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by Frontier Group
January 2, 2019
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News & Reports

U.S. Internal Revenue Service Updates Voluntary Disclosure Procedures

The U.S. Internal Revenue Service has finally updated its voluntary disclosure procedures following the closure of the Offshore Voluntary Disclosure Program (the “OVDP”) earlier this year. The updated procedures will apply to all voluntary disclosures made after September 28, 2018.

Prior to its closure, the OVDP provided non-compliant taxpayers with a fixed civil penalty framework and protection from criminal prosecution for failing to file correct and complete U.S. Federal tax returns and non-U.S. financial account disclosures (typically referred to as “foreign bank account reports” or “FBARs”). While the updated procedures will continue to provide non-compliant taxpayers with protection from criminal prosecution, the civil penalty framework is no longer fixed and the overall cost of making a disclosure will likely be significantly higher.

While the exact details of the updated procedures have not been finalized, a number of key changes have been introduced. These changes include: (i) the taxpayer must now submit an explanatory narrative providing the facts and circumstances related to the taxpayer’s noncompliance; (ii) the disclosure period is now generally six years (rather than eight years under the OVDP); and (iii) the civil penalty framework is now generally based on the Internal Revenue Code’s existing fraud penalties and willful FBAR penalties, which can be as high as 75% of the tax underpayment and 50% of the highest balance of undisclosed non-U.S. financial accounts.

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by Frontier Group
January 2, 2019
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News & Reports

Foreign Mortgage Repayment and Exchange Rate Gain

This is an issue that is very current and which people should pay attention to, with the strength of the dollar against sterling. Americans who have non-US dollar mortgages and change the terms of their mortgage or make capital repayment on their mortgages, such transactions are deemed a taxable event for US tax purposes and may result in a taxable foreign exchange gain.

Remortgage: The US taxpayer has a mortgage moves from lender “A” to lender “B” as the mortgage rates are more beneficial.

Capital Repayment: The US taxpayer decides to pay off a lump sum of the mortgage so that they have little or no debt on their property.

In both circumstances, the following factors need to be considered from a US tax perspective:

• Value of the mortgage, in US dollars, on the date the mortgage commenced and the

• Value of the mortgage, in US dollars, at the time of the remortgage or repayment of capital is made.

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by Frontier Group
January 2, 2019
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News & Reports

Rebasing election

• If you have paid the remittance basis charge in any of the previous years you can rebase your foreign assets as of 5 April 2017. If you have not paid the RBC, there may still be an opportunity to rectify this.

• The assets must have been located outside the UK throughout the period from 16 March 2016 or, if later, the date you acquired the asset, to 5 April 2017

• If necessary we can amend your 2016/17 Return to claim the remittance basis and pay the charge in order to enable the rebasing opportunity

• Please note this election is not applicable if you become deemed domiciled after 6 April 2017

• In addition, you will be able to make tax-free remittances of any gains realized on disposals on non-UK assets after 5 April 2017 to the extent such gains are attributable to the pre-April 2017 period depending on your residence position prior to April 2017.

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by Frontier Group
October 30, 2018
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News & Reports

Frontier Group Budget Report 2018

The Chancellor has now revealed the Autumn 2018 Budget, which is the last Budget prior to Brexit.

Click here to view and download Frontier Group Budget Report 2018

Key Highlights

  • Higher Rate Band threshold will not kick in till £50,000 which takes into consideration the increased Personal Allowance for 2019/20 of £12,500
  • The Capital Gains exemption will increase to £12,000 from 2019/20 with the rates staying the same at 10% and 20%
  • IR35 private sector reprieve until 2020 for “medium and large businesses”
    Entrepreneurs’ Relief minimum qualifying period has been extended to 2 years taking effect from disposals on or after 6 April 2019
  • Non-UK Resident companies that carry on a UK property business, or have other UK property income, will be charged to Corporation Tax
  • Payment On Accounts for Capital Gains Tax will be introduced for disposal of residential property. For UK Residents this will have effect from 6 April 2020 and for Non-UK Residents this will take effect from 6 April 2019
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by Frontier Group
September 28, 2018
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News & Reports

Tax Law Changes under the Tax Cuts and Job Act

On December 15th, the congressional conference committee charged with reaching a consensus on the competing versions of the Senate and House tax reform bills released its conference report containing the language of the final bill. The final bill, titled Tax Cuts and Job Acts (TCJA), is expected to be approved by both chambers next week and signed into law by the end of the year. The chart below highlights the key aspects of the final bill.

We will provide regular updates on the tax reform bill and anticipate providing live seminars on the topic starting in January, so please stay tuned.

INDIVIDUAL

Topic Current Law Final Bill
Rates[1] – Single 10% — $0 – $9,325
15% — $9,326 – $37,950
25% — $37,951 – $91,900
28% — $91,901 – $191,650
33% — $191,651 – $416,700
35% — $416,701 – $418,400
39.6% — over $418,400		 10% — $0 – $9,525
12% — $9,526 – $38,700
22% — $38,701 – $82,500
24% — $82,501 – $157,500
32% — $157,501 – $200,000
35% — $200,001 – $500,000
37% — over $500,000
Rates – Married Filing Jointly & Surviving Spouses 10% — $0 – $18,650
15% — $18,651 – $75,900
25% — $75,901 – $153,100
28% — $153,101 – $233,350
33% — $233,351 – $416,700
35% — $416,701 – $470,700
39.6% — over $470,700		 10% — $0 – $19,050
12% — $19,051 – $77,400
22% — $77,401 – $165,000
24% — $165,001 – $315,000
32% — $315,001 – $400,000
35% — $400,001 – $600,000
37% — over $600,000
Rates – Married Filing Separately 10% — $0 – $9,325
15% — $9,326 – $37,950
25% — $37,951 – $76,550
28% — $76,551 – $116,675
33% — $116,676 – $208,350
35% — $208,351 – $235,350
39.6% — over $235,350		 10% — $0 – $9,525
12% — $9,526 – $38,700
22% — $38,701 – $82,500
24% — $82,501 – $157,500
32% — $157,501 – $200,000
35% — $200,001 – $300,000
37% — over $300,000
Rates – Heads of Households 10% — $0 – $13,350
15% — $13,351 – $50,800
25% — $50,801 – $131,200
28% — $131,201 – $212,500
33% — $212,501 – $416,700
35% — $416,701 – $444,500
39.6% — over $444,500		 10% — $0 – $13,600
12% — $13,601 – $51,800
22% — $51,801 – $82,500
24% — $82,501 – $157,500
32% — $157,501 – $200,000
35% — $200,001 – $500,000
37% — over $500,000
Capital Gains By holding assets for one year or less, any capital gain will be considered short-term and will be taxed at ordinary income tax rates. By holding assets for one year or more, any capital gain will be considered long-term and is taxed at rates up to 20% No significant change, except the brackets will be adjusted
Standard Deduction[2] Single & Married Filing Separately – $6,350
Married Filing Jointly & Surviving Spouse – $12,700
Heads of Households – $9,350		 Single and Married Filing Separately – $12,000
Married Filing Jointly & Surviving Spouse – $24,000
Heads of Households – $18,000
Personal Exemption $4,050 per person in each household Eliminated
Child Tax Credit[3] $1,000 per child with modified adjusted gross income phase outs at $75,000 for single and heads of households filers; $55,000 for married filing separately; and $110,000 for married filing jointly. The credit is refundable for certain filers. $2,000 per child with modified adjusted gross income phase outs at $200,000 for single, and heads of households, and married filing separately filers and $400,000 for married filing jointly. Up to $1,400 is refundable for certain filers.
Medical Expense Deduction[4] Medical expenses deductible in excess of 10% of adjusted gross income. Medical expenses deductible in excess of 7.5% of adjusted gross income.
State and Local Tax Deduction Individuals may deduct state and local property, income, and/or sales tax in excess of the standard deduction. Deductions for state and local taxes will be capped at $5,000 for single filers and married filing separately and $10,000 per year for married filing jointly. Any 2018 taxes that are pre-paid during the 2017 tax year will be credited toward the $10,000 limit beginning on January 1, 2018.
Mortgage Interest Deduction Individuals may deduct mortgage interest on purchases of up to $1,000,000 for the primary residence plus one additional home; individuals may also deduct up to $100,000 of equity debt The mortgage interest deduction will be capped at purchases of $750,000 for mortgages taken out after December 15, 2017; deductions for equity debt will be eliminated.
Casualty Losses Individuals may deduct casualty losses (including fire, theft, and other property loss) in excess of 10% of adjusted gross income, plus $100 per casualty event. Casualty losses will be allowed as a deduction only to the extent the casualty event is attributable to a federally-declared disaster.
Miscellaneous Itemized Deductions Certain miscellaneous deductions (including unreimbursed business expenses, tax preparation fees, and other expenses) are permitted in excess of 2% of adjusted gross income. Eliminated
Moving Expense Deduction Taxpayers may deduct moving expenses when moving due to new employment that is located at least 50 miles further than the taxpayer’s previous place of employment from the taxpayer’s residence. Eliminated
Alimony Deduction Alimony payments are deductible by the payor as an above-the-line deduction. Eliminated for divorce instruments executed on or after January 1, 2019 or modified after such date if the modification expressly states that this rule applies.
Alternative Minimum Tax (AMT) – Exemptions[5] Single filers – $54,300
Married filing jointly – $84,500
Married filing separately – $42,250
Heads of Households – $54,300		 Single filers – $70,300
Married filing jointly – $109,400
Married filing separately – $54,700
Heads of Households – $70,300
Alternative Minimum Tax (AMT) – Phase-Outs[6] Single filers – $120,700
Married filing jointly – $160,900
Married filing separately – $80,450
Heads of Households – $120,700		 Single filers – $500,000
Married filing jointly – $1,000,000
Married filing separately – $500,000
Heads of Households – $500,000
Individual Mandate under the ACA Taxpayers who do not have required minimum health coverage are required to pay a penalty or claim a waiver or exemption. Eliminated

[1] Note – Rates are current as of January 1, 2018. All rates will be adjusted for inflation for tax years beginning January 1, 2019.
[2] Note – Rates are current as of January 1, 2018. All rates will be adjusted for inflation for tax years beginning January 1, 2019.
[3] Note – Rates are current as of January 1, 2018. The refundable portion of the Child Tax Credit will be adjusted for inflation for tax years beginning January 1, 2019.
[4] Note – Medical expense deduction rules are retroactive to tax years beginning January 1, 2017.
[5] Note – Exemptions listed under current law are 2017 rates; 2018 rates will continue to be adjusted for inflation.
[6] Note – Phase-outs listed under current law are 2017 rates; 2018 rates will continue to be adjusted for inflation.

 

ESTATE AND GIFT

Topic Current Law Final Bill
Estate Tax $5.49 million per person lifetime gift/estate tax exemption.

Rate on contributions over exemption: 40%

 Exemption Amount Doubled.
Gift Tax $5.49 million per person lifetime gift/estate tax exemption.

Rate on contributions over exemption: 40%

 Exemption Amount Doubled.
Generation Skipping Tax $5.49 million per person GST tax exemption.

Rate on contributions over exemption: 40%

 Exemption Amount Doubled.

 

CORPORATE

Topic Current Law Final Bill
Corporate Tax Rates C Corporations pay tax at graduated rates with a maximum rate of 35% of taxable income. Under the TCJA, C corporations would pay a maximum rate of 21% on their taxable income. There would be no graduated rates.
Alternative Minimum Tax (“AMT”) The purpose of the AMT is to make sure that corporations pay a minimum amount of taxes. For taxable years beginning after December 31, 2017, the corporate AMT will be repealed.
Dividends Received Deduction The dividends received deduction allows corporations to deduct a portion of the dividends such corporation receives from other corporations in which it has an ownership stake.

The amount of the deduction depends on the receiving corporation’s ownership in the payor corporation. If the two corporations are in the same affiliated group, the deduction is 100%. If the receiving corporation owns more than 20% of the payor corporation then the deduction is 80%. If the receiving corporation owns less than 20% of the payor corporation then the deduction is 70%.

 The TCJA would lower the 80% deduction to 65% and the 70% deduction to 50%.
Section 179 Expensing A taxpayer may elect under Section 179 to deduct up to $500,000 of the cost of qualifying property placed in service in the taxable year. This $500,000 is reduced by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $2 million. Qualifying property is generally depreciable tangible personal property that is purchased for use in active conduct of a trade or business. The TCJA would increase the amount that a taxpayer may expense under Section 179 to $1 million and the phrase out threshold to $2.5

million. These amounts would be indexed for inflation for tax years beginning after 2018.
Increased Expensing In 2017, taxpayers are allowed to claim first year onus deprecation equal to 50% of the adjusted basis of property acquired and placed in service in 2017. The TCJA increases the first year depreciation deduction to 100% for property placed in service in 2018 through 2022 (with lower percentages in years 2023-2027).
Research and Experimentation Tax Credit The research and experimentation (R&D) tax credit is a business credit allowed to companies who incur research and development costs The TCJA preserves the R&D tax credit however amounts paid or incurred in tax years beginning after December 31, 2021 will have to be deducted over time as opposed to being expensed immediately.
Limitation on Interest Expense Deduction Corporations can generally deduct interest paid or accrued. The TCJA would as a general rule limit the amount of interest that can be deducted to 30% of adjusted taxable income with any excess being carried forward indefinitely. Taxpayers with average annual gross receipts for the three taxable year periods ending with the prior taxable year that do not exceed $25 million are exempt from the limitations.
Modification of Net Operating Loss Deduction Under current law, a taxpayer may carry back net operating losses (“NOLs”) for two years and carry them forward 20 years. The TCJA would limit the NOL deduction to 80% of taxable income for taxable years beginning after December 31, 2017. It also repeals the two-year carry-back in certain situations.
Like Kind Exchanges A like kind exchange allows a taxpayer to exchange property for new property without incurring immediate tax liability. Under current law, like-kind exchange treatment can apply to both personal and real property that is “held for the productive use in a trade or business or for investment.” The TCJA limits like kind exchanges to those exchanges involving real property that is not held primarily for sale.

 

PASS-THROUGH ENTITIES

Topic Current Law Final Bill
Deduction for Qualified Business Income Pass-through entities such as partnerships, limited liability companies and subchapter S corporations file an annual information return, but they do not pay federal income tax. Rather, these entities generally “pass-through” any income, gains, losses, deductions, and credits to the constituent owners who report their share of these items on their returns. Taxes are then payable at the constituent owner’s tax rate. For taxpayers other than subchapter C corporations, the final bill generally allows for a deduction of up to 20% of qualified business income generated by pass-through trades or businesses. The deduction is applied at the partner or shareholder level in the case of entities taxed as partnerships and subchapter S corporations, respectively.

The availability of the deduction is limited for owners of “specified service trades or businesses,” which would generally be characterized as professional service firms such as law firms, accounting firms and consulting firms. In such instances, the full deduction is only available to a partner or shareholder if such taxpayer’s taxable income (computed without regard to the deduction) is less than $315,000 for joint filers or $157,500 for single filers (hereinafter referred to as the “Threshold Amount”).

Engineering and architecture firms are expressly excluded from the definition of a “specified service trade or business,” and, therefore, the income generated from such firms that flow through to the owners thereof would not be subject to this deduction limitation.

Reasonable compensation and guaranteed payments are excluded from qualified business income.

For taxpayers with taxable income that exceeds the Threshold Amount, the deduction becomes limited to the lesser of (a) 20% of qualified business income, or (b) the greater of (i) 50% of “W-2 wages” with respect to a qualified trade or business or (ii) the sum of 25% of the “W-2 wages,” plus 2.5% of the taxpayer’s allocable share of the unadjusted basis of certain depreciable property acquired used in the business. “W-2 wages” are wages subject to federal withholding, elective deferrals and certain deferred compensation. In general, self-employment income would not be considered to be “W-2 wages.” Therefore, if “W-2 wages” are zero, then the deduction would be zero for taxpayers earning more than the Threshold Amount or limited to 2.5% of their allocable share of the basis of certain depreciable property.

However, for taxpayers in a specified service trade or business (professional firm), the deduction begins being phased out completely at the first dollar above the Threshold Amount and is completely eliminated once taxable income equals the Threshold Amount, plus $50,000 ($100,000 in the case of joint filers).

The deduction is available for publicly traded partnerships, including master limited partnerships.
Carried Interest In general, a carried interest (also known as a profits interest) issued to a taxpayer in exchange for services is not treated as a taxable event if certain conditions are
met. The IRS has provided guidance indicating that this treatment does not apply, however, if (a) the profits interest relates to a substantially and predictable stream of income from partnership assets; (b) within 2 years of receipt, the partner disposes of the profits interest; or (c) the profits interest is a limited partnership interest in a publicly traded
partnership. Further, upon the transfer of a profits interest, the transferor is generally entitled to long-term capital gains treatment if such interest is held for at least one year.		 The final bill provides for a three-year holding period in order to receive long-term capital gains treatment. The three year holding period would apply notwithstanding the rules of Section 83 or an election in effect under Section 83(b).

 

TAX-EXEMPT ORGANIZATIONS

Topic Current Law Final Bill
Deductions for Charitable Contributions Individual taxpayers may deduct up to 50% of the taxpayer’s contribution base for donations made to public charities. Individual taxpayers may deduct up to 60% of taxpayer’s contribution base for cash contributions made to public charities.
Deductions for Amounts Paid for College Athletic Seating Rights Individuals may deduct up to 80% of amounts paid for the right to purchase tickets for seating at a college athletic event Eliminated
Executive Compensation Excise Tax [1] N/A Tax-exempt entity shall pay a 20% excise tax on compensation over $1,000,000 paid to its top 5 most highly compensated employees, including those employed by related organizations; this excise tax also applies to parachute payments
Excise Tax on Investment Income of Private Colleges & Universities N/A A 1.4% tax is imposed on net investment income for certain institutions.
Unrelated Business Income Tax Many entities with more than one unrelated trade or business aggregate the lines of business to take advantage of net operating losses across multiple lines of business. For entities with for more than one unrelated trade or business, unrelated business taxable income, including for purposes of determining any net operating loss deductions, shall be computed separately with respect to each such trade or business; unrelated business taxable income is increased by the amount of certain fringe benefit expenses for which a deduction is disallowed

[1] Note – Compensation paid to licensed medical professionals, including veterinarians, is excluded from this rule.

 

TAX-ADVANTAGED ACCOUNTS AND EMPLOYEE BENEFITS

Topic Current Law Final Bill
529 Accounts[1] Funds contributed to 529 accounts may grow tax-free for beneficiaries if used for qualified tuition and other higher education expenses. Up to $10,000 per year may also be used for students in grades K- 12 for tuition expenses, books, curriculum, online educational materials, tutoring, dual enrollment at institutions of higher education, and educational therapies for students with disabilities. Qualified expenses apply to public, private, or religious schools.
Roth IRA Recharacterization Individuals are permitted to recharacterize Roth IRA contributions as traditional IRA contributions after a traditional to Roth conversion, within certain limits Eliminated
Entertainment Deductions Up to 50% of entertainment expenses may be deductible. Eliminated
Qualified Transportation Fringe Employers may deduct certain qualified transportation fringe benefits provided to employees. Eliminated
Qualified Moving Expense Reimbursement Employee moving expense reimbursements are deductible by the employer. Eliminated, except for members of the armed forces on active duty who move pursuant to military orders.
Meals Provided At Convenience of Employer Employers may deduct meals provided to employees at the employer’s place of business and for the employer’s convenience. Eliminated but does not go into effect until January 1, 2026.

[1] Note – Contributions to 529 plans are not deductible for federal income tax purposes. However, the following states permit deductions on state income taxes for 529 contributions (subject to certain limitations and rules in each state): Alabama, Arizona, Arkansas, Colorado, Connecticut, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Michigan, Mississippi, Missouri, Montana, Nebraska, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Virginia, Washington, D.C., West Virginia, Wisconsin

 

INTERNATIONAL

Topic Current Law Final Bill
Establishment of “Participation Exemption System” for Taxation of Foreign Income
100% Dividends Received Deduction for 10% U.S.-Owned Foreign Corporations – Provides a new 100% deduction for the foreign-source portion of dividends received from certain 10% owned foreign corporations by U.S. corporations.
Special Rules Relating to Sales or Transfers of 10% U.S.-Owned Foreign Stock Amount realized by U.S. shareholder on sale foreign subsidiary stock is treated as dividend income to the extent of foreign earnings and profits; remainder of amount realized is normally capital gain. For purposes of determining the amount of a loss on the sale of certain foreign stock by a U.S. shareholder, such shareholder’s basis in the foreign corporation stock is reduced by an amount equal to the portion of any dividend received with respect to the foreign stock that was not taxed in the U.S. as a result of the new 100% dividends received deduction described above.
Deemed Repatriation of Previously Deferred Foreign Income Foreign income generally not taxed until repatriated to the U.S., unless the anti-deferral rules of subpart F apply.
  • Modifies subpart F to provide for the inclusion of pre-effective date foreign earnings.
  • A U.S. shareholder may deduct 71.4% of the foreign earnings and profits attributable to cash and 85.7% of the remainder of the foreign earnings and profits.
  • The U.S. tax on the deemed repatriation may be paid in installments over eight (8) years.
Rules Related to Passive and Mobile Income
Deduction for Foreign-Derived Intangible Income (“FDII”) and Global Intangible Low-Taxed Income (“GILTI”) –
  • For a U.S. corporation, creates a new deduction equal to sum of 37.5% of its FDII plus 50% of its GILTI
  • This new deduction reduces the effective U.S. tax rate on FDII to 13.125% and on GILTI to 10.5% for taxable years beginning after December 31, 2017 and before January 1, 2026.
Foreign Tax Credit
Repeal Section 902 Indirect Foreign Tax Credit – In connection with the establishment of “participation exemption system”, the Section 902 deemed-paid credit with respect to dividends received by a U.S. corporation that owns 10% or more of the voting stock of a foreign corporation is repealed.
Source of Income from Sales of Inventory Income from the sale of property is generally sourced to the place of sale, which is determined by where title to the property passes. Gains, profits, and income from the sale or exchange of inventory produced partly in, and partly outside, the U.S. is allocated and apportioned on the basis of the location of production with respect to the property, even if title passage occurred elsewhere.
Separate Foreign Tax Credit Limitation Basket for Foreign Branch Income –
  • Foreign branch income is the business profits of a U.S. person that are attributable to one or more qualified business units.
  • Foreign branch income to be allocated to a specific foreign tax credit basket.
Modification of Subpart F Provisions
Changes to Implement “Participation Exemption System” – – Repeal current taxation of previously excluded subpart F income from qualified investments.

– Repeal foreign base company oil related income as subpart F income.
– Amend the ownership attribution rules so that certain stock of a foreign corporation owned by a foreign person is attributed to a related U.S. person for purposes of determining whether the related U.S. person is a U.S. shareholder of the foreign corporation and, therefore, whether the foreign corporation is a “controlled foreign corporation”.

– Expand the definition of U.S. shareholder to include any U.S. person who owns 10% or more of the total value of shares of all classes of stock of a foreign corporation.

– Eliminate the requirement that a corporation must be controlled for an uninterrupted 30-day period before subpart F inclusions apply. – U.S. shareholder of any “controlled foreign corporation” must include in gross income for a taxable year its GILTI.
Prevention of Base Erosion
Base Erosion Minimum Tax – – An applicable taxpayer is required to pay a tax equal to the base erosion minimum tax amount for the taxable year.
– The base erosion minimum tax amount is the excess of 10% of the modified taxable income of the taxpayer for the taxable year over an amount equal to the regular tax liability of the taxpayer reduced by the excess of an amount equal to the credits allowed under Chapter 1 over the general business credits for the taxable year allocable to the research credit, plus the portion of the applicable general business credits not in excess of 80% of the lesser of the amount of such credits or the base erosion minimum tax amount.
Limitations on Income Shifting Through Intangible Property Transfer – – Addresses recurring definitional and methodological issues that have arisen in controversies in transfers of intangible property for purposes of Section 367(d) and 482.

– Revises the definition of “intangible property” to include workforce in place, goodwill (both foreign and domestic), and going concern value.
– Clarifies the authority of the Treasury Secretary to specify the method to be used to determine the value of intangible property, both with respect to the outbound restructuring of U.S. operations and to intercompany price allocations.
Deduction Denied for “Disqualified Related Party Amount” Paid or Accrued to a Hybrid – A “disqualified related party amount” is any interest or royalty paid or accrued to a related party to the extent that: (1) there is no corresponding inclusion to the related party under the tax law of the country of the related party, or (2) such related party is allowed a deduction with respect to such amount under the tax law of such country.

 

TAX-EXEMPT BONDS & TAX CREDITS

Topic Current Law Final Bill
Private Activity Bonds (PABs) Tax-exempt PABs can be issued to finance a number of private and public/private endeavors, including multifamily housing projects, single family housing loan programs, airports, water and sewer facilities, solid waste facilities, toll roads, certain manufacturing facilities and non-profit projects, including healthcare facilities, educational facilities and senior living facilities. The House bill eliminated PABs, but the TCJA conference report retains current law.
Advance Refunding of Governmental Bonds and 501(c)(3) Bonds Governmental bonds and 501(c)(3) bonds are eligible for one advance refunding, i.e., a refunding in which the refunded bond is not callable within 90 days of issuance of the refunding bond and an escrow is funded to pay debt service on the refunded bond until the call date. TCJA eliminates advance refundings.
Qualified Tax Credit Bonds Holders of qualified tax credit bonds receive a tax credit instead of interest. Tax credit bonds can be issued to finance renewable and clean energy projects (clean renewable energy bonds and qualified energy conservation bonds and educational facilities (qualified zone academy bonds and qualified school construction bonds). TCJA eliminates qualified tax credit bonds.
Historic Rehabilitation Tax Credit 20% credit for qualified rehabilitation expenditures with respect to certified historic structures and 10% credit for qualified rehabilitation expenditures for buildings built before 1936. TCJA retains the 20% credit, but provides for the credit to be taken over 5 years rather than when the project is placed in service, which is current law. TCJA eliminates the 10% credit.
New Markets Tax Credit (NMTC) 39% credit for qualified investments in low-income communities. $3.5 billion of NMTC allocation for each of 2018 and 2019. The House bill eliminated NMTCs, but the TCJA conference report retains current law.
Renewable Energy Production Tax Credit (PTC) Tax credit for the projection of electricity from renewable energy sources, such as wind, biomass and hydropower. Taxpayers may elect to take the 30% ITC discussed below in lieu of the PTC. The House bill eliminated the inflation adjustment for the credit, but the TCJA conference report retains current law.
Renewable Energy Investment Tax Credit (ITC) 10% credit for certain renewable energy property, but such percentage is adjusted to 30% for solar energy property prior to 2020, with a phase down of the percentage thereafter. The House bill eliminated the permanent 10% credit, but the TCJA conference report retains current law.

For further information, please do not hesitate to contact us.

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by Frontier Group
September 27, 2018
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News & Reports

Tax Clearances

HMRC has recently updated its non-statutory clearances pages: it will no longer provide a clearance service for incorporation relief or where certain facts apply to a case.

These include, in addition to previous restrictions:

  • Clearances on matters of fact, such as if certain activities constitute a business.
  • Whether s162 TCGA 1992 Incorporation relief is available to property income.

This means that those looking to Incorporate a buy-to-let business and claim s162 relief to ensure that no capital gains tax is due will no longer be able to approach HMRC for confirmation that the property letting activity is sufficient to qualify for the relief before they undertake the transaction.

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by Frontier Group
September 27, 2018
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News & Reports

The new regime for taxation of non-resident property gains

The draft Finance Bill extends the charge to tax to the disposal of UK commercial property by non-UK residents. The draft legislation includes some significant changes from the consultation proposals, most notably concerning the rules for indirect disposals. When considering whether a company is property rich, an exception will apply where interests in UK land are used for the purposes of a trade, though further clarification is needed. The substantial indirect interest test to determine whether the new rules apply to a particular non-UK resident investor has been reduced to a two year period, and a narrower view is taken of when an investor’s interests are to be aggregated with those of connected persons. The proposed rules need to be considered in the context of any applicable double tax agreement between the UK and the country of residence of the non-resident person making indirect disposal of UK property. Despite the draft legislation taking effect from April 2019, a considerable number of complex principles and issues remain to be resolved, particularly in relation to collective investment schemes.

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by Frontier Group
September 27, 2018
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News & Reports

Non-resident landlords: the move to corporation tax

With ‘L-day’ (as HMRC calls it) fast approaching, we should soon see the draft provisions that will bring non-resident corporate landlords within the charge to corporation tax on both income and capital gains from 2020. Although the key policy decisions appear to have already been made, Non-resident companies chargeable to income tax and non-resident CGT: Summary of Responses (published on 1 December 2017) showed that HMRC still had a lot of thinking to do on how the transition to corporation tax would work. This article looks ahead to what the draft legislation needs to cover.

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