Tightening the screw on Transactions in Securities (TiS) rules

Tightening the screw on Transactions in Securities (TiS) rules

Wed 16 Mar 2016

Razor wire fences on borders are all the rage currently.  HMRC are thinking about one for the boundary between capital and income too.

One of the announcements hidden in the Red Book relates to the proposed amendments to the TiS rules.  All of which sounds very technical and academic but is rather important for shareholders in privately owned companies.  These rules can basically re-characterise what might otherwise be a capital gain (taxed at 10% if it qualifies for Entrepreneurs Relief or the new bargain rate of 20% if it doesn’t) as a dividend (taxed at the new rates of up to 38.1%).  That differential of up to nearly 30% gives the taxpayer an enormous incentive to structure a transaction as capital gain and equally HMRC to characterise a transaction as a dividend rather than capital.

The TiS rules are the tool which enable HMRC to therefore patrol the border between capital gain and dividend and re-characterise where they think necessary and where it falls outside of ‘safe harbour’ rules.  It is possible to ask for HMRC clearances for transactions but they seem increasingly reluctant to give them.

There is a current consultation on a tightening of the rules and HMRC will evidently respond to the consultation later this month.  So we shall see what they say but don’t expect any relaxations.

As a possible indication of HMRC thinking they raised the suggestion in the consultation that accumulated profit within a company might also be deemed to be distributed and taxed as a dividend even if it wasn’t distributed.  They asked if anyone would support this approach.  Presumably not many respondents said they were up for that.

Author: Lindsay Pentelow

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