The return for the year to 31 March 2018 and any tax due for the year must both be dealt with by 30 April 2017. The amount of the tax charge depends on the value of the property and now ranges from £3,500 up to a maximum of £220,350 across six bands of value determined by reference to a property’s value on 1 April 2012 or its actual cost if acquired after that date.

There are a number of exemptions from the charge covering property rental businesses, developers, and dealers which must be claimed via an annual “nil return”.  Failure to submit such a claim in good time will unfortunately expose the company to penalties.

HMRC is introducing a new online ATED filing service with effect from 1 April 2017 which will become compulsory for the filing of 2018/19 returns in April 2018. This involves a registration process, which we can assist with, and does allow for the appointment of an agent to file on behalf of a company.

Looking ahead, a revaluation exercise will also be required next year when the ATED charges will be rebased to 1 April 2017 values.

We understand that property values are particularly volatile post-Brexit (you knew it would get a mention somewhere) and that some valuers are advising that there may be instances where values might actually fall when this exercise is undertaken. It is suggested therefore that any valuation exercise is delayed until at least July when valuers can expect to have a more accurate picture of movements in the property market in the early part of 2017.

For assistance and guidance on ATED returns or planning, please get in touch with your usual BKL contact or use our enquiry form.

The post The Annual Tax on Enveloped Dwellings 2017/18: action required! appeared first on BKL.

Why are we telling you this?  Because it reminds us to remind you of the inheritance tax (“IHT”) consequences of such a move.  The point is this: unlike shares quoted on the main market, shares listed on AIM have the potential to qualify for 100% IHT Business Property Relief once they have been owned for two years; on death this is as good as an exemption.  To be clear – this is not to say that all AIM-listed shares automatically qualify – the company must also meet the requirement that it is a trading company: the point is that AIM shares at least have the potential to qualify.  But once a company moves from AIM to the main market the relief is instantly lost.

Furthermore, the rules on “replacement property” provide that if BPR assets are sold and the proceeds reinvested in other BPR assets the two-year ownership period is carried over: you don’t have to wait a further two years before the replacement assets qualify.  By contrast, if you wait until the shares have lost their BPR status before selling and reinvesting into BPR assets, the two-year clock is re-set to zero.  So the moral is that when a company moves from AIM to the main market, there are IHT advantages in selling and reinvesting before the date of the main market listing.

This is, of course, “tax” and not “investment” advice.  We have no tips on the future prospects of Sirius Minerals or any other company.  And even if we did, we wouldn’t share them.

For even more serious advice, please get in touch with your usual BKL contact or use our enquiry form.

The post Let’s get Sirius appeared first on BKL.

Tax was probably about as far from the thoughts of Mr and Mrs Owens as it’s possible to get.  But the case got us thinking about the treatment of married couples, especially as regards CGT.   In particular, the “no-gain no-loss” rule on inter-spouse transfers continues to apply to a married couple (and, it goes without saying, to partners in a civil partnership) unless

• they are separated under a court order or
• they are separated by deed of separation or
• they are in fact separated in circumstances likely to be permanent.

And (in any case) the special rule continues to apply until the end of the tax year in which the separation occurs – which may be why so few couples apparently separate towards the end of March and so many apparently stick it out until after 5 April.

Having read the case, we would say with some confidence that Mr and Mrs Owens are now separated in circumstances likely to be permanent.  However they (and other separated but non-divorced couples) will need to bear in mind that they remain “connected persons” until any divorce becomes absolute.  This means the special tax rules governing transactions between connected persons apply.  In particular:

• all transactions between them are conclusively deemed to have been non-arm’s-length transactions such that market value must be applied for tax purposes and
• any CGT loss which arises on a disposal made by one to the other is a “clogged” loss, use of which is severely restricted

For more on this and on the many other tax issues which may arise on marriage breakdown you may wish to refer to our webinar: Tax aspects of relationship breakdown. (But please bear in mind that it reflects the law and practice at the time the webinar was produced in 2015.)

Alternatively, please get in touch with your usual BKL contact or use our enquiry form.

The post Owens v Owens: CGT on divorce appeared first on BKL.

In enquiring into his 2013/14 tax return in December 2015, HMRC asked some questions about his domicile status, which was relevant to his liabilities to Income Tax, CGT or both.  Specifically the questions were directed at two points in particular.  First, whether Mr Gulliver (whose domicile of origin was agreed to be in the UK) had ever acquired a domicile of choice in Hong Kong; and if so, whether he had subsequently abandoned that domicile of choice such that his UK domicile revived.

The question of Mr Gulliver’s domicile had come up before.  In 2002 he had made a transfer to a trust in circumstances that a small amount of IHT liability would have arisen if (and only if) he had been of UK domicile at that time.  HMRC had confirmed in 2002 that no such liability arose and therefore by clear implication that Mr Gulliver was not of UK domicile at that time.

Thus when the 2015 enquiry was made, it was contended on behalf of Mr Gulliver that HMRC had previously determined that he had acquired a domicile of choice in Hong Kong and that they were “stuck with the consequences of that determination.”  The contention was not, of course, that having made that determination HMRC were bound for ever afterwards to treat Mr Gulliver as domiciled in Hong Kong.  That would clearly have been ridiculous.  The contention was more subtle.  It was that HMRC were not, in 2015, entitled to investigate whether Mr Gulliver had acquired a domicile of choice in Hong Kong (for that had already been determined in 2002).  Thus any enquiry in 2015 could be directed only at whether that domicile of choice had subsequently been abandoned – for which, crucially, the burden of proof would fall on HMRC and not on Mr Gulliver.

Mr Gulliver lost.  As the Tribunal said – “Income Tax and CGT are charged by reference to separate tax years.  A determination of fact made in relation to one tax year is not binding in relation to another tax year.  Both HMRC and a taxpayer are permitted to make arguments that call into question factual determinations made in respect of a different tax year”.

The principle is not limited to determinations of domicile status, but is much wider.  In principle, for example, an activity can be agreed to amount to trading in one year and the same activity to be non-trading in another year.  A property may be held as a matter of fact to be your main residence in one year and, on the same underlying facts, not to be your main residence in another year.  Fortunately, in practice it is relatively uncommon for HMRC, having investigated the factual position in one year, to be inclined to re-visit the matter in a subsequent year unless the underlying facts have changed.  But it is as well to be reminded that, strictly, a decision or agreement on facts has “all too short a date” as the Bard might have put it.

For more information, please get in touch with your usual BKL contact or use our enquiry form.

The post Gulliver’s Travel: reliance on domicile (and other) determinations appeared first on BKL.

Suppose, for example, that Tom and Harriet are the joint inheritors of their widowed mother’s estate which totals £3m.  In the normal run of things the estate will pay tax of £940,000 (assuming a “doubled-up” nil rate band to be available) and the beneficiaries will each receive £1,030,000.  They could, however, jointly agree to vary the disposition of the estate and give a minimum of 10% of the chargeable estate (so £235,000) to charity – perhaps a charitable trust set up in memory of their late parents.  This would reduce the tax on the remainder of the estate to £761,400 so that Tom and Harriet would each receive £1,001,800.  Bestowing a benefit of £235,000 on the charitable trust would thus have cost each of them just £28,200 – effectively giving tax relief at the rate of 76%.  Or, to put it another way, the government tops up each £1 given by Tom and Harriet with a further £3.16.  Subsidy of this kind may be a compelling reason to consider generosity to charity at a time of bereavement.

For more on wills, estates and variations, please get in touch with your usual BKL contact or use our enquiry form.

The post Gifts in memoriam appeared first on BKL.

However, the point of interest in the case is that the appeal nonetheless succeeded.

The company had (through its solicitors) exercised its right to have its appeal against the penalty “reviewed” by Revenue Scotland (the body with deals with LBTT).  The legislation required Revenue Scotland to “notify the appellant” of the conclusions of the review. Revenue Scotland had notified the solicitors but had not notified the company itself.  RS argued that telling the solicitors, as appointed agent and the people who had actually sought the review, was good enough.  The Tribunal disagreed: “notify the appellant” means “notify the appellant”.

The legislation does not specify the consequences of a failure on the part of RS to notify the appellant of the conclusion of its review of an appeal.  Indeed, it recognises the possibility that this might happen by expressly providing that if no conclusion is notified, the appeal can be referred to the Tribunal in the same way as if RS notify their conclusion that their decision is to be upheld.  Nonetheless the Tribunal in the Classic case decided that “the failure to follow statutory provision vitiates all subsequent procedure…Classic should have met its statutory obligations by filing its tax return on time but RS has not followed its statutory obligations either and so the penalty cannot be enforced.”

Care should be taken in applying the decision.  The point seems to have been one raised by the Tribunal of its own volition.  We think there is considerable doubt as to whether the Tribunal decision was correct and even if it is, it is not binding on other First-tier Tribunals.  The interest in the case is that, especially in hard cases, a sympathetic Tribunal may be willing to find procedural ways to arrive at the “right” answer and it is always worth checking out the procedural niceties.

The post Classic error: penalty procedure appeared first on BKL.

Slightly oddly the implication is that it’s OK to succeed in avoiding tax but reprehensible to try and fail. PPN 03/14 doesn’t apply outside of central government. But it seems that some pressure is now being put onto local government to ask similar questions. It’s not directly suggested that “bad taxpayers” should be excluded from tendering – but it is suggested that a record of failed tax avoidance could properly be taken into account by a local authority as part of the tendering process.

It is not yet clear which authorities, if any, plan to implement PPN 03/14 on a voluntary basis. But it is yet another straw in the wind as regards increasing hostility to aggressive tax avoidance.

The post More risks of failed avoidance appeared first on BKL.

In each case the availability of Entrepreneurs’ Relief depended upon whether the taxpayer held 5% of the ordinary shares in the company whose shares had been sold. That in turn depended on whether a share of a class carrying no right to a dividend and no right to receive anything beyond par value on a redemption or winding-up counted as an “ordinary share”.

In McQuillan the Tribunal held that it didn’t: in Castledine that it did.

“Ordinary share capital” is defined by exclusion: it means “all the company’s issued share capital (however described) other than capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the company’s profit”. It was argued in McQuillan that zero is a “fixed rate”, such that shares with no right to a dividend were potentially within the exclusion. The Tribunal were attracted by the argument. First, zero was indeed a number for some purposes (as in “zero rate” VAT). Further, it was clear that if the shares in question had carried a dividend at a fixed rate of a vanishingly small amount they would not have been “ordinary shares”: it was anomalous that if the rate were zero the answer would be different. So the Tribunal held that the shares were not “ordinary shares”.

In Castledine the question whether zero was a fixed rate was not raised. Instead, the argument was, essentially, that “Parliament would never have intended to categorise as ordinary shares holdings which had none of the characteristics of an ordinary share, or even of a preference share, and were shares only in name”. That argument was rejected: the wording of the statute was clear and the Tribunal did not “feel able to depart from the plain meaning of the legislation at issue”. That “plain meaning” (!) was that the shares were ordinary shares.

The definition of “ordinary share” is widely used throughout the tax code. Sometimes, as in these two cases, a taxpayer wishes to argue that a particular class of share is not “ordinary”. But in other circumstances (for example, EIS or share schemes) the status of “ordinary share” confers valuable tax advantages. Indeed HMRC guidance has been, in the context of share schemes, that shares with no dividend rights “may be accepted as ordinary share capital – we do not contend that they carry the right to a fixed dividend of 0%”. So the decisions in Casteldine and McQuillan create unwelcome confusion that extends well beyond the immediate area of Entrepreneurs’ Relief. Until there is further clarity, the prudent thing to do must be to assume the worst: that zero-dividend shares are “ordinary” if you would prefer them not to be but not “ordinary” if you would rather they were. Or, better still, avoid zero-dividend shares altogether if you can, until the position is clarified.

The post What’s an ‘ordinary share’? Take your pick. appeared first on BKL.

This note is about the information returns which your company may be required to file and how BKL can help you to meet your compliance requirements.

These include filing the following types of annual return:

• Form 42 (Unapproved share schemes)
• EMI 40 (EMI schemes)
• Form 35 (CSOPs)
• Form 34 (SAYE schemes)
• Form 39 (SIPs)

It is now mandatory for these annual returns to be filed online using the HMRC online filing facility. Companies can no longer, as in the past, file paper returns.

HM Revenue & Customs no longer issues notices to file or reminders and automatic penalties will apply for late filing.

What is an ‘employment-related security’?

This term generally relates to shares of your company but also includes debt, derivatives and interests in investment partnerships. Tax and NIC may be payable where the right or opportunity to acquire the securities (or an interest in securities) is made available by your company (or by a person connected with your company) to a director or an employee by reason of the employment of the person acquiring the securities (or interest). For these purposes, ‘employment’ includes a former, current and prospective employment.

There is an exception to these rules where an individual transfers shares to a director or employee in the normal course of the domestic, family or personal relationships of that individual – for example, a gift of shares by a parent to a son or daughter working in your family company.

Is my company affected?

Any company with tax-approved share plans must register these arrangements online and file returns by 6 July 2016.

Your company must register:

• EMI Share option arrangements
• CSOP schemes, SAYE option schemes and SIPs

How BKL can help?

You may wish to deal with the registration of existing Share Schemes and the 2015/16 Reporting Requirement in-house. If not, BKL will be pleased to assist you with the online registration and deal with the online filing on your company’s behalf.

What we are asking you to do

If you would like us to help you, please let us know if you have provided or arranged to provide shares to a director or employee of your company under an EMI share option scheme, a CSOP scheme, an SAYE option scheme or SIP. Annual Returns of these schemes are required even if they are nil returns.

Unapproved share arrangements

Please tell us if your company has an unapproved employee share arrangement. For example, shares have been awarded to a director or employee or options have been granted by the company or exercised by the employee under an arrangement other than an EMI share option scheme, a CSOP scheme, an SAYE option scheme or SIP.

Unapproved arrangements do not need to be registered unless a “reportable event” has occurred since 5 April 2014 but an annual return is required if a “reportable event” has taken place in the year to 5 April 2016.

What must be done?

Before submitting any Employment Related Securities Annual Return for the year ended 5^th April 2016 your company must first register the scheme using HMRC’s online service for Employment Related Securities (ERS). Each scheme must be separately registered.

HMRC Online Services User ID & Password

You may be registered for HMRC Online Services for payroll purposes and, if so, you will be able to register the ERS schemes by entering your ‘PAYE for Employers’ online site by entering your user ID and password.

If your company is not yet registered you can do so by signing up to HMRC Online Services and register for ‘PAYE for Employers’. As the process can take a couple of weeks, steps should be taken to register as soon as possible.

If you have any questions

If you would like our assistance to deal with the registration of existing Share Schemes and the 2015/16 Reporting Requirement or if you have any questions, please get in touch. Please get in touch with your usual BKL contact partner or use our enquiry form.

The post Employee-Related Securities: your company’s reporting requirements appeared first on BKL.

The company conducted a trade in relation to LED lighting and its shareholders, having followed all the proper procedures to the letter when making their EIS share subscriptions, obtained full income tax relief. Indeed, the company was successful and its directors sought to secure an AIM listing but rather than incurring the substantial fees of an AIM application they decided to achieve this by the reverse take-over of an AIM listed company, Enfis which itself was controlled by shareholders who had acquired their shares under the EIS start-up provisions. This is where the ProtonStar shareholders’ nightmare began…

The EIS rules provide that the income tax relief will be forfeited if in the three years following the EIS share subscription the EIS company falls under the control of another company, except in very limited and closely-defined circumstances. Specifically, the EIS legislation permits a takeover without a loss of EIS relief only where, immediately prior to the ‘share for share’ transaction employed to acquire the shares of the EIS target company the shares of the acquiring company are solely ‘subscriber shares’ – a term which is not defined anywhere presumably because everyone is expected to know that it means shares issued to the subscribers to the Memorandum of Association. Unfortunately, the reverse take-over of ProtonStar by Enfis did not satisfy these conditions. Take-over by a company which has issued shares other than to the first subscribers (which in practice is likely to mean virtually any active company) inevitably causes relief to be lost. Despite evidently having great sympathy with the taxpayer, the Tribunal therefore reluctantly found for HMRC.

This case serves to highlight what some may call the complexity of the EIS Rules but which others may regard as being quirky and counter-intuitive. Thus, if A Limited and B Limited are both EIS companies which want to merge and A Limited takes over B Limited, the B Limited shareholders lose their EIS relief even though A Limited shareholders do not – indeed later share issues by A Limited could qualify for EIS income tax relief. But using a brand-new holding company to acquire both A Limited and B Limited would permit both sets of shareholders to retain their EIS relief. On what planet does that make sense?

Perhaps the lesson to be learned is that ‘after care’ during the three years following the EIS subscriptions is as vitally important in preserving the tax relief as the attention to detail taken at the time of the share subscription – if that had been the case it is possible that the ProtonStar investors would have kept the relief in their pockets and saved it for a rainy day.

For more guidance on the byzantine complexity that is EIS, please get in touch with your usual BKL contact or use our enquiry form.

The post Catch a falling (Proton)Star: the vagaries of EIS relief appeared first on BKL.