The tax agenda for January 2013

As we head into the new year the rush to file self-assessment tax returns by the 31 January deadline intensifies. The initial automatic late filing penalty remains at £100 but, of course, taxpayers can no longer eliminate the penalty by paying all the tax due by the deadline.

Speaking of which, the other consideration for taxpayers is to pay the outstanding income tax and any CGT by 31 January, together with the first payment on account for 2012/13, which can be reduced if appropriate, based on the taxpayer’s circumstances for the current year.

The Autumn Statement and draft 2013 Finance Bill bring to the fore two further issues to consider: pension planning and restructuring of property ownership.

Pensions

It is important not to lose sight of the myriad changes to the pension rules. Whilst the phasing-in of auto-enrolment commenced in October 2012, a reminder to employers of the need to act now would not go amiss as recent research indicates that many are unprepared.

In particular, employers need to act now to ensure that they have:

• established their staging date: in general this is based upon their PAYE scheme size at 1 April 2012;
• prepared an implementation plan that includes payroll, computer hardware and software, training, HR and professional advice;
• identified eligible jobholders, non-eligible jobholders and entitled workers, as the treatment of each of these classes is different. Agency workers and secondees will also need to be addressed;
• budgeted for employer pension contributions in their financial forecasts;
• reviewed their existing pension arrangements to ensure that there is a ‘qualifying scheme’ for auto-enrolment purposes. There may be a need to amend scheme rules, or even start a new scheme; and
• ensured that employment contracts of all workers are consistent with their on-going pension arrangements. Flexible benefit and salary sacrifice arrangements will also need to comply.

High earners beware

Whilst auto-enrolment may seem a long way from pension planning for higher earners, the law of unintended consequences is very relevant here. When the lifetime allowance was reduced from £1.8m, an individual with more than £1.5m lifetime pension savings could opt to protect their fund from the lifetime allowance charge, but the protection is removed if further contributions are made. This removal of protection will apply to individual employees who have fixed or enhanced pension fund protection, and who are automatically enrolled by their employer in a pension scheme: the employee could face a 55% tax charge on the excess of their accumulated fund over the lifetime allowance (currently £1.5m).

As it is the responsibility of the employee to opt out of auto-enrolment within one month of their joining date, affected individuals should be made aware of the need to obtain appropriate advice to determine whether opting out would be applicable to their individual circumstances.

High value residential property

The Spring Budget 2012 introduced, with immediate effect, a 15% SDLT charge on certain acquisitions of residential properties costing more than £2m by three categories of ‘non-natural’ persons.

This was followed by consultation on the proposal to levy an annual charge, now to be referred to as the annual residential property tax (ARPT), and capital gains tax on certain disposals (direct and indirect).

Confirmation was provided in the draft Finance Bill that both the ARPT and the new CGT charge would proceed.

However, the consultation has resulted in a number of welcome changes to the scope of the charges. In broad terms, commercial property development, rental and trading, will now be eligible for relief from both the 15% SDLT and the ARPT. Subject to conditions, relief will also be available for charities, farmhouses occupied by a working farmer, properties run as a business and dwellings held to provide employee accommodation.

Whilst, in general terms, the same category of properties eligible for relief from ARPT will also be eligible for relief from the 15% SDLT charge, the ARPT is to come into effect from 1 April 2013 whereas the SDLT rules will not apply until Royal Assent. This mismatch should be noted. The ARPT rate and bands (based on the property value at 1 April 2012) were confirmed as follows:

An important factor when considering mitigating the impact of ARPT by restructuring is that the draft legislation to extend capital gains tax to overseas entities disposing of residential property has not, at the time of writing, been published. Further, it has been suggested that the CGT charge, which will only apply to gains accrued from 6 April 2013, may be extended to resident non-natural persons.

Finally, there is a need to appreciate that extracting a property from a corporate (or equivalent) wrapper may give rise to a SDLT charge at the 7% rate. The breadth of the anti-avoidance rules and the recent obiter comments in the Vardy properties case (Vardy Properties and Vardy Properties (Teesside) Ltd v HMRC [2012] UKFTT 564 (TC)) will cause many practitioners to pause for thought.

David Barton, tax partner, Baker Tilly