Tax professionals welcomed new measures announced in this week’s autumn statement to encourage investment in smaller businesses but pointed out that the government has chosen not to reverse a planned reduction in capital allowances. One expert said the decision to freeze the capital gains tax annual exemption set a worrying precedent.
The Treasury confirmed that draft legislation for Finance Bill 2012 will be published on 6 December for consultation. Tax Journal’s new A-Z guide, available via www.lexisurl.com/OUy0k, indicates what we can expect to see in Finance Bill 2012 and lists the current and recently closed HM Treasury and HMRC tax consultations.
Measures likely to feature the Bill include those relating to:
Capital allowances and fixtures; Capital allowances, anti-avoidance for plant and machinery; Charitable legacies; Controlled foreign companies; Debt cap; Enterprise Investment Scheme and Venture Capital Trusts; Gifts of pre-eminent objects and works of art to the nation; High risk tax avoidance schemes; HMRC information powers; Incapacitated person, definition; Life insurance companies; Machine games duty; Manufactured overseas dividends; Non-domiciled individuals; Patent Box; PAYE and Real Time Information; Pension schemes and employer asset-backed contributions; Real estate investment trusts; Research & development tax credits; Residence, statutory definition; VAT, cost-sharing exemption; VAT, groups; and VAT, imported road vehicles.
The new seed enterprise investment scheme (SEIS) could provide ‘up-front tax relief totalling 78% for investments made during the year to 5th April 2013’, said Toby Ryland, Partner at Blick Rothenberg. The announcement was ‘just reward’ for individual private investors. ‘Although there is a £100,000 cap, private investors will welcome the £50,000 income tax reduction and may look to invest in a scheme as an alternative to traditional pensions for one year only,’ he said.
John Endacott, Partner at Francis Clark, said the potential tax relief on offer from SEIS was ‘huge – 50% income tax and potentially 28% capital gains tax’. Writing in Tax Journal, Endacott said: ‘Inheritance tax business property relief should also apply after two years – so you could argue that the tax relief could be over 100%. It is too good to miss for wealthy taxpayers looking to invest.’
This was a good autumn statement for SMEs, said Paul Belsman, National Head of Tax at RSM Tenon. It was a a public acknowledgement that SMEs ‘are a crucial part of the economy and have been neglected for too long’. He hoped the SEIS regime would be integrated sensibly into the framework of the existing EIS ‘without an unnecessarily large volume of legislation to digest’, and noted that the relaxation of the connected persons rules and stringent requirements for qualifying shares was ‘finally on the agenda’.
Blick Rothenberg Partner Frank Nash said the Chancellor had ‘missed a trick’ by not reversing previously announced reductions scheduled for April 2012. ‘With great emphasis on the announcement of 500 infrastructure projects to drive growth, it would have been good to have seen an incentive for the suppliers of these projects to invest in the necessary capital plant to meet supply,’ he said.
The Chancellor announced that the government will freeze the annual exempt amount for capital gains tax at £10,600 for 2012/13, to finance the new SEIS. Alison Smith, a tax specialist at PwC, said it was ‘clear from the Treasury's numbers that the Chancellor is expecting this freeze to continue, so anyone looking to make a capital gain in the future could be a loser’. She added: ‘Given that we have no indexation within the capital gains system for individuals, this could be a worrying sign in a higher inflationary environment. Over the years the Chancellor will gain significant revenue from this and now the precedent has been set the worry is there will be further freezes to come.’
The government said at Budget 2011 that it would review SDLT relief for first-time buyers, and the autumn statement announced that the relief will be allowed to end in March 2012 as planned.
There was no mention of SDLT avoidance via companies, despite widespread press coverage of the practice in recent weeks. Twelve months ago Patrick Cannon, a Barrister specialising in SDLT, noted that the April 2011 SDLT rate increase would not affect ‘those expensive homes held within company ownership where the shares in such companies can be bought free of SDLT’.
Writing in Tax Journal, Cannon wrote: ‘This is a curious situation and on a par with the increasingly outdated exemption for non-resident investors from capital gains tax on UK property. Why such investors in high-end London residential property should pay neither SDLT not CGT is something of a mystery in these difficult times.’
Writing in this week’s issue, Marc Selby, Tax Partner at Laytons Solicitors, said proposals for introducing an SDLT charge on the purchase of shares in ‘land rich’ companies have been considered in two consultations and have not been implemented. ‘Even if the legislation could be amended to incorporate such a charge, it would be extremely difficult for HMRC to police,’ he said.
Legislation to ensure that tax relief obtained by employers under asset-backed pension contribution arrangements ‘reflects accurately the total amount of payments the employer makes to the pension scheme directly or through a special purpose vehicle (for example a partnership)’ will take effect from 29 November. The Treasury expects the measure to raise £450m a year.
Alex Henderson, Partner at PwC, noted that the Chancellor was looking to raise significant sums from the change ‘but it is not clear that there is that much revenue for him to go for, as most employers will have been looking simply to achieve what he is now proposing to allow’. Writing in Tax Journal, he said that even though the change was presented as an anti-avoidance measure, companies would appreciate certainty around alternative ways of funding pension shortfalls.
George Bull, Tax Partner at Baker Tilly, said the measure would deny relief to employers who ‘promise pension scheme contributions, back those promises with assets but don’t make the cash contributions to the pension funds’.
Tax professionals welcomed new measures announced in this week’s autumn statement to encourage investment in smaller businesses but pointed out that the government has chosen not to reverse a planned reduction in capital allowances. One expert said the decision to freeze the capital gains tax annual exemption set a worrying precedent.
The Treasury confirmed that draft legislation for Finance Bill 2012 will be published on 6 December for consultation. Tax Journal’s new A-Z guide, available via www.lexisurl.com/OUy0k, indicates what we can expect to see in Finance Bill 2012 and lists the current and recently closed HM Treasury and HMRC tax consultations.
Measures likely to feature the Bill include those relating to:
Capital allowances and fixtures; Capital allowances, anti-avoidance for plant and machinery; Charitable legacies; Controlled foreign companies; Debt cap; Enterprise Investment Scheme and Venture Capital Trusts; Gifts of pre-eminent objects and works of art to the nation; High risk tax avoidance schemes; HMRC information powers; Incapacitated person, definition; Life insurance companies; Machine games duty; Manufactured overseas dividends; Non-domiciled individuals; Patent Box; PAYE and Real Time Information; Pension schemes and employer asset-backed contributions; Real estate investment trusts; Research & development tax credits; Residence, statutory definition; VAT, cost-sharing exemption; VAT, groups; and VAT, imported road vehicles.
The new seed enterprise investment scheme (SEIS) could provide ‘up-front tax relief totalling 78% for investments made during the year to 5th April 2013’, said Toby Ryland, Partner at Blick Rothenberg. The announcement was ‘just reward’ for individual private investors. ‘Although there is a £100,000 cap, private investors will welcome the £50,000 income tax reduction and may look to invest in a scheme as an alternative to traditional pensions for one year only,’ he said.
John Endacott, Partner at Francis Clark, said the potential tax relief on offer from SEIS was ‘huge – 50% income tax and potentially 28% capital gains tax’. Writing in Tax Journal, Endacott said: ‘Inheritance tax business property relief should also apply after two years – so you could argue that the tax relief could be over 100%. It is too good to miss for wealthy taxpayers looking to invest.’
This was a good autumn statement for SMEs, said Paul Belsman, National Head of Tax at RSM Tenon. It was a a public acknowledgement that SMEs ‘are a crucial part of the economy and have been neglected for too long’. He hoped the SEIS regime would be integrated sensibly into the framework of the existing EIS ‘without an unnecessarily large volume of legislation to digest’, and noted that the relaxation of the connected persons rules and stringent requirements for qualifying shares was ‘finally on the agenda’.
Blick Rothenberg Partner Frank Nash said the Chancellor had ‘missed a trick’ by not reversing previously announced reductions scheduled for April 2012. ‘With great emphasis on the announcement of 500 infrastructure projects to drive growth, it would have been good to have seen an incentive for the suppliers of these projects to invest in the necessary capital plant to meet supply,’ he said.
The Chancellor announced that the government will freeze the annual exempt amount for capital gains tax at £10,600 for 2012/13, to finance the new SEIS. Alison Smith, a tax specialist at PwC, said it was ‘clear from the Treasury's numbers that the Chancellor is expecting this freeze to continue, so anyone looking to make a capital gain in the future could be a loser’. She added: ‘Given that we have no indexation within the capital gains system for individuals, this could be a worrying sign in a higher inflationary environment. Over the years the Chancellor will gain significant revenue from this and now the precedent has been set the worry is there will be further freezes to come.’
The government said at Budget 2011 that it would review SDLT relief for first-time buyers, and the autumn statement announced that the relief will be allowed to end in March 2012 as planned.
There was no mention of SDLT avoidance via companies, despite widespread press coverage of the practice in recent weeks. Twelve months ago Patrick Cannon, a Barrister specialising in SDLT, noted that the April 2011 SDLT rate increase would not affect ‘those expensive homes held within company ownership where the shares in such companies can be bought free of SDLT’.
Writing in Tax Journal, Cannon wrote: ‘This is a curious situation and on a par with the increasingly outdated exemption for non-resident investors from capital gains tax on UK property. Why such investors in high-end London residential property should pay neither SDLT not CGT is something of a mystery in these difficult times.’
Writing in this week’s issue, Marc Selby, Tax Partner at Laytons Solicitors, said proposals for introducing an SDLT charge on the purchase of shares in ‘land rich’ companies have been considered in two consultations and have not been implemented. ‘Even if the legislation could be amended to incorporate such a charge, it would be extremely difficult for HMRC to police,’ he said.
Legislation to ensure that tax relief obtained by employers under asset-backed pension contribution arrangements ‘reflects accurately the total amount of payments the employer makes to the pension scheme directly or through a special purpose vehicle (for example a partnership)’ will take effect from 29 November. The Treasury expects the measure to raise £450m a year.
Alex Henderson, Partner at PwC, noted that the Chancellor was looking to raise significant sums from the change ‘but it is not clear that there is that much revenue for him to go for, as most employers will have been looking simply to achieve what he is now proposing to allow’. Writing in Tax Journal, he said that even though the change was presented as an anti-avoidance measure, companies would appreciate certainty around alternative ways of funding pension shortfalls.
George Bull, Tax Partner at Baker Tilly, said the measure would deny relief to employers who ‘promise pension scheme contributions, back those promises with assets but don’t make the cash contributions to the pension funds’.
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