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Margott [2018] TC 06278

The First Tier Tribunal has allowed an appeal against HMRC’s late filing penalties in respect of the apparent late filing of an LLP (Limited Liability Partnership) return. Due the fact that the Tribunal was required to follow a Court of Session decision, the judges found that the legislation allowing HMRC to issue a notice requiring a partnership tax return did not apply to Limited Liability Partnerships and therefore the penalties were held to be invalid.

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Barker v Baxendale Walker Solicitors [2018] BTC 6

The Court of Appeal has finally overturned the High Court decision on professional negligence in the case of Barker v Baxendale Walker Solicitors [2016] BTC 49. The Court of Appeal has ruled that the solicitor involved had breached their duty of care towards the client by failing to warn that there was a substantial risk of a tax avoidance scheme not working and the tax being paid ultimately.

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Probate valuations and Capital Gains Tax

This case was referred to our firm by another firm of accountants in London. The client had inherited some properties a few years ago that they wanted sell. The issue was that the valuation used for probate purposes was quite low compared to market value at the time of death which meant that the capital gains tax on sale would be significantly higher. Our team of tax specialists took on the case an applied to HMRC’s valuation team to get a correct valuation. HMRC initially objected to our proposals but having provided sufficient supporting evidence comprising property valuations and sold prices, we were able to agree a figure with HMRC that was much closer to our initial proposal. The agreement by HMRC’s valuation office meant that our client’s capital gains tax liability was reduced to a fraction of the initial figure before we took on the case. The client was over the moon with the savings.

Our analysis: At the time the case was referred to us, our clients or their accountants had not even thought about getting a valuation agreed from HMRC’s specialist unit in order to reduce the liability. Due to our long running experience in our dealings with HMRC, this strategy was discussed with the client and they were quite happy with the idea. The tax savings achieved by our client were far higher than their expectations. It is always a good idea to seek advice from a tax specialist as this can bring substantial savings compared to costs.

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2019 Loan Charge – Contractor Loans / EBT tax avoidance schemes

Previously a number of companies entered into tax avoidance schemes that primarily were arrangements allowing a company to reward their employees by way of a loan made by a third party such as Employee Benefit Trusts (EBTs). The company would receive a tax deduction for the contribution to the EBT and the EBT would make a non taxable loan to the employee – these loans were designed never to be repaid.

These types of tax avoidance schemes involving tax free loans were stopped by new legislations introduced in CTA 2009 and The Disguised Remuneration Rules introduced in FA 2011 in Part 7A of ITEPA 2003.

The rewarding of the employees in this manner also called ‘relevant steps’, taken before the new rules were introduced in December 2010 were not caught within the new anti avoidance provisions. This effectively meant that tax avoidance schemes already in place with loans outstanding were captured in hibernation mode and hence did not affect the users.

The 2019 Loan Charge is designed to revisit these tax avoidance schemes used previously, and any new tax avoidance schemes which have been brought, and apply a PAYE charge retrospectively. The PAYE charge will be payable by the Employer in the first instance and then to the Employee (under the proposals by HMRC).

The draft legislation for the 2019 Loan Charge effectively brings a new ‘relevant step’ as per the Disguised Remuneration rules. This will effectively bring those loans entered into before Part 7A was enacted within the PAYE charge of the loan which has not been repaid at 5th April 2019.

Accordingly, a “person” (i.e. the Trustees of the disguised remuneration scheme) is seen as taking a “relevant step” if:

a. The person has made a loan after 6 April 1999;
b. to a relevant person (ex, current or future employees or a person chosen by them); and
c. the loan remains partially or wholly outstanding at 5th April 2019.

This means that essentially the following loans will not meet the criteria for relevant step:

a. Loans or advances made before 6 April 1999
b. Loans made to non-employees
c. Loans or advances that have been fully repaid prior to 5th April 2019

The 2019 Loan Charge is a new form of retrospective legislation being introduced capturing loans made since 1999.

Disclosure / reporting requirements

HMRC have recently provided more details in relation to reporting requirements for such advances or loans.

Employees

By no later than 1 October 2019 all employees or relevant persons who have been in receipt of loans from such tax avoidance schemes are required to provide the following information to HMRC:

a. Their contact details
b. Case reference number if relevant
c. The amount of loan outstanding including repayments and write offs

The employer is required to report loan outstanding through PAYE.

Self employed contractors

Self-employed contractors that have used tax avoidance schemes using contractor loans are required to include the outstanding loan amount on their self-assessment tax returns. Providing inaccurate information or not declaring the outstanding loans is likely to result in penalties. There are also chances of criminal prosecution for deliberately making a false declaration.

What are the options

In our view, the best option is to agree a settlement with HMRC. We specialise in such settlements and will represent our clients throughout the process until matters have been fully concluded. If you are an employer, employee or a contractor and have previously used a scheme involving loans, please contact us on 0207 998 1834 to discuss your options.

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Free Tax Seminar – Friday 23 February 2018 at 6pm – last few seats left

Our firm will be hosting another free tax seminar in Double Tree Hilton, Holborn on Friday 23 February 2018 at 6pm. The topics covered will include:

1- Autumn 2017 Budget – A detailed analysis
2- Tax Disclosures – Worldwide Disclosure Facility and voluntary disclosures
3- Tax Investigations, recent tax Tribunal cases and their implications
4- Property Tax Planning

The tax seminar can be used towards your annual CPD requirement if relevant.

Refreshments will be provided.

If you and your colleagues / friends would like to attend, please send your booking to seminar@churchilltax.co.uk. Spaces are limited so please apply early to avoid disappointment.

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Stamp Duty Land Tax mitigation

This client came to us from London after having searched for various tax advisers in the area. The client was in the process of acquiring a residential property but had their name on another property. This meant that our client would be subject to the additional 3% rate of stamp duty. Our client’s solicitors had advised them that the higher rate would be payable. We discussed the situation with our client in some detail and found that our client’s circumstances were such that the additional stamp duty rate of 3% would not apply on their next acquisition. Accordingly a ruling request was submitted to HMRC’s Stamp Office. After nearly six weeks we received a positive ruling from HMRC, confirming our technical position and interpretation of the legislation was correct and that the additional 3% rate of stamp duty was not applicable to our client’s next purchase. This helped our client save a large sum of cash which would have otherwise been payable.

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Inheritance tax and capital gains tax planning in relation to properties

This client was referred to us by a firm of solicitors in London. The client had a number of properties that he wished to pass onto his children in a tax efficient manner. A normal transfer could have meant that there would be capital gains tax, stamp duty land tax and inheritance tax implications if the client passed within seven years due to the failed potentially exempt transfer. If the client chose to do nothing and leave the properties in his estate, the properties will increase in value over time and resuInheritance tax and capital gains tax planning in relation to properties

This client was referred to us by a firm of solicitors in London. The client had a number of properties that he wished to pass onto his children in a tax efficient manner. A normal transfer could have meant that there would be capital gains tax, stamp duty land tax and inheritance tax implications if the client passed within seven years due to the failed potentially exempt transfer. If the client chose to do nothing and leave the properties in his estate, the properties will increase in value over time and result in substantial inheritance tax liabilities at death which will need to be paid by his children within 6 months. Our firm advised our client to set up a strategy whereby the properties are effectively transferred to the children without having to pay capital gains tax or any stamp duty. The tax planning strategy would also substantially mitigate or eliminate the inheritance tax liability. The mechanics of the tax planning are based on the existing legislation and HMRC guidance manuals. This tax planning helped our client save a substantial amount of tax without having to use any aggressive tax avoidance schemes which can subsequently be challenged by HMRC.Inheritance tax and capital gains tax planning in relation to properties

This client was referred to us by a firm of solicitors in London. The client had a number of properties that he wished to pass onto his children in a tax efficient manner. A normal transfer could have meant that there would be capital gains tax, stamp duty land tax and inheritance tax implications if the client passed within seven years due to the failed potentially exempt transfer. If the client chose to do nothing and leave the properties in his estate, the properties will increase in value over time and result in substantial inheritance tax liabilities at death which will need to be paid by his children within 6 months. Our firm advised our client to set up a strategy whereby the properties are effectively transferred to the children without having to pay capital gains tax or any stamp duty. The tax planning strategy would also substantially mitigate or eliminate the inheritance tax liability. The mechanics of the tax planning are based on the existing legislation and HMRC guidance manuals. This tax planning helped our client save a substantial amount of tax without having to use any aggressive tax avoidance schemes which can subsequently be challenged by HMRC.Inheritance tax and capital gains tax planning in relation to properties

This client was referred to us by a firm of solicitors in London. The client had a number of properties that he wished to pass onto his children in a tax efficient manner. A normal transfer could have meant that there would be capital gains tax, stamp duty land tax and inheritance tax implications if the client passed within seven years due to the failed potentially exempt transfer. If the client chose to do nothing and leave the properties in his estate, the properties will increase in value over time and result in substantial inheritance tax liabilities at death which will need to be paid by his children within 6 months. Our firm advised our client to set up a strategy whereby the properties are effectively transferred to the children without having to pay capital gains tax or any stamp duty. The tax planning strategy would also substantially mitigate or eliminate the inheritance tax liability. The mechanics of the tax planning are based on the existing legislation and HMRC guidance manuals. This tax planning helped our client save a substantial amount of tax without having to use any aggressive tax avoidance schemes which can subsequently be challenged by HMRC.lt in substantial inheritance tax liabilities at death which will need to be paid by his children within 6 months. Our firm advised our client to set up a strategy whereby the properties are effectively transferred to the children without having to pay capital gains tax or any stamp duty. The tax planning strategy would also substantially mitigate or eliminate the inheritance tax liability. The mechanics of the tax planning are based on the existing legislation and HMRC guidance manuals. This tax planning helped our client save a substantial amount of tax without having to use any aggressive tax avoidance schemes which can subsequently be challenged by HMRC.

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First Tier, Upper Tribunal and Court of Appeal Cases

R & C Commrs v Tottenham Hotspur Ltd [2017] BTC 535

The Upper Tribunal (UT) upheld the decision of the First-tier Tribunal (FTT) that the payments received by two professional footballers in connection with the early termination of their contracts were neither taxable as earnings from their employment nor subject to National Insurance contributions.

Erdogan [2017] TC 06191

The First-tier Tribunal (FTT) partly allowed the appeal against HMRC’s decision to assess a takeaway outlet for deliberately under-declared output tax and the related penalties. The FTT rejected the explanation put forward by the taxpayer for the sales omissions, which HMRC had identified.

The Barty Party Co Ltd [2017] TC 06116

The First-tier Tribunal (FTT) allowed the appeal against HMRC’s decision to issue an Information Notice under FA 2008, Sch. 36, because requesting information for periods beyond the normal four years, without providing a specific reason why information was required for those periods, was a sufficiently fundamental flaw to invalidate the notice.

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Tax advice on closure of a discretionary trust

This case came to us from a firm of accountants in London. It involved a discretionary trust that was set up in order to utilize the inheritance tax nil rate band of the deceased spouse (i.e. before the rules were changed to allow the unutilized nil rate band to be transferred to the surviving spouse). As part of the planning, a trust fund was set up by investing in Investment Bonds which was over and above the nil rate band and had grown in value over the years. The issue at hand was the closure of the trust without triggering any tax liabilities. A firm of solicitors had advised our client that under normal circumstances withdrawal of the trust fund would trigger a tax charge. Our tax specialists were able to propose a structure whereby the trust fund could be withdrawn without triggering a capital gain or income tax liability. The result of this would be that the trust could be closed tax free.

Our analysis: This was a complex case and required specialist knowledge and background of trusts, investment funds and the impact of changes to the rules over the years. As stated above, the advice from a firm of solicitors was that the closure of the trust would result in a tax liability.

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Incorporation of investment properties: CGT Incorporation Relief

Following our recent article on tax implications of incorporating investment properties, we have had a number of queries from serial property investors from across the country stating they have received advice that incorporation relief (under section 162 TCGA 1992) can be easily claimed and hence no capital gains tax or SDLT is payable. The advice follows the decision of Ramsay v HMRC [2013] UKUT 226 (TCC). In this case Mrs. Ramsay transferred an operational property business and ultimately won in the court. We believe that the facts of the Ramsay case were very unique (including amongst many, a single block of 15 flats). In our view, the facts of each case are separate and being able to justify passive and fixed rental income from different types of investment residential/ commercial properties as an operating business has a risk of challenge by HMRC. Even if there is a level of management involved, in our view, there is an element of risk to treat it as a business eligible for incorporation relief applying the Ramsay decision. Our view (due to the risks involved) is that HMRC inspectors are likely to be scrutinizing and challenging such claims made and will aim to test these to the finest detail with a likelihood of this being taken to the First Tier Tribunal. In the event that HMRC are successful in their challenge, there is likely to be a substantial tax bill (for CGT and SDLT) and penalties/ interest payable. A more fundamental question that is often overlooked by property investors seeking to rely on incorporation relief is whether all of the investment properties transferred are eligible for the relief and as such whether the entire portfolio qualifies as a single business similar to the Ramsay decision.

There are alternate unique structures that are available that mitigates the risk of HMRC challenge on capital gains tax and SDLT on transferring of properties. The structure offers significant inheritance tax planning opportunities where the portfolio is of significant value. Please contact us if you wish to explore this further.

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Call us on 0207 998 1834 for a free consultation with a tax specialist.

Alternatively, provide your details in the “Request a Call Back” box and one of our tax specialists will call you within an hour.