Succession planning – putting right a 2015 wrong
Wed 16 Mar 2016
Shareholders also owning assets personally qualify for the reduced CGT rate of 10% when disposing of those assets alongside a disposal of their shares as part of a withdrawal from the business.
Legislation introduced in Budget 2015 unintentionally removed this treatment in respect of the gain on the asset where the share disposal was to family members (for example on a genuine succession by the next generation).
This unintended effect has now been put right with new legislation to be backdated to 2015 so that the 10% tax rate applies to the asset disposed of.
A shareholder disposing of shares in a ‘personal trading company’ may qualify for Entrepreneurs’ Relief (ER) and a 10% rate of tax on the capital gain arising on that disposal. Where there is also an associated disposal of assets held personally by a shareholder, this can also qualify for Entrepreneurs’ Relief. So shareholder who personally holds the premises from which the company trades, and sells his shares and the premises together, can qualify for ER on gains both on the shares and the premises.
Prior to 2015, there was no minimum requirement for the shareholding that had to be disposed of in order for an asset disposal to also qualify for ER. The perceived mischief was that premises held personally could be disposed of to a third party, and if this was accompanied by, say, a disposal of a 1% shareholding to a family member, the asset disposal qualified for ER.
To combat this, for disposals from 18 March 2015, Budget 2015 removed ER for gains on asset disposals in cases where a less than 5% shareholding was being sold, and also in cases where there were arrangements under which a person connected with the vendor acquired shares in the company. This affected a genuine succession, where for example a shareholder passed shares and personally held premises to the next generation – whilst the share disposal qualified for ER, the impact of Budget 2015 meant that the asset disposal did not.
Budget 2016 has tackled this, and new legislation will be introduced to ensure that in a situation such as this, ER will be available both in respect of the disposal of the shares and the associated disposal of the asset. This will be backdated to 18 March 2015 so that the unintended consequences of Budget 2015 will never have effect.
Author: Graham Odlin
Capital Gains Tax (‘CGT’) charged on gains realised on most assets will fall by 8% to 20% (10% for basic tax payers) from 6 April 2016. Long-term investors will be able to claim investors’ relief on gains realised after three years on disposals of new shares in unlisted trading companies resulting in many only paying […]
The Budget introduces changes to Capital Gains Tax: entrepreneurs’ relief that will affect individuals who wish to benefit from entrepreneurs’ relief (ER) on capital gains tax (CGT) without holding at least a 5% stake directly in a company carrying on a trade. This new measure will deny ER on a disposal of shares in a […]
The unfortunate case of John Kenneth Moore v HMRC [2016] TC04903 in the First Tier Tribunal (FTT) shows how important it is to structure transactions correctly to take account of the poor drafting of the entrepreneurs’ relief (ER) legislation. This is not a new problem: the anomaly has been present since ER was introduced in […]
In the First Tier Tribunal (FTT) case of Rice v HMRC a car trader successfully appealed against HMRC’s refusal of entrepreneurs’ relief (ER) on the sale of his business premises. Mr. Rice had traded for years from a showroom and site selling high performance cars. His site was in town and depended on passers-by being […]
[This post from May 2016 has been updated in September 2017 to reflect the appeal decision] The Upper Tribunal (UT) has now decided (HMRC v McQuillan [2017] UKUT 344 (TCC)) that s 989 was not ambiguous and a dividend entitlement of £0 could not be regarded as a fixed dividend. Therefore the shares in question in […]
In Finance Act 2015 measures were introduced to amend the definition of a “trading company” which restricted the availability of Capital Gains Tax Entrepreneurs’ Relief where the claimant did not hold a 5% stake in the trading company in its own right. Those changes look set to be amended so that their impact may not […]
Banking entrepreneurs’ relief when new investment dilutes a shareholding– “immediate” action means wait until next year Shareholder/directors or employees of trading companies can face a tough decision when they have grown their company to the point where it is ready to take the next step but needs new external investment to do so. The problem […]
It’s often asserted that one of the easier entrepreneurs’ relief (ER) conditions to meet is that the owner of a qualifying shareholding must be an employee of the company throughout the year preceding the disposal of the shares or cessation of trading. But a shareholder can’t simply claim he was an employee throughout the relevant […]
Will the Autumn Statement change entrepreneurs’ relief? There is widespread speculation about the possibility of the Chancellor making further changes (restrictions) to entrepreneurs’ relief (ER) when he makes his Autumn Statement next Wednesday, 25 November. His previous reforms have not all gone down well because they hit not only their intended targets of those abusing […]
The Finance Act 2015 introduced a number of significant changes to the application of Entrepreneurs’ Relief with effect from 3 December 2014, and in particular, restrictions to its availability on: associated disposals certain disposals of goodwill to companies, and the application of the joint venture provisions The Chartered Institute of Taxation (CIOT) […]
The Budget introduces changes to Capital Gains Tax entrepreneurs’ relief that will affect individuals and members of partnerships who sell personal assets used in a business but do not, at the same time, dispose of a significant holding of shares in the company carrying on the business or of a significant share in the assets […]
HMRC have won their appeal against the decision of the First-tier Tribunal that a scheme contrived to turn CGT-taxable non-QCBs into non-taxable QCBs was effective in Hancock v HMRC [2014] UKFTT 695 (TC) Mr. and Mrs. Hancock exchanged shares in their company for non-QCB loan notes (the ‘Sale non-QCBs’) plus an entitlement to further non-QCB loan […]
The payment window for capital gains tax (CGT) due on the disposal of residential properties will be reduced dramatically from April 2019, but little is known as to how this will work. The Chancellor has announced that from April 2019, the CGT due on the disposal of residential property must be paid within 30 days […]
The Government today announced plans to review rules that encourage non domiciled individuals to invest in UK businesses. Business Investment Relief (BIR) allows UK resident Non Doms to bring overseas income and capital gains to the UK, tax free but only on condition of making certain qualifying business investments. In general, a qualifying business investment […]
On 6 April 2017 a simplification will be made that, for once, doesn’t flout the Trades Descriptions Act. The new deemed domicile rule will apply for all personal and trust taxation purposes unless something goes seriously wrong in the consultation process. New deemed domicile rule The Budget speech announced that non-domiciled individuals who have been […]
From 6 April 2020, UK taxpayers who dispose of residential property, will be required to report the disposal and pay the relevant Capital Gains Tax (“CGT”) liability within 30 days from completion. How are residential property disposals reported currently? At the moment, UK taxpayers report any disposal on their Self-Assessment tax return and pay any […]
3rd July 2015 is National Employee Ownership Day in the UK. The purpose of EO Day is to highlight the benefits of employee ownership to business, whether this is direct ownership, using share plans, or indirect ownership using an employee ownership trust and following the well known John Lewis model; or a hybrid approach using a […]
Some restrictions on Entrepreneurs Relief (ER) introduced last year have been lifted in part this year, backdated to last year. Didn’t think it through the first time round. Restrictions were introduced last year to the definition of trading company so as to remove the attribution of the trading activity of an underlying joint venture investment […]
A tax change that the Chancellor didn’t mention in the House of Commons today will increase tax on shareholders of quoted companies that make a return of capital or pay a special dividend. These groups often give shareholders the choice of receiving the cash in income or capital form. Many shareholders don’t use their annual […]
Some have greeted National Audit Office (NAO) report “The effective management of tax reliefs”, issued on 21 November as if it creates a threat to certain tax reliefs, including entrepreneurs’ relief (ER) from capital gains tax (CGT). That is not what the report says: it focuses on how HMRC goes about policing tax reliefs and […]
The Upper Tribunal (Lands Chamber) reviewed the basis of apportioning the sale price of land between CGT exempt and taxable parts. They decided HMRC’s approach was fundamentally flawed. Despite the taxpayers neither appearing nor being represented at the UT hearing, in Oates v HMRC the UT agreed with the taxpayers’ apportionment allocating a far higher […]
The First Tier Tribunal (FTT) in Nicholas Trigg v HMRC found in favour of an appellant who held ‘future proofed’ bonds that would convert to euros if the UK adopted the euro. Trigg bought the bonds second-hand at a price he believed to be low. He believed they were qualifying corporate bonds (QCBs) so his […]
This was in effect an employment status case but in the context of entrepreneurs’ relief (ER) where the taxpayer needed to establish that he was an employee or office-holder, as opposed to the more usual scenario where the taxpayer claims to be self-employed.
Background In March 2014, HMRC issued a consultation document about implementing a capital gains tax charge on non-residents. Historically, non-residents, whether they be individuals, companies or trusts, have not been liable to CGT on gains on residential properties. However, in April 2013 the Annual Tax on Enveloped Dwellings (ATED) was introduced, and with it ATED-related […]
When a business is transferred to a company in exchange for an issue of shares TCGA 1992 s162 provides that gains that would otherwise arise are rolled over by being deducted from the market value of the shares issued. In the recent FTT case of Paul Roelich the taxpayer had an unusual business.
The Government’s consultation about taxing non-residents on their gains derived from UK-residential property goes further than simply extending UK CGT to make non-residents taxable on disposals of UK residential property in the same way as UK residents. The new rules will only apply to gains arising after April 2015. What will be chargeable? The extended […]
The Autumn Statement speech seemed very positive for privately owned businesses – with talk of strengthening entrepreneurial reliefs, improved innovation tax breaks and simplification measures. The post Speech reality was a little less rosy although, on balance, still good news for most entrepreneurial business. This benefits entrepreneurs who sell their businesses and accept further risk by […]
We consider the impact of the budget on Investor’s Relief and Capital Gains Tax, Flexible use of losses, Directors’ Loan Accounts and the changes Corporation Tax rates. Investor’s Relief and Capital Gains Tax (CGT) The news of reduced capital gains tax and the introduction of Investor’s Relief will have been received positively. Investor’s Relief in […]
Entrepreneurs’ Relief on goodwill transferred to a limited company was withdrawn on 3 December 2014. It’s back – but only where the resulting shareholding is less than 5%. A well used planning technique to effect a 10% tax rate on business profits was blocked in December 2014. It worked like this – a sole trader […]
One of the less well-known and sometimes overlooked tax exemptions is the conditional exemption (CE) from inheritance tax (IHT) and capital gains tax (CGT) for buildings of outstanding historical or architectural interest. For this exemption to apply you don’t have to put the property into a special vehicle such as a trust: it can still […]
In the case of Development Securities plc (DS) the Upper Tribunal (UT) has held that DS’s Jersey incorporated subsidiaries set up on 10 June 2004 were Jersey resident until 20 July 2004. This decision overturned the First tier Tribunal (FTT) decision, with the result that losses arising from acquisition of group companies at an overvalue […]
HMRC has added guidance to its CIRD manual on the new 6.5% per annum writing down allowance (WDA) in respect of goodwill and related intangibles (referred to collectively as “relevant assets”). To qualify for the relief, relevant assets must either be created on or after 1 April 2019 or be acquired by a company as […]
The Chancellor sees the importance of encouraging entrepreneurship and has decided to retain Entrepreneurs relief, albeit with some restrictions ER is a generous relief allowing up to £10m of capital gains per person to be taxed at only 10%. It has always had the attraction of being a straightforward relief with the main qualification criteria […]
Less than a week to go before the Requirement to Correct (RTC) deadline of 30 September 2018 elapses. RTC requires taxpayers to make a disclosure of any undeclared tax (Income Tax, Capital Gains Tax and Inheritance Tax) arising before the 6 April 2017 from offshore matters or transfers. The 30 September is also a significant […]
Included in the draft finance bill legislation issued on 6 July 2018 on those measures affecting tax administration, were provisions relating to extension of offshore time limits for assessing certain taxes, extension of the security deposit regime, and profit fragmentation. HMRC has requested comments on the draft legislation by 31 August 2018. There were also […]
The UK Government has introduced a raft of legislation to address tax evasion and latterly tax avoidance. This has included; The Requirement to Correct legislation which has introduced punitive offshore penalties and extended assessing time limits for Income Tax, Inheritance Tax and Capital Gains Tax to 5 April 2021 and, Enhancing automatic exchanges of information […]
The announcement of a different higher rate threshold in the Scottish rate of income tax (SRIT) for 2018/19 has caused people to ask what effect this has on the rates of capital gains tax (CGT) payable by Scottish taxpayers. The answer is “none”: the effect of section 4 of the Taxation of Chargeable Gains Act […]
Rules will be introduced to simplify and to prevent manipulation of pre-existing rules to reduce tax payable on disposal of carried interest. On disposal of carried interest, certain amounts were excluded from capital gains tax where they related to a previous disposal of assets before specific dates. These were known as transitional provisions and applied […]
HMRC have failed on all counts to impose CGT on the disposal of a house bought for use as the taxpayer’s principal private residence (PPR) in Bailey v HMRC ([2017] UKFTT 658 (TC)). The disposal of the house had been omitted from Mr. Bailey’s return and HMRC had also sought penalties for deliberate omission. There […]
The Court of Appeal has ruled in the Hely-Hutchinson judicial review that Mr. Hely-Hutchinson was not entitled to rely on HMRC’s 2003 ‘Mansworth v Jelley’ guidance for his open returns relating to tax years ended before HMRC withdrew that guidance in 2009. Hely-Hutchinson’s contention was that he had relied on HMRC guidance but was not […]
It seems that HMRC is immune to the very behavioural techniques which it has so enthusiastically adopted (such as the use of “nudge letters”) to influence taxpayers’ behaviour in complying with the UK tax legislation. In our blog on nudge letters, we highlighted that HMRC were hoping to make recipients of the letters feel uncomfortable […]
We now know that inheritance tax benefits previously associated with the use of corporate structures to hold UK residential property will be removed with effect from 6 April 2017. The new rules treat the interest in the holding entity as subject to UK IHT. Previously it could be exempt in the hands of a non-UK […]
The multi-faceted case of Ritchie and Ritchie v HMRC doesn’t quite cover all the bases in principal private residence (PPR) relief but it does present an interesting and wide-ranging case study as it involved: • land purchased but not immediately developed to include a dwelling; • acquisition of the land in two tranches; • consideration of the permitted […]
There is an old and bad joke that says that the difference between HMRC and a rabid Pit Bull terrier is that, if you batter a rabid Pit Bull Terrier long enough, it might eventually let go, whereas HMRC… But now and then, and against all odds, after successive and repeated batterings by the Courts, […]
HMRC have announced their view that a scheme that its promoters claim converts earnings of the owner/managers of trading companies, in particular personal service companies (PSCs) from income to chargeable gains which attract only the 10% entrepreneurs’ relief rate of CGT is “highly contrived” and ineffective. The scheme seems to be based on the premise […]
Whilst taper relief (TR) is long gone its effects still surface occasionally, so it is worth noting the Case of Stolkin v HMRC ([2016] EWCA Civ 447) which concerned the order in which reliefs are applied. Stolkin is only relevant to cases involving the interaction of TR with other reliefs because of perceived ambiguities in […]
An innocent error has cost investors in X-Wind Power Limited their Seed EIS (SEIS) relief and forced them to settle for the lesser advantages of EIS. The First Tier Tribunal (FTT) refused X-Wind’s appeal against HMRC’s refusal to let the company treat a compliance certificate application on the wrong form (the EIS form) as made […]
A First Tier Tribunal (FTT) case that would have looked unpromising at first sight has been decided in the taxpayer’s favour (John Lewis v HMRC[2016] UKFTT 0254). John Lewis (John) represented himself in appealing against an HMRC closure notice refusing him any relief in respect of shares in his son’s (Dominic’s) company that he had […]
Following extensive correspondence with the CIOT, HMRC has indicated a change of view in its approach to the availability of TCGA 1992 section 162 relief where a ‘mixed partnership’ (LLP) ie one including both individuals and a corporate member incorporates the partnership business into the existing corporate member. FA 2014 s 74 and Sch. 17 […]
The First Tier Tribunal (FTT) has held that deferred shares carrying no dividend rights and other special conditions but entitled to a share of the company’s assets in a winding-up were ordinary shares for entrepreneurs’ relief (ER) purposes in Castledine v HMRC ([2016] UKFTT 145 (TC)). The Castledine case involved a company in which there […]
Non-UK assets can be rebased to market value at 6 April 2017 for those non-UK domiciles who become deemed domiciled in the UK for all taxes from 6 April 2017. As previously announced, non-UK domiciled individuals will be deemed domiciled in the UK for all taxes from 6 April 2017 where they have been UK […]
The automatic exemption from capital gains tax for the final period of ownership of former principal private residences will be halved to 18 months from 5 April 2014. Individuals who have already moved out of their former residence may now find that they have an unexpected tax liability. This change may affect people who own […]
This website uses cookies.
Some of these cookies are necessary, while others help us analyse our traffic, serve advertising and deliver customised experiences for you.
This website cannot function properly without these cookies.
Analytical cookies help us enhance our website by collecting information on its usage.
We use marketing cookies to increase the relevancy of our advertising campaigns.
Comments