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Gain deferred through EIS becomes chargeable

Gain deferred through EIS becomes chargeableThe enterprise investment scheme (EIS) encourages individuals to invest money in shares issued by qualifying unquoted companies.A subscription for eligible shares of a qualifying EIS company is a tax efficient investment for the individual. For a summary of the tax reliefs that are available to the investor, see the Enterprise investment scheme tax relief guidance note.Any profit on the disposal of the EIS shares themselves is likely to be exempt from capital gains tax under the rules discussed in the Enterprise investment scheme tax relief guidance note.CGT deferral relief allows investors disposing of any asset to defer gains against subscriptions in EIS shares. This is discussed in detail in the Enterprise investment scheme deferral relief guidance note. Under EIS deferral relief (also known as EIS re-investment relief), deferred gains are set aside or ‘frozen’ until the occurrence of specified future events. The base cost of the replacement asset (ie the new EIS shares) remains unchanged. This frozen gain crystallises and becomes chargeable in the year of a ‘chargeable event’. Usually, this will be on the sale of the EIS shares. When the EIS shares are sold, there will sometimes be a gain on the shares themselves but, in addition, this disposal will also crystallise the frozen gain.This guidance note discusses the triggers which cause the capital gain deferred on the subscription for EIS shares to crystallise.Chargeable eventsThe following are chargeable events:•gift of the EIS shares, unless the gift is to the individual’s spouse

Gifting cash and assets to charity

Gifting cash and assets to charityThere are a number of tax reliefs available for gifts to charities. This note sets out the UK tax treatment of gifts to organisations established in part of the UK with purposes regarded as charitable under the law of England and Wales. See the Foreign charitable trusts and other foreign charities guidance note for information on gifts to other entities of a charitable nature.Gift aidGift aid is a way for charities or community amateur sports clubs to increase the value of monetary gifts from UK taxpayers by claiming back the basic rate of tax paid by the donor.See the Gifts of cash guidance note in the Personal Tax module for details of the conditions for a qualifying donation and the tax relief available to the individual.Record keepingA charity must maintain evidence to satisfy HMRC that a payment has been made and by whom. For full details of the records to be kept by a charity and the format in which the records may be stored, see the HMRC website.Planning issues for charities Charities should encourage all donors to make use of gift aid. If a charity receives a simple cash gift it should consider contacting the donor to ask whether it would be appropriate to send him a gift aid declaration. The charity can bank the donation in the meantime.Payroll givingPayroll giving (often called 'give as you earn') is a way for employees to make regular payments to charity directly from their salary. People who

Irrecoverable loan to trader

Irrecoverable loan to traderThis guidance notes sets out the provisions under which an irrecoverable loan to a trader may be treated as a capital loss.Tax relief for private loans to businesses which become irrecoverableOverviewWithout specific provision, irrecoverable loans to traders, such as might be provided by relatives to a trader, or by directors to companies, would not be available for tax relief as capital losses. This is because ‘simple debts’, that is debts held by the original lender, which are neither ‘debts on security’ or gilt-edged securities, are not chargeable assets for capital gains tax, see CG53408. This could be seen as a disincentive to business lending. A remedy is found in TCGA 1992, s 253. This section permits relief on a ‘qualifying loan’. Relief is available on a claim, and the agreed amount is then available for loss relief under the usual provisions. See the Use of capital losses guidance note.A qualifying loan is one is used in a trade. The trade for which the money is lent must not be one of money lending, and the debt must not be a ‘debt on security’ (ie a specified type of traded security, see below).Before 24 January 2019, the borrower needed to be UK resident. Loans to individuals, partners and companies can fall within the definition, but not ones to spouses / civil partners. Liabilities under loan guarantees may also qualify. Any later recovery of the loan / guarantee payment is treated as a capital gain up to an

Transfer of assets to beneficiaries ― legal, administration and tax issues

Transfer of assets to beneficiaries ― legal, administration and tax issuesThis guidance note outlines how assets are transferred to beneficiaries and the tax consequences that flow from the transfer. Whether a payment is income or capital is discussed in the Payments to trust beneficiaries guidance note.This guidance note is designed to give outline and background for accountants and tax advisers who deal with clients establishing trusts. It is not targeted at lawyers.This guidance note deals with the position in England and Wales only. See Simon’s Taxes I5.8 for details of the provisions affecting Scotland and Northern Ireland.Three issues to consider when transferring assets to beneficiariesTrustees may decide to exercise their powers by appointing assets to a beneficiary. There are three key issues that need to be considered when making or considering such a transfer:•how they must document the exercise of their powers•the formalities that should be complied with to transfer the asset•the tax consequences of the transferDocumenting the exercise of the trustees’ powersThe deed may require the exercise of the trustees’ power to be documented by deed. If no deed is required then the trustees decision and actions can be recorded by a written resolution. However, it is important that the correct documentation is prepared. If an appointment requires a deed but is made without one then the appointment is void.A deed should be used where the trustees require an indemnity for tax or other expenses.Preparing deeds is a reserved legal service and is regulated by

Calculation of corporate capital gains

Calculation of corporate capital gainsThis guidance note sets out the details of the calculation of a corporate chargeable gain, allowable capital losses and the restrictions on their use. It also covers disposals involving foreign currency, the interaction with capital allowances and wasting assets. A number of helpful practical points are also set out at the end of the note. For a general overview of corporate capital gains, including the scope of the charge, see the Corporate capital gains ― overview guidance note.Calculation of gainsA separate computation will be required for each asset that is disposed of during a company’s accounting period.For a proforma for calculating gains and losses, see Proforma ― corporate capital gains computation.To calculate the gain, it will be necessary to determine the following:•date of disposal•disposal proceeds•acquisition costs•allowable expenditure•if the asset was acquired before 1 January 2018, indexation allowance up to 31 December 2017Each of these elements is explained in detail below.The other guidance notes in this section provide further details with regard to specific issues as they apply to companies.Disposal dateGenerally, the date of disposal will be the date of the contract or, if it is a conditional contract, the date that the condition is satisfied. It should be noted that the rule under TCGA 1992, s 28 (which fixes the date of disposal for an unconditional contract as the date of the contract) only applies if the contract is completed (ie if the disposal actually takes place) and so it

Inbound migration

Inbound migrationReasons for an inbound migrationMigration describes the situation when a company changes its tax residence. A company which is not incorporated in the UK may become resident for tax purposes in the UK if it becomes centrally managed and controlled in the UK.The Government is currently consulting on whether or not to introduce a corporate re-domiciliation regime. The consultation closed on 7 January 2022 and the response is expected to be published by HMRC in due course.See the Residence of companies guidance note.In many cases, this may happen accidentally, but a well-advised company will avoid this by taking appropriate action to ensure that central management and control is kept outside the UK.However, in some cases, there may be tax benefits of a company becoming resident in the UK, for example:•to take advantage of a UK double tax treaty•to avoid the application of anti-avoidance rules such as the attribution of gains under TCGA 1992, s 3 (formerly TCGA 1992, s 13) ― see the Gains attributable to participators in non-UK resident companies guidance note ― or the transfer of assets abroad rules, see Example 1•to qualify under the subsidiary substantial shareholding exemption (TCGA 1992, Sch 7AC, para 3, which requires the investing company to be resident in the UK), see the Substantial shareholding exemption (SSE) ― overview guidance note which also sets out legislative changes in this area applicable from 1 April 2017

Non-domiciled and deemed domiciled beneficiaries

Non-domiciled and deemed domiciled beneficiariesIntroductionThe current tax position of non-domiciled and deemed domiciled beneficiaries of non-resident trusts is a complex landscape mapped by successive changes in the law. Before 2008, UK resident but non-domiciled beneficiaries were protected by a cost-free remittance basis option for income tax and, like non-domiciled settlors, they were exempt from attribution of capital gains within the trust. Major changes in 2008, 2017 and 2018 have incrementally brought non-domiciles into the regime under which UK domiciled beneficiaries of non-resident trusts are taxed.Changes introduced in 2008 scaled down some of the advantages of long-term non-domiciled status. The remittance basis charge was introduced to impose a cost on accessing the benefits of the remittance basis. See the Remittance basis ― overview guidance note in the Personal Tax module. At the same time, changes were made to the taxation of non-domiciled beneficiaries of non-resident trusts to bring their benefits from the trust within the scope of capital gains tax.Notwithstanding the imposition of a charge for the use of the remittance basis, public and political opinion continued to oppose the non-domiciled advantage. As a result, Finance (No 2) Act 2017 introduced the concept of deemed domicile for income tax and capital gains tax for the first time. Long-term residents of the UK, and those who were originally UK domiciled, can no longer benefit indefinitely from the remittance basis. Once they satisfy the conditions for deemed domicile, they become taxable on their worldwide income and gains.In conjunction with the introduction of

Statement of practice D12: full text

Statement of practice D12: full textNote: This is a verbatim copy of SP D12D12: PartnershipsThis statement of practice was originally issued by The Commissioners for HMRC on 17 January 1975 following discussions with the Law Society and the Allied Accountancy Bodies on the Capital Gains Tax treatment of partnerships. This statement sets out a number of points of general practice which have been agreed in respect of partnerships to which TCGA 1992, s 59 applies.The enactment of the Limited Liability Partnerships Act 2000, has created, from April 2001, the concept of limited liability partnerships (as bodies corporate) in UK law. In conjunction with this, new Capital Gains Tax provisions dealing with such partnerships have been introduced through TCGA 1992, s 59A. TCGA 1992, s 59A(1) mirrors TCGA 1992, s 59 in treating any dealings in chargeable assets by a limited liability partnership as dealings by the individual members, as partners, for Capital Gains Tax purposes. Each member of a limited liability partnership to which TCGA 1992, s 59A(1) applies has therefore to be regarded, like a partner in any other (non-corporate) partnership, as owning a fractional share of each of the partnership assets and not an interest in the partnership itself.This statement of practice has therefore been extended to limited liability partnerships which meet the requirements of TCGA 1992, s 59A(1), such that capital gains of a partnership fall to be charged on its members as partners. Accordingly, in the text of the statement of practice, all references to

BPR and changes to the business structure

BPR and changes to the business structureThis guidance note considers how changes to the business structure affect the BPR position of the assets concerned. It considers changes arising from incorporation, the formation of a partnerhsip, reconstruction, liquidation, winding up and otherwise ceasing to trade.IncorporationSole traders, partnerships or LLPs may choose to incorporate their business and to trade instead as a limited company. This may be for tax, liability or other reasons. See the Incorporation - introduction and procedure guidance note for further details about the tax effects of incorporation.There are different ways to incorporate and different tax effects follow from each. This note focusses on the BPR consequences of incorporation. The potential loss of the relief should be considered when choosing a method of incorporation.Incorporation for sharesAn incorporation for shares means that all of the assets and liabilities of the business are exchanged for shares in the new company. Any gains on those assets are rolled into the base cost of the shares. See the Capital gains tax implications of incorporation guidance note for further details of the CGT position. For BPR purposes the existing original business has been disposed of and a new asset has been received, being the shares in the new company. To qualify for BPR before holding the shares for more than two years the taxpayer will need to rely on the replacement property provisions. These provide that where new relevant business property replaces other relevant business property and they have been held for a

Non tax-advantaged share option schemes

Non tax-advantaged share option schemesSummaryAs with any other discretionary option plan, a non tax-advantaged share option plan involves the granting of a specific number of options to an individual. These options provide that the individual can, at an agreed date or point in time, acquire a given number of shares (the underlying shares) for a fixed price. These share schemes used to be known as ‘unapproved’ share option plans.Given that there is both no up-front cost to acquiring the options and no requirement for the individual to pay over any monies unless the underlying shares increase in value, there is little risk attached to the receipt of options. As a result, the tax treatment and tax rates applicable will often appear to be very similar to cash bonuses.Key considerationsGrant of optionsThe terms of the options need to be set out in a suitable legal document known as ‘the Rules’. The Rules govern all pertinent matters between the company and employee and, given the tax complexities that can occur in such arrangements, a suitable and up to date precedent should be obtained.One of the key terms is the price that the individual has to pay to acquire the share, known as the exercise price. As no income tax charge arises when the non tax-advantaged options are granted, no matter the exercise price, the exercise price can be set at any figure from zero upwards. Under a non tax-advantaged plan, there is no limit as to how many options are granted.