Weekly Tax Update - 7 March 2016

1. GENERAL NEWS

   1.1 3% charge on additional dwellings in Scotland

   Amendments have been proposed to the draft land & buildings transaction tax (LBTT) legislation concerning the extra 3% charge on second homes.

   The amendments provide for the following:

   The extra charge only applies if the chargeable consideration exceeds £40,000. In determining whether a buyer owns more than one dwelling, dwellings in Scotland or elsewhere bought for investment or dealing purposes are excluded. This means that a person owning only buy-to-let properties will not face the additional 3% charge on the purchase of their first dwelling which is not bought for investment or dealing purposes. Subject to a claim, the 3% extra charge will not apply to purchases of six or more dwellings in a single transaction. Special rules apply for trustees, personal representatives and beneficiaries, including liferenters. The ability to amend an LBTT return to recover the extra 3% charge if you sell your previous main residence within 18 months of acquiring the new main residence is to be permitted only if the buyer submits a land transaction return in respect of the new purchase. The SDLT consultation document at section 2.16 had commented that the extra 3% charge will not apply to non-residential property and that the current treatment of mixed use property as non-residential will not change. In contrast, the (Scottish) LBTT legislation at para 4(3)(b) of Sch2A provides that so much of the consideration on a just and reasonable apportionment as is attributable to the acquisition of an interest in a dwelling, is subject to the extra charge.

   The SDLT consultation also commented at paragraph 2.20 that the first purchase of a dwelling by a company or collective investment vehicle would be subject to the extra 3% charge. The LBTT legislation appears to extend that rule to individual buyers who purchase the property for an investment or dealing business. This is not, however, in an initial version of the draft guidance.

   It is understood the Scottish rules are intended to operate differently from the SDLT rules operational for the rest of the UK in some respects.

   www.scottish.parliament.uk/S4_Bills/Land%20and%20Buildings%20Transaction%20Tax%20(Amendment)%20(Scotland)%20Bill/SPBill85AS042016.pdf

   www.scottish.parliament.uk/parliamentarybusiness/Bills/96000.aspx

   1.2 House of Lords Economic Affairs Committee Report on the Draft Finance Bill 2016

   The Committee looked in detail at three areas of the draft Bill: the clauses reforming the taxation of savings and dividends; those providing new powers for HMRC to issue Simple Assessments of an individual's tax liability; and those establishing the Office for Tax Simplification (OTS) on a statutory basis. It considered each of these from the perspective of how far they simplify the tax system and their impact on the compliance burdens of taxpayers.

   The Report states that forthcoming changes to the taxation of savings and dividends are:

   complex; confusing; and poorly communicated. The Lords Committee said that HMRC's communications strategy was 'inadequate' and that there are concerns about:

   communication: important changes to the taxation of savings and dividends will come into effect in a matter of weeks. Taxpayers are unaware of this and should be notified directly of the changes. HMRC's current communications strategy is inadequate. complexity: the complexity of the tax system and compliance burden placed on individual taxpayers is growing. The Government must demonstrate how it is delivering a simpler tax system. consultation: the consultation required by the 'new approach' to tax policy making is not being carried out consistently. confusion: the absence of any roadmap for changes to the taxation of savings and dividends results in confusion and hinders taxpayer's ability to plan for the longer term. The Committee also commented on the introduction of Simple Assessment and made some recommendations for HMRC to improve communications around this.

   The Report also called on the Government to provide a comprehensive assessment of the impact on businesses and individuals of the longer-term move to digital accounts and that HMRC must take responsibility for plans to educate and support taxpayers.

   The Committee welcomed the move to put the Office of Tax Simplification on a statutory basis. It recommended that the OTS should be given a bigger role in the design of tax policy and greater resources to support its important work.

   www.parliament.uk/business/committees/committees-a-z/lords-select/economic-affairs-finance-bill-sub-committee/publications/

2. PRIVATE CLIENT

   2.1 Denial of entrepreneurs' relief on a disposal of shares

   A recent First-tier Tribunal (FTT) case has highlighted the need to be an employee at the date of disposal when selling a 5% plus interest in shares in order for entrepreneurs' relief to apply. The situation arose because a departing director ceased employment before the company's approval of the arrangements to buy back his shares.

   ...