Entrepreneur’s relief  ("ER") is a valuable relief from Capital Gains Tax ("CGT") which, when available, restricts the tax rate to a flat 10% on up to £10 million worth of lifetime gains. The 2018 Budget announced changes to the conditions for obtaining ER, and in light of the new rules it may be worthwhile for taxpayers to dispose of relevant assets before 6 April 2019. Minimum Qualifying Period ER applies to disposals of: shares in a trading company; (the whole or part of) a business; assets in association with the sale of a business; assets from a solvent company that has ceased trading. For disposals involving shares, the shareholder would need to work for the company and hold at least 5% of the ordinary s...

A corporate restructuring takes place where a company and/or a group of companies undergo a process of reorganising the ownership structure for the benefit of the business. Common reasons for a restructuring include a change of ownership, mergers (i.e. merging two or more separate companies into one), and demergers (i.e. the separation of a company into two or more smaller companies). From a tax perspective, the term “reorganisation” is not defined in the legislation. However, it is accepted that it refers to a company organising its share capital in a different way. Where the transactions in a reorganisation meet certain conditions for tax purposes, the reorganisation is not treated as involving a disposal of the original sha...

Whether a property is residential or non-residential for Stamp Duty Land Tax ("SDLT") purposes is not always clear cut, and this will affect the tax payable and also the reliefs/exemptions that might apply. Residential rates can be as high as 15% (where the 3% surcharge applies), whilst non-residential rates top out at 5%. Mixed use properties (used for both residential and non-residential purposes) are subject to non-residential rates. In light of the different rates and reliefs that can apply, it is crucial that the nature of the property is correctly identified at the time of purchase. HMRC has recently clarified their views and guidance on what constitutes residential property for SDLT purposes - some of the points discussed ar...

In Dieno George v HMRC, the First-Tier Tribunal (FTT) denied a claim for entrepreneurs’ relief (ER) by a chief executive on a 6.9% shareholding in the limited company. The case highlights the importance of meeting the exact conditions of the legislation, even where circumstances might suggest that such conditions are met and that the relief may be obtained. Background Mr George (the taxpayer) was recruited by Thornton & Ross Limited (the company) in October 2001, successfully working to expand the company’s business and obtaining the position of chief executive in Mach 2002. The taxpayer subscribed £999,996 for 600 C Ordinary shares in the company in 2005, and a further £10,000 for 1547 D Ordinary shares in 2008. These ...

Deciding if/when to incorporate your business is an important consideration that many entrepreneurs will face in the life-cycle of their business. Before a decision can be made as to whether incorporation is right for you, it is important to be aware of what a limited company is, and how it differs from operating as a sole trader/partnership. What is a limited company (Ltd)? A UK private limited company is a separate legal entity, with its own assets and liabilities. When operating as a sole-trader or a partnership, assets and liabilities of the business will belong to the individual or partner. Companies are owned by shareholders through the issue of shares. If you own shares in company (which may be purchased from another shar...

Here are some of the highlights from the Chancellor of the Exchequer's 2018 Budget (published on 29 October 2018): Personal Tax The Personal Allowance will be raised to £12,500 and the Higher Rate Threshold (i.e. the amount that an individual can earn before paying higher rate tax) to £50,000 in April 2019 – a year earlier than planned. These levels will remain the same in 2020/21, and then increase by CPI going forward. The final exemption period for Principal Private Residence Relief (PPR) which provides Capital Gains Tax relief on the sale of your home will be reduced from 18 to 9 months. Under the current PPR rules, where you have let a property which at one point was your home Lettings Relief may be available to reduc...

The sale of assets/property by a company is a deceptively complex area, and there are a number of issues and reliefs that must be considered to ensure that the corporation tax payable on the capital gain is correct. Sale of Asset – General Deductions In determining the capital gain on the disposal of an asset (most commonly property), a deduction can be made in respect of the following: Base cost/Acquisition cost; Incidental costs of acquisition and disposal, e.g. professional fees, advertising costs, and valuations; Costs incurred that increase the capital value of an asset (known as “Enhancement Expenditure”), e.g. costs of building an extension Capital Allowances On the purchase of property/assets by a compan...

On 22 November 2017, the Chancellor of the Exchequer published the Autumn Budget 2017 – the second budget of the year. Here are the highlights: Individuals Personal Tax Rates Personal allowance will rise from £11,500 to £11,850, from 2018/19 The basic rate threshold will be increased to £34,500, from 2018/19. Pension lifetime allowance will rise to £1,030,000, from 2018/19. Annual exemption for capital gains tax (CGT) will rise to £11,700, from 2018/19. From 29 November 2017, marriage allowance transfer claims can be made on behalf of deceased spouses, and backdated for up to 4 years. Stamp Duty Land Tax (SDLT) Effective from 22 November 2017, SDLT will be abolished on homes under £300,000 for first-time ...

Entrepreneurs’ Relief (ER) is a valuable capital gains tax (CGT) relief that allows qualifying gains to be taxed at a fixed rate of 10% rather than at the normal rates of up to 20% on the disposal of business assets. One key condition for the availability of ER on the disposal of shares is that the seller must have owned at least 5% of the company’s “ordinary share capital” in the 12 months prior to disposal. In the case of HMRC v McQuillan [2017], the Upper Tribunal examined the definition of “ordinary share capital” as defined in the legislation and held that a right to no dividend is not a right to a dividend at a fixed rate of 0%, thereby denying ER. Background Mr and Mrs McQuillan each owned 33% of the shares ...

Click here to download Issue 8, 2017 of the Intelligent Tax Newsletter. In this issue:  The "Big Tax Case" - Final Score: HMRC 1, Rangers 0 Are Directors Required to File Tax Returns? Impact of Cash Surpluses on Entrepreneurs' Relief Changes to Salary Sacrifice