FURTHER CHANGES TO CGT ENTREPRENEURS’ RELIEF

Entrepreneurs’ relief (ER) will be extended to external investors in unlisted trading companies. This new investors’ relief will apply a 10% rate of CGT to gains accruing on the disposal of ordinary shares held by individuals. These shares must be subscribed for by the claimant and acquired for new consideration on or after 17 March 2016. The shares must have been held for a period of at least three years starting from 6 April 2016 and there will be a lifetime cap of £10 million.

 

In the 2014 Autumn Statement it was announced that it is no longer possible to claim CGT entrepreneurs’ relief against the gains arising on the sale on or after 3 December 2014 of goodwill by a sole trader or partnership to a limited company in which they have a controlling interest. That restriction was then legislated in Finance Act 2015. It has now been announced that the relief will still be available provided that the transferor does not receive more than 5% of share capital or voting rights in the acquiring company.

NEW CORPORATE TAX LOSS RULES

There will be fundamental changes to the rules for setting off corporate tax losses starting on 1 April 2017. For losses incurred on or after 1 April 2017, companies will be able to use carried forward losses against profits from other income streams or from other companies within a group. However, large companies with profits in excess of £5m will only be allowed to offset brought forward losses against 50% of the amount of profit in each future period.

LOWER CORPORATION TAX RATES

A single corporation tax rate of 20% has applied since 1 April 2015 regardless of the level of the company’s profits. In the Summer 2015 Budget it was announced that this would reduce to 19% in April 2017. The Chancellor has now announced that this will now be reduced to 17% from 1 April 2020.

£1,000 SAVINGS INCOME TAX FREE 2016/17

From April 2016, a tax-free allowance of £1,000 (or £500 for higher rate taxpayers) will be introduced for the interest that people earn on savings. If they are a basic rate taxpayer and have a total income up to £43,000 a year, they will be eligible for the £1,000 tax-free savings allowance.

If they are a higher rate taxpayer and earn between £43,000 and £150,000, they will be eligible for a £500 tax-free savings allowance, but those with income in excess of £150,000 a year will be taxed in full on their interest income.

As a result of these changes banks and building societies will pay interest gross from 6 April 2016.

CAPITAL TAX RATES

An unexpected announcement was a reduction in the rate of capital gain tax from 6 April 2016 down from 18% to 10% for basic rate taxpayers and 28% down to 20% for higher rate taxpayers. The 18% and 28% rates remain for disposals of residential property.

 

There has been no change in the inheritance tax nil rate band which remains at £325,000 until 2020 although an additional nil band will be available from 6 April 2017 where the main residence or assets of an equivalent value are left to direct descendants. This additional relief will be protected where the person downsizes to a less valuable property from 8 July 2015 onwards. Please contact us if you would like to discuss inheritance tax planning.

32.5% TAX ON LOANS TO PARTICIPATORS FROM 6 APRIL 2016

Where a “close” company controlled by 5 or fewer shareholders (participators) makes a loan to one of those persons the company is required to pay tax to HM Revenue and Customs. The rate of tax increases from 25% to 32.5% from 6 April 2016 in line with the dividend rate for higher rate taxpayers. This tax is not payable if the loan is cleared within 9 months of the end of the accounting period and will continue to be repaid to the company if the loan is repaid or written off after the 9 month period.

NEW DIVIDEND RULES START 6 APRIL 2016

It was announced in the Summer 2015 Budget that there would be a £5,000 tax free dividend allowance from 6 April 2016 and that once used the rate of tax on dividend income would increase by 7.5%. This means that basic rate taxpayers will pay 7.5% tax on dividend income, higher rate taxpayers 32.5% and additional rate taxpayers 38.1%. Note that from 6 April 2016 dividends will no longer carry with them a 10% notional credit. This is the reason why dividends received by basic rate taxpayers were effectively tax free up to 5 April 2016.

Immigration problems for Landlords?

Landlords of residential premises required to check the immigration status of prospective tenants and other occupiers to ascertain the individuals’ right to rent in the UK

In January 2016 the Government passed The Immigration Act 2014 (Commencement Order No 6), which introduces a requirement on private landlords to make right to rent checks of prospective tenants aged 18 and over before the start of any new tenancy entered into on or after 1 February 2016. The requirement applies to all tenants whether or not they are not named on the tenancy, even if there is no written tenancy or tenancy agreement. If landlords fail to comply, they may be fined up to £3,000. Landlords must carry out the checks in a non-discriminatory manner and need to avoid contravening the Equality Act 2010.

The government has issued detailed guidance on the documents that landlords can accept as evidence of the right to rent and landlords are required to keep copies of these documents. If tenants are not in a position to supply these documents, the landlord must request verification of the right to rent from the Home Office.

Landlords of residential properties must also make sure that someone’s right to rent does not lapse once the tenancy agreement has been granted. It does not apply to existing tenancies nor to a renewal after 1 February 2016 of a tenancy agreement granted before this date, provided that the renewal is made between the same parties and there has been no break in the tenant’s occupation.

Landlords are able to pass on this responsibility for the checks to their agents provided that

(a) the agent is acting in the course of business and

(b) the landlord and agent agreed in writing that the agent is to take responsibility for carrying out the right to rent checks on behalf of the landlord.

At the moment, there is no legal obligation for a Landlord in Wales to check the immigration status of prospective tenants as the legislation has yet to be implemented in Wales.

There are exclusions to this requirement which includes but is not limited to student accommodation, accommodation from or involving local authorities, hostels, refuges’ and social housing.

OTHER TAX EFFICIENT INVESTMENTS

If you are looking for investment opportunities, have you considered the Enterprise Investment Scheme (EIS)? These investments in certain qualifying companies allow you to set off 30% of the amount invested against your tax bill as well as capital gains tax (CGT) deferral. An even more generous tax break is available for investment in a qualifying Seed EIS company where income tax relief at 50 per cent is available and in addition it is possible to obtain relief against your 2015/16 capital gains. Both EIS and Seed EIS also provide a CGT exemption when the shares themselves are sold after 3 years.  Note however that qualifying EIS companies tend to be risky investments so professional advice should be taken.

 

A 30% income tax break is also available by investing in a Venture Capital Trust.