Will TAAR cause you problems on company distributions? (New Share Rules)

HMRC are currently consulting on new rules to start in April 2016.

The consultation is focusing on Capital Gains Tax (CGT) ways to extract money from companies to create Target Anti Avoidance Rules (TAAR) covering:

A disposal of shares to a third party
A distribution made in a winding up
A repayment of Share Capital including Share Premium
A valid purchase of own shares in an unquoted company

Here are the examples of ‘problems’ HMRC want to resolve, Example 1 is ‘moneyboxing’ and/or ‘phoenixism’ and sometimes involves ‘special purpose vehicles’

Example 2 involves creating a holding company…

The consultation ends on the 3rd February 2016, the results are likely to be controversial!

steve@bicknells.net

No Rollover for Buy to Lets

Its a common mis-understanding that many Buy to Let investors think that they can rollover the gains under business asset rollover reliefs.

Residential Property Investment is not a trading activity, whenever you sell a property that isn’t your main residence you will be liable to capital gains tax.

If you want to release cash from your property portfolio its better to consider other options such as re-financing to take advantage of capital growth.

Also joint ownership (particularly between spouses) will increase the available Capital Gains Allowance you have, individuals currently have £11,000 per year. This allowance might cover your gain?

steve@bicknells.net

Overseas property investors – are you ready for CGT in 2015

In the Autumn Statement 2013 it was announced that a CGT charge will be introduced from April 2015 on ‘future’ capital gains made by non-UK residents disposing of UK residential property. George Osborne said…

“Britain is an open country that welcomes investment from all over the world, including investment in our residential property”

“But it’s not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence – while those who don’t live here do not. That is unfair.”

UK Residents typically pay capital gains tax at 28% on any profit from selling property that is not considered their primary residence.

Reuters reported in Dec 2013…

Property lawyers and estate agents said foreign owners would be relieved the tax will not apply to historic gains before 2015. But they cautioned that the overall impact could be marginal as many foreign investors see London property as a safe and profitable place to park capital.

“Tax is not the primary driver for the majority of international buyers of residential property in London,” Knight Frank’s head of global research, Liam Bailey, said.

“It is important to note that the change to CGT rules brings the UK in line with other key investor markets, such as New York and Paris, where equivalent taxes can approach 35-50 percent depending on the owner’s residency status.”

It was not immediately clear how the tax would be collected and how it would apply if foreign owners used a domestic company to purchase property.

When a company disposes of an asset and makes a capital gain, as the main rate of corporation tax in 2014 is 21% (20% small profits rate) there could be a future tax saving opportunity for overseas investors to transfer property to limited companies.

There are other tax implications for example ATED (Annual Tax on Enveloped Dwellings) and SDLT (Stamp Duty Land Tax) but now could be a good time to consider your options.

steve@bicknells.net

Capital Gains Tax for Companies

Capital Gains can occur in many circumstances, for example, when the company:

sells, gives away, exchanges or otherwise disposes of (cease to own) an asset or part of an asset
receives money from an asset – for example compensation for a damaged asset

Sometimes it can be hard to establish the value of the gain and HMRC can carry out a post valuation check which is requested using http://www.hmrc.gov.uk/forms/cg34.pdf

Example – calculating the chargeable gain on the sale of a shop
Calculation step	Result
Step 1: amount received for the asset in May 2011	£200,000
Step 2: deduct £120,000 (the cost of the asset in November 1997)	£200,000 − £120,000 = £80,000
Step 3: deduct expenses on improving the asset (£10,000 spent on building an extension in June 2006)	£80,000 − £10,000 = £70,000
Find the inflation factor for November 1997	0.474
Calculate the Indexation Allowance	£120,000 × 0.474 = £56,880
Deduct the Indexation Allowance	£70,000 − £56,880 = £13,120
Step 4: look up the appropriate inflation factor and calculate the Indexation Allowance for the extension	0.185 £10,000 × 0.185 = £1,850
Deduct the Indexation Allowance for the extension to arrive at the chargeable gain	£13,120 − £1,850 = £11,270

http://www.hmrc.gov.uk/ct/managing/company-tax-return/returns/chargeable-gain.htm

You can get a full list of indexation allowances at http://www.hmrc.gov.uk/rates/cg-indexation-allowance/apr12-ct-cgains.pdf

If the losses don’t exceed the gains, put the total gains in Box 16 on your Company Tax Return and the total losses, if any, in Box 17. Deduct Box 17 from Box 16 and put the result in Box 18 – this is your ‘net chargeable gain’.

If the losses do exceed the gains, leave Box 16, Box 17 and Box 18 blank but put the amount of the net loss in Box 131. You can then ‘carry forward’ those capital losses to offset against any capital gains you make in a future Corporation Tax accounting period(s). You would include those losses in Box 17 of a future Company Tax Return. You can carry forward capital losses indefinitely.

If you intend to replace the asset you may be able to apply Business Asset Rollover Relief, this is most commonly use for Land and Buildings.

steve@bicknells.net