IOM Tax Solutions

 


IHT UK Residential Property and Close Companies

IHT on UK Residential property

A favourite wrapper for UK property was the use of an offshore Close company or structure to hold the property.  From 6 April 2017 this is unravelled, and in addition the availability of Debt to to reduce the HT charge has also been withdrawn. HMRC have offered no incentives or help in any potential unwrapping of existing structures.  The value of the company is to be attributed to the individual shareholders.

VAT Flat Rate Scheme

Effective from 1 April 2017 businesses must supply a minimum of 2% or £250 of their sales as goods to qualify for the reduced rate, or a modified 16.5% rate will be applied.  This is intoduced to attack consultancy workers who HMRC say are abusing the scheme.  In fact HMRC quite clearly set the rates up so only have themselves to blame.  This change will affet those who do not make a supply of goods with their services

Invoices raised normally plus 20% VAT

VAT paid calculated on Gross income at a flat rate

Capital goods scheme - VAT input allowed on singular purchase capital assets exceeding £2,000 (one invoice)

 

CAPITAL GAINS TAX UK RESIDENTIAL PROPERTY

Effective from 6 April 2016 Non resident individuals will be liable to capital gains tax on disposals of UK residential property after 6 April 2015.  There s a requirement to notify HMRC of any such disposals within 30 days of the disposal otherwise late return penalties can be applied in line with those applying to self assessment returns.

Non residents will have a range of computation methods available to them, not least being rebasing the value of the property to 5 April 2015.  Consequently one can only ever realise a gain if the value on sale is greater than the rebased value.  As things have transpired in a lot of instances to date (February 2018) property values have fallen since 2015.  One should note taht a loss can not be augmented with use of the rebased value, but other methods of calculation are available

NEWS

UK budget 2014

Consultaion on introduction of CGT for Non Residents

The UK are to introduce a capital Gains Tax charge on UK Residential property held by non residents.  The charge is to be introduced from  April 2015.  This is a  separate approach to the ATED charge which only applies to "expensive" Dwellings owned by  companies, but more details will be available in the 2015 Budget statement.  Changes will not take effect until April 2015 is welcome. Base cost for calculating property gains will be the date of introduction of CGT and not the date that the property was acquired.  It is likely taht the CGT charge will be extended to Enveloped dwellings not caught for CGT by ATED, unless an exemption applies.

 

The UK have introduced an extension to the Enveloped dwellings charge (ATED), which is a charge on residential accommodation owned via a company / entity and not commercially let. This charge previously only applied to properties over £2M but the value of properties to which this will now apply from has been reduced to £500,000.  Stamp duty of 15% is enforced immediately on any purchases and Capital gains tax on ATED related gains will be charged from 6 April 2016.  The annual charge scale rates are shown below.

Property value Annual tax applying (excluding indexed increase)
Over £500,000 to £1 million   (From 1 April 2016) £3,500
Over £1 million to £2 million (From1 April 2015) £7,000
Over £2 million to £5 million £15,000
Over £5 million to £10 million £35,000
Over £10 million to £20 million £70,000
Over £20 million £140,000

Downloadable Forms\HMRC ATED Guidance.pdf

IOM Budget 2014

As far as this year budget is concerned there’s no question that the Government is financially squeezed and looking to raise revenues rather than trimming its excesses.   The toilet tax is really a starting measure, I think, to cover the debts arising from the MEA debacle.  This will surely rise in the future. 

 From 6 April 2014 anti-avoidance legislation has been introduced targeting service companies contracting in the Isle of Man.  In principle this targets individuals who would otherwise be treated as an employee of the customer where it not for the individuals company in between them.  This will affect Computer consultants and the like who typically operate in such a manner.  The Age allowance has been reduced to £1,000, £2,000 for a married couple.  The Tax Cap has altered significantly.  From 6 April 2014 an election to pay £120,000 is now applied for five consecutive years.  This measure will stop persons dipping in and out of the tax cap year to year.

Budget 2013

An impotent budget as the Government continues to struggle to get to grips with its finances.  Allowances and deductions retained at the same level.

An introduction of a 10% rate of Tax for large retailers sees a certain amount of tax formerly bleeding from the Island potentially retained.

Service Companies are to be targeted and it will be interesting to see how  this does develop.  But IT contractors and the like are soon going to fall firmly within the target of the Tax Office.

 

 

July 2012

A Tax strategy consultation document has been released for completion by the public & business sectors. The document considers possible changes to the tax system, the most drastic of which addresses fundamental anomalies with the National Insurance system.  The consultation is open to all and the document can be found here. http://www.gov.im/lib/docs/treasury/incometax/consultations/taxstrategy1216.pdfA supporting information pack is also provided http://www.gov.im/lib/docs/treasury/incometax/consultations/informationpack.pdf .

IOMTS response to the Consultation will be published shortly.

April 2012

Practice notes 176/12 & 177/12

Creeping in under the cats feet so to speak after the budget are a couple of measures that will have far reaching effects for individuals (and companies) as far as filing and completing their tax returns is concerned.  For the forthcoming year it is essential  to ensure that your tax return is properly and fully completed.  If it is not then the Assessor will send it back to you and  if the return is not then corrected and resubmitted by the due date (6th October) a penalty will be charged despite the return initially being submitted on time. Also As the original return was incomplete, the fact that it was submitted before the due date will not be accepted as a reason for a penalty not to be charged.  In the past the Assessor has been fairly relaxed but this  announcement signifies a sea change in policy.  Taxpayers should be careful to ensure that each question of the tax return is answered completely and correctly.

It was formerly possible for all taxpayers to obtain an extension of time for submitting their returns which once requested allowed until 6th April.  This time extension is now only available to those taxpayers with complex tax affairs. If you fall into one of the listed complex groups your application is required to be made by 30th September. 

 

2012 IOM Budget:

Deductions

Relief on deductions restricted to 10%

Capital Gains Tax Double taxation -

IOM Tax Solutions letter to the Treasury Minister 3 March

   I am writing in connection with the recent budget and specifically the section “Taxed Foreign profits”contained within the Assessor’s practice note 174/12 titled Removal of Concessions.

Taxed Foreign Profits

Distributions made from profits taxed in another jurisdiction at a rate of more than 20% were also subject to a concessionary treatment under the distributable profits charge (DPC) and attribution regime for individuals (ARI) systems. Income of this type was excluded from the calculation of distributable profit and could be paid by the company as if it were a distribution of capital. While profits of this nature will continue to be excluded from the calculation of distributable profit for DPC and ARI purposes; from 21 February 2012 all distributions of such profits will be taxable as income in the hands of the shareholders. 

I would imagine that this is not the first correspondence that you have received in connection with this matter. As a result of the change,  Income taxed at 20% and received by an IOM d at 20% and received by the n.company will then be taxed again at 20% on distribution.  In order  to illustrate how inequitable this treatment is consider the treatment for Mr A, Manx resident who personally owns a property in the UK and Mr B who owns a property in the UK through an IOM Company. 

 Mr A pays UK tax at 20%.  In his IOM assessment he is charged  tax at 20% but receives double taxation relief of 20%.  The net result is 20% tax paid.  Mr B pays UK tax of 20%.  He makes a distribution of the profit.  This distribution is taxed on him personally giving rose to a further 20% charge.  In essence Mr B is liable to 40% Tax. There’s no hint of any tax avoidance, It just does not make any sense.  Not that tax ever does, but I think you can see what I mean.  I fully understand that a stricter approach is required with the removal of ARI  but I cannot understand, indeed I find it incomprehensible how this particular decision has been arrived at.

 Retrospective Taxation

Historically certain companies will have paid tax at the full rate and retained these profits.  They will also have paid the Government an annual registration fee, and professionals along the way.  They have paid the proper amount of tax, more in fact than you or I would have done as IOM residents if we received the income personally because they do not benefit from personal allowances.  The retained profits will be charged again at 20% on distribution despite them being already taxed.  It makes perfect sense that these should not be charged to tax as the Government has already received the proper amount of tax due.  In essence it is a form of retrospective taxation.  In order to remedy this anomaly a credit should be given to the taxpayer receiving the distribution equal to the tax suffered.

JUNE 2012

As a result of various representations the Tax office have rewritten the practice note. The general principles to be followed are that:
1. distributions by a corporate taxpayer of its accumulated income profits should be taxed when they are received by individual members;
2. distributions by a corporate taxpayer of its accumulated capital profits should not be taxed when they are received by individual members;
3. repayment of the par value of share capital and any share premium reserve of a corporate taxpayer should not be taxable distributions when received by individual members;
4. economic double taxation should in general not occur in the Isle of Man.
The Assessor will not accept claims to relate distributions to earlier accounting periods, or to vary the treatment of distributions made in respect of an earlier accounting period which have already been reported and settled. However, in cases of genuine uncertainty, the Assessor will be prepared to offer an opinion to the company or member; provided that all relevant facts are disclosed.
Company Winding Up or Dissolution
Under the Isle of Man Companies Acts there are a number of ways that a company can be wound up or dissolved; including winding up by a Court, voluntary winding up, dissolution by an officer or member or striking off by the Registrar.
Where a winding up, dissolution or striking off of a corporate taxpayer which commences after 21 February 2012 leads to a distribution, then the accumulated income profit element of this distribution will be subject to income tax.
Distributions of Capital Profits
Whilst capital profits may be distributed on a tax-free basis it is not appropriate that tax relief should effectively be given for capital losses. It is also essential to the fairness of the tax system that only genuine capital profits (i.e. gains on the disposal of assets that are capital assets for tax purposes) can be distributed on a tax-free basis.
Where a corporate taxpayer has an accumulated profit from disposals of its capital assets, these capital profits can be received by the members free of tax when distributed; but for tax purposes a distribution will be treated as made out of capital profits only if all income profits have been distributed first.
Tax Credits etc.
From the 2006/07 tax year onwards, economic double taxation on dividends received from Isle of Man corporate taxpayers. profits which have been subject to Manx income tax at 10%, or which have been subject to the distributable profits charge (DPC), is avoided via statutory tax credits.
Economic double taxation on dividends received from Isle of Man corporate taxpayers. profits which have been attributed to members under the provisions of the attribution regime for individuals (ARI) is avoided because distributions from that profit are not, statutorily, subject to further taxation.
Economic double taxation on dividends received from Isle of Man corporate taxpayers. profits accumulated in periods prior to 6 April 2006 will be avoided by providing a concessionary treatment that section 25A (3), Income Tax Act 1970, shall not apply, if agreed with the Assessor: and the tax credits resulting from this concessionary treatment will not be refundable.

Economic double taxation can also arise on distributions from corporate taxpayers where the underlying profit has suffered tax in other jurisdictions. If a full credit were to be given for the foreign tax, in most scenarios no Manx tax would then be payable on the distribution. The unilateral granting of a tax credit by the Isle of Man for tax paid in another jurisdiction has an effect on local tax revenue, and this issue will be subject to further consultation. In the interim, distributions made by Isle of Man resident corporate taxpayers from profits taxed in another jurisdiction at a rate of 20% or higher (or, for periods prior to 6 April 2010, 18% or higher) will, by concession, not be subject to further taxation. Note that such distributions will be included in the income of the recipient for the purposes of the personal allowance credit.
Ordering
Three forms of profit can be distributed at any time and without reference to the ordering system set out below. These are:
. profits certified as attributed in accordance with ARI;
. profits subject to DPC; and
. profits which have been subject to Manx income tax at the 10% rate.
In order to benefit from the concessionary treatment set out in this guidance, distributions will be treated as being made from accumulated profits in the following order.
For the purpose of the ordering process, profit reserves will be allocated to ¡°boxes¡±. A distribution will only be treated as being paid out of a box of a higher number if all of the lower numbered boxes are empty.
Box 1 Accumulated income profits which have not been taxed, attributed or subject to DPC.
Box 2 Accumulated income profits for the period of account forming the basis of the income tax assessment for 2005/06 or earlier, less any agreed capital profits and distributions already made from this reserve.
Box 3 Accumulated income profits of a resident corporate taxpayer which have suffered foreign tax at a rate of at least the Isle of Man individual higher rate applying in the period during which the profits arose.
Box 4 Accumulated capital profits.
Corporate taxpayers will be expected to provide a schedule setting out reserves and distributions (see also the .Monitoring. section below) and failure to do this will result in distributions being treated as made from Box 1.
Published Guidance
The Income Tax Division.s Guidance Notes relating to DPC, the pay and file regime for companies and ARI (numbers 36, 38 and 41, respectively) will be updated to take account of the changes outlined in this Practice Note. These updates will cover the treatment of losses, estates, trusts and foundations.
Monitoring and Protecting the Isle of Man Revenue
The Assessor has been charged with monitoring the flow of revenue carefully during the transition period following the repeal of ARI, and for this reason, corporate taxpayers will be asked to provide additional information with their tax returns. This information will comprise a declaration of certain reserves at the beginning and end of the accounting period, distributions made and the reserves from which the distributions have been made. Further details will be made available in due course; although it is expected that this information will be in respect of the profits mentioned in the .Ordering. section above.

If for any reason the pattern of revenue collection changes more than had been estimated in relation to the abolition of ARI, Treasury may take further action.
In cases where, in the opinion of the Assessor, artificial arrangements have been used to avoid or reduce the liability of any person to income tax, the Assessor will consider counteracting those arrangements through the application of Schedule 1 of the Income Tax Act 1980.

 

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UK TAXATION OF UK PROPERTY OWNED BY IOM COMPANIES

STAMP DUTY AVOIDANCE

Effective 6 April 2013 an annual charge on UK residential properties worth in excess of £2M and owned by non resident non natural persons, Not Trusts, in other words companies

The  annual charge will be set at £15,000 pa for properties valued at between £2 - 5 million; £35,000 for properties valued at between £5 - 10 million; £70,000 for properties valued at between £10 - 20 million; rising to £140,000 for properties worth more than £20 million. The annual charge will be indexed to the Consumer Price Index (CPI) and increased in April each year based on the CPI of the previous September. This will commence from the second year of charge (namely 1 April 2014).
 

A 15% Stamp duty charge on acquisition of properties in excess of £2M by offshore companies

Capital Gains Tax charge on disposal of UK properties valued greater than £2M and owned by non natural persons

An offshore company still remains a great vehicle for the small/medium investor where properties are of a lower value.

This subject is currently open for consultation over Summer 2012.

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