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;

  • draft clause increasing annual drawdown pension limit.

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.


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:

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.

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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.

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