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Tax Insider

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Here are just some of the strategies our tax experts are sharing with you this month:                                
  • Writing Off Directors’ Loans: Taxing Times!
    Director’s loan accounts (DLAs) are a common feature in the financial statements of family and owner-managed companies in particular. HM Revenue and Customs (HMRC) are keen to ensure that DLAs are treated correctly for tax and National Insurance contributions (NICs) purposes, and regard DLAs as a ‘risk’ in terms of potential errors. Mark McLaughlin notes that the tax treatment of family and owner-managed companies writing off loans to directors is not necessarily as straightforward as might first seem.                      
  • Speculate To Accumulate? Consider Topping Up Your Pension Pot! 
    There continues to be plenty of speculation concerning the availability of tax relief on pension contributions – not least because an unnamed senior government source recently quoted Chancellor Philip Hammond as saying that the £38 billion paid out every year in the form of pension tax relief is ‘one of the last remaining pots of gold we can raid. Sarah Laing looks at how tax relief on pension contributions may be optimised and highlights why it might be beneficial to top up pension plans sooner rather than later.                 
  • VAT: Buying And Selling A Second-hand Commercial Vehicle 
    When a business buys a new commercial vehicle, it will be charged VAT on the full selling price. Unlike motor cars, when the recovery of input tax is blocked unless there no private use of it at all, the VAT on a commercial vehicle can be reclaimed. Andrew Needham looks at the VAT consequences of buying and selling a second-hand commercial vehicle.     
  • EIS Reliefs – Traps That Can Catch The Unwary! 
    The enterprise investment scheme (EIS) and its sister scheme, seed EIS (SEIS), provide very generous tax breaks, which significantly reduce the effective cost of investing in high-risk, unquoted trading companies. Kevin Read discusses some recent cases that show how the valuable tax reliefs available under the enterprise investment scheme can be lost in seemingly innocuous situations. 
  • Ways To Reduce Inheritance Tax Legally 
    Inheritance tax (IHT) is seen by many as iniquitous, as it is a death tax payable on assets that have mostly been purchased from after-tax income. No matter what your income tax status is or was, IHT is normally 40% on taxable death estates. IHT is a tax on assets after exemptions and allowances. You may have been a basic rate taxpayer all your life, only to become a 40% one on death. Tony Granger outlines some strategies to reduce inheritance tax bills now and in the future – quite legally.
  • The ‘Indirect’ Close Company Loan Charge 
    We will probably be familiar with the close company loan to participator tax charge in CTA 2010, s 455. Broadly, where a loan is made to a shareholder – typically where an overdrawn director’s loan account arises – that has not been cleared or repaid within nine months of the company’s year-end, the company must pay a 32.5% tax charge on the amount that remains outstanding. Peter Rayney looks at the potential 32.5% tax charge that can arise on management buy-out deal structures.
  • ‘Gift And Loan’ Trusts 
    Despite the availability of an inheritance tax (IHT) nil rate band (currently worth £325,000) and the recently introduced residence nil rate band (worth £125,000 for the tax year 2018/19), IHT arising on death at 40% is somewhat penal; in particular, when it is appreciated that much of a person’s death estate has itself been subject to tax in one form or another, be it income tax and/or capital gains tax. Malcolm Finney takes a look at how the loan trust may mitigate inheritance tax on death.
  • Not Clear! ‘Business’ And Incorporation Relief 
    Unsurprisingly, HMRC will not ‘approve’ tax planning arrangements or give advice on the tax treatment of transactions which HMRC considers are for tax avoidance purposes. However, the non-statutory clearance service can be helpful in terms of obtaining certainty about HMRC’s view on proposed transactions. It is therefore unhelpful that HMRC announced in April 2018 further circumstances in which it will not give assistance. Mark McLaughlin points out a change of HMRC practice that may cause uncertainty for some taxpayers and many landlords in particular.
  • Offsetting Rules Governing Capital Gains Losses
    The disposal of assets may precipitate both capital gains and capital losses. In principle, the rule is that capital losses can be offset against capital gains. However, capital losses are not transferable and therefore cannot, for example, be transferred from one spouse or civil partner to the other (and thus the capital gains of one spouse cannot be offset against the capital losses of the other). Sarah Laing looks at how the offsetting rules governing capital gains losses can be efficiently utilised to minimise capital gains tax.
  • Buying A Commercial Property At Auction 
    If a commercial property owner has opted to tax a property they will normally have to charge VAT on any supplies they make of it, including its sale at auction. When selling an opted property in (say) London, the stamp duty land tax (SDLT) is added on top of the VAT inclusive price. Andrew Needham looks at the VAT consequences of buying a commercial property at auction.
  • Entrepreneurs’ Relief And Fundraising – The New ‘Dilution’ Rules
    Entrepreneurs' relief is a capital gains tax relief designed to encourage individuals to set up and grow their own businesses. If the relevant conditions are satisfied, any capital gains arising on the sale of the business are taxed at a rate of 10%. Satwaki Chanda discusses the proposed ‘dilution’ rules, which are intended to preserve entrepreneurs’ relief for business owners seeking to raise new capital.
  • Key Person And Shareholder Combination Arrangements
    The scenario envisaged in this takes into account ‘key person’ insurance for a company or limited liability partnership where premiums are payable by the business, and then shareholder protection where the shareholders take out life assurance on each other’s lives to provide cash for the sale of their shares on death (or certain disabilities). Tony Granger examines possible savings that can be made from having combined insurance policies for businesses and shareholders.
  • A Change Of Emphasis For Venture Capital Schemes?
    The tax reliefs available for enterprise investment scheme (EIS), seed EIS (SEIS) and venture capital trust (VCT) investments are generous and are obviously not intended to be used for tax avoidance purposes. Ken Moody looks at recent changes which potentially affect the availability of tax relief for certain categories of investment.
  • The Transferable Residence Nil Rate Band: Extra IHT Savings?
    Two major allowances for inheritance tax purposes (IHT) are the nil rate band (NRB) and the residence nil rate band (RNRB). Malcolm Finney outlines the requirements for transferability of the inheritance tax residence nil rate band.   
  • IHT On Death: An Unfortunate Tale
    When someone dies, family members or friends may have the responsibility of dealing with the deceased’s estate. This may involve (among other things) applying for a grant of representation (in England and Wales), reporting the value of the deceased’s estate, and paying any inheritance tax (IHT) liability. Mark McLaughlin points out that a ‘do it yourself’ approach without professional assistance can be an expensive error when it comes to dealing with inheritance tax on a deceased person’s estate.
  • Benefits-In-Kind: Changes Afoot?
    Under the government’s new timetable, draft Finance Bill 2018-19 clauses were published in July 2018. The Finance Bill, when published, will eventually become Finance Act 2019, when it receives Royal Assent in March 2019, so the new law can take effect from April 2019 or a later date. Of course, the draft provisions could be subject to changes announced in the Budget in November 2018, or as a result of representations made during the consultation period.  Sarah Laing looks at some proposals in the draft Finance Bill 2018-19 clauses which, if enacted, may affect many employers and employees.
  • Factoring Debts: The VAT Consequences 
    The term ‘factoring’ covers a variety of services involving debt assignment in which the factor provides clients with finance in respect of debts owing from their trade debtors. Andrew Needham looks at the VAT consequences of debt factoring and how it affects tax points and bad debt relief.
  • Will Your Training Costs Qualify For Tax Relief?
    Is tax relief available for training costs? Currently, it depends on whether the individual is self-employed or an employee. For the latter, it also depends on whether the employee or employer incurs the costs. Kevin Read discusses the current tax relief available for work-related training and looks at proposals to extend it to encourage self-funded training, particularly where ‘upskilling’.
  • Gifting Investment Properties To Your Children 
    The benefits of someone gifting an investment property to their children can include spreading rental income and reducing inheritance tax (IHT). However, the tax implications of making such gifts should not be overlooked. Tony Granger outlines some important tax implications of a parent gifting an investment property to adult children.
  • Wind Up Woes?
    Getting money out of a company without paying income tax, short of winding up, has always been difficult, but even the automatic capital treatment of distributions in winding up may now be problematic in some situations. Ken Moody looks at the anti-avoidance rules potentially affecting the tax treatment upon the winding up of a company.
  • Pilot Trusts: Dead Or Alive??
    Malcolm Finney checks out the current position on the use and implications of pilot trusts for inheritance tax purposes. The answer to the question posed in the title of this article is perhaps ‘slowly dying but by no means dead’! 
  • Tax Insider: Tax Tips
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