Accountancy Blog

NEW IHT RULES RELATING TO LIABILITIES

NEW IHT RULES RELATING TO LIABILITIES

This will not only impact NON UK Domiciled individuals but also any other person subject to UK Inheritance Tax (IHT) on their worldwide assets.

NON UK Domiciled Person:

Were you intending to borrow monies against UK held property and invest these monies outside the UK, thereby converting these funds into excluded property not subject to UK IHT? Until 16 July 2013 the Loan could have been set off against the UK asset thereby reducing the estate chargeable to UK IHT. Since 17 July 2013 no deduction against the UK estate will be allowed unless very specific conditions are met.

All persons subject to UK IHT:

Until 5 April 2013, it was not uncommon to use as collateral a valuable asset which would attract a substantial IHT charge, to borrow monies which would then be used to acquire assets which would in time qualify for Business Property Relief (BPR) or Agricultural Property Relief (APR) thereby reducing the value of the estate chargeable to IHT. The portion of the loan outstanding at the date of death would have been deducted from the value of the property used as collateral and this could significantly reduce the amount of IHT payable.

Since 6 April 2013 there is no longer any IHT advantage to borrowing monies, using valuable non eligible assets as collateral, to acquire assets eligible to BPR or APR. The value of the loan will have to be set up against the BPR or APR eligible property and not against the general estate.

NB: – Any existing arrangements as at 6 April 2013 will continue to qualify under the old rules.

Other Loans: to qualify as a deduction in the estate a loan will have to be repaid on or after death, if not then no deduction will be allowed. There is on exception if the Personal Representative can demonstrate that there is a commercial reason why the liability is not being repaid, i.e. it is an arm’s length transaction.

If you would like advice regarding  your existing IHT arrangements or need assistance with future  Inheritance tax planning give us a call to discuss your circumstances…

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LOANS FROM CLOSE COMPANIES TO THEIR PARTICIPATOR

LOANS FROM CLOSE COMPANIES TO THEIR PARTICIPATOR

Changes to S455 CTA 2010 – Charge payable by Company.

A S455 CTA 2010 charge arises when a company makes a loan to an individual who is a shareholder of the close company or to one of his associates. The charge is 25% of the loan and is payable 9 months and 1 day from the end of the accounting period in which it was made.

If the loan is repaid within 9 months from the end of the accounting period in which it was made, the charge is not payable.

If it is repaid later the Company needs to make a claim to have the charge reimbursed by HM Revenue & Customs.

The amendments introduced by the FA 2013 will impose this charge to certain arrangements which were not caught previously (because they included advances not made to individuals or not made of money) and will apply from 20 March 2013. These arrangements include:-

1.  Any loans made to a Trust (Company shares are held in a Trust) or a Mixed Partnership (such as one where one of the partners and shareholder is a Limited Liability Partnership).

2.   Certain transfers of value to shareholders which do not include monetary loans or advances.

3    Bed & Breakfasting:which means repaying the loan before the S455 due date and withdrawing further monies after that date.

If you require advice or would like us to review your Director’s/shareholder’s loan account please give us a call.

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CAP ON UNLIMITED INCOME TAX RELIEFS

CAP ON UNLIMITED INCOME TAX RELIEFS

Do you have trading losses in the current year from your business (Sole Trade or Partnership)? Do you have losses arising in your property business as a result of claiming Capital Allowances? Have you paid interest on monies borrowed for a qualifying purpose, such as investing in a business, or acquiring business assets? From 2013/14 the amount a taxpayer can set off against their total income to claim income tax relief is limited at the greater of :- 25% of their total income after deductions of any grossed up pension contributions (if paid net by an individual) , or £50,000. This cap does not apply to trading losses carried forward for relief against future profits of the same trade, but will apply in the following circumstances:- • A claim for relief is made to set off trading losses against total income in the same or previous year. • A claim for relief is made to carry back the losses in the early years of trading. • A claim for relief is made to set off against total income of the same year or the following year. Capital Allowances arising in a Property Letting Business • A claim for relief is made against total income for a Loss arising from the sale of unquoted company shares. • A claim for relief is made against total income in the same year for eligible interest paid. The amount unrelieved due to the cap can be relieved in another tax year except for unrelieved interest, which can never be carried forward or back. There are numerous conditions and variation to the rules and it is worth speaking to us to determine how best to manage future claims as well as the timing of pension contributions to ensure the maximum permissible relief is claimed.

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THE NEW STATUTORY RESIDENCE TEST

THE NEW STATUTORY RESIDENCE TEST
The 2013 Finance Bill has introduced new Legislation to put the matter of UK Residence Status on a legal footing rather than having to rely on past practices, changes in interpretations and case law.
This should provide more certainty to people moving in and out of the UK temporarily or permanently.
The new rules will impact the following main taxes: Income Tax, Capital Gains Tax and in some cases Inheritance Tax.
There are 3 Tests which need to be looked up:
First Test: The Automatic Overseas Test. If any of the three conditions are met, then an Individual will not be UK Resident for the tax year in question. There is no need to consider the other two tests. If none of the three conditions are met then the individual needs to consider the second test.
Second Test: The Automatic UK Test: If any of the three conditions are met, then the individual will be UK Resident for the tax year in question. There is no need to consider the third and final test. However if none of the conditions are met then the third test needs to be considered.
Third Test: Sufficient UK Ties Test: Different requirements and conditions apply depending on whether the individual is arriving in the UK or leaving the UK. This includes looking at the number of days spent in the UK as well as the number of ties this individual has in the UK. Put simply the more ties in the UK the less number of days an individual can spend here in order to remain non UK resident. Please note that, if at any point an individual spend more than 182 days in the UK in any tax year he will be UK resident for that tax year regardless of the number of ties he has here.
Other previous concessions have been put on a statutory footing such as the split year treatment.
While the news rules will help an individual determine his UK residence status and should give some certainty, they also make it a lot more difficult to sever the UK residence status for leavers.
The Legislation runs to 67 pages and HM Revenue & Customs have published guidance which is contained in a 106 page booklet.
If you need help to determine your UK Residence Status and you are daunted by the length of the Legislation and Guidance give us a call to discuss your circumstances and see if we can help.

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