UK: Weekly Tax Update - 25 April 2016

Last Updated: 28 April 2016
Article by Smith & Williamson

1. General news

1.1 Tax transparency – exchange of beneficial ownership data pilot

Chancellor of the Exchequer, George Osborne, has highlighted the international expansion of a UK-led deal to share information automatically on the ultimate owners of companies. Over 20 jurisdictions, including British crown dependencies, overseas territories and EU member states have signed up to join the project to develop the international exchange system for such data.

www.gov.uk/government/news/tax-transparency-progress-hailed-by-chancellor

1.2 Consultation on reforms to DOTAS for VAT and IHT

HMRC has issued a consultation on reforming the VAT and IHT DOTAS requirements, for comment by 13 July 2016.

A revised draft regulation is intended to tighten IHT disclosure requirements. If adopted, the current grandfathering of IHT schemes made available before 6 April 2011 will disappear. The proposal is that an obligation will arise where two conditions are met:

  • Condition 1 – the main purpose, or one of the main purposes, of the arrangements is to enable a person to obtain a tax advantage; and
  • Condition 2 – the arrangements are contrived or abnormal or involve one or more contrived or abnormal steps without which a tax advantage could not be obtained. The document discusses the proposed new hallmark in the context of gifts, nil rate band discretionary trusts and arrangements taking advantage of statutory reliefs in the way they were intended to be used. The suggestion is that standard tax planning in these areas is not caught. The document comments further:

'For example, where a person has given away an asset but continues to benefit from it other than in a way within one of the statutory exemptions, this is likely to breach the gift with reservation of benefit provisions and be notifiable. Paying full consideration for use of land or chattels is within one of the statutory exemptions and would not be regarded as contrived. However, disclosure would be expected, for example, of variants of home loan schemes or other arrangements designed to give away the family home but where the donor continues to benefit from it in a way not provided for in any statutory exemptions.'

For VAT, the proposal for transferring the primary disclosure obligation from the user to the promoter is explored, as well as expanding the scope of application of DOTAS to other indirect taxes by including insurance premium tax and gambling duties.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/517361/Strengthening-Tax-Avoidance-Disclosure-Regimes-for-Indirect-Taxes-Inheritance-Tax.pdf

1.3 Consultation on reviewing the gift aid small donations scheme

HMRC has published a consultation on the gift aid small donations scheme (GASDS) with the intention of simplifying the scheme rules to ensure as many eligible charities as possible can claim this relief. Responses are requested by 1 July 2016.

GASDS enables charities to claim gift aid style top-up payments on up to £5,000 of small cash donations of up to £20 every year. This amount is being increased to £8,000 from April 2016.

Charities must meet a number of eligibility requirements to be able to claim under GASDS. The Government is considering relaxing the eligibility rules as follows:

  • removing the requirement that a charity must have been registered for at least two full tax years before it can access GASDS - the 'two-year rule';
  • reducing the 'two in four' rule to a 'previous year only' rule. Currently, charities are required to have made successful gift aid claims in at least two out of the four previous tax years with no more than two year's gap between claims – the 'two-in-four rule'.

There is a proposal to explore if cash gifts of up to £20 could be made by contactless credit or debit card. There is also a proposal to amend the rules to allow charities or a 'group' of charities to claim either under the main GASDS allowance or, under the community buildings allowance, but not both. It would still be the intention that charities receiving donations in multiple community buildings could make multiple claims under community buildings rules but not in addition to the main allowance. A further proposal is to explore if it would be possible to permit some claims under the community buildings rules for donations made outside the community building itself.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/517377/Gift_Aid_Small_Donations_Scheme-consultation.pdf

1.4 Additional SDLT on alternative finance arrangements

HMRC has proposed amendments to the March 2016 draft Finance Bill 2016 provisions for the extra 3% SDLT charge on additional properties, to take account of alternative finance situations that should be excluded from the charge.

The SDLT relief for alternative finance transactions applies to the second, subsequent, transaction only, leaving SDLT chargeable on the initial purchase by the financial institution.

Under the rules for the new higher rates of SDLT announced on 16 March 2016, the intermediate financial institution as a corporate body would be liable to the higher rates of SDLT if the property purchased was purchased for more than £40,000 and it was not a reversionary interest in respect of a 21-year or longer lease. This would be the case regardless of the situation of the ultimate purchaser of the property.

An amendment is therefore proposed with effect from 1 April 2016:

The amendment provides that when considering if the higher rates apply to a transaction, the person ultimately buying the property, rather than the corporate financial institution, is looked at as if they were the purchaser under the first transaction. Where a purchaser under the second transaction is an individual, this will mean that a purchase of a single dwelling will only be liable to the higher rates if the following apply:

  • the individual owns another property at the end of the day of the effective date of the transaction;
  • the purchase is not a replacement of the individual's previous only or main residence.

www.gov.uk/government/publications/stamp-duty-land-tax-higher-rates-for-purchases-of-additional-residential-properties/stamp-duty-land-tax-amendment-to-higher-rates-for-purchases-of-additional-residential-properties

2. Private client

2.1 Consultation on part surrenders and part assignments of life assurance policies

Following the Lobler case, Lobler v HMRC ([2015] UKUT 152), and the announcement in Budget 2016, the Government has issued a consultation on changing the tax rules for excess life assurance policy events (part surrenders). The consultation aims to ensure that gains for tax purposes that are disproportionate compared to the underlying economic gain from the policy cannot arise in future. The consultation is open until 13 July 2016.

The consultation asks for comments on three possible options for change.

  • Taxing the economic gain.

This option would retain the current 5% tax deferred allowance but would bring into charge a proportionate fraction of any underlying economic gain whenever an amount in excess of 5% was withdrawn. A gain arising under this option would always be an appropriate fraction of the policy's economic gain. Unlike the current rules, if the policy was not in profit, no gain could arise from an excess event.

  • The 100% allowance

Under this option no gain would arise until all of the premiums paid have been withdrawn. It would change the current cumulative annual 5% tax deferred allowance to a lifetime 100% tax deferred allowance and ensure that only economic gains are taxed.

Once all premiums paid have been withdrawn from a policy any subsequent withdrawals would be taxed in full. Gains would arise at the end of the insurance year and the insurer would be required to report the gain, on a chargeable event certificate, to the policyholder (and if necessary HMRC) within three months from the end of that insurance year.

  • Deferral of excessive gains

This option would maintain the current method for calculating gains but if the gain exceeds a pre- determined amount of the premium (such as a cumulative 3% for each year since the policy commenced), the excess would not be immediately charged to tax. Instead it would be deferred until the next part surrender or part assignment.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/
517920/Part_surrenders_part_assignments_life_insurance_policies.pdf

Download - Weekly Tax Update - 25 April 2016

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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