Tag: tax

All assets are regarded as chargeable assets except for those which are specially exempted from CGT. The main exemptions are as follows: 

1. A taxpayer’s private residence 

2. Motor cars, including vintage and veteran cars (although not personalised numberplates) 

3. Items of tangible, removable property (referred to as “chattels” which are disposed of for £6,000 or less. 

4. Chattels with a predictable useful life of 50 years or less, unless used as business and eligible for capital allowances (Chapt 19) 

5. Gilt-edged securities and qualifying corporate bonds (Chapt 20) 

6. National Savings Certificates and Premium Bonds 

7. Foreign currency (if acquired for private use) 

8. Winnings from pools, lotteries, bettings etc 

9. Decoration for valour (unless purchased by acquirer) 

10. Damages on compensation received for personal or professional injury and compensation for mis-sold personal pension schemes 

11. Life insurance policies (unless purchased by a third-party) 

12. Shares in a Venture Capital Trust (Chapt.6) 

13. Investments held either in an Individual Savings Account (ISA) or a Child Trust Fund (Chapt.60 

2012-13, the max capital allowance of an ISA was capped at £11,280. Notes interest and dividends arising from ISAs are exempt from income tax. Capital gains (and losses) arising from ISAs are exempt from CGT. 

Notes 2 types of ISA: 

1. Cash ISA is deposited with a bank or building society and is held in a savings account. 

2. Money investment in a stocks & shares ISA is used by the ISA provider to acquire stocks & shares on the saver’s behalf. 

Venture Capital Trusts 

A Venture Capital Trust (VCT) is a company which is approved as such by HMTC. The main conditions which must be satisfied before IMRC approval can be obtained are as follows: 

1. The company’s ordinary shares must be listed on an EU stock exchange 

2. Its income must be derived wholly or mainly from shares and securities and no more than 15% of this income may be retained by the company 

3. At least 70% of its total investments must consist of “qualifying holdings” and at least 70% of these holdings must consist of “eligible shares”. Broadly, shares or securities owned by a VCT rank as qualifying holdings if they were newly issued to the VCT and are shares or securities of a company which would be a qualifying company for the purposes of the EIS (Enterprise Investment Scheme). Eligible shares exclude redeemable shares. 

4. No holding in any one company (other than in another VCT) can represent more than 15% of a VCT’s investment. At least 10% of a VCT’s investment in a company must be held in the form of eligible shares. 

Income tax relief is available to taxpayers who subscribe for newly-issued shares of a VCT. This takes the form of a tax reduction equal to 30% of the amount invested, subject to an investment limit of £200,000 per tax year. This reduction takes priority over the tax reductions relating to certain payments by the taxpayer (see Chapt.4) and the tax reduction relating to the MCA (see Chapt.3) To qualify for income tax relief, the taxpayer must hold the shares for a minimum holding period of at least 5 years. 

Dividends on the first £200,000 of VCT shares acquired in each tax year are exempt from income tax and any capital gain or loss arising from the disposal of these shares is exempt from capital gains tax, regardless of whether or not the shares have been held for the minimum holding period. 

Enterprise Investment Scheme (EIS) 

*Dividends on the scheme are subject to income tax in the usual way* 

a) Income tax relief is available to taxpayers who subscribe to newly issued ordinary shares in “qualifying cos”. Features include: 

– less than 250 employees 

– permanent establishment in UK and have gross assets not exceeding £15mn immediately before the share issuance, and not exceeding £16mn immediately after it. 

– the co. Must have raised no more than £5mn under the EIS and other venture capital schemes in the previous 12 months. 

b) A taxpayer’s EIS investments of up to £1mn in tax each year are subject to tax relief. 

c) Relief takes the form of a reduction in the amount of tax due to the taxpayer’s chargeable income equal to 30% of the amount invested in qualifying cos during the year. This reduction takes priority over the tax reductions relating to certain payments (Chapt.4) and MCA (Chapt.3) 

d) The taxpayer must not be connected to the co. At any time during the two years prior to the date of the investment and the three years following the date. Broadly speaking, an individual is connected with a company for this purpose if he or she is an employee of the co, or, together with associates, owns more than 30% of the co’s ordinary shares. 

5. Any capital gain arising on the eventual disposal of the shares is exempt from CGT but any loss arising on the disposal is eligible for relief, and the loss may be relieved: 

1. As a capital loss, in the usual way or 

2. Against the taxpayer’s total income for the year in which the loss is incurred after the prev. Year (see Chapter 12) 

When calculating the allowable loss, the shares are deemed to have been acquired for their issuance price, less the tax reduction obtained when shares were purchased. 

The taxpayer must retain the shares for a minimum holding period of at least 3 years or both the income tax and capital gains tax reliefs are lost. 

Seed Enterprise Investment Schemes 

The money raised by the new share issue must be spent within 3 years of the share issue. You must spend the money on either: 

a qualifying trade 

preparing to carry out a qualifying trade 

research and development that’s expected to lead to a qualifying trade — such as a project to make an advance in science or technology 

You cannot use the investment to buy shares, unless the shares are in a qualifying 90% subsidiary that uses the money for a qualifying business activity. 

1. Subject to certain conditions tax relief is available to investors who subscribe to ordinary shares in a co. which is carrying on a new business, although not one which started more than two years before the share issue.  

2. The co. Concerned must be an unlisted trading company with a permanent establishment in the UK, have fewer than 250 employees and its assets less than £200,000 before the SEIS investment is made. Also, the amount of all SEIS investment received by the company must not exceed £150,000 (correct as of last published edition of Alan Melville’s ‘Taxation’ 2012-13. 

3. During the period from the co’s incorporation until the third aniversary of the share issuance, the investor must not own more than 30% or more of the co’s share capital, or be an employee of the company other than the director. 

4. Tax relief takes the form of an income tax reduction equal to 50% of the amount invested up to a limit of £100,000 p.a. 

*As with the main EIS, any SEIS investments made during a tax year may be carried back and treated as if made in the previous years. 

Income from Trusts and Settlements 

A trust or settlement is an arrangement whereby property is held by persons known as trustees, for the benefit of persons known as beneficiaries. This fall into two main categories: 

1. If one or more persons are entitled to receive all the income which is generated by the trust property, then those persons are “life tenants” and the trust is a “trust with an interest in possession”. 

2. If there is no life tenant and all the trustees have the discretion to distribute as much or as little of the trust income to the beneficiaries as they see fit, the trust is referred to as a “discretionary fund”. 

Trusts with Vulnerable Benificiary 

This special tax regime ensures that the tax liability of this type of trust is reduced to the amount of tax that would have been payable if the trust income and gains had accrued directly to the beneficiary concerned. 

A “vulnerable beneficiary” may be either a disabled person or (in certain circumstances) a minor. Trustees who wish to claim the special tax treatment available under this regime must make an appropriate election to HM Revenue and Customs. Once made, such an election is irrevocable.