Tax Question of the Week: Deemed Domicile and Remittance Basis

Q- Pilar came to the UK when she began working here in autumn 2002. She was born with Spanish domicile and intends to retire to Barcelona where she grew up. When she moved to the UK, she continued to keep a modest amount of savings in a deposit account in Spain. As she has sufficient income from her work in the UK, she doesn’t normally draw on the offshore bank account. Now that it is time to prepare a Self-Assessment Tax Return for 2017/18, the question has arisen of how the taxing of the offshore interest has been affected by the rule to deem people to have UK domicile being extended to Income Tax and Capital Gains Tax.

 

A- Pilar will be deemed to be UK domiciled for the year 2017/18 because she has been UK resident for 15 of the 20 years immediately preceding it. This means that she is not able to make a claim to use the remittance basis in 2017/18. However, it is worth noting that this deeming rule, which can be found in the Income Tax Act 2007 at section 835BA is not the end of applying the remittance basis to offshore income and gains in all circumstances. Read More

Tax Question of the Week: Gift with Reservation

Q- After careful deliberation, my clients have decided to transfer their main residence to their daughter – partly for tax reasons. Do they have to transfer this at market value? Alternatively, would it be preferable to sell the property, gift the proceeds to the daughter who then buys a new residence in her own name for her parents to live in?

A- A transfer at less than market value will be a transfer of value for Inheritance Tax (IHT) purposes. If your clients continue to live in the property then the transfer is likely to be a Gift with Reservation (GWR) as they have not been “virtually excluded” from the enjoyment of the property. Therefore the property will remain in their estate of your clients. It is possible for your clients to pay full market value rent on the property (not just the gift element) to the daughter in order to prevent the GWR but this is a serious financial obligation on your clients and is usually only suitable where clients have considerable wealth and can easily afford this obligation for the rest of their lives – especially as rentals will generally increase over time. If they fail to meet this obligation at any time in future then the GWR rules will arise at that point. The daughter would be chargeable on the rent received by her parents and if she is not already registered for self-assessment may have to do so. Read More

Tax Question of the Week: The Budget – Entrepreneurs’ Relief

Q- I understand that the Budget delivered on 29th October proposed some changes regarding Entrepreneurs’ Relief. Can you expand on the proposals, please?

A- Three adjustments to the legislation about Entrepreneurs’ Relief are proposed.

The first affects the definition of a personal company. This will apply where the disposal is of shares in a trading company or the holding company of a trading group. One of the requirements is that the company is the individual’s personal company. The definition of a personal company will be expanded to add a requirement that the shareholder must have a 5% interest in the distributable profits and net assets of the company for the relief to be available.

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Tax Questin of the Week: Off-Payroll Working Rules

Q- My Client is working for a Public Sector Body through their own personal service company. They are caught under the Off-Payroll Working Rules and need to have an operation in the near future, will the Fee-Payer be responsible for the payment of any Statutory Sick Pay my client is entitled to?

A- No, while the Off-Payroll Working Rules introduced a requirement on the Fee-Payer to deduct PAYE and National Insurance from the deemed direct earnings the legislation doesn’t make the Fee-Payer liable to statutory payments. Therefore, any liability to statutory payments would remain with the individuals Personal Service Company (PSC). Read More

Tax Question of the Week: Pension Contributions

Q- My client takes most of their funds from the company via dividends. How much can they and/or the company contribute to their pension?

A- When an individual contributes to their pension, they must ensure that the amount they contribute is less than 100% of their ‘relevant UK earnings’ for that tax year or £3,600 (£2,880 net). Any personal contributions made above that amount will not get any tax relief. The individual must notify their pension provider if they go above this amount so the pension provider can ensure the correct amount of tax relief is claimed or refunded to HMRC. Read More

Tax Question of the Week: Incorporation of a Letting Business

Q- A client has a rental portfolio of 8 properties and wishes to claim incorporation relief under section 162 TCGA 1992. 

A- Many clients who have a portfolio of rental properties are becoming increasingly aware of the changes to income tax relief in respect of mortgage interest relief. They wish to incorporate the property business and if possible take advantage of incorporation relief.

The starting point to answer a question like this would be to consider whether or not the property portfolio is a ‘business’ or a passive investment asset because this is the basic requirement to qualify for incorporation relief. Unfortunately, the word ‘business’ is not defined in section 162 TCGA 1992, the legislation which deals with incorporation relief.  Read More

Tax Question of the Week: Disposals to Connected Person

Q- A client has recently sold an asset, for what he believes to be the market value, to his sister-in-law. A capital loss has arisen and he would like to know how he could use this loss.

A- The first thing to be aware of when making a disposal of an asset to a connected person is that TCGA1992 s18 deems it to be a transaction made for a consideration equal to open market value, regardless of the actual proceeds.

The question then is who is a connected person and which relatives are included? The definition of this term is found within TCG1992 s286 – they are certain relatives, trustees, partners, and companies. As your client’s disposal was to his sister-in-law, we shall concentrate

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Tax Question of the Week: Property Swap

Q- Jack and Jill jointly own two investment properties and wish to swap their interests so that they each have ownership of one of the properties. As tenants in common they currently equally own Cornfield with a market value of £210,000 and the original cost of £50,000 and Wheatfield with a market value of £200,000 and the original cost of £49,000. Jack is to have Cornfield and Jill is to have Wheatfield. What are the CGT and SDLT implications?

A- For CGT there is a form of roll-over relief on the disposal of joint interests in land in s 248A TCGA 1992 where conditions A to E in that section is satisfied. Condition A is that there is a joint holding of land or separate holdings in land; condition B is that there is a disposal of an interest to one or more co-owners; condition C is that the consideration includes an interest in a joint holding in land; condition D is that in consequence of the disposals the co-owners become sole-owners and condition E is that the acquired interest is not an interest in excluded land. Read More

Tax Question of the Week: Class 2 National Insurance Changes

Q- I have several self-employed clients all of which are subject to the Class 2 national insurance rules and currently pay contributions. Class 2 was about to be abolished but I have heard that this has now changed. Is that correct?

A. Class 2 national insurance contributions are payable by the self-employed. Contributions are payable at a flat weekly rate and entitle the contributor to short-term contributions based employment and support allowance, maternity allowance, widowed parent’s allowance, state pension, and bereavement benefits. Read More

Tax Question of The Week: Non-Resident Capital Gains Tax

Q- My client is a non-UK resident, having left the UK in April 2016. His main home which he purchased in July 2014 has been let out since he left. He is now planning to sell the property and is wondering whether he is liable to capital gains tax in the UK and whether there are any reliefs available to him?

A- Finance Act 2015 extended the scope of capital gains tax to non-UK residents disposing of UK residential property but only to the extent of gains arising after 6 April 2015. The capital gains tax legislation was amended to take account of the changes. The key changes were as follows: Read More