Weekly Tax Update - Monday 3 June 2013

1 General news

1.1 HMRC organisation

Information has been published on HMRC's organisation structure as at 30 September 2012 and 31 March 2013 including remuneration information.

www.gov.uk/government/publications/senior-posts-in-hmrcs-organisation-structure

2 Private client

2.1 Collective investment schemes and switches between funds

Currently a 'switch' of units within the same sub-fund of a collective investment scheme can be made without triggering a capital gains tax event if certain conditions apply.

One of the occasions is where an investor switches between different classes of units in the same sub-fund of an authorised unit trust umbrella should both the old units and the new units provide rights to participate in the same separately pooled part of the scheme property. This is referred to in the HMRC manual at CG57701 with a cross reference to an article in Tax Bulletin 28, published in April 1997, which set out the general background and legislative history to this area.

There are two practical issues in how this is applied when the conditions are likely to be in point. The industry use the terms 'transfers' and 'switches' to cover both 'switches' between units in the same fund/sub-fund and transfers between different funds/sub- funds. Added to this is the complication that where units within the same fund/sub-fund could be 'switched' without a CGT event, the fund manager often process switches and transfers in the same way with a disposal and reacquisition going through their books. This means that although a non-CGT triggering 'switch' might be possible the fund manager might not be able to deal with a 'switch' and even if they can they might still process it as a transfer.

As part of the ongoing consultation on a new tax-transparent vehicle to facilitate the new pooled 'master funds' structure under the UCITS IV Directive, the Government has been looking at introducing changes to clarify the CGT position for investors in collective investment schemes under the TCGA 1992. In particular changes are being introduced to ensure that no gain will arise on an exchange of shares where the property subject to the scheme, and the rights of participants to share in the capital and income in relation to that property, remain the same both before and after the event. This is to apply to switches/conversions of share class within the same fund (not from one fund to another). It will not apply to switches from one fund to a different fund (or to a different sub-fund). The amended legislation will appear as a new s103F TCGA 1992.

A complication with switches and the internal accounting is with equalisation. The proposed regulations recognise this so that where section s103F applies then any part of the next distribution, or amount of reported income, that is paid out or reported as an equalisation amount in respect of the new holding of units (or converted units) shall be treated for the purposes of the participant's tax, not as a repayment of capital, but as a distribution of income.

www.legislation.gov.uk/ukdsi/2013/9780111537756/contents

2.2 SEIS frequently asked questions

HMRC has published a list of frequently asked questions concerning the Seed Enterprise Investment Scheme (SEIS).

One of the questions and answers listed is:

Q: So people who lend money to my company won't get tax relief?

A: No, they won't

It is not clear what this question is aimed at. Making a loan to an SEIS company does not on its own preclude the lender from subscribing for SEIS qualifying shares and getting relief. Nor should an individual be denied tax relief for interest on a loan used to lend on to an SEIS company (subject to the cap on income reliefs), provided the individual is either involved for the greater part of his time in working for the company, or has a material interest in the company (more than 5% of the ordinary share capital). However an employee of an SEIS company is not entitled to SEIS relief unless they are a director and do not possess (nor are entitled to acquire) more than 30% of the company (ordinary share capital, voting power or issued share capital).

www.hmrc.gov.uk/seedeis/faq.htm

2.3 High income child benefit matters

A form has been issued enabling taxpayers to authorise a tax adviser to act for them in relation to high income child benefit matters.

www.hmrc.gov.uk/forms/ch995.pdf

2.4 Statutory residence test - HMRC indicator tool

HMRC has issued a pilot version of its tax residence indicator (TRI) on the HMRC website. Once information has been entered into the tool, it will indicate a residence status at the end, and it will also give the option to print off the details entered so that a record can be kept.

Care should be taken when using the TRI in this pilot state, as the legislation upon which the TRI is built does not become law until it is given Royal Assent (expected Summer 2013). If the legislation is not passed by Parliament or there are substantial changes to the legislation, the results provided may not be accurate, even if the information entered is accurate. If the TRI is used before Royal Assent is given, then HMRC advise that you should not rely on the results to determine an individual's residence status.

HMRC further warns that, as a pilot version of the TRI, it may contain inaccuracies. An updated version of the indicator will be issued later in 2013 taking it out of pilot status.

www.hmrc.gov.uk/international/residence.htm

3 IHT and trusts

3.1 Consultation on simplifying IHT charges on trusts

HMRC has issued a consultation for comment by 23 August 2013 on simplifying the IHT charges on trusts and has identified the following areas for simplification:

Simplifying the calculation of IHT trust charges including the consideration of charges on certain 'death in service' pension schemes. The consultation re-examines the calculation of IHT charges under the current relevant property regime and proposes various ways in which the calculations can be simplified and made less onerous. It outlines proposals for ignoring historical information and non-relevant property to reduce the complexity involved in arriving at the tax due. HMRC proposes splitting the nil-rate band (NRB) between the number of settlements created by the settlor and using a rate of 6% for periodic and exit charges; Standardising the treatment of accumulated income. Where the trustees have not formally accumulated income arising in the trust, but that income has been retained for a long period, it can sometimes be difficult to agree whether or not the income has been accumulated. The consultation proposes a way in which the rules can be clarified; and Aligning filing and payment dates for ten yearly and exit charges with the Self Assessment framework. A common filing and payment date would ease the administrative burden on trustees and their advisers. Alignment would only apply to IHT periodic and exit charges. Aligning the reporting and payment dates with the Self Assessment regime may provide a suitable solution...