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Gifting share in home

Most gifts made during a person’s life are not subject to tax at the time of the gift. These lifetime transfers are known as ‘potentially exempt transfers’ or ‘PETs’. The gifts or transfers achieve their potential of becoming exempt from Inheritance Tax if the taxpayer survives for more than seven years after making the gift. There is a tapered relief available if the donor dies between three and seven years after the gift is made.

The rules are different if the person making the gift retains some ‘enjoyment’ of the gift made. This is usually the case where the donor does not want to give up control over the assets concerned. These gifts fall under the heading of ‘Gifts With Reservation of Benefits rules’ or ‘GWROBs’. A common example is where an elderly person gifts their home to their children (who usually live elsewhere) and continues to live in the house rent-free.

There is an interesting exception to the GWROBs rules that occurs when there is a gift of an ‘undivided shares of land’. This can happen when for example an adult child moves in with a parent and the parent transfers the home into joint ownership (usually a 50:50 split). Where the two people jointly occupy the property and share the outgoings then HMRC will accept that this is not a GWROB. However, the relief is not straightforward and HMRC will carefully examine such arrangements to ensure that they meet the necessary requirements for relief.

Planning note

If you are contemplating any of the arrangements set out in this post please call to clarify that no adverse tax consequences will occur as a result.

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What are the maximum weekly working hours?

There are working time limits that state the legal maximum weekly working hours that a person has to work should not exceed 48 hours a week on average. The maximum hours for under 18’s is fixed at no more than 8 hours a day or 40 hours a week.

The average working hours are calculated over a 17-week period and includes overtime. This means that an employee may work more than 48 hours in some weeks as long as the average over the 17-week period does not exceed 48 hours. A person can choose to work more by opting out of the 48-hour week, but cannot be forced to do so or suffer any detriment by not signing. This is known as an opt-out agreement.

There are some exceptions where employees may have to work more than 48 hours a week on average. This includes the following:

  • where 24-hour staffing is required;
  • in the armed forces, emergency services or police;
  • in security and surveillance;
  • as a domestic servant in a private household;
  • as a seafarer, sea-fisherman or worker on vessels on inland waterways;
  • where working time is not measured and you are in control, e.g. you are a managing executive with control over your decisions.
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What to do if you disagree with HMRC

There are a number of options open to taxpayers who disagree with a tax decision issued by HMRC. As a first step it is usually possible to make an appeal against a tax decision. There is normally a 30-day deadline for making an appeal so time is of the essence. HMRC will then carry out a review, usually by using HMRC officers that were not involved in the original decision. A response to an appeal is usually made within 45 days but can take longer for complex issues.

If you still don’t agree with HMRC’s review, there are further options available which include making an appeal to the tax tribunal or using the Alternative Dispute Resolution (ADR) process. The ADR uses independent HMRC facilitators to help resolve disputes between HMRC and taxpayer. The use of the ADR seeks to find a fair and quick outcome for both parties, helping to reduce costs and avoid a Tribunal case. However, in some cases the cost and effort of going to Tribunal can be worthwhile.

There is a separate procedure to be followed by taxpayers that intend to make a complaint about HMRC’s behaviour. For example: unreasonable delays, mistakes and poor treatment by HMRC’s staff.

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Selling your UK home if you live abroad

There are special reporting requirements and the possibility of a tax bill when you sell your home in the UK and you live abroad. A Capital Gains Tax (CGT) charge on the sale of UK residential property by non-UK residents was introduced in April 2015. Only the amount of the overall gain relating to the period after 5 April 2015 is chargeable to tax.

In certain circumstances private residence relief may apply when a property is the owner’s only or main residence. For example, you don’t usually pay any tax for any tax years in which you, your spouse or civil partner spent at least 90 days in your UK home and the final 18 months of ownership usually qualifies for full tax relief.

If you are living abroad and sell a UK residential property you must inform HMRC within 30 days of transferring ownership (known as conveyancing). The notification must be made whether or not there is any non-resident CGT to be paid.

Any non-resident CGT charge applicable is applied at different rates according to whether the seller is a non-resident individual, a personal representative, a trustee or closely-held company or fund.

Planning points

Any non-resident CGT that is due must be paid within 30 days of the conveyance date.

If a taxpayer is registered for UK tax they can opt to pay the non-resident CGT due when they submit their regular self assessment return. There are penalties for failing to file the non-resident CGT return as well as for failing to pay any tax due on time.

Please call if you would like more information about this topic or an opinion on your tax status and any potential tax liability.

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VAT – motor dealer deposit contributions

A new Revenue and Customs Brief 7/18 has been published by HMRC concerning their policy on the VAT accounting treatment of promotions, where payments are said to be made by motor dealers to finance companies on behalf of the end customer. These are usually known as dealer deposit contributions (DDC) in the motor retail trade and have been the subject of different VAT accounting treatments by motor dealers.

HMRC views DDCs as a discount on the headline price charged by the dealer. The DDC is shown on the finance and sales documentation and is agreed by all the parties to the transactions before these take place. There is no retrospective adjustment to the amount the customer will pay, nor the amount the finance company will pay the dealer.

VAT is therefore due on the discounted amount actually charged to the finance company and the customer. Any VAT that has been miscalculated must be corrected. The dealer must either make a section 80 claim for overpaid output tax or adjust their VAT returns following the normal error correction process explained in VAT notice 700/45.

Finance houses do not have to make any corrective action. They can make a section 80 claim for overpaid output tax but must offset the input tax they claimed on the invoices from the dealer. There is therefore nil net tax to adjust.

This HMRC brief is not concerned with manufacturer deposit contributions (MDC), which are promotions where the manufacturer or importer of the vehicle make a contribution to reduce the amount that the customer has to pay for the vehicle.

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How to challenge your Council Tax listing

The Valuation Office Agency (VOA) is a government body in England and Wales and an executive agency of HMRC. The Agency values properties for the purpose of Council Tax and for non-domestic rates in England and Wales. The council tax bands were set on 1 April 1991 for England, and on 1 April 2003 for Wales and range from Band A – F.

If you believe that your council tax listing is incorrect, you can challenge this with the VOA. A new version of the Council Tax challenge form to submit to your council tax listing has recently been published. This form is used if you believe that your council tax band is wrong. An appeal against your current band can be made online for various reasons.

This includes:

  • You disagree with an alteration to your properties banding made by the VOA.
  • You are new to the property in question and feel the valuation band too high or low.
  • The property is no longer a dwelling.
  • The property is new or has only recently become used for domestic purposes.
  • Change in a property e.g. flats merged into a house of vice versa.
  • The valuation band does not take into account a relevant decision of a local Valuation Tribunal or the High Court.

When submitting the form, you should include the reasons why you think the Valuation List should be altered, and include documentary evidence where possible. You can also appoint someone else to challenge your council tax listing on your behalf.

If you live in Scotland, then you need to use the Scottish Assessors portal website to check your Council Tax band and if necessary lodge a claim with them (known as a proposal).

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Will I pay tax when coming to the UK?

The statutory resident test (SRT) is used to determine if someone is resident in the UK for tax purposes when coming to the UK. Historically, residence in the UK was determined by being in the UK in excess of 182 days in any tax year (6 April to 5 April) or by being resident in the UK for an average of 91 days in any tax year, taking the average of the tax year in question and the three previous tax years.

This changed with the introduction of the SRT from 6 April 2013. The SRT consists of the three separate tests which are intended to provide greater certainty as to a taxpayers residency status. For the majority of taxpayers, it will be clear that they are resident in the UK if they:

  • spend 183 or more days in the UK in the tax year
  • have a home in the UK, and don’t have a home overseas
  • work full-time in the UK over a period of 365 days

However, for taxpayers with complex circumstances there are further tests using the SRT that provide more clarity as to their residency status in the UK.

The three tests which comprise the SRT are as follows:

  1. An automatic non-residence test.
  2. An automatic residence test.
  3. A ‘sufficient ties’ test.

Planning note

There are also special rules for those coming to work in the UK as an employee or as a self-employed person, as well as a special scheme for taxing the income of foreign entertainers and sportspersons who come to perform in the UK.

If you are concerned with your UK tax status, please call for advice.

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Tax Diary August/September 2018

1 August 2018 – Due date for Corporation Tax due for the year ended 31 October 2017.

19 August 2018 – PAYE and NIC deductions due for month ended 5 August 2018. (If you pay your tax electronically the due date is 22 August 2018)

19 August 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2018.

19 August 2018 – CIS tax deducted for the month ended 5 August 2018 is payable by today.

1 September 2018 – Due date for Corporation Tax due for the year ended 30 November 2017.

19 September 2018 – PAYE and NIC deductions due for month ended 5 September 2018. (If you pay your tax electronically the due date is 22 September 2018)

19 September 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2018.

19 September 2018 – CIS tax deducted for the month ended 5 September 2018 is payable by today.

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Requirement to correct tax due on overseas assets

The Requirement to Correct (RTC) legislation created a new statutory obligation for taxpayers with undeclared UK tax liabilities that involve offshore matters. The RTC applies to any person with undeclared UK Income Tax, Capital Gains Tax and/or Inheritance Tax liability concerning offshore matters or transfers relating to offshore tax non-compliance committed before 6 April 2017.

Information that is required to be provided to HMRC under the RTC rules must be provided to HMRC by 30 September 2018. This date coincides with the date when more than 100 countries will exchange data on financial accounts under the Common Reporting Standard (CRS). This data will significantly enhance HMRC’s ability to detect offshore non-compliance and it is in taxpayers’ interests to correct any non-compliance before that data is received.

Once the deadline ends, any new disclosure will be subject to the new Failure To Correct (FTC) penalties which are more punitive that the existing RTC penalties. Also, taxpayers risk being publicly named and shamed. The FTC standard penalty will start at 200% of any tax liability not disclosed under the RTC and cannot be reduced to less than 100% even with mitigation.

Any taxpayers that are unsure as to whether or not they need to make a disclosure are strongly encouraged to check their tax position. The RTC rules are very complex and we can help review any historic issues and advise and assist with making any necessary disclosures to HMRC. A disclosure can be made using the Worldwide Disclosure Facility or possibly using alternative disclosure methods which may be more suitable. HMRC’s guidance on making a disclosure, deadlines and penalty reductions under the RTC has been updated.

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Corporation Tax relief for carried forward losses

The rules for the Corporation Tax treatment of carried forward losses changed from 1 April 2017. The changes increased flexibility to set off carried forward losses against total profits of the same company or another company in a group whilst at the same time introducing new restrictions as to the amount of profits against which carried forward losses can be set.

A number of further changes to the Corporation Tax treatment of carried forward losses rules were included in the draft Finance Bill 2018-19. These measures make some amendments to the reform of loss relief rules to correct some anomalies.

The first change relates to the treatment of Basic Life Assurance and General Annuity Business (BLAGAB). We are told in HMRC’s policy paper that the inclusion of the special BLAGAB rules in the loss reform legislation created an unintended consequence that may result in relief for carried-forward losses being claimed in excess of that intended. Furthermore, the ‘BLAGAB rules’ do not fully meet the policy objective as they restrict losses using a measure of profit that is in part not subject to Corporation Tax and this can lead to excessive relief.

The other aspects of the legislation that require changes to ensure that they work as intended are as follows:

  • the deductions allowance 
  • terminal relief
  • transfer of a trade without a change of ownership
  • oil and gas losses

The change relating to BLAGAB was made effective from 6 July 2018 with all other changes expected to come into force from 1 April 2019.