As previously announced, it has been proposed that from 6 April 2015 CGT will be charged on non-residents who make disposals of UK residential properties. HMRC have issued a consultation document to consider how the charge can be implemented and the tax collected.
Part of the proposal may also affect UK residents who own more than one residential property. Currently, where a taxpayer has more than one residence, it is possible to elect which of those properties is to be treated as their principal residence so that private residence relief (PRR) will apply to the gain on the elected property. To prevent non-UK residents from electing their UK residence as their PRR, it is proposed that the current election system is removed and replaced with the requirement that the taxpayer demonstrates the main residence they have occupied during the year. If implemented, this proposal could have a serious impact on a number of individuals, such as MPs and others who keep a flat in London which is occupied during the working week and another residence in the country for the weekend and where the rest of the family live during the week.
Many traders offer a discount for prompt payment. Under current UK VAT rules, output tax is accounted for on the discounted price, whether or not the customer takes advantage of the discount.
Legislation in Finance Bill 2014 proposes to amend the UK VAT legislation on prompt payment discounts so that it is aligned with EU legislation, taking effect from 1 April 2015. The amendment will ensure VAT is accounted for on the full consideration paid for goods and services where prompt payment discounts are offered, irrespective of whether or not the discount is taken up. This change will have a significant impact on invoicing, and credit notes may have to be issued to customers taking up the discount.
Although the start date is planned for 1 April 2015, HMRC have the power to bring the change in before that date for such supplies as may be specified.
Capital gains tax entrepreneurs’ relief provides for a 10% rate on the disposal of a business, including a sole trade or shares in a trading company. The relief extends to the disposals within 36 months of cessation of trading, provided the business qualified for entrepreneurs’ relief for the 12 months up to the cessation date.
A recent case before the Tax Tribunal reminds us of the importance of timing in tax planning. A Mr Rice owned a car dealership in Peterborough which ceased trading in May 2005, but the premises from which the business traded were not sold until April 2008 – just within the 36 month period so the relief was available!
Many mortgage lenders are now requesting a copy of the official HMRC tax calculation (SA302) as confirmation of income for mortgage applicants; Previously, they would have accepted income confirmation by the borrower’s accountant. There is thus a conflict between planning to minimise income for tax purposes and declaring a higher level of income to support a mortgage application.
A further problem is that the SA302 HMRC calculation cannot be downloaded from the HMRC website when third party software has been used to submit tax returns, and copies are not routinely sent out by HMRC. To obtain a SA302 calculation you are required to phone HMRC and ask for the form to be sent out by post. This usually takes about 14 days.
The accountancy bodies are calling for HMRC to allow accountants to download and print off the SA302 for their clients to support their mortgage applications.
Companies that are small and medium sized enterprises (SMEs) carrying out qualifying research and development can currently claim a corporation tax deduction of 225% of their qualifying spend. This means that £100,000 spend would result in a £225,000 reduction in taxable profits, potentially saving £45,000 corporation tax (at 20%). However, if the company is loss making this benefit may not be received until future years when profits are made. In order to improve the cash flow of these loss- making SMEs, the tax rules allow the company to surrender the loss attributable to the enhanced R&D spend for a tax refund. This has been increased from 11% to 14.5% with effect from 1 April 2014. So the £225,000 (based on £100,000 spend) would result in a refund of £32,625.
There are significant changes being proposed which will make it easier to access your pension fund pot if you have a defined contribution (money purchase) pension scheme. As a general rule, 25% of the pension fund can be taken as a tax free lump sum at age 55, although this age will be increased in future to be 10 years before State Pension age (age 57 in 2028). Remember also that the requirement to buy an annuity at age 75 had already been abolished with the introduction of “flexible drawdown” pensions that are currently available.
From 27 March 2014 the Government have increased the maximum amount you can take out each year from a capped drawdown arrangement from 120% to 150% of an equivalent annuity. For example, if the equivalent annuity rate is 6%, then up to 9% of the fund can now be drawn down each year. This is in response to concerns about low annuity rates which are linked to savings rates.
The Government has published a consultation document to consider proposals to make the drawdown rules even more flexible from April 2015. This would allow you to withdraw more than the current 25% of the fund limit, subject to a tax charge. This charge would be at your marginal tax rate instead of the current penal 55% charge on the fund.
The other significant change being consulted on is the proposal to reduce the current limit of £20,000 guaranteed pension income to just £12,000 a year. Those with this level of guaranteed pension income will be able to draw as much or as little as they wish from their pension fund each year without the 150% of equivalent annuity rule applying.