Tax Planning – Income Tax Shelter for 2010/11

Posted on February 28th, 2011

Tax Planning – Income Tax Shelter for 2010/11

Just imagine… you do not need to pay income tax at the 40% or 50% rate for this tax year! Instead, you’ve used that money to buy UK property with the potential for returns and….. you get cash back for doing it! How does that feel?

This works very well for self-employed earners as well as employees as it doesn’t matter if you’ve already suffered income tax on your salary and/or bonus, because this will be refunded.

Sound too good to be true?

No this is not fantasy, it is reality and the Government wants you to do this.

Why?

Well because you are investing in areas deemed to be in need of regeneration (think Canary Wharf in the 80’s which was funded with this same technique) and the Government wants to encourage British taxpayers to invest in such areas to help stimulate the local economy, attract businesses and create jobs. The incentives for doing this are the advantageous tax breaks.

Key highlights are as follows:

• The tax relief is given by way of a statutory claim. This is not based on some interpretation, but is a statutory relief enshrined in tax law.
• It is a Government-backed tax shelter.
• An individual effectively invests part of their tax money in commercial buildings situated in an enterprise zone via an enterprise zone syndicate.
• Enterprise zone = regeneration area (Canary Wharf is an example).
• The tax relief is provided through the form of capital allowances and has been around since the early 1980’s.
• Income tax at the 40% or 50% tax rate is sheltered for the 2010/11 tax year.
• Last chance to claim – the relief will no longer be available after 5 April 2011.

The result:

– you obtain a substantial shelter against your income tax at the 40% or 50% rate (depending upon which tax bracket you fall into) for 2010/11;

– you instead use part of that tax money to buy an investment (the £30,000 shown above) backed by commercial property and cash on deposit with the potential for returns on that investment; and

– you get cash back (i.e. the tax relief exceeds your investment so you end up cash positive).

The choice is:

– pay the tax man your income tax at the 40% or 50% rate and wave goodbye to that money forever; or

– use that money to better effect – accept the tax man’s offer to use that money to make an investment with potential returns and get cash back (if you’ve already paid the tax through PAYE) or be cash positive (if you’re self employed and yet to pay your income tax on account).

So what are you waiting for?

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can make you wealthier this tax year or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

201/11 is the last tax year this particular tax break will be around so you need to use it or lose it.

Don’t delay. Applications are already being received and this is only available on a “first come, first served” basis and will fill up very quickly.

http://www.newshams.com

28th February 2011

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Attention Property Lawyers!

Posted on February 25th, 2011

HM Revenue and Customs (HMRC) have announced a change to the information required in Stamp Duty Land Tax (SDLT) returns.

Each lead purchaser will need to use a unique identifier. Individuals will use their National Insurance number, and companies either their UK Company or partnership Unique Taxpayers Reference, or their VAT registration number. Arrangements for lead purchasers that do not have any of these unique identifiers will be published in due course.

There will also be amendments to both the online filing system and form SDLT1. Minor changes will be made to forms SDLT3 and SDLT4.

HMRC has stated that the new forms will be available for use from April 2011 and must be used with effect from 4 July 2011.

25 February 2011

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Furnished Holiday Lettings Rules

Posted on January 20th, 2011

The Government has recently published revised proposals for new rules on the taxation of furnished holiday lettings (FHLs). According to the Government’s own figures, approximately 25% of existing FHL businesses will cease to qualify under the proposed new rules.

Simon Newsham summarises the Government’s proposals below.

What are the existing rules for FHLs?

In general, leasing of real estate is taxed under the rules for property businesses. However, there are specific rules for FHLs, which allow an FHL business to be treated as a trade for certain purposes if it meets a number of conditions. Trading treatment is more beneficial than property business treatment.

Summary of the Government’s revised proposals

Extension of the FHL regime

The Government will extend the FHL regime on a permanent basis to cover FHLs situated anywhere in the European Economic Area (EEA).
Deferred increase in commercial lettings thresholds

The Government will extend the minimum periods for which an FHL must be:

• Available for letting to the public each year (the availability threshold) from 140 days (20 weeks) to 210 days (30 weeks).

• Actually let to the public each year (the occupancy threshold) from 70 days (10 weeks) to 105 days (15 weeks).

The changes will take effect from April 2012, which means:

• For individuals and partnerships, the new thresholds will apply from the start of the 2012-13 tax year; and

• For companies, for accounting periods beginning on or after 1 April 2012.

Increasing these thresholds is intended to ensure only people running FHLs as a commercial business benefit from the favourable tax treatment offered by the FHL regime.

Occupancy threshold: period of grace

If your FHL business meets the new 15-week occupancy threshold in one year, it can elect to be treated as having met the occupancy threshold in each of the following two years, even if your business does not in fact meet the threshold in those years.

• This grace period is designed to address concerns that the increased occupancy threshold will result in a significant number of businesses qualifying for FHL treatment in some years (but not in others) which would create particular problems when operating the capital allowances rules.

• Guidance on the operation of these provisions will be published by the Government before the April 2012 implementation date.
Occupancy threshold: existing averaging provisions remain in place

• The existing averaging provisions will be retained. Subject to a valid election, the current system permits all properties within a business to qualify for FHL treatment where, on average, they meet the occupancy threshold for a particular year.

• Separate averaging calculations and elections will have to be made for properties in the UK and elsewhere in the EEA. Where a person operates both UK and EEA FHL businesses, it will not be possible to apply the averaging provisions across all properties. At least two separate calculations and two separate elections will have to be made.

Restriction of loss relief

The Government will restrict loss relief so that losses from a UK or EEA FHL business can only be set against income from the same business. The restrictions will apply for:

• Individuals and partnerships from 6 April 2011.

• Company accounting periods beginning on or after 1 April 2011.

No change to capital allowances rules

The Government will not go ahead with its proposal to maintain separate capital allowances pools for expenditure incurred on a property qualifying only intermittently under the FHL rules. The existing capital allowances rules will continue to apply.

Implications of the proposals for businesses

• The increased commercial lettings thresholds (and particularly the new 15-week occupancy threshold) are likely to have the greatest impact on:

o new start-ups; or

o existing businesses, which are either not being run on a truly commercial basis or whose properties are located in areas with a short commercial letting season.

• Businesses continuing to qualify under the new FHL rules are likely to have to pay more tax relative to their 2010-11 position. This will mainly be because they will no longer be able to offset any losses against non-FHL income.

• The new period of grace provisions should help your business if it qualifies intermittently under the increased occupancy threshold, particularly in relation to the cost and administrative burden of operating the capital allowances rules.

To find out more contact Newshams Tax Solicitors on +44 (0) 20 7470 8820, e-mail us at enquiries@newshams.com or visit our website http://www.newshams.com

20th January 2011

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Stamp Duty Land Tax Planning Technique in the Tax Tribunal

Posted on December 1st, 2010

 

SDLT – Planning Technique in the Tax Tribunal 

As has long been anticipated, a stamp duty land tax (SDLT) planning technique, which relied upon the use of sub-sale relief and the rules dealing with partnerships, was heard in the Tax Chamber of the First-tier Tribunal last week.

The technique was used in order to achieve an SDLT saving in excess of £65 million. The planning relied on a combination of two reliefs. Broadly, sub-sale relief operates so that, on a transfer of property from A to B which is immediately sub-sold to C, the intermediate purchaser, B, does not have to pay SDLT as that transaction is disregarded for SDLT purposes. The expectation behind the legislation is that C will fully account for the SDLT. However, this planning combined sub-sale relief with the special computational rules for transfers to partnerships so that the transfer to C also escaped an SDLT charge.

HM Revenue and Customs (HMRC) are arguing that the tax planning does not work because B, as the intermediate purchaser, had not acquired an interest in the property which could be transferred to the partnership. It will be interesting to see how the Tribunal interprets the various provisions dealing with sub-sales and partnerships.

A decision is expected early next year and possibly in February 2011.

A number of SDLT planning techniques have been devised by taking advantage of the notoriously difficult (and rather badly drafted) SDLT partnership legislation and sub-sale relief. Depending upon the outcome, this may be the beginning of an avalanche of SDLT cases being brought by HMRC.

Whilst SDLT planning is always being targeted by HMRC, there are a number of other planning arrangements that can be used to reduce (or totally mitigate) the SDLT payable on a property transaction.

To find out more contact Newshams Tax Solicitors on +44 (0) 20 7470 8820, e-mail us at enquiries@newshams.com or visit our website http://www.newshams.com

1st December 2010

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Inheritance Tax Planning

Posted on November 30th, 2010

Inheritance Tax Planning – Save 40% Today!

It is fair to say that, even with the current economic crisis and its negative impact on house prices, we have now reached the situation where inheritance tax impacts a wide range of families and is certainly no longer the preserve of the rich.

There is a quote that inheritance tax is “a lifelong comfort for the rich in the assured knowledge that it will be avoided to pamper more the pampered offspring“. But good inheritance tax planning (indeed any tax planning for that matter) need not be limited to the uber-wealthy. The problem is often that those families who are caught by the inheritance tax trap and who certainly do not fall within the “super rich” bracket either do not engage professional advisers or, as can more often be the case, do not have advisers who are proactive to their needs and can add real value.

Our excellent inheritance tax planning technique has the following key features and benefits:

• 100% mitigation from inheritance tax;

• 100% success rate;

• allows an individual’s residential home to be taken out of their estate for inheritance tax purposes and they can still continue to live in it;

• most forms of inheritance tax planning require a number of years (7 years) before the assets become exempt from inheritance tax. This structure achieves the same result within 5 days;

• the planning can be utilised as either death bed or general estate planning; and

• unlike most other structures, this technique allows the client to retain control of their assets and any income generated from such assets throughout their lifetime.

Without any form of inheritance tax planning, those who are subject to inheritance tax would see their estates (above the nil rate bands) diminished by 40%.

This planning can be set up very quickly, allows an individual to retain control of, and benefit from any income produced by, their assets and means that 100% of their wealth can be left to their intended beneficiaries (resulting in far more pampering time).

To find out more contact Newshams Tax Solicitors on 020 7470 8820 or e-mail us at enquiries@newshams.com

http://www.newshams.com

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Group Relief for Stamp Duty Land Tax: Limited Liability Partnerships

Posted on November 15th, 2010

Group Relief for Stamp Duty Land Tax: Limited Liability Partnerships
Stamp Duty Land Tax – A change in HMRC’s view of the law

Background

Where UK real estate is transferred between members of the same group, and provided certain conditions are met, the tax legislation provides a relief from stamp duty land tax (SDLT).

Companies are treated as members of the same group for SDLT purposes if one company is a 75% subsidiary of another or if both are 75% subsidiaries of a third company. Broadly, the 75% relationship refers to the beneficial ownership of a company’s issued ordinary share capital.

A ‘company’ for SDLT group relief purposes is defined as a ‘body corporate’ and includes foreign companies.

Change in View

Until now, HMRC has held the view that a limited liability partnership (LLP) created under the Limited Liability Partnership Act 2000 was not a body corporate and should be ‘looked through’ when considering whether a group relationship existed. The effect of this was that an LLP could not form part of a group for SDLT purposes.

This view has recently been challenged. Following legal advice, HMRC now accepts that, for the purposes of SDLT group relief, a ‘body corporate’ does include an LLP.

An LLP can therefore be the parent in a group structure. However, as an LLP does not itself have issued ordinary share capital it cannot be a subsidiary of other companies. This also means that any subsidiaries of the LLP cannot be grouped with companies that are corporate members of the LLP.

This revised view does not affect which party can claim group relief, but does affect which entities are regarded as forming part of a group.

An LLP cannot claim group relief itself because its chargeable interests in land are treated as held by or on behalf of the individual members, and this position is unchanged.

As such, in broad terms, an LLP continues to be disregarded if it is the vendor or purchaser in a transaction. In such a transaction group relief may be, in part at least, available if some or all of its members (which are incorporated companies) are themselves grouped. It also follows that if an LLP transfers land to a company that it owns, and that is within the LLP headed group, no group relief will be available as the land is deemed to be owned by the members of the LLP, and those members are not within the same group as the company owned by the LLP.

If SDLT group relief has been incorrectly claimed solely as a result of an LLP in the group structure being disregarded or looked through for the purposes of establishing group relationships then HMRC will not seek to revisit the claim.

English partnerships, Scottish partnerships and Foreign partnerships

HMRC’s views on group relief from stamp duty for LLPs, and the stamp duty rules for English general and limited partnerships, Scottish partnerships and foreign partnership, which are also covered in the announcement, remain unchanged.

Comment

Although the announcement confirms that HMRC will not revisit claims for group relief already submitted on the basis that an LLP is transparent for group relief purposes, the change may also mean that certain SDLT avoidance techniques, which utilised the look through status of an LLP, are no longer available.

Please contact Simon Newsham on +44 (0) 20 740 8820 or e-mail him at simonnewsham@newshams.com if you wish to discuss the implications of this change.


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Commonwealth Games 2010 Sponsorship

Posted on October 7th, 2010

Commonwealth Games 2010 Newshams Tax Solicitors Sponsor English Athletes

Simon Newsham with Dame Kelly Holmes and her two Olympic Gold medals!

Newshams Tax Solicitors are very proud to be sponsoring the English athletes at the 2010 Commonwealth Games in Delhi. Our sponsorship has provided much needed support for the athletes in their preparation for the Games and it is fantastic to see the team are already racking up the medals. 

The Commonwealth Games provides a fantastic opportunity for established stars to showcase their talent and an excellent platform for new and emerging talent.

With our support, younger athletes can gain a rare and invaluable experience of competing in multi-sports and can benchmark themselves against some of the best in the world. For further success for the English athletes in 2011 and 2012, this is crucial.

We are extremely grateful to our valued clients and contacts, because without your support we would not be able to support the England Team.

Come on England!

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