Tag Archive: UK

1. Guide to Stamp Duty on Second Homes

   10 July 2023 2:40 pm Leave a Comment

   When purchasing an additional residential property or acquiring a second home, it’s important to be aware of the additional stamp duty obligations. If the property’s value exceeds £40,000, the extra rate for second homes typically applies.

   Even if you already own a property abroad or only possess a share in a property, the extra stamp duty still needs to be paid. Stay informed about these regulations when expanding your property portfolio.

   What counts as a second home?

   The concept of a second home can be ambiguous, so it’s crucial to define its qualifications clearly. Essentially, a second home refers to any property you acquire in addition to the one you already own. This can include:

   • Buy-to-let properties.
   • Holiday homes.
   • Properties purchased as family gifts.

   Being aware of these distinctions helps ensure a comprehensive understanding of second homes and their implications.

   How much is stamp duty for second homes?

   Stamp duty rates vary based on the location of your property purchase. Whether you are buying in England & Northern Ireland, Wales, or Scotland, different rates apply. It’s important to note that non-UK residents will also incur a 2% surcharge starting from 1st April, 2021.

   Specifically, let’s explore the stamp duty rates in England and Northern Ireland:

   PURCHASE PRICE OF PROPERTY	STAMP DUTY RATE	STAMP DUTY RATE FOR ADDITIONAL PROPERTIES
   Up to £250,000	0%	3%
   £250,001 to £925,000	5%	8%
   £925,001 to £1.5 million	10%	13%
   Over £1.5 million	12%	15%

   How much is stamp duty in Scotland?

   LBTT rates in Scotland:

   PURCHASE PRICE OF PROPERTY	STAMP DUTY RATE	STAMP DUTY RATE FOR ADDITIONAL PROPERTIES
   Up to £145,000	0%	4%
   £145,001 to £250,000	2%	6%
   £250,001 to £325,000	5%	9%
   £325,000 to £750,000	10%	14%
   Over £750,000	12%	16%

   How much is stamp duty in Wales?

   PURCHASE PRICE OF PROPERTY	STAMP DUTY RATE	STAMP DUTY RATE FOR ADDITIONAL PROPERTIES
   Up to £180,000	0%	4%
   £180,001 up to £250,000	3.5%	7.5%
   £250,001 to £400,000	5%	9%
   £400,001 to £750,000	7.5%	11.5%
   £750,001 to £1.5m	10%	14%
   Over £1.5m	12%	16%

   Inheriting a Second Property and Stamp Duty Implications

   The amount you inherit plays a role in determining your stamp duty obligations. If you become the sole owner of a property through inheritance, you are subject to the additional stamp duty when purchasing another property.

   However, if you inherit a share of a property, you may qualify for an exemption. Legislation states that if you inherit 50% or less of a property and purchase a residential property within three years, you are not required to pay the additional 3% stamp duty. It’s important to understand these rules and consult with professionals to navigate your specific circumstances.

   Can I claim back my second home Stamp Duty?

   When buying a second home, you typically pay a higher rate of Stamp Duty. However, there are circumstances where you can claim a refund. In England and Northern Ireland, if you have sold your previous main home, you can apply for a refund on the additional 3% Stamp Duty paid.

   One common scenario is when you purchase a new home before selling your old one, resulting in the ownership of two properties. The original home is considered your main residence, while the new home is treated as an additional property, subject to the higher Stamp Duty rate.

   Once you sell your original home and the new property becomes your main residence, it is no longer subject to the higher Stamp Duty rate. You may be eligible to claim a refund within three years of the purchase.

   Please note that the rules vary depending on whether your property was sold before or after 28th October 2018. To learn more about second home stamp duty rates, consult our comprehensive guide.

   What properties are excluded from the stamp duty for second homes?

   While purchasing a second home usually incurs higher stamp duty rates, there are a few cases where you may be exempt:

   1. Properties valued below £40,000.
   2. Purchase of caravans, mobile homes, or houseboats, regardless of their price.
   3. Buying a new home that replaces your current main residence, provided you sell the previous main home at the same time as the new purchase.

   In these instances, you may not have to pay the additional stamp duty rate. However, it’s important to review the specific criteria and regulations to determine eligibility.

   Do I have to pay if I’m a first-time buyer?

   If you don’t currently own any property and choose to buy a buy-to-let property, you won’t be subject to the stamp duty rates for second homes. Instead, normal stamp duty rates will apply since you will only own one property. It’s important to note that first-time buyer relief cannot be claimed for buy-to-let properties.

   However, you will be liable to pay stamp duty if:

   1. You have a shared ownership in another property.
   2. You have inherited a property.
   3. You are purchasing the property jointly with someone who already owns a property.

   In these cases, the stamp duty rates for second homes will apply. It’s recommended to review the specific regulations and seek professional advice to ensure compliance with stamp duty obligations.

   What if I plan to live in the property I’m buying?

   The rules surrounding Stamp Duty can become intricate in certain situations. Here’s what you need to know:

   • Property Replacement: If the property you’re purchasing will replace your main residence, you won’t have to pay the additional stamp duty rate. However, to qualify for this exemption, you must sell your original main residence simultaneously.
   • Delayed Sale: If there’s a time gap between buying your new main residence and selling your previous one, you will likely be subject to the higher rates of Stamp Duty as you will own two properties.
   • Potential Refund: Selling your previous main home within three years of purchasing your new home may make you eligible for a refund of the higher tax rate paid during the purchase. To claim the refund, you must sell the previous residence within three years and apply within 12 months of the sale or the filing date of your SDLT tax return, whichever is later.

   If you require clarification or assistance, reach out to HMRC at 0300 200 3510. It’s advisable to seek professional advice to ensure compliance with Stamp Duty regulations.

   What is a main residence?

   Unlike other taxes, you don’t have the flexibility to choose which property is considered your main residence for stamp duty purposes. Here’s how HMRC determines your main residence:

   • Family Time: If you are married, HMRC considers where the family spends the majority of their time.
   • Children’s Education: If you have children, the location of their school is taken into account.
   • Official Registrations: HMRC considers where you are registered to vote and where you are registered with a doctor/dentist.

   These factors help HMRC determine your main residence when you spend time at multiple properties. It’s essential to understand how HMRC defines your main residence to ensure compliance with stamp duty regulations. Seek professional advice for personalised guidance.

   What if I own property abroad?

   Even if your only other property is located abroad, you are still subject to the 3% additional stamp duty when purchasing a property in the UK. This means that owning a holiday home in Greece or a timeshare in Gran Canaria will result in paying the stamp duty for second homes rate, even if you are buying your first home in the UK. It’s important to be aware of this requirement when calculating your stamp duty obligations. Seek professional advice to ensure compliance with stamp duty regulations.

   If a property is in my spouse’s name can we avoid the additional stamp duty rate?

   When it comes to stamp duty, HMRC treats married couples or civil partners as a single entity. This means that if one partner owns a buy-to-let property and the other partner purchases a property, the second home stamp duty rate will still apply. This arrangement can become costly if the couple separates and one partner needs to purchase another home. It’s important to factor in these potential expenses and seek professional advice to navigate the stamp duty implications during such circumstances.

   I’m buying a property for my children. Will I have to pay the extra stamp duty?

   If your name is going to be on the deeds, and you own another property, then the 3% extra stamp duty applies. But, there are a few ways you can avoid it:

   • Gift a deposit – if you aren’t going to be a joint owner then the stamp duty for second homes won’t apply
   • Act as a guarantor – Guarantors aren’t classed as owning the property. So, you will avoid the additional rate
   • Get a family offset mortgage – This means your put your savings into an account with the mortgage lender. They then act as a deposit, but you retain ownership of the money. Find out more with our guide to helping your child buy a home.

   Does the additional rate apply to leasehold extensions?

   When it comes to lease extensions, stamp duty applies just like any other property purchase. However, most people won’t have to pay it as it falls below the £125,000 threshold for standard stamp duty.

   The challenge arises with the stamp duty for second homes rate, which kicks in at a lower threshold of £40,000. If you pay more for the lease extension and own other properties, you’ll be subject to the additional stamp duty rate. However, if the lease extension is for your main residence, you are exempt from this additional stamp duty. It’s important to understand these rules and their implications when considering a lease extension.

   Optimising Your Stamp Duty Obligations for Second Homes

   Discover how Tax Natives can help you navigate the complexities of stamp duty when purchasing or selling a second home. Our experienced professionals can provide tailored guidance to ensure you optimise your tax obligations in the UK.

   Contact us today for expert assistance in managing your stamp duty concerns when purchasing a second or multiple properties in the UK.

2. Buy-To-Let Stamp Duty Explained

   26 June 2023 3:09 pm Leave a Comment

   Determining the exact amount of stamp duty payable on a buy-to-let property can be complex, as it varies based on individual circumstances. In this article, we will break down the factors involved, enabling you to ascertain the applicable rate for your situation.

   If the additional financial burden of stamp duty poses challenges to your buy-to-let aspirations, we will also provide insights on seeking advice and specialised assistance tailored to your needs.

   (Note: All calculations adhere to the new rates for England and Northern Ireland, implemented on September 23rd, 2022).

   Empower yourself with the knowledge and guidance necessary to navigate the intricacies of stamp duty for buy-to-let investments. Make informed decisions and explore avenues that can help you overcome potential hurdles along the way.

   How much is stamp duty on buy-to-let properties?

   Calculating stamp duty for buy-to-let properties involves several factors, making it important to grasp the applicable rates based on your circumstances.

   Standard SDLT rates for residential buy-to-let properties in England and Northern Ireland, as of September 2022, range from 0% on the first £250,000 of the property value to 12% on amounts exceeding £1.5 million.

   However, different rates apply if you meet the following criteria:

   Owning more than one property:

   If your property purchase leads to multiple property ownership, a 3% Determining the exact amount of stamp duty payable on a buy-to-let property can be complex surcharge applies. For instance, rates begin at 3% on the property value up to £250,000, increasing to 15% on amounts above £1.5 million. Compared to a buyer without additional properties, this results in a significantly higher stamp duty payment.

   Non-UK residents:

   Non-UK residents, who have spent over 182 days outside the UK in the 12 months before the property purchase, face an additional 2% surcharge. Therefore, overseas investors with at least one other property are subject to rates such as 5% on the first £250,000, 10% on the next £675,000, 15% on the following £575,000, and 17% on amounts exceeding £1.5 million.

   First-time buyers:

   Although it is uncommon for first-time buyers to pursue buy-to-let properties, those who do enjoy the same SDLT relief as any other first-time buyer. If you’re a UK resident purchasing a property valued below £625,000, the applicable rates are 0% on the first £425,000 and 5% on the next £200,000.
   Understanding the nuances of stamp duty for buy-to-let properties is crucial for informed decision-making. Take advantage of this knowledge and explore options that align with your investment goals.

   How does this differ for buy-to-lets in Scotland and Wales?

   When it comes to buy-to-let properties, different tax schemes apply in Scotland and Wales. Let’s explore the key details and rates specific to each region.

   Scotland – Land and Buildings Transaction Tax (LBTT):

   LBTT is the tax payable on property purchases in Scotland, and it includes higher rates for additional properties, which typically encompass most buy-to-lets. The rates for LBTT and LBTT+ADS (Additional Dwelling Supplement) are as follows:

   Property value	LBTT	LBTT+ADS
   Up to £145,000	0%	3%
   £145,001-£250,000	2%	5%
   £250,001-£325,000	5%	8%
   £325,001-£750,000	10%	13%
   Over £750,000	12%	15%

   Wales – Land Transaction Tax (LTT):

   In Wales, the tax payable on property purchases is called Land Transaction Tax (LTT). Similar to the other regions, higher rates apply to additional properties. The rates for LTT and LTT+ADS are as follows:

   Property value	LBTT	LBTT+ADS
   Up to £180,000	0%	4%
   £180,001-£250,000	3.5%	7.5%
   £250,001-£400,000	5%	9%
   £400,001-£750,000	7.5%	11.5%
   £750,001-£1.5 million	10%	14%
   Over £1.5 million	12%	16%

   Understanding the specific rates and regulations for buy-to-let properties in Scotland and Wales is crucial for accurate financial planning. Be sure to consult with relevant authorities or seek professional advice to ensure compliance with the respective tax schemes.

   Can you add stamp duty to a buy-to-let mortgage?

   Adding stamp duty to a buy-to-let mortgage is a topic of interest for many investors. However, it’s important to understand the implications and challenges associated with this approach.

   Deposit Requirements and Loan-to-Value (LTV) Ratio:

   Buy-to-let mortgages typically require a substantial deposit, usually around 20-25% of the property value. Lenders set a maximum loan-to-value (LTV) ratio of 75-80%. For instance, if you aim to purchase a £300,000 property, you would need a minimum cash deposit of £60,000 and secure a mortgage for the remaining £240,000.

   The Challenge of Including Stamp Duty in the Mortgage:

   Adding the stamp duty cost, such as the £11,500 in our previous example, to the mortgage amount would increase the borrowing requirement to almost 85% of the property value. Securing approval for such a high LTV loan can be difficult, as only a limited number of lenders are currently willing to consider applications at this level.

   Considering Feasible Options:

   Given the financing constraints, it is advisable to carefully evaluate your financial situation and explore alternative solutions. These may include seeking additional funding sources, adjusting your investment strategy, or seeking professional advice to optimise your buy-to-let investment.

   Are there any stamp duty exemptions for buy-to-let?

   When it comes to buy-to-let properties, there are no stamp duty exemptions specific to this type of investment. However, you can still benefit from existing exemptions and reliefs available for all property purchases. Let’s explore some of the key options:

   1. First-time buyer relief: If you’re a first-time buyer, you may be eligible for stamp duty relief, which can reduce or eliminate the tax payable on your property purchase.
   2. Multiple dwelling relief: This relief is applicable when purchasing multiple properties in a single transaction, offering a way to lower the overall stamp duty liability.
   3. Relief for charities: Charities enjoy a complete exemption from paying stamp duty, providing a significant advantage when acquiring properties for their charitable purposes.
   4. Relief for Crown servants and their partners: Crown servants and their spouses or civil partners can be exempted from the non-UK resident surcharge, enabling them to pay the same stamp duty as UK residents.

   These exemptions and reliefs provide opportunities to minimise your stamp duty costs. However, it’s crucial to consult with professionals and understand the specific eligibility criteria and requirements associated with each relief.

   When do I have to pay buy-to-let stamp duty?

   When purchasing a property, it’s important to be aware of the stamp duty payment deadline. In most cases, you are required to settle the stamp duty amount within 30 days of buying the property. Here’s how the process typically works:

   • Transfer to the solicitor: You will need to transfer the stamp duty funds to your solicitor, who will handle the payment on your behalf.
   • Payment on completion: On the day you complete the purchase and officially become the property owner, your solicitor will make the stamp duty payment using the funds you provided.

   Adhering to the stamp duty deadline ensures compliance with the tax regulations and avoids any potential penalties or complications. It is recommended to work closely with your solicitor throughout the buying process to ensure a smooth and timely payment of stamp duty.

   Remember, failing to meet the stamp duty deadline can have consequences, so it’s crucial to stay informed and proactive to fulfill this financial obligation within the specified timeframe.

   What counts as a ‘main residence’ for stamp duty purposes?

   Determining your “main residence” is based on various factors assessed by HMRC. These factors include your work location, your children’s school, and your voter registration. HMRC considers your main residence to be the place where you and your family primarily reside.

   What if my main home is abroad?

   If you own a property overseas and plan to purchase an investment property in the UK, you will still be subject to the additional stamp duty rate.

   I’ve split up with my partner but my name is still on the deeds. Will I need to pay the extra stamp duty when I buy a new house?

   Initially, yes, you will have to pay the 3% surcharge when purchasing a new house while your name is still on the deeds of the old property. However, you can claim this surcharge back if you sell your share in the previous property within 36 months.

   What happens with paying stamp duty as a limited company?

   There are no stamp duty exemptions for purchasing a buy-to-let property as a limited company. If you already own a buy-to-let property and choose to form a limited company, you will essentially have to pay stamp duty again as you will need to transfer the property to your limited company.

   Get Expert Help with Buy-to-Let Stamp Duty – Contact Tax Natives Today

   Looking to navigate the complexities of stamp duty when purchasing a buy-to-let property? Seek professional guidance and ensure you make informed decisions. Contact Tax Natives today for expert advice and assistance in understanding and managing your property tax obligations in the UK. Let us help you make the most of your buy-to-let investments.

3. How much tax do I need to pay on rental income?

   21 June 2023 3:06 pm Leave a Comment

   Renting out property in the UK comes with tax obligations that can be complex to navigate. Understanding the calculations and reliefs applicable to your specific type of property is crucial to avoid any surprises. Stay informed and ensure compliance by considering these key factors when it comes to paying tax on your rental income.

   And consult Tax Natives for expert guidance and maximise your rental income benefits. Start optimising your tax strategy today with Tax Natives.

   Do you have to pay income tax on rental income?

   When it comes to rental income, it’s important to consider more than just the rent you receive. Additional earnings from services or deductions like deposit retention contribute to your total rental income. For example:

   • Rental income: £7,500
   • Additional deposit retention for repairs: £500
   • Earnings from cleaning services: £200
   • Total rental income: £8,200

   When to declare tax on rental income?

   Great news! As a personal property owner renting out your property, you have a £1,000 property allowance, which means you can receive that amount of income tax-free without declaring it to HMRC (HM Revenue & Customs).

   However, if your rental earnings, after allowable expenses, fall between £1,000 and £2,500, you should inform HMRC directly. They might be able to collect the tax owed through the PAYE system. Income exceeding £2,500 must be declared on a Self-Assessment tax return.

   How much rent is taxable?

   You are only taxed on the profit you make from renting out your property, which is your total rental income minus allowable expenses.

   Allowable expenses typically include maintenance and management costs for your property, such as letting agent fees, landlord insurance, repairs, utility bills, council tax, and services like cleaning and gardening.

   If you own multiple rental properties in the UK, you can combine all your allowable expenses.

   Depending on the type of property you own, you may be eligible for specific tax reliefs. For example, if you rent out residential property or a furnished holiday let, you can claim “replacement of domestic items relief” to cover the cost of replacing items you provide, like sofas, curtains, and carpets.

   If you own a holiday let, you can also deduct capital expenses for equipment necessary to run your rental, such as air conditioning and CCTV.

   Commercial property owners can benefit from capital expenses for assets like lifts, escalators, and electrical systems.

   How much tax will I have to pay on my rental income?

   Tax rates in the UK are determined by income bands. There are four bands:

   • Personal allowance: No tax is payable on earnings up to £12,570.
   • Basic rate: Earnings between £12,571 and £50,270 are taxed at a rate of 20%.
   • Higher rate: Earnings between £50,271 and £150,000 are taxed at a rate of 40%.
   • Additional rate: Earnings over £150,000 are taxed at a rate of 45%.

   Keep in mind that rental income can push you into a higher tax band. For example:

   • Day job earnings: £45,000
   • Rental income: £8,000 (after deducting allowable expenses of £1,000)
   • Total rental income: £7,000
   • Total income: £52,000
   • As the higher rate threshold starts at £50,271, you will pay 40% tax on the £1,729 that exceeds the limit.

   Starting from April 2023, the basic rate of tax will be 19%, and the additional rate of 45% will be eliminated.

   Can I still get buy-to-let mortgage tax relief?

   As of April 2020, mortgage tax relief for rental properties has been phased out. You can no longer deduct mortgage interest from your rental earnings. Instead, you will receive a 20% tax credit.

   Do I have to pay National Insurance payments if I run a property business?

   If your property rental business generates profits exceeding £6,725, you must pay Class 2 National Insurance. However, if your profits are below this threshold, you can choose to make voluntary National Insurance payments, which will allow you to claim the full State Pension.

   To be classified as running a property business, you must meet all three of these conditions:

   • Your primary occupation is being a landlord.
   • You let out multiple properties.
   • You purchase properties with the specific intention of renting them out

   When do I pay tax on rental income?

   You’ll need to pay Tax must be paid on the profits you earn during each financial year, which runs from 6 April to 5 April of the following year.

   If you choose to complete a paper Self-Assessment tax return, it must be submitted by 31 October of the subsequent financial year. Online assessments, on the other hand, have a submission deadline of 31 January. For instance, paper returns for the year 2021-2022 should be submitted by 31 October 2022, while online submissions can be made until 31 January 2023.

   Completing a tax return for rental income

   To ensure compliance with tax regulations, it is important to inform HMRC about any rental income by 5 October following the end of the tax year (5 April). If you earn money from renting out property, you will likely need to complete a self-assessment tax return.

   The deadline for paper tax returns is 31 October, while for online returns, it is 31 January of the following year.

   For individuals with a total income from UK property of £10,000 or more (before expenses), completing the main tax return is necessary.

   If your rental income exceeds £2,500 (after deducting rental expenses), you are also required to complete a tax return.

   However, if your rental income is under £2,500, HMRC may be able to collect the tax through the PAYE system if you already pay tax through sources such as your salary or pension. Contact HMRC for further information.

   Declaring losses on rental income

   Losses from rental properties in the UK can be carried forward to offset against future profits from your UK properties. For example, if you had rental income of £8,000 in the 2022-23 tax year but claimable expenses worth £10,000, you would have a loss of £2,000 for that year.

   However, you cannot use this loss to reduce your tax bill from other sources of income, such as dividends or pension income for that year.

   Instead, in the following tax year (2023-24), if you made rental profits of £5,000, you could deduct the previous year’s loss of £2,000. This means you would only owe tax on rental profits of £3,000.

   Paying tax when you sell a rental property

   When you sell a property that you have been renting, you will usually be subject to capital gains tax (CGT). Different rules apply if the property has been your home at any point.

   For properties that are not your main residence, the sale is treated similarly to any other asset sale. As a basic-rate taxpayer, you’ll pay 18% CGT, while higher or additional-rate taxpayers will pay 28% CGT.

   Between 6 April 2020 and 26 October 2021, there was a 30-day window to pay your CGT bill for property sales. However, after 26 October 2021, the deadline for reporting and paying CGT on the property is extended to 60 days.

   Take Control of Your Rental Income Taxes Today

   Navigating the tax obligations associated with rental income in the UK can be complex. To ensure compliance and maximise your financial benefits, it is essential to have a clear understanding of the calculations, reliefs, and deadlines that apply to your specific situation.

   Don’t leave it to chance—seek the guidance of a tax professional who can provide expert advice tailored to your needs. Start optimising your UK tax strategy with Tax Natives today and gain confidence in managing your rental income.

4. Unlocking the Potential of Commercial Property Investments: Essential Tax Considerations

   19 June 2023 2:43 pm Leave a Comment

   Investing in commercial property may seem intimidating at first, but with the right information and advice, it can offer lucrative opportunities. Unlike residential properties, commercial properties, including student and hotel accommodations, have distinct tax implications.

   Understanding these differences is crucial for maximising the advantages they offer to investors. This comprehensive guide highlights key tax considerations that should be taken into account when venturing into commercial property investments.

   Stamp Duty Land Tax

   Just like residential properties, the purchase of commercial property attracts Stamp Duty Land Tax (SDLT), which must be paid within 14 days of completing the sale. There are no additional rates for subsequent purchases or if you already own residential property.

   Commercial property SDLT rates

   The SDLT rates for commercial property are as follows:

   Property Value	Stamp Duty Land Tax Rate
   Up to £150,000	Zero
   £150,001 – £250,000	2%
   Any portion above £250,000	5%

   When it comes to income derived from letting commercial property, taxation applies. Valid revenue expenses, including letting agents’ fees and loan interest, can be deducted. The specific tax rates depend on the structure of the purchase and whether it is held by an individual, a trust, or a company.

   VAT

   When it comes to the sale of commercial property, VAT regulations play a significant role. While commercial property sales are generally exempt from VAT, property owners have the option to charge VAT at the standard rate of 20%. This decision would extend the VAT charge to all associated supplies, including rent.

   New commercial properties, those less than three years old, are subject to VAT at the standard rate. However, student accommodation, including halls of residence, is exempt from VAT, provided the necessary certification requirements are met.

   In the case of hotel accommodation, VAT is typically applicable unless a long lease is granted for another party to operate it as a hotel business, or the property has opted to tax. Investors looking to purchase hotel rooms or suites for investment purposes should expect this arrangement to be in place.

   Given the complexity of VAT matters, seeking professional advice is highly recommended when navigating commercial property purchases.

   The Tax Benefits of Commercial Property Investment

   When it comes to commercial property investment, choosing the right legal structure is a significant decision for property investors. There are four main ways to invest:

   • Personal Investment: Investing in your own name.
   • Company Investment: Investing through a company.
   • Indirect Investment: Investing via an ISA (Individual Savings Account).
   • Pension Investment: Investing through a self-invested personal pension plan (SIPP).

   Each option carries different tax implications that can have a significant impact. Let’s briefly examine the tax considerations associated with each option.

   1. Holding property personally

   Most investors prefer to buy commercial property directly in their own name, as it offers certain advantages. One significant benefit is the potential eligibility for special capital gains tax treatment when selling the property.

   This treatment, known as “business asset taper relief,” allows for three-quarters of profits to be tax-free after just two years. It serves as an excellent capital gains tax shelter, with a maximum tax rate of 10% and potentially even lower rates thanks to the annual capital gains tax exemption.

   However, there is a limitation to qualify for business taper relief. If the property is let to a quoted (stock exchange listed) company like Vodafone, you won’t be eligible. While it may seem appealing to have a reliable tenant like a large brand, this choice would result in the less favourable non-business asset taper relief. This relief only exempts 5% of profits after three years and 40% after a decade.

   When it comes to rental income, there are no concessions. Income tax rates of 22% or 40% apply, depending on whether you’re a basic-rate or higher-rate taxpayer. Therefore, alternative investment strategies should be considered if protecting rental income is a priority.

   While minimising taxes is important, it’s equally crucial to focus on generating profitable returns. Finding the right balance between tax optimisation and income generation is key for successful commercial property investment.

   2. Holding property in a limited company

   Using companies as a legal structure for property investment has gained popularity due to lower corporation tax rates compared to personal tax rates. If you choose to invest through a company, your tax implications may differ from those of a personal investor.

   With rental income, you can benefit from lower tax rates, even as low as 0%. For instance, if you earn £15,000 in rental profits, the first £10,000 will be tax-free, and the remaining £5,000 will be taxed at 23.75%, resulting in an effective tax rate of just 8%.

   However, it’s important to consider that companies don’t qualify for the generous business taper relief available to direct investors when selling property. Instead, companies are eligible for an indexation allowance, protecting against tax on inflationary profits, typically around 3% per year.

   If you sell shares in the company rather than the property itself, you may personally qualify for taper relief, albeit at reduced non-business taper rates.

   Investing through an ISA or self-invested personal pension plan (SIPP) offers a potential escape from income tax, capital gains tax, and corporation tax.

   3. Using an ISA

   Currently, you can invest up to £7,000 per tax year in an ISA and enjoy tax-free profits on your investments, exempt from both income tax and capital gains tax.

   However, it’s important to note that ISAs typically do not allow investments in property. There are a few exceptions to this rule.

   4. Using a Self-invested Personal Pension

   To have more investment choices and flexibility, consider purchasing commercial property through a self-invested personal pension (SIPP) instead of ISAs.

   Investing through a SIPP offers several advantages. Firstly, you can benefit from tax-free rental income and capital gains, as no income tax or capital gains tax is payable on your SIPP investments.

   Additionally, you receive tax relief on any contributions made to your pension account. This means you can effectively purchase property at a discounted rate of 40%.

   Business owners particularly find commercial property SIPPs appealing, using them to acquire premises for their companies. The company would then pay rent to the SIPP, allowing it to claim the expense as a tax deduction, while the SIPP itself would be exempt from tax on the rental income received.

   Capital Gains Tax

   When selling a commercial property personally, you will be subject to Capital Gains Tax (CGT) on the increase in property value. For properties held in a limited company, Corporation Tax applies to annual company profits. CGT rates for commercial property are lower than residential rates, with 10% for basic rate taxpayers (18% for residential) and 20% for higher rate taxpayers (28% for residential).

   You only pay tax on gains exceeding the tax-free allowance, currently set at £12,300 (Annual Exempt Amount). Additionally, certain expenses can be deducted, including Stamp Duty Land Tax and allowable purchase and disposal fees.

   Capital Allowances

   Capital Allowance Relief can be claimed on moveable plant and machinery purchases for commercial properties.

   However, it is often overlooked that Capital Allowances can also be claimed for fixtures within a commercial property.

   These fixtures include cranes, fire alarms, security systems, heating and air conditioning systems, lifts, escalators, moving walkways, sanitary and kitchen equipment, and sprinkler systems.

   Until 31 December 2021, there is a temporary provision for 100% tax relief under the Annual Investment Allowance rules for the first £1 million of capital expenditure (which will then decrease to £200,000).

   When purchasing a property, it is possible to allocate a percentage of the purchase price to these items, potentially up to 25% of the original purchase and refurbishment price in some cases. This allocation can be used to offset future profits, resulting in several years of not declaring taxable profit. To benefit from this, it is crucial to document it as part of the purchase agreement.

   Super Deduction Tax Relief

   The Budget 2021 introduced a new 130% Super-deduction First Year Allowance (FYA) that provides an additional one-third reduction in tax for expenditure on new main pool plant and machinery. Initially available only for trading companies, an amendment to the Finance Bill now allows landlords and investors to claim this Super deduction tax relief for qualifying plant and machinery.

   Furthermore, the 50% Special Rate First Year Allowance (SR allowance) offers eight times more tax relief compared to the previous 6% writing down allowance (WDA) for various other plant and machinery assets.

   These enhanced reliefs present an attractive opportunity for landlords, as there is no upper limit to their application.

   Make The Most of Your Commercial Property Investments with Tax Natives

   Ready to optimise your UK tax obligations when investing in or selling commercial property?

   Look no further than Tax Natives. Our team of experts is here to guide you through the intricacies and help you explore the best strategies for maximising your tax benefits. Whether it’s deciding on the right ownership structure or navigating VAT considerations, our professionals have the knowledge and experience to assist you.

   Contact Tax Natives today to explore your options and ensure you make the most of your commercial property transactions.

5. Advantages of Company Restructuring

   12 June 2023 1:49 pm Leave a Comment

   Company restructuring offers numerous advantages and supports a business in achieving its changing commercial, financial, and legal goals. Periodically reassessing and adjusting the corporate structure becomes necessary for businesses.

   In the current economic landscape, where rising costs and interest rates impact profitability, it is crucial for companies to consider restructuring as a means to address these challenges.

   Why does business structure matter?

   The business structure encompasses the legal and organisational framework that governs a company’s operations and management. It has a significant impact on various aspects, including decision-making authority, profit allocation, and share distribution. As a result, it is a powerful tool for business owners to shape their organisation.

   When should you consider a restructure?

   To maximise its effectiveness, restructuring should be seamlessly integrated into the fundamental workflows of your business. It is prudent to evaluate your business structure whenever there are significant changes in your market, business plan, or performance—both current and planned.

   While many companies undergo restructuring during challenging times, it can also be advantageous for those aiming to boost profits and minimise tax obligations at any stage of their business lifecycle. Moreover, restructuring is often necessary in specific circumstances such as preparing for a sale or acquisition or protecting assets.

   There are various reasons and scenarios that may prompt a business to consider restructuring.

   For expert advice on restructuring and insights into the tax advantages it can offer, reach out to our team of corporate tax advisors at Tax Natives.

   Types of company restructuring

   The choice of business restructuring depends on the unique circumstances and objectives of each company. While each type presents its own challenges, they also offer distinct advantages. Here are the four primary types of business restructuring.

   1. Demerging and splitting a group structure

   When a business expands, the goals of its various sectors may no longer align, or disagreements among shareholders may arise. Additionally, there may be a need to separate a large property from the group. In such cases, operating the companies independently could be a better solution.

   This can be achieved by creating subsidiaries to divide the different sectors within the business. This approach can also be advantageous when a company intends to sell a portion of its business.

   2. Consolidating businesses into a group structure

   Expanding businesses may find that related companies operating independently could achieve greater efficiency by working together. Streamlining and consolidating the group structure can lower operational costs by reducing the need for separate entities and administrative roles. This allows key staff to concentrate on their core business activities and enhances day-to-day operations.

   3. Establishing a new holding company

   By implementing this approach, the company can possess shares or assets in subsidiaries, granting the holding company the ability to manage and oversee the operations of these subsidiary entities.

   4. Share reorganisation

   Share reorganisation involves various actions such as capital reductions, changes in rights, or the acquisition of existing shares. It is commonly pursued to secure fresh investments, address shareholder conflicts, or facilitate smooth succession planning.

   What are the benefits of restructuring your business?

   Businesses may seek to restructure for a variety of reasons:

   1. Business acquisitions and mergers

   When acquiring or merging with a new company, restructuring the corporate structure may be required to integrate the new business effectively.

   2. Improved visibility

   Accurate tracking and analysis of business performance are crucial for making informed decisions. While accounting software provides departmental reporting, having separate entities for each product or department offers a more detailed view of their individual performance. This allows for better investment planning, comprehensive statement reviews, and targeted decision-making based on performance data to seize opportunities and manage risks effectively.

   3. Reducing risks

   Creating a subsidiary or separate company can mitigate financial risks associated with potential loss-making departments.

   When it comes to property assets, such as company premises or investments, holding them in a separate entity provides protection. By separating trade and property ownership, the value of the property is shielded from potential liabilities arising from the business’s operations, reducing risks and safeguarding the assets.

   4. Succession planning

   Succession planning in family businesses is crucial for a smooth transfer of ownership across generations. It involves careful timing and consideration of various factors, including the transfer of share rights, to ensure a seamless transition.

   A key focus is on achieving the most tax-efficient method of transferring ownership, taking into account the complexities and personal nature of the task.

   5. Shareholder disputes

   Shareholder disputes and deadlocks can hinder business progress and impact profitability and morale.

   In such situations, restructuring options like demerger or share redistribution, including buyouts, can effectively resolve disagreements and restore harmony within the company. This proactive approach helps address conflicts and pave the way for a more productive and collaborative business environment.

   6. Moving assets

   Transferring assets can be motivated by various factors, and if there is an existing group structure, it can typically be done in a tax-efficient way. By strategically managing asset transfers within a group, businesses can optimise their tax planning and ensure a smooth and advantageous transfer process.

   7. Cost savings and increased efficiency

   Consolidating companies can lower compliance and administration costs, as it streamlines tasks like preparing accounts and tax returns. Additionally, downsizing during a restructuring opens up opportunities for cost-effective outsourcing of functions like payroll and financial management.

   Furthermore, restructuring can prioritise the integration of new technologies to enhance business efficiency and generate financial savings. Embracing innovative technologies is crucial for business growth and can yield substantial benefits.

   8. New investment opportunities

   Restructuring can enhance a business’s appeal to potential investors. Limited companies often encounter limited external investment prospects, but a straightforward restructuring can unlock a multitude of new opportunities for external investment.

   9. Improved employee satisfaction

   Providing employees with shares in the company is a strategic approach to restructuring that offers numerous advantages. Implementing an employee share scheme promotes loyalty, enhances retention rates, and strengthens the overall business.

   10. Operational flexibility

   A well-designed business structure offers flexibility for growth and investment. By creating separate entities for new ventures, you can focus on specific areas and make targeted decisions. Additionally, when it comes to selling your business, having a structured setup allows you to carve out specific parts for sale instead of selling the entire company.

   Company restructuring to become more tax-efficient

   Business restructuring offers the opportunity for tax-efficient benefits. By reorganising the corporate structure, you can create a more tax-efficient setup, reducing your tax liability in the long run. It is crucial to seek professional advice to ensure that the restructuring maximises applicable tax reliefs.

   Without careful consideration, restructuring can result in increased tax burdens, including stamp duty, SDLT, VAT, corporation tax, and potential loss of tax reliefs.

   Looking for professional advice to help with restructure your business?

   Are you looking to enhance the financial efficiency and flexibility of your business?

   Consider the advantages of company restructuring. By reorganising your corporate structure, you can unlock tax benefits, streamline operations, and position your business for growth.

   At Tax Natives, we specialise in helping businesses navigate the complexities of company restructuring while optimising their tax obligations in the UK. Our team of experts understands the intricacies of tax planning and can guide you through the process, ensuring you capitalise on available tax reliefs and minimise potential tax burdens.

   With our professional advice and tailored solutions, you can strategically restructure your business to reduce tax liabilities, increase operational efficiency, and seize new growth opportunities. Don’t let tax complexities hinder your business success.

   Contact Tax Natives today and explore the advantages of company restructuring tailored to your unique needs.

6. What taxes are paid by property owners in the UK?

   1:38 pm Leave a Comment

   Are you considering a move to the UK and contemplating purchasing property? Investing in real estate is a smart strategy to safeguard your capital against inflation while potentially generating a steady income through rentals.

   However, before diving into the UK real estate market, it’s essential to understand the financial responsibilities that come with property ownership, including maintenance costs and taxes imposed by the state. Let’s explore the intricacies of property taxes in the UK.

   Is there property tax in the UK?

   Yes. Contrary to popular belief, British property owners are not entirely exempt from property taxes. While there may not be a traditional property tax, it’s crucial to remember that there are still other taxes that apply. Although these taxes go by different names, they are still closely tied to property ownership. Let’s delve into the realm of property taxation in the UK and uncover the full picture.

   What is the property tax rate in the UK?

   When it comes to property taxes in the UK, understanding the rates is crucial. In England and Northern Ireland, the Stamp Duty Land Tax (SDLT) for residential properties ranges from two to twelve percent. For properties valued at £255,000 and above, the tax rate applies. Non-residential freehold properties in this region also fall within the same two to twelve percent range, with a valuation threshold starting from £150,000 and exceeding £250,001.

   In Scotland, the Land and Buildings Transaction Tax (LBTT) applies to properties valued at £145,000 ($176,500) and above. The tax rate varies between two and twelve percent, with higher-valued properties, such as those exceeding £750,000 ($912,000), falling within this range.

   Meanwhile, in Wales, the Land Transaction Tax (LTT) applies to properties valued at £225,000 ($274,500) and above. The tax rate for such properties ranges from six to twelve percent, with those surpassing £1.5 million ($1.82 million) falling within this bracket.

   It’s essential to keep these regional variations in mind when considering property purchases, as tax rates can significantly impact the overall cost.

   How much tax do I have to pay on my property in the UK?

   When it comes to calculating your UK property tax, several factors come into play. To simplify the process, let’s break it down into five essential questions:

   1. What is the purchase price of your property?
   2. Where is your property situated?
   3. What are your intentions for the property?
   4. What type of ownership are you acquiring? Essentially, who holds ownership of the land where your property stands?
   5. Do you already own another property?

   By answering these questions, we can uncover the full spectrum of taxes and charges that may be applicable to your specific scenario. Whether you’re buying land, a house, a flat, or a commercial property in the UK, let’s explore the comprehensive breakdown of potential taxes and charges.

   1. Stamp Duty Land Tax

   When buying real estate in the UK, it’s essential to consider the stamp duty charged by the state at the time of purchase. Corporate buyers are subject to a fixed rate of 15%.

   For private owners, the stamp duty rate varies from 0 to 17%, depending on factors such as the purchase value, immigration status, and whether you already own another property. It’s worth noting that the UK government recently increased the stamp duty rate for foreign buyers by an additional 2%.

   Navigating the intricacies of stamp duty is vital to ensure a smooth property transaction.

   What are the stamp duty rates?

   To determine your stamp duty obligations accurately, refer to the table below:

   Purchase Value	Basic Rate (UK Nationals)	Rates for Additional Properties (UK Nationals)	Basic Rate (Foreign Buyers*)	Rates for Additional Properties (Foreign Buyers*)
   Up to £125,000	0%	2%	3%	5%
   £125,001 – £250,000	2%	4%	5%	7%
   £250,001 – £925,000	5%	7%	8%	10%
   £925,001 – £1,500,000	10%	12%	13%	15%
   Over £1,500,001	12%	14%	15%	17%

   For first-time homebuyers, properties costing less than £300,000 are exempt from stamp duty. If the value exceeds £300,000 but doesn’t surpass £500,000, the initial £300,000 is untaxed, and the remaining amount is taxed at a reduced rate of only 5%. However, if the property value exceeds £500,000, the rates for additional properties apply.

   It’s worth exploring potential avenues for paying less or no stamp duty. Purchasing a freehold property, which includes the land and adjacent territory, may grant exemptions on certain portions. Consult a property expert to determine your eligibility for any reliefs or exemptions.

   Use this information as a guide to calculate your stamp duty accurately and consider seeking professional advice for a comprehensive understanding of your specific situation.

   2. Ground Rent

   When the land on which your house stands is owned by someone else, it falls under the category of leasehold ownership. This type of ownership typically incurs an additional charge known as ground rent, which averages between £50-£100 per year for residential properties.

   It’s important to consider these factors, as it is possible to purchase freehold properties in the UK, where both the land and the house belong to you. Understanding the distinction between leasehold and freehold ownership is crucial when making property decisions.

   3. Council Tax

   Council tax is another tax associated with properties in Great Britain, payable by the current occupants of a flat or house. If the property is rented, it is the tenants who are responsible for paying the council tax. This tax is collected by the local council and contributes to the maintenance of the surrounding area.

   Council tax rates vary based on the location and price range of similar properties. In Northern Ireland, rates may differ significantly, tailored to individual circumstances.

   All property owners or tenants who currently reside in a property are obligated to pay council tax, except for those temporarily vacating for refurbishment purposes. Students may be eligible for discounts on council tax.

   Understanding your obligations regarding council tax is important for property occupiers in Great Britain.

   Annual Tax on Enveloped Dwellings (ATED)

   The Annual Tax on Enveloped Dwellings (ATED) is an annual property tax paid by companies that own residential properties in the UK valued over £500,000. Typically, this tax is paid when submitting the tax return at the end of the financial year, usually in April.

   The amount of tax payable to the Treasury is determined based on the market value of the property at the time of purchase or, for properties held for an extended period, through revaluation every five years following the initial purchase.

   Understanding the ATED tax is essential for companies owning high-value residential properties in the UK, ensuring compliance with the tax obligations set forth by the government.

   Who is exempt from ATED?

   Certain entities, such as companies, partnerships, and investment funds, may be exempt from paying the ATED tax under the following circumstances:

   1. If a residential property is rented out to unrelated third parties.
   2. If the property is accessible to the public for at least 28 days annually.
   3. If the property is owned by a commercial company or agricultural enterprise and used as corporate accommodation for employees.

   While we have covered taxes directly linked to property purchase, ownership, and usage in the UK, it’s crucial to be aware of other taxes that may not be property-specific but still impact your obligations. These include taxes related to property sales, rentals, and inheritance.

   Understanding the wider scope of property-related taxes is essential for informed decision-making when it comes to selling, renting, or inheriting a property in the UK.

   5. Rental income tax

   Regardless of your tax residency status, any income earned on UK territory is subject to taxation. However, as a foreign national who has purchased a UK property for rental purposes and does not intend to relocate to the UK in the near future, you can leverage a double taxation treaty to avoid paying tax twice.

   How to declare your UK rental income tax:

   1. Declare all your income, including foreign income, in your tax return to determine your tax liability.
   2. Provide evidence of tax paid in the UK on income received within the country.
   3. In your home country, calculate income tax on your rental income, deduct the amount of tax already paid in the UK, and pay the remaining balance.

   By utilising double taxation treaties, you can mitigate the risk of being taxed twice on the same income, ensuring a fair and equitable taxation process across borders.

   How much property income is tax free in the UK?

   The first £1,000 of your income from property rental is completely tax-free? This is known as your ‘property allowance.’ Take advantage of this allowance to enjoy tax savings on your rental income.

   6. Capital Gains Tax

   In a stable economy, property prices tend to appreciate over time, and the UK is no exception. When selling your UK house or flat after a few years of ownership, you can anticipate earning a profit. However, it’s important to note that the UK government requires a portion of your earnings through capital gains tax (CGT), which is determined by the amount of capital gain.

   There are two applicable rates for CGT based on the difference between the purchase price and sale price:

   • 18% if the gain is below £31,865
   • 28% if the gain exceeds £31,865

   For individuals who have already become tax residents, CGT is paid after the end of the financial year, upon submitting a self-assessment tax return. However, non-residents and others must settle the tax within 30 days of the property purchase.

   It’s worth exploring various tax reliefs and exemptions that can help reduce the tax liability or potentially avoid paying CGT altogether. For instance, selling a property with limited square footage where you have primarily resided or gifting the property to your spouse may qualify for such benefits. Consulting with a tax professional can provide further guidance in optimising your tax obligations.

   7. Inheritance tax

   In the UK, if you inherit all or part of an estate from a deceased individual, you may become subject to inheritance tax. The standard inheritance tax rate is 40%, except for spouses of the deceased. However, if you received a gift, such as a flat, from a grandfather within 7 years of their passing, it will be treated as inheritance, subjecting you to an inheritance tax rate ranging from 8% to 40%.

   For heirs other than spouses, the tax-free allowance is the first £325,000 of the estate. Since 2017, direct heirs may be eligible for tax relief on inherited property where they have lived or used to live.

   Despite available allowances and reliefs, the inheritance tax rate in the UK remains significantly high. We strongly advise considering proactive measures to prepare and restructure your assets, even at a young age, to mitigate potential tax burdens. Seek professional advice to explore strategies tailored to your circumstances.

   Get professional help for your UK property tax obligations

   Are you feeling overwhelmed by the complexities of property taxes in the UK? Don’t fret! Tax Natives are here to help. Our team of experienced UK property tax consultants specialise in navigating the intricacies of property taxation, ensuring you understand your obligations and maximise available benefits.

   Let us guide you through the process, providing expert advice and tailored solutions to help you manage your property tax matters with confidence. Contact Tax Natives today and experience the peace of mind that comes from having trusted professionals by your side.

7. Research & Development Tax Changes in UK

   15 January 2023 10:09 am Leave a Comment

   Introduction

   The UK’s R&D regime has been incredibly attractive for many years.

   Further, HMRC has consistently taken a ‘light touch’ approach to its supervision of the regime.

   However, it has been clear for a number of years that there is a core of ‘specialist’ companies that might have taken a somewhat bullish approach to some of their claims.

   As such, for some time, there has been speculation over whether the regime is ripe for reform.

   To an extent, we are now starting to see that reform reflected in the changes recently announced / confirmed at the recent fiscal events.

   Further, over the weekend, we have seen the Treasury open a consultation on reforming the R&D regime. The proposal is that the current dual system of an SME and a RDEC regime is merged into one.

   Change is certainly coming…

   Overview

   There will be material changes to the UK’s Research & Development Tax regime.

   These will be introduced with effect from 1 April 2023.

   The changes will impact:

   • the amount of relief that can be claimed,
   • the types of activities that will qualify ; and
   • the way in which businesses can claim relief

   It is stated that the measures will ensure that:

   • “the UK remains a competitive location for cutting edge research”,
   • “the reliefs continue to be fit for purpose”; and
   • “taxpayer money is spent as effectively as possible”.

   It is clear that the changes to the SME scheme are being introduced as a response to perceived error and abuse of the regime. It is a shame that some bad actors have resulted in a dialling back of the benefits for all SMEs.

   In addition, the new consultation release suggests the government is eye-ing up a merged, unified regime.

   Changes to the rates of relief

   General

   The rate and form of relief depends on whether the company can claim under the SME regime or only under the R&D expenditure credit (“RDEC”) regime. Large companies can only claim under RDEC along with some SMEs who are outside of the SME regime.

   SME regime

   Under the SME regime relief is available as follows:

   • Where profit making: in the form of an enhanced corporation tax deduction of a percentage of qualifying R&D costs; or
   • Where loss making: they may receive the R&D credit, which is a cash payment, in return for surrendering R&D-related losses

   RDEC regime

   As referred to above, this is targeted at larger companies. However, in certain circumstances, it might be an SMEs claiming RDEC.

   The RDEC uses a different method of calculating corporation tax relief on R&D expenditure. This is sometimes referred to as an “above the line” credit claimed as a cash payment.

   Changing rates

   For expenditure incurred on or after 1 April 2023 the various rates will change. The old and new rates are as follows:

   Profile of taxpayer	Up to 31 March 2023	From 1 April 2023
   RDEC Company	RDEC Credit: 13% Corporation tax (“CT”) rate: 19% Benefit: 10.5%	RDEC credit: 20% CT rate: 25% Benefit: 15%
   SME (in profit)	Enhanced deduction: 130% Benefit: 24.7%	Enhanced deduction: 86% Benefit: 21.5%
   SME (loss-making)	R&D credit: 14.5% Benefit: 33.4%	R&D credit: 10% Benefit 18.6%

   Focussing relief on UK activities

   In addition to the above, the Government is also introducing territorial restrictions to the regime.

   These rules will apply to subcontracted R&D expenditure along with payments for externally provided workers (“EPWs”).

   Subcontracted R&D activity will need to be performed in the UK.

   EPWs will need to be subject to UK PAYE.

   Expenditure in respect of overseas activity will still qualify in some limited circumstances.

   Data licences and cloud computing as qualifying expenditure

   In better news, expenditure on the cost of data licences and cloud computing will now constitute qualifying expenditure.

   Making an R&D claim – revised process

   Companies will be subject to a new online pre-notification requirement where:

   • It is making an R&D claim for the first time; or
   • It has not made a claim in any of its previous three accounting periods

   The new procedure means that the company must inform HMRC of:

   • its intention to make an R&D claim; and
   • the R&D adviser it will be using

   within six months of the end of the relevant accounting period (unless the full claim has been submitted within the six-month deadline.) Previously, the only deadline has been the two year (following the end of the relevant accounting period) deadline for making a claim.

   New Government Consultation on a unified R&D regime

   As stated above, these changes are also now joined by the announcement over the weekend of a new Government consultation on a new, unified R&D regime.

   In a previous consultation, had asked views around whether the two schemes should be merged into one. This new consultation develops that idea further.

   It appears that the government is coalescing around an ‘above the line’ credit for all parties. In other words, the SME regime will be replaced by a regime that looks more like RDEC for all.

   The consultation document also alludes that additional relief might be available to either “R&D intensive companies” and / or “different types of R&D”. In the case of the latter, it might be that relief is targeted at activity with a “social value”.

   Following on from any consultation, the new unified regime will be announced at a future fiscal event and implemented, as things stand, for expenditure incurred from 1 April 2024.

   Conclusion

   The reduction in the rate for SMES is disappointing. This is particularly the case for start-ups for which the ability to claim the repayable tax credit can be an important source of cash.

   On the other hand, the increase in the RDEC is to be welcomed and should make the UK’s scheme more competitive internationally.

   It is good to see that the categories of qualifying expenditure will be expanded to include data and cloud computing.

   The changes in the process for making an R&D claim will be particularly relevant for companies who have not made a claim in the past. They will need to get their affairs in order much more quickly bearing in mind the new six-month deadline.

   Finally, the enthusiasm for a unified system is perhaps not wholly unexpected either. The UK is perhaps unusual in offering a dual system.

   It is hoped that the Government and all stakeholders can bash into shape a unified system t that preserves the attractive benefits for those currently utilising SME relief and RDEC but manages to ensure that relief is properly targeted and abuse minimised.

   Watch this space.

   If you have any queries relating to the Research & Development Tax Changes in the UK or tax matters in the UK more generally, then please do not hesitate to get in touch.

   The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

8. UK expands Russian sanctions to trust services

   4 January 2023 8:00 pm Leave a Comment

   UK expands Russian sanctions to trust services – Introduction

   The EU introduced trust sanctions in respect of Russia last year. However, the effect of these sanctions has had international impact.

   Despite announcing its intention to introduce trust sanctions some time ago, the UK trust sanctions, provided for in Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (“The Regulations”), only came into force last month.

   However, there are some important differences between the regimes.

   The UK sanctions include a prohibition on providing trust services to or for the benefit of a person connected with Russia or to a ‘designated person’ (unless the services were provided immediately prior to the regulations coming into force).

   What do the latest sanctions mean?

   The Regulations came into force on 16 December 2022. They amend the Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855).

   The amendments define “trust services” as follows:

   • creation of a trust or similar arrangement,
   • provision of registered office, business address, correspondence address or administrative address services for a trust or similar arrangement,
   • operation or management of a trust or similar arrangement,
   • acting or arranging for another person to act as trustee of a trust or similar arrangement, where “trustee”, in relation to an arrangement similar to a trust, means a person who holds an equivalent or similar position to a trustee of a trust.

   A person is broadly considered “connected with Russia”:

   • if they are located or resident in Russia, or
   • for a corporate entity, if the entity incorporated in Russia, constituted under the law of Russia or domiciled in Russia

   Key differences

   The EU’s sanctions focus on the nationality or residence of a trust’s settlor or beneficiary. As such, there are some notable differences.

   Firstly, under the UK’s rules, a private individual who is a Russian national but is resident elsewhere will not automatically be considered connected with Russia for these purposes.

   The UK rules also provide helpful guidance about when trust services are “for the benefit” of a person. This includes circumstances where services are provided to a person:

   • who is a beneficiary;  
   • is referred to as a potential beneficiary in a document from the settlor (such as a letter of wishes); or
   • is otherwise expected to obtain or be able to obtain a significant financial benefit from the trust.

   Exceptions

   The new rules are ‘forward-facing’. As such, these sanctions won’t apply to trust services that are already being provided under an existing relationship at 16 December 2022. A key question is whether additional or different work can be provided under this existing relationship or whether a ‘new instruction’ is a new relationship?

   Additionally, The Office of Financial Sanctions Implementation (“OFSI”) has confirmed that it will consider granting licences for trust work if that work falls within certain exceptions. This might include charitable pursuits.

   Conclusion

   Of course, UK trust provides, and those providing services in Crown Dependencies and British Overseas Territories, will need to be mindful of these sanctions. In terms of how they might apply to new relationships and the extent to which new instructions by existing clients within the scope of these rules might constitute a new relationship.

   If you have any queries on UK expands Russian sanctions to trust services or UK tax matters more generally, then please do not hesitate to get in touch.

   The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article