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CAPITAL GAINS TAX PLANNING
                                         FOR THE GENERAL
                                           PRACTITIONER




       At the National Financial Directors’ Excellence Awards, Broadcaster Peter Sissons commented:
“...with a score of nearly nine-out-of-ten for quality of service, the highest marks ever for an audit firm in ten years.”
                          Francis Clark LLP, National Auditor of the Year – Mid Tier 2011
Areas to cover
• Business structuring

• Residences

• Gifting and succession

• Trusts

• Divorce

• Residency in other matters

                                     2
Basic planning
• 28% - significant tax rate

• Income related

• Pension contributions/gift aid

• Annual exemption
   £10,600 @ 28% = £2,968
   £10,600 @ 18% = £1,908

                                    3
Capital gains regimes
                         Post 5 April           Companies

Rate of tax            10%, 18% or 28%   20%, 26% or Marginal Rate

Indexation Allowance         No                     Yes

Kink Test                    No                     Yes

Halving Relief               No                     Yes




                                                                     4
Inflation - RPI
• September 2011 237.9

• April 2008 214.0

• Inflation over period – 11.2%

• Real CGT rates over period
  – 35.6% (higher rate)
  – 23.1% (basic rate)

                                     5
Business Structuring



                       6
Business structuring
• Primacy of income tax (s37)

• Partnership

• LLP v LTD

• Availability of entrepreneurs’ relief

• Exclusion of investments/trading status

                                            7
Income tax on trading
• Period of ownership

• Frequency of transactions

• Structure of funding

• Motive

                                   8
Employment income
• Acquisition by reason of employment

• Restricted securities

• Table A

• s431 election (ITEPA 2003)

                                        9
Transactions in securities
• Legislation since 1960 (pt 13 ITA 2007)

• New reforms (simplification)

• Counters converting retained reserves into capital receipt

• Cleary case/Joiner case

• John and Marion Coll (2010)

• Advance clearance procedure

                                                               10
Partnerships
• Statement of Practice D12

• Revaluation and change in PSR

• Residual indexation

• Calculations required

• Permanent files

                                   11
Intangible fixed assets – pt 8 CTA 2009
• Corporation tax only

• Differentiation in roll-over relief rules
   – Companies
   – Individuals


• Applies on or after 1 April 2002


                                              12
Goodwill inherent in properties
• HMRC view

• SDLT issues

• Valuation approach

• Balloon promotions case

                                      13
Substantial shareholdings – sch 7AC
• 12 month period within 24 months before transaction –
  vendor holds 10% of target

• Vendor and target are traders for 12 month period, any
  interim period and immediately thereafter

• Capital gain/loss is exempt

• Anti-avoidance provisions and other complexities

• Dividend stripping

                                                      14
De-grouping charges – s179
• Anti-avoidance provision to stop envelope trick

• New reforms (simplification)

• SSE can now apply

• Hard to pick up and difficult to deal with

                                                    15
Roll-over – s152
• Deferral of tax

• Letting restriction

• Non-business use

• Assets owned outside of companies

                                      16
Entrepreneurs’ relief – when?
• Sale of whole or part of business

• Sale of shares

• Disposal of partnership interest

• Disposal by trustees

• Associated disposal

                                      17
Entrepreneurs’ relief – share sales
IF
• Personal company qualification
    – 5% of votes/ordinary shares
    – Officer or employer
    – 12 months

THEN
• All shares or securities qualify
• Including
    – Other shares
    – Loan notes, etc

BUT care over earn-outs required


                                          18
5% limit
• Attraction of LLPs

• Check family holdings

• Watch preference and unusual shares

• Planning possible

                                        19
Management joint venture arrangements

 Mr A    Mr B       Mr C        Mr D          Mr E    Mr F

                    20%             4%
              35%
                                         4%
        35%                                      2%




                          TradeCo




                                                             20
Management joint venture arrangements
Mr A    Mr B       Mr C     Mr D         Mr E     Mr F


35%                                         4%
                                   4%
       35%       20%                              2%



                                        Mgmt Co
                          10%




               TradeCo




                                                       21
Entrepreneurs’ relief not available if:
• No cessation of a business at disposal

• No disposal at cessation of a business (within
  permitted period)

• Planning options
  – Trust or
  – Incorporation
                                              22
Associated disposals
• Not available for sole traders – accounts issues

• Not just land and buildings

• Payment of rent and transitional relief (para 6 Sch 3
  FA 2008)

• Other restrictions

• Careful planning required
                                                     23
Properties outside
           companies/partnerships
• Review and advise clients

• Farms, hotels and shops

• Lifetime limit now £10m

• Easy to overlook

                                    24
Loan notes
• QCBs – deferred gain is pre-taper

• Non-QCBs

• Clearance issues

• Entrepreneurs’ relief entitlement

                                      25
Deferred consideration – loan notes
• Transitional relief

• Paras 7 and 8, Sch 3 FA 2008

• Applies to EIS shares and QCBs

• Careful review required

                                       26
Earn-outs
• Application of entrepreneurs’ relief

• Personal company qualification

• Transactions in securities

• Cash or securities?

• “Clawback” arrangement (s48)

                                         27
Entrepreneurs’ relief – planning points
• Review shareholdings

• Officer or employee status

• Share ownership type

• Review ownership of assets outside of company

• Trading status

• Parallel ownership vs group structure

                                                  28
Entrepreneurs’ relief – business structuring
• Partnership structuring
   – Husband and wife v sole trader
   – No 5% ownership requirement for LLP (unlike LTD)

• BUT
   – Partnership – exclusion of investments
   – LTD – trading status

• Properties
   – How owned?
   – Rent charged?

• Is the SSE an answer?

                                                        29
EIS possibilities
• Full relief or CGT deferral

• Restrictions on trades
   – Hotels
   – Farming

• Financial limits

• Employee numbers

                                         30
EIS structuring for OMBS
• Careful structuring of set-up
   – Optos plc
   – Blackburn
   – R J Taylor

• On-going restrictions
   – Receipt of value
   – Overdrawn loan accounts

• Fee levels!

                                      31
EIS planning
Investments made can defer gains made up to three
years before and one year after the investment.

Income tax relief also available.

Gains exempt if shares held for three years.



                                                32
Shareholder/family loan
• Capitalise to strengthen balance sheets

• Documentation

• Security

• S131 ITA/s253 TCGA

• Debt for equity swap – loan relationships

                                              33
Loans to companies
• Loans to traders (s253)

• s131 ITA 2007 relief – capital loss on shares offset
  against income

• Share capital reduction rules

• Capitalise loans?

                                                         34
Planning for the worst
• Income tax relief available if:
   – Subsciprtion for shares
   – Unquoted trading company (including AIM)
   – Adjust for tax relief (EIS)

BUT – watch value of shares subscribed (warning)

• Capital loss on loan if:
   – UK trading company
   – Includes guarantees
   – Who’s making gains?
                                                   35
Non-cash remuneration
• Share incentive schemes – EMI

• Entrepreneurs’ relief
  – 5%/one year qualification criteria
  – If not met, then 18% or 28%
  – But better than 42%/52% (or more)




                                         36
Properties owned outside of
          companies/partnerships
• Lease terms

• Insolvency arrangements

• Entrepreneurs’ relief

• Business property relief

                                      37
BPR Pitfalls

A                B




    AB LIMITED       PROPERTY




                                38
BPR on properties – planning issues
• Disincorporation?

• Parallel and non-group structures

• Future tax changes
   – Restriction of APR
   – Rates of BPR

• No restriction if rent paid

BUT need to review previous planning approaches
                                                  39
Pension schemes - overview
• Asset protection

• Use of existing funds

• Options
  – SSAS
  – SIPP

• New pension rules

                                    40
Planning possibilities
• Tax free extraction of profits

• IHT exemption

• Property asset succession/protection

• Low gearing strategy

• No CGT

• Life cover etc for dependents

                                         41
Ownership for SMES
• Unincorporated – family partnership

• Limited liability partnerships (LLP)

• Limited company        - singleton
                         - parallel
                         - Group

• Combination of above
                                         42
LTD vs LLP
• Nature of exit route

• Nature of participators

• Source of financing – debt/equity

• ITEPA issues

• Profit expectations and use of funds

• Use of SSAS/EMI/EIS

                                         43
Group v Parallel?
• Exit – CGT vs SSE

• Likelihood of trading losses

• Asset protection

• Debt/equity proportion planning

• Commonly used property - BPR

                                    44
Combination – LTD & LLP

A            B           A         B




    AB LTD

                             LLP




                                       45
Corporate partner benefits
• Deferral of income tax

• Refinancing existing capital (income tax holiday)

• Mitigation of income tax
   – Taxation of profits at a lower rate in the future
   – Diversion of profits
   – Extraction as a capital gain

• Conversion of revenue profits to capital profits
   – On creation of corporate partner
   – On exit of corporate partner ownership

                                                         46
Areas of caution in various structures
•   Employment related securities rules
•   Personal service companies (IR35)
•   Valuation of goodwill transaction
•   Capital obligations and profit share rights
•   Sale of future income
•   Disguised remuneration rules
•   Transfer pricing
•   Non commercial arrangements
•   Attention to detail and order of events

                                                  47
Tea Break



            48
Residences



             49
PPR relief (ss222 – 226A TCGA 1992)
• Only or main residence

• Let property relief

• Dependent relative relief

• Property occupied under terms of a trust

• Sales by executors where property occupied by beneficiaries
•
• Divorce issues

                                                                50
PPR – residence?
• Dictionary meaning

• Case law

• Degree of permanence

• Distinction with main residence

• Council tax tests

                                    51
PPR - elections
• 2 year time limit

• Married couples – only one main residence

• Where more than one residence (NOT owned
  property)

• Re-starting time limit techniques

• Client review procedures
                                              52
Extent of PPR relief
• Permitted area

• ½ hectare/ 1 ¼ acres

• Garden and grounds

• Outbuildings


                                   53
PPR – self builds
• Short delay in taking up occupation

• ESC D49

• Tie in with VAT claim

• Dates readily available

                                        54
PPR – let property relief
• £40,000 (max)

• £80,000 for a couple

• Record keeping and income tax compliance

• Can include hotels/FHLs

• Also check permitted absences rules

                                             55
PPR – exclusive business use
• Business use should be non-exclusive

• Only claim 95% (max)

• B&Bs
  – Closely question as to usage
  – Problem over separate staircases/guest rooms etc

• Rent a room/lodgers

                                                       56
PPR – property for dependents
• Old dependent relative relief (pre 06/04/88)

• Trust arrangements

• Basis of occupation of property
   – Under terms of trust
   – Land law

• Need to document

• HMRC enquiry experiences

                                                 57
PPR - estates
• Occupation by beneficiaries?

• Property must be occupied both before and after
  death by beneficiaries entitled to at least 75% of
  the property (s226A).

• Deed of variation point.


                                                       58
Furnished holiday lets (FHLs)
Capital gains tax reliefs available:

• Roll-over

• Hold-over

• Entrepreneurs’ relief

• SSE

• Relief for loans to traders

                                         59
FHLs – qualifying criteria
• Day count from April 2012
    – Available   210
    – Actual      105
•   Commercial
•   Period of grace
•   Relevant periods
•   UK and overseas properties

                                        60
FHLs – points to watch
• Hold-over/roll-over
  – Non FHL usage


• Entrepreneurs’ relief
  – Whole or part of a business
  – Sale within 3 years


• Foreign tax on EEA properties

                                    61
Exchange of joint interests in land
• Now in legislation

• Statutory tests (s248A onwards)

• Watch private residences

• Trust tax cases

• SDLT issues

                                         62
Trusts



         63
Entrepreneurs’ relief - trustees
• Beneficiary has to qualify

• No relief for discretionary trustees

• Possibility is to grant a defeasible life interest

• No relief if trustees are trading

• Review existing arrangements

• Has FA 2006 been addressed?

                                                       64
Family trusts - OMBs
• Appoint onto interest in possession

• Outright appointment to achieve 5%

• £10m lifetime limit

• Easy to overlook this planning

                                        65
PPR - Trusts
• Occupied under the terms of a trust

• Occupied by beneficiaries of an estate

• Previous held-over gain under s260

• Debt/charge scheme issues

                                           66
Wills/family trusts
• Wills in place/up to date

• Existing trust arrangements

• Succession planning

• Transferable NRB/NRB discretionary trust

• Re-marriages

                                             67
Gifting and Succession



                         68
Part disposals
• Consider the asset involved

• Strict statutory approach

• SP D1

• Planning opportunity commonly missed

                                         69
Part disposal - example
• Land cost £50k (10 acres)

• 1 acre sold for £100k

• Remaining 9 acres worth £25k

• Base cost used - £5k or £40k

                                    70
Hold-over reliefs
• Business assets (s165)

• Trust assets (s260)

• S260 has priority

• Wide ranging and important relief

                                      71
Gains held over
• No gain, no loss transfers
   –   Spouse/civil partner transfers
   –   Hold-over transfers
   –   Rolled-over gains
   –   Partnership changes

• “Banked” indexation planning

• Permanent files

• Care required – watch for this

                                        72
No gain/no loss transfers - example
Mr P owned White Horse Hotel in 1982. In 1991, he
gifted half the property to Mrs P.

Base costs:

Mr P – half share of property in 1982
Mrs P – half share of property in 1982 indexed to 1991


                                                    73
Example
Mr X inherited a property and land from his mother
in 1980. It was worth £50,000 in March 1982. After
taking tax advice, he transfers ½ share to his wife in
March 2008 when it was worth £450,000.

The property is sold in March 2012 for £400,000.



                                                    74
Example (continued)
Under old rules, could treat this as a joint disposal,
with husband and wife both having acquired the
asset pre-1982.

No longer correct as husband and wife tax position is
different.



                                                    75
March 2008 – No gain, no loss transfer
                                    £
 Proceeds                        51,175

 Cost (half share MV82)         (25,000)

 Indexation allowance (1.047)    (26,175)
                                -----------
 Gain                                 £nil
                                 ======


                                              76
Sale March 2012
                  Mr X         Mrs X
                     £             £
Proceeds       200,000       200,000
Cost/MV82       (25,000)      (51,175)
               -----------   -----------
Gain           175,000       148,825
              ------------   -----------
Tax @ 28%      £49,000       £41,671
               =======       =======


                                           77
Permanent file records
• Did a transfer between spouses take place at any
  time before 6 April 2008?

• Held-over gain computations

• Partnership changes



                                                     78
Hold-over relief – opportunities and pitfalls
• Major relief

• Extension to agricultural property

• Non-business usage

• Trading status of companies

• Investment assets

                                           79
Offshore trusts
• UK domiciled and resident beneficiaries of offshore
  trusts

• Gains not taxed on trustees, but instead attributed to
  beneficiaries matched with payments of capital

• Stockpiled gains also suffer a supplement of 10% for
  each year (up to 6 years)

• Offshore income gains

                                                           80
Divorce



          81
Key points
• No gain/no loss – whilst living together as man
  and wife

• Date of separation

• Buy to let properties

• Hold-over on business assets

                                                    82
Residency and other
      matters

                      83
Residency issues
• HMRC6

• Statutory residence test condoc

• Gaines – Cooper

• Temporary non-residents (s10A)

• Hold-over claims (within 6 years)

                                      84
Non-doms
• Remittance basis rules in ITA 2007

• Remittance basis charge - £30,000

• Can elect year by year

• Careful review of non-domicilliaries required for:
   – De minimis (£2,000 of income and gains)
   – Residency requirement

                                                       85
Section 13 gains
• Gains made by offshore companies

• Watch overseas structures
  – Can be easily missed




                                     86
HMRC enquiries
• Increase in CGT enquiries

• Greater specialisation

• Need to consider appropriate disclosure




                                            87
Follow-up
• Slides on linkedin

• Slideshare page

• Follow on Twitter at john_endacott

• Winter Rule LLP merged with Francis Clark LLP

                                                  88
JOHN ENDACOTT
            Francis Clark LLP
              Lowin House
              Tregolls Road
                  Truro
                Cornwall
                TR1 2NA

Email: john.endacott@francisclark.co.uk
        Telephone: 01872 276477

                                          89
Disclaimer & Copyright
(c) copyright Francis Clark LLP, 2010

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publish, broadcast or otherwise circulate either within your business or for public or commercial purposes any of (or any part of)
these materials and / or any services provided by Francis Clark LLP in any format whatsoever unless you have obtained prior
written consent from Francis Clark LLP to do so and entered into a licence.

To the maximum extent permitted by applicable law Francis Clark LLP excludes all representations, warranties and conditions
(including, without limitation, the conditions implied by law) in respect of these materials and /or any services provided by
Francis Clark LLP.

These materials and /or any services provided by Francis Clark LLP are designed solely for the benefit of delegates of Francis Clark
LLP. The content of these materials and / or any services provided by Francis Clark LLP does not constitute advice and whilst
Francis Clark LLP endeavours to ensure that the materials and / or any services provided by Francis Clark LLP are correct, we do
not warrant the completeness or accuracy of the materials and /or any services provided by Francis Clark LLP; nor do we commit
to ensuring that these materials and / or any services provided by Francis Clark LLP are up-to-date or error or omission-free.

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Jle Hull Presentation

  • 1. CAPITAL GAINS TAX PLANNING FOR THE GENERAL PRACTITIONER At the National Financial Directors’ Excellence Awards, Broadcaster Peter Sissons commented: “...with a score of nearly nine-out-of-ten for quality of service, the highest marks ever for an audit firm in ten years.” Francis Clark LLP, National Auditor of the Year – Mid Tier 2011
  • 2. Areas to cover • Business structuring • Residences • Gifting and succession • Trusts • Divorce • Residency in other matters 2
  • 3. Basic planning • 28% - significant tax rate • Income related • Pension contributions/gift aid • Annual exemption £10,600 @ 28% = £2,968 £10,600 @ 18% = £1,908 3
  • 4. Capital gains regimes Post 5 April Companies Rate of tax 10%, 18% or 28% 20%, 26% or Marginal Rate Indexation Allowance No Yes Kink Test No Yes Halving Relief No Yes 4
  • 5. Inflation - RPI • September 2011 237.9 • April 2008 214.0 • Inflation over period – 11.2% • Real CGT rates over period – 35.6% (higher rate) – 23.1% (basic rate) 5
  • 7. Business structuring • Primacy of income tax (s37) • Partnership • LLP v LTD • Availability of entrepreneurs’ relief • Exclusion of investments/trading status 7
  • 8. Income tax on trading • Period of ownership • Frequency of transactions • Structure of funding • Motive 8
  • 9. Employment income • Acquisition by reason of employment • Restricted securities • Table A • s431 election (ITEPA 2003) 9
  • 10. Transactions in securities • Legislation since 1960 (pt 13 ITA 2007) • New reforms (simplification) • Counters converting retained reserves into capital receipt • Cleary case/Joiner case • John and Marion Coll (2010) • Advance clearance procedure 10
  • 11. Partnerships • Statement of Practice D12 • Revaluation and change in PSR • Residual indexation • Calculations required • Permanent files 11
  • 12. Intangible fixed assets – pt 8 CTA 2009 • Corporation tax only • Differentiation in roll-over relief rules – Companies – Individuals • Applies on or after 1 April 2002 12
  • 13. Goodwill inherent in properties • HMRC view • SDLT issues • Valuation approach • Balloon promotions case 13
  • 14. Substantial shareholdings – sch 7AC • 12 month period within 24 months before transaction – vendor holds 10% of target • Vendor and target are traders for 12 month period, any interim period and immediately thereafter • Capital gain/loss is exempt • Anti-avoidance provisions and other complexities • Dividend stripping 14
  • 15. De-grouping charges – s179 • Anti-avoidance provision to stop envelope trick • New reforms (simplification) • SSE can now apply • Hard to pick up and difficult to deal with 15
  • 16. Roll-over – s152 • Deferral of tax • Letting restriction • Non-business use • Assets owned outside of companies 16
  • 17. Entrepreneurs’ relief – when? • Sale of whole or part of business • Sale of shares • Disposal of partnership interest • Disposal by trustees • Associated disposal 17
  • 18. Entrepreneurs’ relief – share sales IF • Personal company qualification – 5% of votes/ordinary shares – Officer or employer – 12 months THEN • All shares or securities qualify • Including – Other shares – Loan notes, etc BUT care over earn-outs required 18
  • 19. 5% limit • Attraction of LLPs • Check family holdings • Watch preference and unusual shares • Planning possible 19
  • 20. Management joint venture arrangements Mr A Mr B Mr C Mr D Mr E Mr F 20% 4% 35% 4% 35% 2% TradeCo 20
  • 21. Management joint venture arrangements Mr A Mr B Mr C Mr D Mr E Mr F 35% 4% 4% 35% 20% 2% Mgmt Co 10% TradeCo 21
  • 22. Entrepreneurs’ relief not available if: • No cessation of a business at disposal • No disposal at cessation of a business (within permitted period) • Planning options – Trust or – Incorporation 22
  • 23. Associated disposals • Not available for sole traders – accounts issues • Not just land and buildings • Payment of rent and transitional relief (para 6 Sch 3 FA 2008) • Other restrictions • Careful planning required 23
  • 24. Properties outside companies/partnerships • Review and advise clients • Farms, hotels and shops • Lifetime limit now £10m • Easy to overlook 24
  • 25. Loan notes • QCBs – deferred gain is pre-taper • Non-QCBs • Clearance issues • Entrepreneurs’ relief entitlement 25
  • 26. Deferred consideration – loan notes • Transitional relief • Paras 7 and 8, Sch 3 FA 2008 • Applies to EIS shares and QCBs • Careful review required 26
  • 27. Earn-outs • Application of entrepreneurs’ relief • Personal company qualification • Transactions in securities • Cash or securities? • “Clawback” arrangement (s48) 27
  • 28. Entrepreneurs’ relief – planning points • Review shareholdings • Officer or employee status • Share ownership type • Review ownership of assets outside of company • Trading status • Parallel ownership vs group structure 28
  • 29. Entrepreneurs’ relief – business structuring • Partnership structuring – Husband and wife v sole trader – No 5% ownership requirement for LLP (unlike LTD) • BUT – Partnership – exclusion of investments – LTD – trading status • Properties – How owned? – Rent charged? • Is the SSE an answer? 29
  • 30. EIS possibilities • Full relief or CGT deferral • Restrictions on trades – Hotels – Farming • Financial limits • Employee numbers 30
  • 31. EIS structuring for OMBS • Careful structuring of set-up – Optos plc – Blackburn – R J Taylor • On-going restrictions – Receipt of value – Overdrawn loan accounts • Fee levels! 31
  • 32. EIS planning Investments made can defer gains made up to three years before and one year after the investment. Income tax relief also available. Gains exempt if shares held for three years. 32
  • 33. Shareholder/family loan • Capitalise to strengthen balance sheets • Documentation • Security • S131 ITA/s253 TCGA • Debt for equity swap – loan relationships 33
  • 34. Loans to companies • Loans to traders (s253) • s131 ITA 2007 relief – capital loss on shares offset against income • Share capital reduction rules • Capitalise loans? 34
  • 35. Planning for the worst • Income tax relief available if: – Subsciprtion for shares – Unquoted trading company (including AIM) – Adjust for tax relief (EIS) BUT – watch value of shares subscribed (warning) • Capital loss on loan if: – UK trading company – Includes guarantees – Who’s making gains? 35
  • 36. Non-cash remuneration • Share incentive schemes – EMI • Entrepreneurs’ relief – 5%/one year qualification criteria – If not met, then 18% or 28% – But better than 42%/52% (or more) 36
  • 37. Properties owned outside of companies/partnerships • Lease terms • Insolvency arrangements • Entrepreneurs’ relief • Business property relief 37
  • 38. BPR Pitfalls A B AB LIMITED PROPERTY 38
  • 39. BPR on properties – planning issues • Disincorporation? • Parallel and non-group structures • Future tax changes – Restriction of APR – Rates of BPR • No restriction if rent paid BUT need to review previous planning approaches 39
  • 40. Pension schemes - overview • Asset protection • Use of existing funds • Options – SSAS – SIPP • New pension rules 40
  • 41. Planning possibilities • Tax free extraction of profits • IHT exemption • Property asset succession/protection • Low gearing strategy • No CGT • Life cover etc for dependents 41
  • 42. Ownership for SMES • Unincorporated – family partnership • Limited liability partnerships (LLP) • Limited company - singleton - parallel - Group • Combination of above 42
  • 43. LTD vs LLP • Nature of exit route • Nature of participators • Source of financing – debt/equity • ITEPA issues • Profit expectations and use of funds • Use of SSAS/EMI/EIS 43
  • 44. Group v Parallel? • Exit – CGT vs SSE • Likelihood of trading losses • Asset protection • Debt/equity proportion planning • Commonly used property - BPR 44
  • 45. Combination – LTD & LLP A B A B AB LTD LLP 45
  • 46. Corporate partner benefits • Deferral of income tax • Refinancing existing capital (income tax holiday) • Mitigation of income tax – Taxation of profits at a lower rate in the future – Diversion of profits – Extraction as a capital gain • Conversion of revenue profits to capital profits – On creation of corporate partner – On exit of corporate partner ownership 46
  • 47. Areas of caution in various structures • Employment related securities rules • Personal service companies (IR35) • Valuation of goodwill transaction • Capital obligations and profit share rights • Sale of future income • Disguised remuneration rules • Transfer pricing • Non commercial arrangements • Attention to detail and order of events 47
  • 48. Tea Break 48
  • 50. PPR relief (ss222 – 226A TCGA 1992) • Only or main residence • Let property relief • Dependent relative relief • Property occupied under terms of a trust • Sales by executors where property occupied by beneficiaries • • Divorce issues 50
  • 51. PPR – residence? • Dictionary meaning • Case law • Degree of permanence • Distinction with main residence • Council tax tests 51
  • 52. PPR - elections • 2 year time limit • Married couples – only one main residence • Where more than one residence (NOT owned property) • Re-starting time limit techniques • Client review procedures 52
  • 53. Extent of PPR relief • Permitted area • ½ hectare/ 1 ¼ acres • Garden and grounds • Outbuildings 53
  • 54. PPR – self builds • Short delay in taking up occupation • ESC D49 • Tie in with VAT claim • Dates readily available 54
  • 55. PPR – let property relief • £40,000 (max) • £80,000 for a couple • Record keeping and income tax compliance • Can include hotels/FHLs • Also check permitted absences rules 55
  • 56. PPR – exclusive business use • Business use should be non-exclusive • Only claim 95% (max) • B&Bs – Closely question as to usage – Problem over separate staircases/guest rooms etc • Rent a room/lodgers 56
  • 57. PPR – property for dependents • Old dependent relative relief (pre 06/04/88) • Trust arrangements • Basis of occupation of property – Under terms of trust – Land law • Need to document • HMRC enquiry experiences 57
  • 58. PPR - estates • Occupation by beneficiaries? • Property must be occupied both before and after death by beneficiaries entitled to at least 75% of the property (s226A). • Deed of variation point. 58
  • 59. Furnished holiday lets (FHLs) Capital gains tax reliefs available: • Roll-over • Hold-over • Entrepreneurs’ relief • SSE • Relief for loans to traders 59
  • 60. FHLs – qualifying criteria • Day count from April 2012 – Available 210 – Actual 105 • Commercial • Period of grace • Relevant periods • UK and overseas properties 60
  • 61. FHLs – points to watch • Hold-over/roll-over – Non FHL usage • Entrepreneurs’ relief – Whole or part of a business – Sale within 3 years • Foreign tax on EEA properties 61
  • 62. Exchange of joint interests in land • Now in legislation • Statutory tests (s248A onwards) • Watch private residences • Trust tax cases • SDLT issues 62
  • 63. Trusts 63
  • 64. Entrepreneurs’ relief - trustees • Beneficiary has to qualify • No relief for discretionary trustees • Possibility is to grant a defeasible life interest • No relief if trustees are trading • Review existing arrangements • Has FA 2006 been addressed? 64
  • 65. Family trusts - OMBs • Appoint onto interest in possession • Outright appointment to achieve 5% • £10m lifetime limit • Easy to overlook this planning 65
  • 66. PPR - Trusts • Occupied under the terms of a trust • Occupied by beneficiaries of an estate • Previous held-over gain under s260 • Debt/charge scheme issues 66
  • 67. Wills/family trusts • Wills in place/up to date • Existing trust arrangements • Succession planning • Transferable NRB/NRB discretionary trust • Re-marriages 67
  • 69. Part disposals • Consider the asset involved • Strict statutory approach • SP D1 • Planning opportunity commonly missed 69
  • 70. Part disposal - example • Land cost £50k (10 acres) • 1 acre sold for £100k • Remaining 9 acres worth £25k • Base cost used - £5k or £40k 70
  • 71. Hold-over reliefs • Business assets (s165) • Trust assets (s260) • S260 has priority • Wide ranging and important relief 71
  • 72. Gains held over • No gain, no loss transfers – Spouse/civil partner transfers – Hold-over transfers – Rolled-over gains – Partnership changes • “Banked” indexation planning • Permanent files • Care required – watch for this 72
  • 73. No gain/no loss transfers - example Mr P owned White Horse Hotel in 1982. In 1991, he gifted half the property to Mrs P. Base costs: Mr P – half share of property in 1982 Mrs P – half share of property in 1982 indexed to 1991 73
  • 74. Example Mr X inherited a property and land from his mother in 1980. It was worth £50,000 in March 1982. After taking tax advice, he transfers ½ share to his wife in March 2008 when it was worth £450,000. The property is sold in March 2012 for £400,000. 74
  • 75. Example (continued) Under old rules, could treat this as a joint disposal, with husband and wife both having acquired the asset pre-1982. No longer correct as husband and wife tax position is different. 75
  • 76. March 2008 – No gain, no loss transfer £ Proceeds 51,175 Cost (half share MV82) (25,000) Indexation allowance (1.047) (26,175) ----------- Gain £nil ====== 76
  • 77. Sale March 2012 Mr X Mrs X £ £ Proceeds 200,000 200,000 Cost/MV82 (25,000) (51,175) ----------- ----------- Gain 175,000 148,825 ------------ ----------- Tax @ 28% £49,000 £41,671 ======= ======= 77
  • 78. Permanent file records • Did a transfer between spouses take place at any time before 6 April 2008? • Held-over gain computations • Partnership changes 78
  • 79. Hold-over relief – opportunities and pitfalls • Major relief • Extension to agricultural property • Non-business usage • Trading status of companies • Investment assets 79
  • 80. Offshore trusts • UK domiciled and resident beneficiaries of offshore trusts • Gains not taxed on trustees, but instead attributed to beneficiaries matched with payments of capital • Stockpiled gains also suffer a supplement of 10% for each year (up to 6 years) • Offshore income gains 80
  • 81. Divorce 81
  • 82. Key points • No gain/no loss – whilst living together as man and wife • Date of separation • Buy to let properties • Hold-over on business assets 82
  • 83. Residency and other matters 83
  • 84. Residency issues • HMRC6 • Statutory residence test condoc • Gaines – Cooper • Temporary non-residents (s10A) • Hold-over claims (within 6 years) 84
  • 85. Non-doms • Remittance basis rules in ITA 2007 • Remittance basis charge - £30,000 • Can elect year by year • Careful review of non-domicilliaries required for: – De minimis (£2,000 of income and gains) – Residency requirement 85
  • 86. Section 13 gains • Gains made by offshore companies • Watch overseas structures – Can be easily missed 86
  • 87. HMRC enquiries • Increase in CGT enquiries • Greater specialisation • Need to consider appropriate disclosure 87
  • 88. Follow-up • Slides on linkedin • Slideshare page • Follow on Twitter at john_endacott • Winter Rule LLP merged with Francis Clark LLP 88
  • 89. JOHN ENDACOTT Francis Clark LLP Lowin House Tregolls Road Truro Cornwall TR1 2NA Email: john.endacott@francisclark.co.uk Telephone: 01872 276477 89
  • 90. Disclaimer & Copyright (c) copyright Francis Clark LLP, 2010 You shall not copy, make available, retransmit, reproduce, sell, disseminate, separate, licence, distribute, store electronically, publish, broadcast or otherwise circulate either within your business or for public or commercial purposes any of (or any part of) these materials and / or any services provided by Francis Clark LLP in any format whatsoever unless you have obtained prior written consent from Francis Clark LLP to do so and entered into a licence. To the maximum extent permitted by applicable law Francis Clark LLP excludes all representations, warranties and conditions (including, without limitation, the conditions implied by law) in respect of these materials and /or any services provided by Francis Clark LLP. These materials and /or any services provided by Francis Clark LLP are designed solely for the benefit of delegates of Francis Clark LLP. The content of these materials and / or any services provided by Francis Clark LLP does not constitute advice and whilst Francis Clark LLP endeavours to ensure that the materials and / or any services provided by Francis Clark LLP are correct, we do not warrant the completeness or accuracy of the materials and /or any services provided by Francis Clark LLP; nor do we commit to ensuring that these materials and / or any services provided by Francis Clark LLP are up-to-date or error or omission-free. Where indicated, these materials are subject to Crown copyright protection. Re-use of any such Crown copyright-protected material is subject to current law and related regulations on the re-use of Crown copyright extracts in England and Wales. These materials and / or any services provided by Francis Clark LLP are subject to our terms and conditions of business as amended from time to time, a copy of which is available on request. Our liability is limited and to the maximum extent permitted under applicable law Francis Clark LLP will not be liable for any direct, indirect or consequential loss or damage arising in connection with these materials and / or any services provided by Francis Clark LLP, whether arising in tort, contract, or otherwise, including, without limitation, any loss of profit, contracts, business, goodwill, data, income or revenue. Please note however, that our liability for fraud, for death or personal injury caused by our negligence, or for any other liability is not excluded or limited.