Tax Director - rverge@goodmanjones.com

Posted on 14th March 2019

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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.

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.

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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.

Stamp Duty Land Tax & Multiple Dwellings Relief Claims

Richard Verge - Tax Director - rverge@goodmanjones.com

Posted on 5th March 2019

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Increases in the rate of Stamp Duty Land Tax (SDLT) 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. One such anomaly is the effect of Multiple Dwellings Relief (MDR).

Multiple Dwellings Relief

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 a multiple dwellings relief 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.

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.

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

UK Budget Summary 2018

Richard Verge - Tax Director - rverge@goodmanjones.com

Posted on 30th October 2018

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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.

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.

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An increase in IHT is far more likely than a reduction, and there is already a lot of speculation around the high cost to the exchequer of business property relief (BPR).

Will Philip Hammond’s first Autumn Budget be a budget for the young?

Richard Verge - Tax Director - rverge@goodmanjones.com

Posted on 20th October 2017

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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?

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.

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Some people have, however, attempted to incorporate via a partnership in order to reduce their exposure to SDLT.

Should I Incorporate my Buy-to-Let Business Revisited 2017

Richard Verge - Tax Director - rverge@goodmanjones.com

Posted on 10th May 2017

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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.

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.

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For the 2016/17 tax year onwards this maximum is tapered for 'high-income individuals' (those with income in excess of £150,000).

Pension contributions: Tapered reduction of annual allowances

Richard Verge - Tax Director - rverge@goodmanjones.com

Posted on 13th April 2017

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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.

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.

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