10 hot tax topics Paula Tallon BBS CTA (Fellow) ADIT FCA Gabelle LLP © Gabelle LLP 2014
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What this session will cover 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Entrepreneurs’ relief – personal companies Principal Private Residence elections Interest relief for property businesses Venture capital reliefs ITA 2007, s 131 share loss relief Loans to participators Dividend waivers Giving shares to employees Valuations Salaried partners
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1. Entrepreneurs’ relief Personal company • Hold at least 5% of the ordinary share capital • Able to exercise at least 5% of the voting rights by virtue of the shareholding • Ordinary share capital — “means all the company’s issued share capital (however described), other than capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the company’s profits.” ITA 2007, s989
• 5% measurement by reference to number of shares or nominal value? Canada Safeway Ltd v CIR [1973] Ch 374 • Reference to nominal value © Gabelle LLP 2014
1. Achieving the 5% where EMI is not an option Employees (5) 20% each
Investor
Employees (5) Investor
Newco
85%
85%
15%
3% each
Trading Co
Trading Co
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1. Family companies • No husband and wife aggregation of ownership for either: – Percentage ownership or – Ownership period • Each must meet the qualifying criteria • Each have lifetime limit of £10m
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2. Principal Private Residence elections • Must be made within two years from it becoming necessary to determine which is the main residence -but it can be varied at any time -change in combination triggers new election
• Elect that every residence is the main one for at least part of the period of ownership
• CG64510 – Use of variations known as “flipping” • Reduction in final period exemption to 18 months from 6 April 2014 s222(5), TCGA 1992
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2. Tax cases involving PPR elections • Ellis and another v HMRC [2013] UKFTT 775 (TC) • HMRC argued that property was not the main residence and that election invalid • A J Clarke [2011] UKFTT 619 (TC) • Case involved multiple properties
• Intention to live in properties permanently
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3. Interest relief for property businesses Example • Individual buys a house for £100,000 • Occupied as main residence for 3 years
• House then let out, when market value £500,000 • The owner wishes to release equity from the property business by taking out a loan on the property Considerations • Maximum amount of deductible loan interest • Period of residence for PPR © Gabelle LLP 2014
4. Venture capital reliefs Relief
Income tax relief on investment
Income tax on dividend from investment
CGT exemption CGT deferral
SEIS
50%
Y
Y
12/13 100% exemption 13/14 onwards 50% exemption
EIS
30%
Y
Y
Y
VCT
30%
N
Y
N
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4. SEIS Currently • Income tax relief @ 50% up to £100,000 invested • Exemption from CGT on future sale of shares if held > 3 years • CGT deferral relief: – 12/13 – 13/14
100% of gain reinvested up to £100,000 50% of gain reinvested up to £100,000
• Budget 2014: SEIS relief will become permanent
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5. ITA 2007, s131 share loss relief Use of capital loss against income (s131, ITA 2007) • Loss on qualifying shares (eg negligible value) – EIS / SEIS – Qualifying trading company shares subscribed for by the individual – Loan conversions • Computed as for capital gains • Current or prior year claim • All or nothing claims
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6. Loans to participators Bed and breakfasting Within 30 days • Repayments totalling £5,000 made by a person to close company, and • A new loan or advance of at least £5,000 is made to that person At any time • Immediately before a repayment is made £15,000 is owed by a person to a close company • At any time after the repayment the close company makes a new loan • At the time of the repayment any person intended that the new payment would be made or arrangements had been made for the payment to be made
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6. Loans to participators (2) Arrangements • No statutory definition • Can be: – Unilateral; – Just a third party – Just the company
Repayments • • • • •
Real cash payments Loan write-off Book entries Dividends Emoluments © Gabelle LLP 2014
7. Dividend waivers • Timing – before dividend declared • Commercial purpose behind the arrangements • Gratuitous act – nothing in return
• Distributable reserves of the company • Settlements legislation – taxable on spouse • Not within s626, ITTOIA 2005 (not a gift of the shares) • Donovan & McLaren (TC03188)
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8. Giving shares to employees Example • An employee is given 2% of the shares in an unquoted trading company with an: – Unrestricted MV of £5,000 – Actual MV of £3,000 • The employee is required to pay £3,000 for the shares • The shares are sold 3 years later for £100,000
Considerations • s431 elections • NICs – readily convertible assets • Use of EMI wrapper © Gabelle LLP 2014
8. The calculation UMV AMV Proceeds
5,000 3,000 100,000
IT rate CGT rate Enterpreneurs' relief
1.No s431 election IT At issue At disposal
CGT 15,520
2. s431 election At issue At disposal
Total tax
16,296
31,816
26,600
27,400
9,700
9,700
800
3. EMI wrapper - exercise price AMV At grant At exercise At disposal
0 0
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40% 28% 10%
9. Valuations • When to obtain HMRC approval • Methodology
• Discounts • Specific situations – Goodwill – Trade related properties – Shares: PAYE / readily convertible assets
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10. Salaried partners (Draft FB 2014 sch. 1 part 1)
Applies to • Members of a UK LLP with terms that are more akin to an employment than self employment
• Applicable from 6 April 2014 Impact Amount paid by LLP = salary Individual LLP
PAYE, class 1 primary NICs, Within benefits in kind rules PAYE, Class 1 secondary NICs Salary and NICs tax deductible © Gabelle LLP 2014
10. Salaried partners – 3 conditions If all 3 conditions are met a member (M) is treated as a salaried employee A. Substantially rewarded through a fixed salary
B. Does not have significant influence C. Contribution to the LLP is less than 25% of disguised salary
To recap … 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Entrepreneurs’ relief – personal companies Principal Private Residence elections Interest relief for property businesses Venture capital reliefs ITA 2007, s 131 share loss relief Loans to participators Dividend waivers Giving shares to employees Valuations Salaried partners
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Thank you for listening Paula Tallon Gabelle LLP
Contact Details Tel: 020 7182 4034 Direct Line: 020 7182 4710 Fax: 020 7182 4142 Mobile: 07900 902 700
[email protected] www.gabelletax.com Or call the TaxDesk on 0845 4900 509
© Gabelle LLP 2014
Tax Faculty Portal – Online tax support Personal access to a wealth of current and archived practical online resources including: • Practical advice, news and briefings on hot topics • Monthly Tax Review (MTR) – with deeper insights on current legislation • Reference documents sourced from the FTA and IFA; and • Upcoming events and online seminars Member offer – 50% off TaxDesk helpline Gabelle are offering members authoritative tax support through the TaxDesk support helpline TaxDesk delivers a range of high level and complex tax advice and operates Monday – Friday from 8am to 6pm and is discounted by 50% for members
© Gabelle LLP 2014
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Disclaimer
While care has been taken to ensure the accuracy of the contents of this document, no responsibility for loss occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the lecturer. Delegates should take specialist advice before entering into any specific transaction.
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