Archive for the ‘CGT’ Category

HMT Consultation Paper – New Tax Rules for Residential Properties over £2m

Wednesday, June 6th, 2012

HM Treasury has recently published its Consultation Paper on the new property taxes first outlined in the Budget earlier this year.

See below a brief overview of the main suggestions.  The consultation period runs until 23 August.

  • Since the Budget in March, Stamp Duty Land Tax of 15% already applies to new purchases above £2m in value by “certain non-natural persons”;
  • It is also proposed that an annual tax charge and CGT will apply from April 2013 on property owned by “non-natural persons” and “non-resident companies”;
  • The main areas for consultation seem to be around the scope of the 15% tax rate and how bona fide developers might be exempt.

The annual tax charge proposals are roughly as follows:

  • The annual tax charge will range from £15,000 (on properties worth £2-5m) to £140,000 (on properties > £20m), increasing annually in line with Consumer Price Inflation (“CPI”);
  • Property values will be set at April 2012 or date of purchase (if later).  They will apply for 5 years (2013-18) and then be updated for a further 5 years;
  • The annual charge will apply to companies (with some exceptions) but not trusts.

The Capital Gains Tax (“CGT”) proposals are roughly as follows:

  • CGT will apply to the sale of property by non-resident companies;
  • They are consulting on whether CGT should also apply to sales by offshore trusts;
  • CGT will also apply where shares in the company itself are sold;
  • CGT will apply to historic as well as future gains;
  • The rate of CGT hasn’t been set and is open to consultation.

Interestingly, though, the Exchequer expects the impact of the CGT rules on overall tax receipts to be ‘negligible’ (whereas on the SDLT and annual charge, there is expected to be an increase in tax receipts).

In our view, these changes are very significant.  It is definitely worth reviewing existing arrangements as soon as possible, although subject to the caveat that this is still in the consultation phase so the rules are likely to change.  Specific actions should therefore be left until the rules have been clarified (hopefully later in 2012 or early 2013).  While the new rules are specifically designed to encourage the unwinding of these ‘envelope’ structures, consideration does also need to be taken of other (non-tax) reasons for holding a property in this manner (particularly the issue of privacy).

 

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Budget 2012 Summary

Wednesday, March 21st, 2012

Much like last year, the weather has been very kind to George Osborne on Budget Day.

Please find below an brief overview of the main points, with some thoughts and opinion thrown in. Hope it’s useful.

Like the weather, the overall message this year was much the same as last year. While austerity remains the order of the day, I can’t help but think that there was a slightly more positive spin to this year’s announcements. This has been helped by slightly better-than-expected growth figures from the Office for Budget Responsibility, meaing the UK will technically avoid a recession (this time).

However, I’m going to christen this the “Wallace and Gromit” Budget. Tax incentives for video games, animation and TV production provided Mr Osborne with an unmissable opportunity to have a quick dig at Ed Miliband. I leave it to you to notice the resemblance.

There seemed to be fewer attention-grabbing headlines in this Budget compared to last year, with many of the main announcements leaked the day before. “Steady as she goes, Gromit,” as Wallace might say.

To highlight some of the more salient points (in no particular order):

- The biggest point in my view is not the change to the 50p tax rate (will will grab all the headlines) but the fact that the Personal Allowance (the earnings below which an individual pays no income tax) will rise to £9,025 from next April, the largest increase in over 30 years. Age-related Personal Allowances for those in retirement will be phased out for new retirees (i.e. anyone born after 5th April 1948). At the same time, the basic-rate tax band will be adjusted so that basic rate taxpayers will get the full benefit, while higher rate taxpayers earning up to £100,000 will see one quarter of the benefit. Only those earning over £100,000 will see no benefit.

- As already alluded to, the additional rate of income tax will reduce from 50p to 45p from April 2013. The 50p tax rate was always touted as a temporary measure, and it seems that HMRC has conceded that a 50p top tax rate has raised little in additional tax receipts (one-third of what they expected). Given the “massive distortions” that the 50p tax rate has created, reducing it by 5p is expected to have no material impact on overall tax receipts.

- there was also a long-overdue clampdown on Stamp Duty avoidance schemes. A new Stamp Duty Land Tax of 15% will apply from today to residential properties worth in excess of £2m held within “company envelopes”. An annual charge may also apply from April 2013. Furthermore, Capital Gains Tax will apply to such properties (even if principal prime residences) from April 2013. The Chancellor also signalled an intention to move retrospectively in respect of the above.

- A new tier of Stamp Duty Land Tax of 7% will apply to properties over £2m in value, starting at midnight tonight. According to Land Registry data, this would have applied to just 121 homes (0.2%) bought in November last year (of which 98 were in London, or 1.3%). Clearly, this will only be effective if the loopholes are closed.

- Corporation Tax rates will continue to reduce, with a further 1p reduction next month (on top of the one already planned). From April, Corporation Tax will hence be 24p (although banks aren’t expected to benefit because the Bank Levy will increase to counteract this reduction) . I commended this change last year and commend it again as a good catalyst for growth. A new Corporation Tax regime for small businesses (turnover less than £77,000) will be implemented on the basis of cash flowing through the business. This should simplify tax returns if nothing else – there is no indication as to whether this might reduce or increase their tax bills.

- A General Anti-Avoidance Rule (“GAAR”) to help clamp down on tax avoidance is set to be introduced in the Finance Bill 2013. This has been mooted for some time, but by its very nature (i.e. ambiguous) is likely to be very controversial and it remains to be seen how effective one might be. The countries with GAARs (e.g. Canada, Australia and New Zealand) don’t tend to be any better off as a result.

- Tax incentives are to be introduced for patents as well as video games, animation and TV production, “to attract Disney and HBO to the UK.” Cue Wallace and Gromit gag.

- The Basic State Pension is to be simplified to a single-tier payment of £140 a week. This has been announced previously and more details are expected in the Spring.

- No change to alcohol and fuel duties. Big increases for tobacco, though (37p on a pack of cigarettes from 6pm this evening).

- There will be a new cap on “unlimited” income tax reliefs (a bit like the Annual Allowance when it comes to pension contributions). For those claiming income tax relief in excess of £50,000, a cap of 25% of income will apply. It’s important to note that this only applies to currently “unlimited” reliefs, so those that currently have limits (e.g. pension contributions, EIS and VCT reliefs) won’t be affected. Personally, I’m struggling to think of genuine examples of “unlimited” income tax reliefs.

- Finally, Child Benefit (currently £80pm for all families) is to be removed gradually for those families where one member earns over £50,000. Those earning over £60,000 will receive no Child Benefit at all. Note that it sounds like Child Benefit will still be paid, but it will clawed back through an income tax charge.

To summarise, if you’re a heavy-smoking higher-rate taxpayer approaching retirement, you’re probably the biggest loser. Especially if you have been or were planning to avoid Stamp Duty on your house in Millionaires’ Row.

 

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Quarterly Private Client Newsletter: February 2012

Wednesday, February 15th, 2012

Please see below a link to February 2012′s Quarterly Private Client Newsletter from Kennedy Black Wealth Management.

In this edition, we are pleased to recap on some prestigious recognition that we’ve received over the past three months. We are also pleased to report that we are expanding and would like to welcome Cathi Harrison to the team. Cathi is a highly qualified paraplanner and will work behind the scenes to ensure that we can continue to deliver a first class service.

In light of the looming end of tax year, we include some tax ideas to think about as we approach the end of the tax year, including what we believe to be the most tax efficient investment possible under current rules. Finally, we cover some investment topics which hark back to our passive investment beliefs. As always, we hope it’s interesting reading.

Click here to access the February 2012 edition in pdf format (requires Adobe Reader).

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Latest Kennedy Black Wealth Management Quarterly Private Client Newsletter

Tuesday, February 22nd, 2011

Please see below a link to February 2011′s Quarterly Private Client Newsletter from Kennedy Black Wealth Management.

In this edition, we focus on some year end tax planning topics such as ISAs and Capital Gains Tax planning.  The first article outlines how stocks and shares ISAs are almost as tax efficient as pensions – and since we all should recognise the tax benefits of pensions, perhaps ISAs are a little undervalued as a financial planning tool.

Furthermore, we conclude with a topic that comes up time and again with clients – investing for children.  This seems to be particularly topical since the Child Trust Fund has been scrapped and its replacement, the Junior ISA, is still only in the pipeline.  Yet even these wrappers have limitations and there are several important tax points that parents should be aware of if they want to ensure tax-free investment growth on behalf of their children.

Click here to access the February 2011 edition in pdf format (requires Adobe Reader).

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Coalition Budget: “The Emergency Budget” – initial reaction

Tuesday, June 22nd, 2010

As you may have just seen, the new Coalition government has just announced its “emergency” Budget, including a large array of spending cuts and some not insignificant tax rises, with the goal of reducing the UK’s budget deficit. Below is my initial reaction to the main anouncements, although as usual the devil is in the detail so there may be further conclusions to draw once the full text has been digested. I’ll provide an update and will let you know if that is the case.

By way of introduction, at various stages George Osborne called this ‘The Emergency Budget’, ‘The Unavoidable Budget’, ‘The Progressive Budget’ and ‘The Balanced Budget.’ And in terms of his announcements, he has introduced some interesting and far-reaching measures. From a personal viewpoint, I had feared the worst (some of the rhetoric leading up to today was alarmist to say the least and paved the way for some heavy-handed new rules that could have had some damaging consequences). However, leaving aside any political biases, I was pretty impressed by the measures announced today. There seems to be a good balance between sharing the burden but doing so fairly and in a way that will support economic growth. The reduction in the budget deficit appears to be on credible ground.

77% of the proposed reductions in the deficit will come from spending cuts, with 23% from tax rises. In focusing on issues relating to personal finance, I won’t go into the spending cuts in much detail here. I will, however focus on the key tax rises and their potential implications. I would like to draw your attention to the CGT and pension changes in particular.

  • VAT: to increase to 20% from 4th January 2011: this will undoubtedly make the main headlines, but was largely expected;
  • Capital gains tax: will remain at 18% for basic rate taxpayers, but will rise to 28% for higher rate taxpayers from midnight tonight. The annual exemption of £10,100 per person will remain, and the 10% rate of Entrepreneurs’ Relief will now apply for the first £5m. These changes are slightly watered down versions what had initially been mooted (a rise to 40% with a possible cut in the annual exemption to just £2000) but must be commended. The risk had been for a clumsy change to CGT, which could have created several unintended consequences (even a possible reduction in total tax revenues) but in reality the changes have been much more considered and shouldn’t be overly alarming. However, it increases the emphasis that people should place on CGT planning as part of their financial plans. Don’t hesitate to get in touch if you would like to discuss the CGT implications in more detail;
  • Pensions: the minimum age for State Pensions will rise to 66 sooner than initally thought, although the Basic State Pension will now rise in line with the highest of earnings, inflation or 2.5%. While the intentions of the recent removal of tax relief on pension contributions for higher rate taxpayers will be maintained, the proposed restriction may be revamped with a new system of a reduced annual allowance of £30,000 to £45,000 (currently £255,000). A consultation period will ensue before a final decision is made;
  • Corporation tax: will be reduced by 1% every year for the next four years, reducing the main rate of corporation tax to 24%. This, along with some other measures aimed at small businesses, are measures to be applauded, as they will undoubtedly attract business to the UK and hence should drive growth, jobs and, by extrapolation, tax receipts.

As usual, banks were the fall guys, with a commitment to introduce a banking levy and to focus on ‘unacceptable’ banking bonuses. How these are implemented will remain to be seen, although it was interesting to note that France and Germany have joined the UK in making similar commitments.

Finally, an overhaul of the benefits system has been proposed and must also be commended (assuming it is implemented as intended). There will be new means tests for high earners, and Child Benefits will be frozen, affecting everyone in the UK.

In conclusion, this was a fair budget with some interesting measures that should not, at face value, create unwanted constraints on economic growth. In fact, the cuts in public spending should be balanced by growth in the private sector if, as hoped, support for UK enterprise really does attract business to the UK.

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Reaction to Budget 2010

Wednesday, March 24th, 2010

Alastair Darling today announced his last Budget before the next general election.  As a result, it was expected to be high on political rhetoric – and it didn’t disappoint.  However, at the same time it was low on new measures – which was rather disappointing.

The key points for our Private Clients are outlined below, with some of our initial thoughts.

Overall, the main winners were first-time buyers and small business owners.  The main losers were the banks and expensive home owners.

  • Stamp Duty for first time buyers has been suspended on house purchases of up to £250,000 for a period of two years starting at midnight tonight.  This is double the normal zero-rate threshold of £125,000.
  • This allowance will be balanced by a new higher rate of Stamp Duty of 5% on house purchases in excess of £1 million, which will come into force in April 2011.
  • No change to VAT
  • No change to Capital Gains Tax, which has been maintained at 18% – there had been considerable speculation that this would be brought more into line with income tax, but the Government has not felt the need to do so.
  • Entrepreneurs’ Relief has been doubled – i.e. the first £2 million of capital gains from the sale of a business will be at the reduced rate of 10%, thereby saving small business owners up to £160,000 over the standard rate of 18%.
  • The Inheritance Tax threshold has been maintained at £325,000 and will be frozen for four years.
  • The annual personal ISA allowance will from next year be indexed to inflation.

We would expect the Stamp Duty changes to have a moderate effect on house price activity, perhaps spurring interest at the lower end of the London market as first time buyers are attracted back to the market.  However, a £2,500 Stamp Duty tax break is not going to do much towards the corresponding deposit required these days – £25,000 at a bare minimum and more like £62,500.

At the other end of the property market, a new 5% rate of Stamp Duty is likely to fuel activity in this part of the market as the April 2011 implementation date gets closer.

No change in CGT has to be welcomed.  Many had speculated about a rise to 25% given the disparity between CGT and the new 50% ‘highest’ rate of income tax.  However, we at Kennedy Black believe that the 18% rate sits more closely with the old rate of CGT which was subject to complicated Taper Relief down to 10% in some cases.  The gap between CGT and income tax is here to stay, and high earners should be looking to take advantage of this differential.

The increase in Entrepreneurs’ Relief is also to be welcomed, as is the indexation of the personal ISA allowance which had up until this year been relatively static over the ten years since ISAs were introduced.  ISAs encourage both saving and investment, and are to be applauded (and fully utilised).

One final point worth making, which raised eyebrows here but was ultimately a bit of a false alarm, was Mr Darling’s promise to come down hard on tax evaders.  It generated the biggest cheer of the afternoon, but seems to be little more than a political dig at Deputy Conservative Party Chairman Lord Ashcroft.  The UK is about to sign a tax disclosure agreement with Belize, where Lord Ashcroft has dual-nationality.  So unless you happen to hail from Dominica, Grenada or Belize then we see little to worry about for the time being.

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Kennedy Black launches Quarterly Private Client Newsletter

Tuesday, February 2nd, 2010

As part of our ongoing commitment to our clients, Kennedy Black has launched a Quarterly Private Client Newsletter which will cover a whole range of topical personal finance stories.  This month, we start by focusing on the numerous and important changes that will occur at the end of this tax year, and the actions that need to be taken.  We also start a series of ‘Investment Tips’ which will hopefully help you avoid making some classic investment mistakes.

Click here to access the February 2010 edition in pdf format (requires Adobe reader).

To receive this newsletter by email every quarter, please sign up using the box on the right.

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