Tax Tips Presentation 18 April 2013

1. 18 April 2013
Mark Rubinson
Arram Berlyn Gardner
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

2. What are we looking at today?
Personal Tax
Capital Gains Tax
Property Tax
Benefits in Kind
Pensions, ISAs & Investments - EIS, SEED,
SEIS,VCTs
Domicile Status
Business Property
Inheritance Tax
Copyright Arram Berlyn Gardner 2013
Charitable Giving
www.abggroup.co.uk

3. Personal Tax Planning
2012/2013 2013/2014 2014/2015
Personal allowance £8,105 9,440 10,000
Basic rate band £34,370 32,010 31,865
5 million people 41,450
£42,475 41,865
expected to pay
Copyright Arram Berlyn Gardner 2013
40% tax by 2015
www.abggroup.co.uk

4. Personal Tax Planning
Any unused personal allowance cannot be carried forward
Jointly owned assets with spouse
Income assumed to be received 50:50 regardless of actual
ownership (default position) – remember to inform HMRC if
otherwise
Consider transferring assets so lower paid spouse gets
investment income
Beware though of marital issues!
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

5. Personal Tax Planning
Reduced personal allowances if income above £100,000
No indexation of limit
Allowance reduced by £1 for each £2 of excess over £100,000
No personal allowance above £118,880 income in 2013/14 (2014/15 £120,000)
Top rate now 45%
Copyright Arram Berlyn Gardner 2013
Effective marginal tax rate 60% between £100,000 and £118,880
(Consider 60% tax relief on pension contributions)
www.abggroup.co.uk

6. Child Benefit Tax
Full year effect in 2013/14
Started 7/1/2013 but no tax collected yet – awaits self-assessment returns
Starts at £50,000 income and all benefit is lost if income £60,000 or more
1% child benefit charge per £100 of income over £50,000
Effective 57.52% marginal rate for two-child family
Inter-spouse transfer or stop payment?
Pension contribution
Copyright Arram Berlyn Gardner 2013
But new childcare scheme phased in from autumn 2015 worth up to £1,200
per child, per year eventually
www.abggroup.co.uk

7. EIS
30% income tax relief on cost of EIS shares
Maximum £1m per annum per person
Unlimited deferral of CGT up to the amount of the cost of the
EIS shares (held over gain)
Tax exempt capital gains on profitable disposal of shares
Tax relief against either income or capital gains for any
capital losses
Exempt from IHT if held for 2 years at death
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Maximum shareholding 30% for income tax relief
EIS for all new companies where possible
www.abggroup.co.uk

8. Seed EIS – 64% tax relief!
50% income tax relief for
Investments up to £100,000
EVEN IF YOU DON’T PAY 50% TAX!
Exempt from CGT when sold
Re-investment exemption continues but only ½ the re-invested gain
Therefore maximum possible is 64% tax relief in 2013/2014 (50% plus ½
of 28%)
Each company can only raise up to £150,000 under SEIS
Copyright Arram Berlyn Gardner 2013
See accompanying notes
www.abggroup.co.uk

9. ISA
Applicable - 2013/14
£11,520 per person
£ 23,040 per couple
PEP/ISA millionaires!!!
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

10. Children- ISAs
Junior ISA
£3,720 for 2013/14 up to the age 18
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

11. Venture Capital Trust (VCT)
Maximum £200,000
30% tax credit against income tax liability
Exempt from CGT
Company can raise maximum of £5m
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

12. Employ Spouse or Child
Business will get tax relief on salary
Should be justifiable
Consider a salary of approx £7,000 per annum (if justifiable)
No PAYE/NI
Consider making your spouse a partner
Partners do need to be genuinely involved as business partners
Copyright Arram Berlyn Gardner 2013
(though not necessarily equally)
www.abggroup.co.uk

13. Working Abroad
Time your departure carefully
If away for a whole tax year, the income may be free of all UK
tax
Statutory definition of residence introduced from 6 April 2013
Very complicated
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

14. Remittance Basis for Non Doms
Annual £30,000 remittance basis charge (RBC) applies if non
dom and tax resident for at least 7 out of the previous 9 tax
years
Permits non doms to avoid tax on non UK income and gains
unless remitted or enjoyed in the UK
But loss of personal allowance & CGT annual exemption.
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

15. Remittance Basis for Non Doms (cont)
A £50,000 RBC was introduced on 6 April 2012 for non doms
who have been tax resident in the UK for 12 years or more out
of the previous 14 years
The £30,000 RBC will continue to apply for those resident for
more than 7 years but less than 12
Remittance basis/arising basis can be claimed/disclaimed on a
year by year basis depending on the facts
See accompanying notes
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

16. Remittance Basis for Non Doms (cont)
A claim will not be required for individuals with unremitted
offshore income/gains of less than £2,000
They will still be entitled to personal allowances and the CGT
annual exemption
Necessary to have a source of overseas income or gains which
can be nominated to support the remittance basis claim
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

17. Remittance Basis for Non Doms (cont)
This need only be £1 per annum (non UK income)
Very complex
Beware of tax in other jurisdictions
From 6 April 2012 remittances of foreign income/gains invested
in a company carrying on a qualifying UK trading or commercial
letting business have been exempt
See accompanying notes
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

18. Remittance Basis for Non Doms (cont)
No limit
Segregate accounts to hold non UK income, “clean” capital and
non-UK capital gains.
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

19. Income -v- Capital
Income -v- capital (45% -v- 18%/28%)
HMRC are looking carefully at CGT/income tax anti avoidance legislation
Specific investments
Zero coupon bonds
Zero dividend preference shares
Low yield funds
Buy to let property
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

20. Spouses
Transfer of 50% of shares in trading
company to spouse (strong marriage!)
No income shifting problems (at present)
Spouse can get Entrepreneurs Relief but
has to be a director/employee and must
have been a shareholder for at least 12
months
Dividends to husband and wife as opposed
to only one spouse
Copyright Arram Berlyn Gardner 2013
After 2 years both spouses can get
Business Property Relief (for IHT purposes)
www.abggroup.co.uk

21. Capital Gains Tax
Annual exemption £10,900 (couples £ 21,800) for 2013/14
Lower rate 18% - Higher rate 28%
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

22. Capital Gains Tax (cont)
Entrepreneurs’ Relief 10%
Maximum £10million per person.
Husband and wife get £10million each (£20million total).
e.g. Sell for £20million, can save £1.8million.
Employee 12 months or more including being a director
Shareholding 5% or more
Copyright Arram Berlyn Gardner 2013
12 month and 5% rules are relaxed for shares acquired on the exercise of EMI
options.
www.abggroup.co.uk

23. Entrepreneurs’ Relief
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

24. Capital Gains Tax (cont)
If one spouse has unused losses these can only be
used against gains incurred by the same spouse
Transfer of assets before the sale can therefore reduce
the overall tax liability
No CGT on transfer of assets between permanent
separation and the following 5th of April
There will be CGT from the following 6 April onwards
Copyright Arram Berlyn Gardner 2013
Therefore, separate on 6 April if possible!
www.abggroup.co.uk

25. Negligible Loss Claim
If you subscribe for unquoted trading shares can get 45%
income tax relief on loss
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

26. Property
Main residence relief
Ensure you pay no CGT!
You can elect which property is your PPR (whichever
country!)
Last three years exempt
PPR election must be submitted to HMRC within two years of
a second property being available for occupation.
Copyright Arram Berlyn Gardner 2013
Non PPR’s should possibly be owned jointly by couples to get
two CGT annual exemptions.
See accompanying notes
www.abggroup.co.uk

27. Lettings Relief
Available on sale of let property provided it was your Principal
Private Residence (PPR) at some point during ownership
Relief is the lower of:
1.The gain attributable to the letting period
2.The gain attributable to the PPR period
2.£40,000
See accompanying notes
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

28. Rent a Room
Maximum £4,250
Tax free
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

29. Business Premises
If business premises are owned personally but used
in your company or partnership and a full rent is
charged this can impact on entrepreneurs relief
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

30. Bank Deposit or Investment
Account
Consider closing account before 6 April 2014 to
crystallise interest income in 2013/2014 if beneficial.
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

31. Pensions
Under 75
If you are under 75, you can make personal pension
contributions of up to £3,600 (£2,880 net).
You do not need any earnings!
Those aged over 55 may even draw the pension immediately
including a 25% cash free lump sum.
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

32. Pensions (cont)
Maximum £50,000 for 2013/14 (£40,000 2014/15)
Basic rate relief at source
3 year carry forward - £150,000 (maximum £200,000)
Remember a £50,000 gross contribution costs a 45% taxpayer
£27,500!
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

33. Pensions (cont)
Life time limit for 2013/14 = £1.5m reducing to £1.25m in 2014/15
25% tax free lump sum at aged 55
Beware annuity rates!
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

34. Inheritance Tax
40% of a person’s assets on death plus gifts made in
the seven years before death over the nil rate band
£325,000 for 2013/14
A person is deemed domiciled in the UK and subject
to IHT on worldwide assets if resident in the UK for
17 out of the past 20 tax years
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

35. Inheritance Tax (cont)
If not deemed domiciled in the UK subject to IHT
only on UK situs assets (regardless of residency
status)
Therefore careful planning required if you are likely
to become deemed domiciled in the next couple of
years
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

36. Inheritance Tax (cont)
Make regular gifts such as paying school fees, etc
Transfer assets prior to death and make sure you live for 7 years!
Or
Transfer £325,000 (£650,000 for married couples) into a trust every 7
years
Or
Copyright Arram Berlyn Gardner 2013
Give away £325,000/£650,000 every 7 years
www.abggroup.co.uk

37. Inheritance Tax Planning (cont)
No IHT implications:-
£3,000 personal annual allowance for gifts to anyone
£5,000 to children when they marry
Any number of gifts up to the value of £250
Normal expenditure out of income
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

38. Inheritance Tax Planning (cont)
IHT exempt assets :-
Assets left to spouse/civil partner
Assets left to charities
Assets left to political parties (special conditions
apply)
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

39. Inheritance Tax Planning (cont)
IHT exempt or 100% business property relief available on:-
Farmland
Interests in trading partnerships
Sole trader business
Shares in a qualifying EIS company
Unquoted shares – controlling interest - 100% relief
Land, building, etc used in the business – 50% relief
AIM shares if held for 2 years or more – 100% relief
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

40. Inheritance Tax Planning (cont)
Write life assurance policies into Trust to ensure that
they are paid free of IHT
Review your Will prior to the tax year end
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

41. Inheritance Tax Planning (cont)
Family debt scheme
No CGT
No GROB
See accompanying notes
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

42. Charitable Giving
Obtain tax relief for cash gifts if you make a Gift Aid
Declaration
Up to 45% tax relief - Must be a registered charity
Visit www.charity-commission.gov.uk
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

43. Charitable Giving (cont)
Can elect for donations made in one tax year to be treated for
tax purposes as if you have made them in the previous year.
Should elect if tax rate is higher in the previous year
Election must be made in writing at the same time as, or
before, filing tax return for the earlier year
Further relief for gifting certain investments in shares or land
and properties to charities
This is a deduction from total income and is potentially very
Copyright Arram Berlyn Gardner 2013
valuable
Carry back to previous tax year is not available
www.abggroup.co.uk

44. Charitable Giving (cont)
If 10% or more of your net estate is left to charity the IHT
rate applying to the Estate is reduced to 36% from 40%
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

45. Annual Residential Property Tax
From 6 April 2013 ARPT levied on all high value residential
property owned by non-natural persons
High Value = more than £2m as at 1 April 2012 or date of
purchase if later
Non-natural persons = limited companies, partnerships with a
corporate member and collective investment schemes
Exemptions for property letting and property development
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

46. Annual Residential Property Tax
Property Value ARPT
£2m - £5m £15,000
£5m - £10m £35,000
£10m - £20m £70,000
£20m+ £140,000
Must submit an ARPT return to HMRC by 30 April each year
even if relief is to be claimed for an exemption
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

47. CGT on high value
residential property
CGT at 28% is payable by non-natural persons who pay the
ARPT and make gains on the sale of the property
Only the increase in the value of the property since 6 April 2013
is taxed
Applies both to UK resident and non-UK resident non-natural
persons
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

48. Real Time Information
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

49. Copyright Arram Berlyn Gardner 2013
GAAR
www.abggroup.co.uk

50. Capital Allowances
AIA £250,000 from 1 January 2013 to 31 December 2014
Complicated transitional rules
Spreadsheet available from ABG to perform the calculations
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

51. Corporation Tax
Main rate from 1 April 2012 is 24%
Small profits rate 20% (up to £300,000)
Y/e 31.3.2014 23%
Y/e 31.3.2015 21%
Y/e 31.3.2016 20%
Copyright Arram Berlyn Gardner 2013
Marginal rate now 23.75%
www.abggroup.co.uk

52. Dividends
Lots of companies (often owner managed companies) pay
dividends quarterly
Paperwork must be drawn up
Regular management accounts
Must have distributable reserves
Dividends – higher rate tax 25% for 40% taxpayers
Salaries – total NIC costs up to 25.8% (13.8% plus 12%)
Copyright Arram Berlyn Gardner 2013
Maximum tax on dividends 2013/14 is 30.6% for additional
rate taxpayers
www.abggroup.co.uk

53. Dividends
If gross dividend income (including 10% tax credit) for
2013/14 falls into the basic rate band of £41,450 including
personal allowance there will be no tax payable on the
dividend (£82,900 gross per married couple).
Consider transfer of shares to spouse before dividend
payment.
Beware marital issues!
Copyright Arram Berlyn Gardner 2013
Remember that tax credits on dividends are not repayable.
www.abggroup.co.uk

54. Extracting Profits
Salary
National Insurance totals 25.8% but salary is deductible from
taxable profits in the company
Bonuses
Bonus must be due and payable before the company year end
even if paid after the year end (within 9 months)
Dividends
Up to £41,450 gross no additional personal income tax payable.
(£82,900 per married couple)
However, not deductible expense for corporation tax purposes.
Copyright Arram Berlyn Gardner 2013
No National Insurance on dividends
Best to take dividends rather than salary
www.abggroup.co.uk

55. Introduction of Corporate Member
into existing LLP
Partnerships are transparent for income tax purposes
Therefore very profitable LLP’s/partnerships will pay high tax
regardless of members/partners drawings
Particular problem with profitable LLPs/partnerships where
all money is not taken out
Solution: introduction of a corporate member into an existing
LLP
Copyright Arram Berlyn Gardner 2013
NB – the company must introduce capital amounts to
the LLP or have a commercial purpose otherwise its profit share will be taxed
on the individual members
www.abggroup.co.uk

56. Incorporation of post April 2002
Limited Liability Partnership (LLP)
Provided an LLP’s goodwill and other assets are sold to a
new company with consideration due to former members it
should be possible to achieve tax savings
Drawings can be further enhanced by declaring dividends up
to the higher rate tax threshold (approx £37,000 net per
shareholder – assumes no other income)
Corporation tax at 20% to 23% rather than income tax at up
Copyright Arram Berlyn Gardner 2013
to 45%
Potential for tax free drawings
www.abggroup.co.uk

57. Incorporation of post April 2002
Limited Liability Partnership (LLP)
Capital Gains Tax payable on incorporation but:
10% up to £10m (Entrepreneurs Relief)
Write off of goodwill in limited company accounts is
deductible for Corporation Tax purposes
Goodwill should be independently valued
Sale agreement between LLP and limited company should
Copyright Arram Berlyn Gardner 2013
have an adjuster clause which limits the value of the goodwill
to an amount agreed with H M Revenue & Customs
www.abggroup.co.uk

58. Enterprise Management Incentive
Scheme (EMI)
Directors can choose which employees receive EMI options
Company can obtain a corporation tax deduction equal to the excess of the
market value of the shares at the date of exercise over the exercise price
The options can be granted conditionally subject to performance criteria
The directors can decide the exercise and option period
Copyright Arram Berlyn Gardner 2013
Employees don’t have to pay anything until the option is exercised.
See accompanying notes
www.abggroup.co.uk

59. Research & Development tax credits
Rate of R&D tax credit for SMEs rises to
175% since 2008
200% from April 2011
225% from April 2012
Subject to EU State aid approval
See accompanying notes
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

60. Employment Related Securities
Shares to employees
Beware!
See accompanying notes
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

61. Mitigation of SDLT
Stamp Duty Land Tax
Residential maximum is now 7% of the purchases above
£2million. (15% over £2m for non-natural persons e.g. limited
companies and partnerships with a corporate member)
Strategies to reduce SDLT from 7% to approximately 1.5%
Subject to non disclosure agreement
Copyright Arram Berlyn Gardner 2013
7% rate only applies to wholly residential “contracts”
it will not apply to “mixed purchases”
www.abggroup.co.uk

62. Enterprise Zones
21 Enterprise Zones including
Birmingham & Solihull
Leeds City Region
Sheffield City Region
Liverpool City Region
Greater Manchester
West of England
Tees Valley
North Eastern
Copyright Arram Berlyn Gardner 2013
The Black Country
Derby, Derbyshire, Nottingham and Nottinghamshire
London (Royal Docks)
www.abggroup.co.uk

63. Enterprise Zones
Enterprise Zones include incentives for growth including:
100% business rate discount worth up to £275,000 over 5
year period
Business rate growth in the Zone for 25 year to go to the
local authority
Simplified planning rules
Support to ensure superfast Broadband is rolled out
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

64. Benefits In Kind
Some benefits in kind are still tax efficient including mobile
phone and cars with low emissions
Electric company car – no tax charge up to 5 April 2015
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

65. Company Cars
Often better off owning car personally and claiming an
allowance for business mileage.
•Up to 10,000 business miles - 45p per mile
•Each additional mile over 10,000 miles - 25p per mile
Need to maintain a detailed log of the business journeys.
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

66. Company Cars (cont)
Company car tax is extremely high.
If provided with free fuel for company car, the tax
charge is based on CO2 emissions
Consider reimbursing the company for private fuel
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

67. Vans
If private use, then basic benefit is charged at £3,000
a year.
Extra charge £564 (2013/14) if free fuel for private
use is supplied.
If no private use of van, then no benefit and no
charge arises.
Copyright Arram Berlyn Gardner 2013
See accompanying notes
www.abggroup.co.uk

68. Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

69. VAT
Turnover threshold now £79,000
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www.abggroup.co.uk

70. VAT
Reclaim input VAT for entertaining overseas
customers
Includes potential customers
Clarified in Customs Brief 09/11 – February 2011
Can go back 4 years!
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

71. Football!!!
Box at a football ground
Taxpayer won!
See accompanying notes
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

72. Summary
Use CGT annual exemption – it can’t be carried forward or
transferred
Use IHT annual exemption of £3,000
Use up your ISA allowance
Try and get your children to use their junior ISA allowance
Consider use of spouse (strong marriage!)
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

73. Summary (cont)
Separate permanently on or very near 6 April!
Make use of capital allowances
Consider timing of expenditure
Pension contributions – remember a £50,000 contribution will
cost only £27,500
Non doms need to consider arising basis/remittance basis
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk

74. Summary (cont)
Consider timing of bonuses/dividends
Business Premises Renovation Allowance Scheme
Possibility of a CGT negligible value claim at 45% IT relief
Rent a room - £4,250 per annum
How To Get Entrepreneurs Relief on a 20% shareholding even
if you only own 5%
Copyright Arram Berlyn Gardner 2013
Always speak to your tax adviser
www.abggroup.co.uk

75. Contact details
Mark Rubinson
Arram Berlyn Gardner
30 City Road
London
EC1Y 2AB
020 7330 0005
Copyright Arram Berlyn Gardner 2013
mrubinson@abggroup.co.uk
www.abggroup.co.uk

76. Q&A
Thank you for joining us this morning
We will happily answer any of your
questions over coffee this morning.
Copyright Arram Berlyn Gardner 2013
www.abggroup.co.uk