As part of this years budget, the chancellor unveiled plans to increase the tapered annual allowance threshold by £90,000. The tapered allowance, initially introduced from 6th April 2016 saw the annual allowance reduce from £40,000 to £10,000 for those with income levels of £110,000 (reaching threshold level), and £150,000 to £210,000 (reaching adjusted annual income level).

From April 2020, both the threshold and adjusted incomes will rise by £90,000 to £200,000 and £240,000, respectively. For individuals with total incomes of more than £300,000, the annual allowance will gradually fall from £10,000 to only £4,000, and so in short, the contribution will be limited to £4,000 for those earning in excess of £312,000.

A welcome change which means that heirs will pay less tax on homes inherited from direct relatives from April 6th. Currently inheritance tax is set at 40%, but individuals will be able to pass on £175,000 worth of property tax fee – up from £150,000 in 2019-20.

The first £325,000 of an individual’s estate is already tax-free, and the £175,000 threshold for homes left to descendants is in addition to this. This takes the inheritance tax thresholds for individuals’ estates in 2020-21 to a maximum of £500,000. However, married couples and those in civil partnerships can pool their individual allowances, taking the total exemption to £1,000,000 in 2020-21.

This relief is tapered for individuals who pass on properties worth more than £2M.

In the Chancellors debut budget which was delivered on March 11th, he advised of a change regarding claiming Entrepreneurs Relief. The change, seen as a major shake-up, which limits the tax break available to those selling their businesses. Under the revamp, business sellers will pay 10% tax on lifetime gains of up to £1m, compared with the previous upper limit of £10m.

Above £1m, business owners will be charged standard capital gains tax rates, which is 20% for higher rate taxpayers.

Following the UK’s departure from the EU, Chancellor Rishi Sunak presented the 2020 Budget against a backdrop of economic uncertainty caused by the spread of the coronavirus.

We have put together a PDF which provides an overview of the key announcements arising from the Chancellor’s speech which we trust you will find useful

Budget 2020 summary

The Internal Revenue Service has recently announced new procedures that will enable certain individuals who relinquished their U.S. citizenship to come into compliance with their U.S. tax and filing obligations and receive relief for back taxes.

The new Relief Procedure only applies to individuals who have not filed US tax returns as US citizens or residents, owe a limited amount of delinquent US taxes and have net assets of less than $2 million. Relief can only be obtained by individuals who were non-wilful with their past compliance failures. This is common for taxpayers who have lived outside the US for the majority of their lives and were unaware of their US tax filing obligations.

Individuals that qualify on this basis must file outstanding US tax returns for the five years preceding and their year of expatriation. If the taxpayer’s liability does not exceed a total of $25,000 for the six years, the taxpayer does not have to pay any US taxes. The aim of these procedures is to provide certain former citizens with tax relief. Penalties and interest are not assessed on individuals who qualify for this relief.

The IRS are yet to set a specific termination date and will announce this prior to ending the procedures. Individuals who relinquished their U.S. citizenship any time after March 18, 2010, are eligible so long as they satisfy the other criteria of the procedures.

Estates, trusts, corporations, partnerships and other entities are not entitled to use these procedures as it is only available to individuals.

Relinquishing U.S. citizenship and the tax consequences that follow are serious matters that involve irreversible decisions. Taxpayers who relinquish citizenship without complying with their U.S. tax obligations are subject to the significant tax consequences of the U.S. expatriation tax regime.

Please feel free to contact us should you have any queries regarding the above and we would be delighted to assist you.

The IR35 ‘off-payroll’ rules will be extended to the private sector from April 2020 onwards, directly affecting many contractors and self-employed individuals who carry out consulting work under the umbrella of a one-person limited company.

You may be affected by these rules if you are:

1. a worker who provides their services through their intermediary
2. a client who receives services from a worker through their intermediary
3. an agency providing workers’ services through their intermediary

If the rules apply, tax and National Insurance contributions must be deducted from fees and paid to HMRC directly.

From 6 April 2020:

1. All public sector authorities and medium and large-sized private sector clients will be responsible for deciding if the rules apply.
2. If a worker provides services to a small client in the private sector, the worker’s intermediary will remain responsible for deciding the worker’s employment status and if the rules apply.

If you require assistance with either of these issues or any other matter, please contact your normal adviser at Frontier.

HM Revenue & Customs have collected around £325m and £185M in annual allowance and lifetime charges respectively for the 2017-18 tax year according to Hargreaves Lansdown. Ordinarily, the pension contribution allowance is £40,000 each year tax-free, however, this is reduced to ultimately to £10,000 for those with incomes of £110,000 or more. The lifetime allowance currently is £1.055M

Greater awareness needs to be placed on the contribution that you and your employer both make because pension charges kick in as soon as you are over the threshold and it would be too late to rectify once the tax year has ended. Therefore, we urge you to plan your pension contribution from a tax perspective for the years going forward and ensure you are aware of the relevant contributions ideally at the beginning of the year. Although carrying out a review now would be sensible.

As mentioned, there has also been a spike in the number of people breaching their lifetime allowance. Therefore, individuals with pensions funds which are likely to exceed the lifetime allowance by the time they retire should consider a review of their pension arrangements and contributions.

It may be advisable therefore to review both your pension contributions and value of your pensions to ensure you do not suffer any unexpected pension charges.

Tax practitioners and taxpayers alike have long struggled to determine whether virtual currency, aka cryptocurrency, is reportable for purposes of FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

Virtual currencies have several simultaneous properties that make them challenging for practitioners and regulatory bodies to classify.

The AICPA Virtual Currency Task Force reached out to Treasury’s Financial Crimes Enforcement Network (FinCEN) to help practitioners answer this question. FinCEN responded that regulations (31 C.F.R. §1010.350(c)) do not define virtual currency held in an offshore account as a type of reportable account. Therefore, virtual currency is not reportable on the FBAR, at least for now. This may change in the future, especially considering the influx of stable coins.

One aspect of the new regime that has been the subject of much debate is that, from 6 April, a tax charge will arise on gains on disposals by non-residents of interests in entities that themselves hold UK real estate. This so-called “indirect disposal” charge will only apply to disposals of interests in “property rich” entities. This will be the case if:

• at the time of disposal, at least 75% of the value of the interest (e.g. shares) sold is derived from UK land. This test is applied to the gross-asset value of the entity in question, using the market value of the assets at the time of disposal; and
• the non-resident making the disposal holds at least a 25% interest in the entity.

There will be a “trading” exemption so that (broadly) a disposal of an otherwise “property rich” entity by a non-resident will not be caught by the new tax charge if the UK land held by the entity is used in the course of a trade during the 12 months prior to the disposal, and immediately
after. This is likely to benefit hotels, care homes and retailers.

The Finance Act 2019 has greatly extended the territorial limits of UK tax where capital gains are concerned. Non-resident persons are now taxable not only on UK residential property gains, but also on UK commercial property gains. However, the most radical aspect of the FA 2019 is the introduction of new rules allowing non-resident persons to be taxed on gains realised on the disposal of assets that are not themselves UK land, but derive some or
all their value from UK land.

Non-residents have for some time had an advantage over UK residents when it comes to the taxation of UK commercial real estate, because unlike most other major jurisdictions the UK does not exercise its full taxing rights
as afforded by international tax rules.

The government now attempts to ‘level the playing field’.

From 6 April 2019, a single UK tax regime will apply to sales of both residential and commercial UK real estate by non-residents, comprising

1. a new UK tax charge for gains on “direct” sales of UK real estate; and
2. a new UK tax charge for gains on “indirect disposals” of UK “property rich” interests. This will bring within the scope of UK tax disposals by non-residents of certain companies, partnerships and unit trusts holding UK real estate.

The applicable rate of UK tax will be 19% (Falling to 17% from April 2020) for non-resident companies caught by the new rules and, for non-resident individuals and others, up to 20% (in the case of commercial property) and up to 28% (in the case of residential property).

The new tax charge(s) will in each case only apply to gains arising since 6 April 2019 (i.e. property held at that date will be rebased to its current market value).