Contraction in construction

Posted on May 10th, 2011

Whilst spring heralded signs of recovery in large swathes of the economy, the construction industry continues to buck the trend. Even admitting that the poor weather at the beginning of the year won’t have helped, construction statistics continue to give cause for concern.

Starting with the general picture, although the UK as a whole returned to growth in the first quarter of 2011 with a rise of 0.5%, construction stood out with a 4.7% contraction. More recently the purchasing managers index (PMI) for construction came in at 53.3 in April compared with 56.4 in March. Even though anything over 50 demonstrates some growth, with the warmer weather in April and the slow upturn in UN confidence, industry analysts were hoping for a mark of at least 55.5 in April.

Looking at the two elements of construction, private housing and business premises, the picture is mixed. We had good news from the Council of Mortgage Lenders indicating a 21% rise in gross mortgages in March. However various commentaries since then have been mixed with experts undecided on whether prices are rising, falling or are likely to remain static for some time to come.

Within the business sector a return in confidence will lead to the demand for fresh premises. However with many projects having been partially completed and then put on hold due to the recession the market may not be ready yet for major construction works.

Apart from interest rates which are now expected to remain at 0.5% for some months to come, one of the main drivers behind any demand for construction is cost control. With Stamp Duty Land Tax (SDLT) now at 5% for properties over £1 million those who can mitigate all or part of the tax are more likely to be the ones driving the marketplace forward.

As tax mitigation specialists Newshams are able to give advice on SDLT, how it may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can reduce the tax costs on your corporate transaction or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

http://newshams.com

10th May 2011

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The complexities of corporate transaction tax planning including SDLT implications

Posted on May 6th, 2011

One of the mainstays of the Government’s recovery policy is the encouragement of small business and enterprise. Its success in this area is partially underlined by the number of new companies being registered at Companies House. In March 2011 alone a total of 43,619 new companies were registered, a rise of 5% on the previous year. With company liquidations virtually static at 15,533 for the month the picture for company growth is encouraging.

Those looking to set up a new business have access to a wealth of free advice from organisations such as banks and Business Link. Despite this, worryingly over a third of new businesses fail to ask for advice and undertake little or no research before setting up. These businesses are leaving themselves wide open to potentially sizeable tax charges in the future that could have been avoided.

The truth is that when it comes to managing corporate assets, the way in which they are acquired, treated within the company accounts and disposed of can have a huge impact on tax liabilities. Even the simplest transaction can lead to unexpected tax costs. This is particularly true when restructuring the business, merging with or acquiring another corporation or disposing of either assets or a portion of the business.

Let’s look at a simple example. The largest acquisition many companies will face is that of property. The purchase of property or a lease can attract Stamp Duty Land Tax (SDLT) of up to 5%. However, by taking appropriate advice it can be possible to mitigate this tax entirely. Again, when acquiring another company which has substantial property within its portfolio, the method of acquisition can mean the difference between attracting substantial SDLT charges and zero charges.

The earlier thought is given to potential tax implications the easier it is to mitigate tax charges. This is particularly important when dealing with international transactions and company mergers and acquisitions. However, the tax implications for individuals following company restructuring should also be taken into consideration. As tax mitigation specialists Newshams are able to give advice on corporate restructuring and SDLT, how it may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can reduce the tax costs on your corporate transaction or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

http://newshams.com

6th May 2011

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Stamp Duty Land Tax case won by taxpayer

Posted on March 24th, 2011

The first Stamp Duty Land Tax (SDLT) case taken to the Tax Tribunal by HMRC has been won by the taxpayer. This victory is a vindication of the interpretation commonly applied to one aspect of SDLT regulations by experts although an appeal by HMRC is expected.

SDLT applies when property above a certain value is transferred or sold. A more detailed explanation is provided in our blog entitled “Stamp Duty Land Tax – Mitigation Techniques”. The interpretations applied to SDLT mitigation will become increasingly important as the top rate of tax rises in April from 4% to 5%. It is known that HMRC already have a number of cases that are under consideration of being brought before the tax tribunal although these may be nullified by the recent ruling.

The case brought before the Tax Tribunal centred on a sub-sale of a property to a partnership in which the intermediate buyer and other parties were connected persons. In essence, if person A sells to person B who then sub-sells on to Person C the sale A to B and sub-sale B to C could be deemed to be two separate transactions with SDLT due on both. Section 45 of the Finance Act 2003 allows for relief from this “double taxation” if certain criteria are met.

Although the relationships within the case were complex the Tax Tribunal ruled in favour of the taxpayer. The key plank of this method of SDLT mitigation was that HMRC commonly accepted that Section 45 of the Finance Act 2003 applied when two separate transactions occurred as part on a single completion process. However, it should be noted that the transaction was prior to December 2006 when SDLT “anti avoidance” legislation was put in place. Nevertheless the judgement gives comfort to all those who employed similar schemes.

Newshams have considerable experience in the field of Stamp Duty Land Tax mitigation. We will be studying the Tax Tribunal’s findings carefully and incorporating any recommendations into our existing practices.

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A budget for Enterprise

Posted on March 23rd, 2011

The Chancellor, George Osborne, today set out the key aims of his 2011 Budget as reforming the economy to produce “strong, sustainable and balanced growth that is more evenly shared across the country and between industries”.

In pursuit of these aims he has announced a number of measures to encourage business and enterprise. One key measure is the announcement of 21 new Enterprise Zones. The first ten will sit within the following Local Enterprise Partnership (LEP) areas:
Birmingham and Solihull; Leeds City Region; Sheffield City Region; Liverpool City Region; Greater Manchester; West of England; Tees Valley; North Eastern; the Black Country; and Derby, Derbyshire, Nottingham and Nottinghamshire.

In addition London will benefit from an Enterprise Zone in an area chosen by the mayor, Boris Johnson, with a further ten areas being selected following representations by Local Enterprise Partnerships. Full details with regard to these Enterprise Zones including the exact locations of the first ten will be announced within the next few days.

As an incentive to participating in the new Enterprise Zones, the Chancellor has promised the following key measures:
• 100% business rate discount worth up to £275,000 over a 5 year period for businesses moving into an Enterprise Zone
• All business rates growth within the zone for 25 years to be retained by local authorities
• Simplified planning
• Superfast broadband

The government will also work with LEPS to consider the scope for introducing enhanced capital allowances, the use of Tax incremental finance and trade support.

Further information and clarification with regard to the new Enterprise Zones will be published via this blog when it becomes available.

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Budget countdown for higher earners

Posted on March 17th, 2011

With less than a week to go before the Budget the rumour mill is in full spate. With every passing remark being scrutinised in depth by the financial press it is sometimes difficult to differentiate between controlled leak and mere speculation.

One area hitting the headlines recently has been that of Venture Capital Trusts (VCT). George Osborne has spoken of “question marks” over the future of Venture Capital Trusts leading to speculation on whether they may be scrapped in the Budget. This speculation initially seems to sit at odds with the Coalition’s plans to “rebalance away from over-reliance on debt finance and government spending towards more investment and exports”.

George Osborne’s remarks could be taken as a reaction to the recent recommendation from the Office of Tax Simplification to align the tax regulations for Venture Capital Trusts and Enterprise Investment Schemes. Both VCT and EIS can be effective elements within a tax planning portfolio for higher rate tax payers.

One other tax efficient scheme which is under review is that of Enterprise Zone Syndicates. The current EZS scheme is due to expire at the end of the present tax year and although the government has announced its intention to create further Enterprise Zones the tax and investment regulations have yet to be announced.

Enterprise Zone Syndicates have successfully funded development in deprived areas of the UK, most famously in Canary Wharf. For higher rate tax payers, investing in an EZS via a mix of direct investment and limited recourse loan can result in an immediate cash positive return of just under £20,000. This cash positivity is due to the investor claiming capital allowances for their investment.

In the current financial climate potential investors may be a little concerned regarding the occupancy level of the EZS building. Contracts drawn up with developers include a guarantee by the developer to pay syndicated income until such time as the building is let. This income initially services the bank loan. Incoming tenants have to be acceptable to the syndicate and the lead bank and tend to be large companies or government bodies. This helps to ensure continuity of servicing for the loan element of the EZS.

With the present EZS regime ending at the end of the 2010/2011 tax year there is great interest in the remaining few schemes. Those interested in exploring investing in an EZS should act sooner rather than later, initially by telephoning Simon Newsham for further information.

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Income tax planning 2010/11

Posted on March 16th, 2011

HMRC has issued a timely reminder to everyone filing Income Tax Self Assessment (ITSA) Tax Returns that the new penalty regime for late filing of returns starts shortly. This includes not only an initial £100 fine but daily charges of £10 for the first 90 days, followed by further charges and interest. One major change is that the penalties will now apply to everyone regardless of whether tax is due.

This tough stance is aimed at reducing the 1.5million returns which are either filed late or are never filed at all. Late and missing returns account for around 13% of total Self Assessment forms and cost in excess of £300,000 in additional Revenue time.

Full details of the new penalties will be sent out with tax forms in April. However, this reminder from HMRC comes at an opportune time, with only a few weeks left to maximise tax planning for the current financial year. One income tax shelter arrangement which is proving popular among higher rate tax payers is that of investing in an Enterprise Zone Syndicate (EZS). By using a combination of direct investment linked to a limited recourse loan 50% tax payers investing in an EZS can end up cash positive to the tune of just under £20,000.

Whilst this seems too good to be true, EZS schemes are government backed tax shelter arrangements which have been assisting higher rate tax payers in their tax planning for the past 30 years. Whilst EZS schemes work out best for 50% tax payers, those paying tax at 40% can still benefit to a lesser extent.

Enterprise Zone Syndicates raise money to fund building and regeneration work in deprived areas of the UK. The most famous regeneration funded by EZS is the Canary Wharf development in London. However, EZS schemes have operated throughout the UK over the past 30 years with current schemes including developments in North Lanarkshire and Newcastle upon Tyne.

Before investing in an Enterprise Zone Syndicate it is important that some time is taken to review an individual’s tax position with a view to maximising tax mitigation. With the interest currently being shown in the available EZS schemes and the short time left to the end of the tax year Newshams recommends that those interested contact us as soon as possible to initiate a review of their tax situation.

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A taxing time

Posted on March 14th, 2011

The Japanese earthquake and tsunami has shocked everyone around the world and our thoughts are with the Japanese people as they start the task of reconstruction. As the full scale of the disaster unfolds the financial markets are still trying to assess what the eventual fall out will be. At the time of writing, whilst the FTSE has fallen it has not taken the nose dive that some might have expected whilst oil prices also fell on the back of an expected reduction in Japanese demand in the short term.

Although the picture will take some time to clear, the Japanese disaster may provide some investors with the impetus to review their investment portfolio. With the end of the current tax year fast approaching any portfolio rebalancing should take into account the potential tax implications of investment decisions with steps taken to maximise tax savings.

One avenue open to higher rate tax payers is that of investing in an Enterprise Zone Syndicate (EZS). A staple of UK tax planning for the past thirty years, Enterprise Zone investments have contributed towards the successful regeneration of deprived areas of the UK, most noticeably in the Canary Wharf development. Syndicates open for investment at present include schemes in Newcastle Upon Tyne and North Lanarkshire.

The Government has announced its intention to promote further Enterprise Zones to help to regenerate the UK’s deprived areas but whether they will follow the same funding path as current schemes is presently unknown. Whilst we wait for details to be announced, the current tranche of EZS schemes expire at the end of this tax year and places in the remaining syndicates are filling up fast.

Investment within an EZS is typically made via a combination of direct investment and limited recourse loan. Depending on the scheme chosen and the investment mix 50% tax payers can find themselves cash rich to the tune of just under £20,000 following the investment. The schemes are also worth considering for 40% tax payers who can finish up cash rich to the tune of just over £9,500.

Newshams recommends that those interested in investing in an EZS contact them as soon as possible to allow time for tax positions to be fully explored by the end of the tax year.

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Time is running out for year end tax planning

Posted on March 10th, 2011

Time is fast running out for those looking to complete their tax planning for the 2010/2011 tax year. With only just over three weeks in which to review, plan, complete applications and transfer funds the clock is ticking for those wanting to maximise ISA allowances let alone take advantage of pension and other tax planning measures.

One such measure which is particularly appropriate for 50% tax payers is investing in Enterprise Zone Syndicates (EZS). After thirty years of success in funding deprived area developments such as Canary Wharf, the current EZS schemes close at the end of the current tax year. Whilst the Government has announced that it intends to create further enterprise zones exact details are unclear at present. In any event, the time for investing to take advantage of the current tax year is now.

Enterprise Zone Syndicate managers have reported a huge amount of interest in current schemes and applications are arriving daily. With investments allocated on a first come first served basis there is a chance that those delaying may find the investment opportunity has closed.

Investing in EZS is a tax efficient way of helping to regenerate deprived areas. A 50% tax payer investing £30,000 alongside a £70,000 limited recourse loan can find themselves cash positive to the tune of just under £20,000. This cash return is thanks to tax relief provided by way of capital allowances. Even a 40% tax payer can find themselves cash positive to the tune of just under £9,600 following an investment in an EZS scheme.

From a technical point of view these schemes are classified as syndicate arrangements rather than unregulated collective investment schemes. Newshams currently provide advice on two schemes, both of which are managed via an EZS market leader with a proven track record.

Given the level of interest in EZS schemes those wishing to explore including an EZS within their tax planning would be advised to contact us for initial discussions immediately.

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Helping the country whilst mitigating tax

Posted on March 8th, 2011

Top rate tax payers have only a short time left to take advantage of a Government backed tax mitigation scheme warns Newshams Tax Solicitors. The current scheme which gives tax relief for investments in Enterprise Zone development and which has been running since the early 1980s is due to expire at the end of the present tax year.

Over the years the Enterprise Zone scheme has successfully sponsored such iconic developments as Canary Wharf and created thousands of jobs in underdeveloped areas of the UK. Whilst the Chancellor, George Osborne, announced the creation of new enterprise zones in his speech to the Conservative Spring conference on 5 March, the funding details are still unclear. What is clear is that those wishing to benefit in the current tax year have only a short time left to invest.

Essentially investments in Enterprise Zone developments attract tax relief in the form of capital allowances. This means that a top rate tax payer investing £100,000 by way of £30,000 direct investment and a £70,000 limited non recourse loan will end up cash positive in the tune of just under £20,000. Taxpayers falling within the 40% tax bracket and investing in a similar way can end up cash positive to the tune of just under £9,600.

With Enterprise Zone investments paving the way to regeneration of deprived areas they can be an ideal way for top rate tax payers to help in the revival of the UK’s fortunes whilst mitigating tax.

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An enterprising way to mitigate tax

Posted on March 7th, 2011

Rightly or wrongly the perception of many people is that the Government’s main preoccupation is to find ways of increasing tax. With the inevitable consequence of the recent recession it is true that tax allowances and rates are changing and regular studies report on how this will affect one sector of society or another. It is therefore good to see that rewards are still available for those who are interested in contributing to certain causes that will benefit the country.

One such cause is an investment in an Enterprise Zone. In the early 1980s enterprise zones were identified by the then government as areas within the country which would benefit from regeneration and where such regeneration would enhance both the national and local economies. One famous example of an enterprise zone was the area of London now known as Canary Wharf. Whilst most of the enterprise zone developments have been completed, there are still investment opportunities available in the current tax year.

Those investing in enterprise zones receive tax relief by way of capital allowances. With a combination of direct investment and limited recourse loan a 40% tax payer will be cash positive after tax relief by just under £9,600. A 50% taxpayer will be immediately cash positive by just under £20,000.This apparently “too good to be true” scenario is actually a government backed tax shelter arrangement and completely legitimate.

Unfortunately the current Enterprise Zone scheme runs out at the end of this tax year and although the Chancellor has announced his intention to create more enterprise zones those interested in investing and mitigating their 2010/2011 tax need to act quickly. Further information with regard to this scheme including advice on individual tax positions is available from Newshams and those interested should contact us as soon as possible for an initial discussion.

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