Tax Question of the Week: Residential Nil Rate Band

Q- If I leave my main residence to a discretionary trust on my death for the benefit of my children, will I still benefit from the residential nil rate band?

A- To benefit from the residence nil rate band you must leave your main residence to a direct descendant. For the purpose of this threshold, the direct descendant of someone is a child, grandchild or other lineal descendant, a husband, wife or civil partner of a lineal descendant (including their widow, widower or surviving civil partner), a child who is, or was at any time, their step-child, their adopted child, a child who was fostered at any time by them, a child where they’re appointed as a guardian or special guardian when the child is under 18. This does not include nephews, nieces, siblings, and other relatives.

It must be left to them in the will of the person that has died, under the rules of intestacy or by some other legal means but does not have to be specifically mentioned in the person’s will.

The legislation states that it also must be a ‘qualifying residential interest’ – IHTA 1984 s8H (2) and there would only ever be one ‘qualifying interest’ in an estate even if there is more than one property in the individual’s estate.

If the property is in a trust when the individual dies, the only way they would still qualify is if it becomes part of the direct descendant’s estate after the person dies. If the property is left in a discretionary trust it would not form part of the direct descendant’s estate, therefore it would not qualify for the additional nil rate band, so if the individual wishes to use a trust, they should take caution when deciding what type trust to use.

The direct descendant is not restricted on what they do with the property once they have inherited it.

Tax Question of the Week: Amortisation Relief

Q – I have heard that we can now get corporation tax relief for the amortisation of goodwill, is this true?

A- Amortisation relief in respect of intangible assets appears to have experienced a bit of a rollercoaster ride throughout the various legislative amendments in recent years. CT relief was initially allowable for amortisation of goodwill until restrictions were made for connected company acquisitions of post-March 2002 goodwill after 2nd December 2014.

Hardly any time had passed before it was then decided that amortisation was not allowable for post 7 July 2015 transactions on ‘relevant assets’.

Finance Act 2019 is now partially lifting the blanket on the CT relief for amortisation of goodwill and related assets. The new rules, set out in Part 8 Chapter 15A of CTA 2009, apply to amortisation on the acquisition of relevant assets where they are acquired as part of a business acquisition which also includes the acquisition of qualifying IP asset.

The rules allow amortisation relief at a fixed annual rate of 6.5% for relevant assets.  The definition of relevant assets is now set out in s879A CTA 2009 and are as follows:

  1. goodwill,
  2. an intangible fixed asset that consists of information which relates to customers or potential customers of a business,
  3. an intangible fixed asset that consists of a relationship (whether contractual or not) between a person carrying on a business and one or more customers of that business,
  4. an unregistered trade mark or other sign used in the course of a business, or
  5. a licence or other right in respect of an asset within any of paragraphs (a) to (d)

A qualifying IP asset for the purposes of the new amortisation rules is defined in section 879J CTA 2009 and is an intangible fixed asset that meets the following two conditions:

  1. that the asset is (or is an equivalent right under non-UK law) a:
    1. patent;
    2. registered design;
    3. copyright;
    4. design right;
    5. plant breeders’ right;
    6. right under the Plant Varieties Act 1997, s. 7; or
    7. a licence (or other right) in respect of any of those rights; and
  2. that the asset is not to any extent:
    1. an excluded asset (within CTA 2009, Pt 8, Ch 10);
    2. a pre-FA 2002 asset (within CTA 2009, s. 881); or
    3. computer software.

The new rules apply to assets acquired/created on or after 1 April 2019 and for straddling accounting periods, these are treated as separate accounting periods for the purposes of the new amortisation rules.

Although this may be a welcome change in the rules for many corporates, be aware of the potential restrictions and availability of the relief. The new legislation continues to restrict relief on amortisation of goodwill on an incorporation event.  In addition, no relief would be available where the relevant asset is not acquired as part of a business acquisition or, where there is a business acquisition, but no qualifying IP assets for the continuing use in the business are acquired as part of the transaction.

Tax Question of the Week: The National Minimum Wage and National Living Wage

Q- Our pay period runs one week in arrears and we are due to pay employees on Friday 5th April for the work that they did during the week 25th – 31st March.  What rate of pay should they be paid at, as we are aware that the National Living Wage rate has increased?

A- The National Minimum Wage (NMW) and National Living Wage (NLW) rates increased with effect from 1st April 2019 to: Read More

Tax Question of the Week: Tax Year end Planning

Q- One of my private clients realises the end of the tax year is rapidly approaching and is wondering if there is anything he should be considering in relation to his tax affairs?

A- There are various ways in which an individual can help reduce their tax liability and whilst they are generally considered more at this point in the tax year, can actually be considered at any time during the tax year. Thought should be given to the following areas – Read More

Tax Question of the Week: Deemed Domicile & Automatic Remittance

Q- My client is a long-term resident of the UK for tax purposes. However, she is non-domiciled and has been using the remittance basis for her foreign income as it is below £2,000. As she will now have been here for 15 of the previous 20 tax years, will she be caught by the Deemed Domicile rules?

A- The short answer is no, she will not.

The Deemed Domicile rules only apply to certain claims such as people claiming the remittance basis as UK resident, non-domiciles with income or gains over £2,000.

The Deemed Domicile rules are contained in s835BA of the Income Tax Act 2007. In brief, they treat people who meet either of the conditions below as domiciled in the UK for tax purposes:

Condition A Read More

Tax Question of the Week: Unlawful Dividends

Q- My corporate client has paid interim dividends but did not have sufficient distributable reserves. What are the tax implications?

A- To correctly tax the amounts paid we must first consult company law and correctly account for the amounts paid.

Distributions made in excess of distributable reserves are not lawful as they are not compliant with Part 23 of Companies Act 2006. Section 847(2) of Companies Act 2006 governs the consequences of unlawful distributions. Where the participator “knows or has reasonable grounds for believing” all or part of the distribution was unlawful they are liable to repay the unlawful amount to the company. Read More

Tax Question of the Week: Irrecoverable Loans

Q- My client has made a directors loan to his personal company (he is the majority shareholder) which now cannot be repaid. Is there a loss for CGT and if so, is it a ‘clogged loss?’

A- There are a number of issues to be determined in this situation:

  • Is there an allowable loss at all?
  • Is it a connected party transaction
  • Has there been a disposal?
  • Is any allowable loss ‘clogged’?

Read More

Tax Question of the Week: CGT PPR Changes

Q- I can recall that in the course of the 2018 Budget, changes were announced about the rules for some of the ancillary reliefs on disposals of private residences. I can see no new Legislation on these points. What is the current position please?

A- You will be referring to the proposed reduction of the exemption for the final period of ownership from 18 to 9 months and the restriction of relief for letting to circumstances where the owner of the property is in shared occupancy with the tenant.

The announcement was that the changes would apply from 6th April 2020.

The announcement promised consultation on these changes and technical aspects. To date, there is no consultancy, so the announcement, at best, is a warning shot that there may be some changes. Read More

Tax Question of the Week: New Payslip Legislation

Q- My client has asked me about the new legislation regarding payslips that comes into effect in April 2019. Can you shed some light on this?

A- From 6th April 2019 new legislation around providing payslips comes into effect, under which:

  • All employers will be required to provide payslips to all ‘workers’, and
  • Show hours worked on payslips where the pay varies by the number of hours worked

Who is entitled to a payslip? Read More

Tax Question of the Week: a Valid Notice of Enquiry

Q- A client is being chased by HMRC in relation to an enquiry that may not be valid. The client moved house and changed tax advisers but HMRC sent a notice of enquiry to both the client’s old address and to the previous tax adviser. Is there a possibility that the enquiry can be cancelled?

A- HMRC may enquire into a personal tax return if they give notice of intention in a “notice of enquiry” to the person whose return it is within the time limit allowed under s 9A(1) TMA 1970. The time allowed is specified in s 9A(2) TMA 1970 and where a return is delivered on time is up to the end of the period of twelve months after the day on which the return was delivered. Read More