UK: Weekly Tax Update - Monday 21 January 2013

Last Updated: 1 February 2013
Article by Smith & Williamson

1 General news

1.1 Publication of additional draft legislation for Finance Bill 2013

The government has published additional draft legislation for Finance Bill 2013 as follows:

  • revised draft schedule on vulnerable beneficiary trusts;

www.hmrc.gov.uk/budget-updates/march2012/legislation-vuln-bens-trust.pdf

www.hmrc.gov.uk/budget-updates/march2012/en-vuln-bens-trust.pdf

  • draft clause increasing annual drawdown pension limit.

www.hmrc.gov.uk/budget-updates/march2012/legislation-pens-draw.pdf

www.hmrc.gov.uk/budget-updates/march2012/en-pens-draw.pdf

The legislation is open for consultation until 6 February 2013.

Details of the clauses, Tax Information and Impacts Notes, and Explanatory Notes are available on both the HM Treasury and HM Revenue & Customs website.

(www.hmrc.gov.uk/budget-updates/march2012/finance-bill-2013-draft.htm).

1.2 Final FATCA regulations

The draft Finance Bill provisions released on 11 December 2012 included a clause giving HM Treasury a power to make regulations for the purpose of giving effect to the agreement between the Government of the United Kingdom and the Government of the United States of America to improve international tax compliance and to implement FATCA.

The IRS has released a pre-publication version of the final FATCA regulations that will be formally released on 28 January 2013.

A pdf version can be found at:

http://federalregister.gov/a/2013-01025

The notes below have been extracted from the release.

Effect of the final regulations

These final regulations address potential administrative burdens associated with FATCA compliance by adopting a risk-based and targeted approach to implement the statute with respect to scope, diligence, and timing. In particular, with respect to scope, consistent with the objectives of the statute, the regulations limit the institutions, obligations, and accounts subject to FATCA to more specifically target concerns and address practical considerations. For example, the final regulations refine the scope of FATCA in the following ways:

  • Expansion of Grandfather Rule for Certain Obligations.

To promote the orderly implementation of FATCA, the final regulations exempt from chapter 4 withholding all obligations outstanding on January 1, 2014, and any associated collateral. In addition, because evolving areas of the law may create chapter 4 withholding obligations in the future and create uncertainty and risk in the meantime, the final regulations address obligations (and associated collateral) that may give rise to withholdable payments through future regulations under section 871(m) (relating to dividend equivalent payments) or to foreign passthru payments under the chapter 4 foreign passthru payment rules. Such obligations are grandfathered if the obligations are outstanding at any point prior to six months after the implementing regulations are published.

  • Scope of Covered Financial Institutions.

In response to comments, the final regulations treat passive entities that are not professionally managed as NFFEs rather than as FFIs. The final regulations also provide appropriate exemptions for financial institutions and certain passive NFFEs that are part of a non financial group of companies and that support the operations of the group.

  • Expansion of Deemed Compliant and Other Exempt Categories.

The final regulations expand the categories of FFIs that are deemed to comply with FATCA without the need to enter into an agreement with the IRS in order to focus the application of FATCA on higher-risk financial institutions that provide services to the global investment community. In addition, the final regulations expand the scope of retirement funds that are considered exempt beneficial owners the income of which is not subject to chapter 4 withholding.

With respect to diligence, the final regulations reduce the administrative burdens associated with identifying U.S. accounts by calibrating due diligence requirements based on the value and risk profile of the account, and by permitting FFIs in many cases to rely on information they already collect. For example, the final regulations reduce the burdens associated with identifying U.S. accounts in the following ways:

  • Accounts exempt from review.

The final regulations exempt from review entirely all pre-existing accounts held by individuals with a balance or value of $50,000 or less. This threshold is raised to $250,000 for pre-existing accounts held by entities and for pre-existing accounts that are cash value insurance and annuity contracts. In addition, the final regulations exempt insurance contracts with a balance or value of $50,000 or less from treatment as financial accounts.

  • Reduced diligence and documentation rules for lower value pre-existing accounts.

In the case of pre-existing accounts with a balance or value of $1,000,000 or less, the final regulations permit a participating FFI to determine whether any of its accounts held by individuals are U.S. accounts based solely on a search of electronically searchable account information for certain U.S. indicia. In addition, for such accounts held by passive NFFEs, the final regulations allow a withholding agent to rely on its review conducted for anti-money laundering due diligence purposes to identify any substantial U.S. owners of the payee in lieu of obtaining a certification.

  • Reliance on self-certification.

In the case of accounts held by entities, the final regulations expand the ability of FFIs to rely on a self-certification from an account holder as to its chapter 4 status. Finally, with respect to timing, the final regulations allow reasonable timeframes to review existing accounts and implement FATCA's obligations in stages to minimize burdens and costs consistent with achieving the statute's compliance objectives. For example:

  • Time allowed for review of pre-existing accounts.

The final regulations treat all accounts maintained by an FFI prior to January 1, 2014, as pre-existing accounts. In addition, the final regulations allow participating FFIs and withholding agents until December 31, 2015, to document account holders and payees that are not prima facie FFIs.

  • Phased implementation of reporting.

The final regulations modify the due date for the first information report by requiring participating FFIs to file the first information reports with respect to the 2013 and 2014 calendar years not later than March 31, 2015.

  • Phased implementation of withholding on passthru payments and gross proceeds.

The final regulations exempt from withholding foreign passthru payments and gross proceeds from sales or dispositions of property occurring before January 1, 2017.

Interaction of the regulations with the intergovenmental agreements (IGAs)

FFIs covered by a Model 1 IGA [such as the UK/US agreement], and that are in compliance with local laws implemented to identify and report U.S. accounts in accordance with the terms of the Model 1 IGA, will be treated as satisfying the due diligence and reporting requirements of chapter 4. Accordingly, consistent with the terms of the Model 1 IGA, these FFIs do not need to apply the final regulations for purposes of complying with and avoiding withholding under FATCA. In certain cases prescribed in the Model 1 IGA, the laws of the partner jurisdiction may allow the resident FFI to elect to apply provisions of these regulations instead of the rules otherwise prescribed in the Model 1 IGA.

FFIs covered by a Model 2 IGA with the United States will be required to implement FATCA in the manner prescribed by these regulations except to the extent expressly modified by the Model 2 IGA. The final regulations accommodate such variations.

Streamlined Registration and Technical Implementation

FFIs registering with the IRS will be able to do so through a secure online web portal, the FATCA Registration Portal (Portal), from anywhere in the world. The Portal is designed to accomplish an entirely paperless registration process. Registering FFIs will be able to use the Portal to register their chapter 4 status (such as participating FFI or reporting Model 1 FFI both as defined in the final regulations), manage their registration information, and, as appropriate, agree to the terms of or make the representations required for their status.

The Portal will also facilitate electronic communication between the IRS and FFIs and other registrants. Registered FFIs designated as leads of an expanded affiliated group will be able to use the Portal to manage the registration status of group members. The Portal will also be used by registering FFIs that are already Qualified Intermediaries (QIs) to renew their QI status. An FFI's submission and maintenance of registration information through the Portal will maximize processing efficiencies, minimize errors, and ensure expedient issuance of a Global Intermediary Identification Number ("GIIN"). An FFI will use its GIIN to establish its chapter 4 status for withholding purposes and to identify the institution for reporting purposes under the final regulations. The IRS currently contemplates that the GIIN may also be used by reporting Model 1 FFIs to satisfy reporting requirements under local law and is discussing this possibility with its Model 1 IGA partners. With regard to reporting, the IRS is also discussing with partner jurisdictions the possibility of adopting a single format for reporting FATCA information, whether that information is reported directly to the IRS or to the tax administration in a Model 1 IGA jurisdiction.

The IRS also anticipates that the certifications of compliance required to be made by responsible officers pursuant to §§1.1471-4(c)(7) and 1.1471-4(f)(3) will be made electronically through the Portal, resulting in similar efficiencies.

2 Private client

2.1 SEIS - CGT Re-investment Relief clarification

The Chartered Institute of Taxation has published the following technical note:

"Following recent press reports that CGT reinvestment relief for a qualifying SEIS investment is to be extended for another tax year to 2013/14, we have sought clarification from HMRC. HMRC has confirmed that there has been no recent change in Government policy or legislation.

The source of the press report is HMRC's view, as set out the Venture Capital Schemes Manual at VCM45010, that if an investor re-invests all or part of the amount of a capital gain arising in 2012/13 in SEIS shares either in 2012/13, or in 2013/14, subject to an election under ITA 2007 section 257AB, then that gain is exempt from capital gains tax. HMRC has confirmed that the current legislative position as it was enacted in Finance Act 2012 operates as follows:

  • The SEIS legislation of ITA 2007 Part 5A grants relief against income tax at a rate of 50% of the amount invested in shares, which meet the qualifying conditions of the scheme.
  • TCGA 1992 Schedule 5BB provides that if the amount of a capital gain accruing on the disposal of an asset in 2012/13 is reinvested in shares which qualify for SEIS income tax relief, then no CGT is chargeable on that gain. This is a one-off relief applying only to 2012/13 gains, where those gains are reinvested in shares acquired in 2012/13.
  • For income tax purposes, ITA 2007 section 257AB(5) gives an investor scope to elect to have some or all of an issue of shares to be treated as though acquired in the tax year immediately preceding that in which they were actually acquired. The SEIS rate for that earlier year is then applied to the shares which are the subject of the election.
  • TCGA 1992 Schedule 5BB Paragraph 8(3) provides that where there has been an election under ITA 2007 section 257AB(5), the shares which are the subject of the election are also treated for the purposes of Schedule 5BB as having been acquired in the earlier tax year.
  • The result of all of those pieces of legislation is that if an investor re-invests a capital gain arising in 2012/13 in SEIS shares either in 2012/13, or in 2013/14 subject to an election under section 257AB, then that gain is exempt from capital gains tax. It does not permit the amount of a 2013/14 gain to be invested in 2013/14 and become exempt from capital gains tax.

2.2 HMRC Sideways Loss Relief Settlement Opportunity - Film schemes

As part of the phased roll out of the settlement opportunity HMRC has written to individuals who have taken part in Film Production Partnership schemes.

To read this article in full please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.