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
© Gabelle LLP 2014
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
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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
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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
© Gabelle LLP 2014
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
© Gabelle LLP 2014
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)
© Gabelle LLP 2014
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
© Gabelle LLP 2013
40%
28%
10%
9. Valuations
• When to obtain HMRC approval
• Methodology
• Discounts
• Specific situations
– Goodwill
– Trade related properties
– Shares: PAYE / readily convertible assets
© Gabelle LLP 2014
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
© Gabelle LLP 2014
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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