Weekly Tax Update - May 11th

1. General news

   1.1 General election results and tax policy

   With the general election results in, we have a better idea of the tax policies that will be applied over the coming five years. The Conservative party success means that the new Government intends to introduce a triple lock on tax rate rises for the main taxes (though no clarity yet over thresholds), additional inheritance tax nil rate band and further tackling of evasion and aggressive avoidance.

   An additional Finance Bill is expected before the summer recess. The new Government has already confirmed that it expects to legislate some of these items within the first 100 days of the new Parliament. It remains to be seen which issues will make the cut of the next Finance Bill, but this may include issues such as the reduction in pension contribution allowances and measures dropped from the last 'short' Finance Act and the 'dipping into bank accounts' legislation including clarity over whether the safeguards will now be put into primary legislation.

   Measures around devolution of taxes to parts of the UK are likely to continue apace, especially given expected pressure from SNP, following their success in Scotland. Measures such as the mansion tax and bans on UK taxes being used to indirectly fund bullfighting may not see the light of day, although a review of business rates and potentially other property taxes are on the cards.

   The Smith & Williamson summary of the tax policies included in the Conservatives' manifesto and related pledges will stay on our website for a little longer, while firm proposals are formed by the Government.

   www.smith.williamson.co.uk/election-2015/political-party-tax-proposals

   1.2 Professional conduct in relation to tax

   The professional bodies have published an updated version of their guidance on professional conduct in relation to tax. It replaces the version issued in February 2014 and has new material on electronic filing, decisions of Courts and Tribunals, DOTAS, POTAS, Accelerated Payments and Follower Notices as well as an expanded chapter on tax planning.

   The professional bodies have indicated that they intend to hold further discussions with HM Treasury and HMRC about further development of the guidance.

   www.tax.org.uk/Resources/CIOT/Documents/2015/05/PCRT%20final%20CIOTATT%202015.pdf

   1.3 Time limits for appealing Scottish Tax Tribunal decisions

   From 1 June 2015 the time limit for appealing a First or Upper-tier Scottish Tax Tribunal decision will be 30 days from the relevant date. This covers appeals relating to the new Scottish taxes, such as the Land and Buildings Transaction Tax. The relevant date is the later of:

   a.the date on which the decision appealed against was sent to the appellant; or

   b.the date on which the statement of reasons for the decision was sent to the appellant.

   The time limit for appealing First-tier Tax Tribunals in England and Wales is 56 days.

   www.legislation.gov.uk/ssi/2015/184/pdfs/ssi_20150184_en.pdf

   www.legislation.gov.uk/ssi/2015/184/pdfs/ssipn_20150184_en.pdf

   1.4 Commissioner Moscovici's speech on the way forward for EU tax

   Commissioners Moscovici gave a speech on 29 April setting out a road map for taxation in Europe based on "fairness, transparency and a truly single market from a taxation point of view".

   On transparency he proposed:

   "all Member States will have to share details with each other on all of their cross-border tax rulings, systematically, every 3 months."

   He also commented:

   "...the Commission has announced that we will bring forward a new Action Plan before the summer which will refocus our efforts on ensuring that profits in the Single Market are taxed where the value is generated."

   One point in the related action plan will be a re-launch of the Common Consolidated Corporate Tax Base (CCCTB), aimed at harmonising the tax base for companies operating across borders in the EU and allowing businesses to consolidate their taxable profits across Member States. In addition, the Action Plan will build on global developments, in particular the work of the OECD on Base Erosion and Profit Shifting (BEPS).

   http://europa.eu/rapid/press-release_SPEECH-15-4900_en.htm

2. Private client

   2.1 When are scrip dividends treated as capital?

   The First-tier Tribunal (FTT) has concluded that a scrip dividend received by a settlement was capital rather than income, and therefore within the scope of the computation for an exit charge before the first ten year anniversary under IHTA 1984 s.69(5)(c). This case followed the Upper Tribunal (UT) decision in Gilchrist ([2014] UKUT 0169 (TCC)) that it was not bound by the 2009 High Court decision in Pierce v Wood (EWHC 3225).

   The Mrs M Seddon Second Discretionary Settlement was established on 5 March 1999 with 5 £1 ordinary shares in Seddon Seed Feeds Limited (SSL) worth £200,000. On 30 January 2000 the Trustees received a scrip dividend of 187,500 1p preference shares in SSL. These preference shares were sold two days later for a consideration of £768,194 in cash and loan notes from the purchaser of £614,556. The value of the scrip dividend was £1,382,750.

   On 1 March 2009, a few days before the 10th anniversary of the commencement of the settlement, the Trustees made a distribution worth £1,260,361 to certain beneficiaries. The trustees maintained that the scrip dividend was income in the hands of the Trustees and had not been accumulated, whereas HMRC maintained it was capital and that an exit charge of £54,640 arose.

   The UT in Gilchrist had concluded the decision in Pierce v Wood was based on an incorrect...