Keep up with the ever changing world of capital taxes
John Cairns, past convener of the ICAS Tax Committee, outlines the key changes to capital taxes in this year’s forthcoming Finance Act, and also considers some recent cases.
I may have been out in the sun too long but I have a great interest in capital gains tax and also inheritance tax, possibly because both involve more human aspects with the interaction of individuals and their families. Quite a lot has changed in the last year so tax practitioners need to keep up to date.
Entrepreneurs' relief was subject to a number of changes in Finance Act 2015 but as the saying goes 'act in haste, repent at leisure': due to the General Election there was insufficient time for proper scrutiny of the measures. The changes gave rise to undesirable consequences so are now being reversed. The legislative changes to implement the reversal are included in the forthcoming Finance Act. Care needs to be taken in particular with the associated disposals rules.
The consequences of lack of thought or planning in advance can be illustrated through two tax cases on entrepreneurs’ relief (Richard Hirst (TC4038), Susan Corbett (TC03435)), resulting in individuals moving from the safe entrepreneurs’ relief environment to a position of exposure to capital gains tax at the full rate. Careful tax planning around these issues is essential to prevent unwanted client problems and PII claims.
Distributions in members' voluntary liquidations
Some capital distributions after 5 April 2016 will be taxed as income to tackle perceived tax avoidance. Anyone considering winding up a company needs to have a close look at the new targeted anti-avoidance rule. HMRC’s approach to clearance requests was discussed in an earlier article.
Capital Gains tax rates
For capital gains arising from 6 April 2016 the main rates of CGT (28% and 18%) will be reduced to 20% and 10%. However, the reduced rates will not apply to gains arising from residential property, which will remain chargeable at 28% and 18%.
There may not have been many significant IHT changes this year but the introduction of the additional nil rate band where a private residence is, or has been, involved brings with it great complexity. In particular, the relief available where an individual has either disposed of a property or down-sized in the years prior to death, needs careful study. These intricate rules were discussed by Donald Drysdale in an earlier article.
There are also changes on the horizon regarding residences in the UK owned by overseas entities and non-domiciled individuals; and significant changes to the deemed domicile rules which will now catch a number of people who have previously carried out planning to avoid their impact.
Last but not least, there needs to be consideration of recent legislative changes as they affect trusts. In particular, the new dividend nil-rate band is not available for trusts. Therefore, trusts receiving UK dividends from 6 April 2016 need to look carefully at their arrangements.
ICAS 'Current Tax' course
John Cairns will be presenting the session ‘An update on capital taxes’ which forms part of the one day ICAS flagship course ‘Current Tax’.