Previously, in order to qualify for Entrepreneurs’ Relief, an individual must have held shares which represented five percent of the ordinary share capital which entitled them to five percent of the voting rights.

From 29 October 2018, the shares must also entitle the holder to five percent of the company’s distributable profits and five percent of the assets available to equity holders on a winding up.

The 2 key changes are:

• An extension of the qualifying holding period from one year to two years (introduced for disposals on or after 6 April 2019); and

• The claimant must have a five percent interest in both the distributable profits and the net assets of the company.

The extension of the qualifying holding period from one year to two years will mean that you need to consider your position at least two years in advance of any potential transaction to ensure the position is protected.

Since 2010, HMRC has raised an additional £2.9 billion through its focus on offshore non-compliance, giving HMRC increased powers to assess older liabilities, charge higher behavior-related penalties and to mount criminal prosecutions for the facilitation of tax evasion.

HMRC’s success has also been boosted by several information sharing agreements with off-shore jurisdictions and the Common Reporting Standard, a global information sharing project involving over 100 jurisdictions, initiated by the UK during its presidency of the G8 in 2013.

HMRC’s stated objectives have changed since the 2014 No Safe Havens document and is now to maximize revenues and bear down on avoidance and evasion, transform tax and payments for customers and design and deliver a professional, efficient and engaged organization.

They intend to achieve this through:

Leading internationally

• HMRC’s international focus is suggestive of a better grasp of the connections within the offshore tax environment. The UK is also a member of 2 new international partnerships, including the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC), a network of 40 jurisdictions and Joint Chiefs of Global Tax Enforcement (known as ‘J5’). These organizations complement HMRC’s collaboration with other UK government law enforcement agencies, including the police, the National Crime Agency, and the Border Force, as well as regulators, such as the Financial Conduct Authority.

Assisting compliance

• HMRC has committed to invest £1.3 billion to become the most digitally advanced tax authority in the world, they have set out their intention to work with the tax profession and relevant professional bodies to improve the quality of compliance.

Responding appropriately

• HMRC has committed to using the full extent of its civil and criminal powers to investigate fraud and tackle financial crime.

The Global Intangible Low-Taxed Income (‘GILTI’) regime, enacted as part of Congress’s 2017 tax reform initiative, effectively subjects any US citizen, green card holder, and other US tax resident (a ‘US Person’) to US income tax on the worldwide earnings of any non-US corporation (i) in which the US Person himself or herself holds a material proportion of the shares, and (ii) which is majority-owned or controlled by one or more US Persons, each of whom owns a material proportion of such shares.

The GILTI tax applies only to ‘US Shareholders’ of ‘Controlled Foreign Corporations’ (‘CFCs’). A US Shareholder is a US Person, US corporation, or other US entity that owns or is treated as owning at least 10 percent of the stock of a non-US corporation by voting power or value.

Determining GILTI Tax Liability

Taxpayers with GILTI face U.S. taxation that would otherwise be applied at the new statutory corporate tax rate of 21 percent if corporates and ordinary federal rates if individuals. The law’s structure curtails the impact of this provision, however: Through 2025, taxpayers may claim a deduction equal to the amount of 50 percent of GILTI(not available to individuals although certain elections can be made to mitigate this), and 37.5 percent thereafter. Accordingly, taxpayers reporting GILTI income face effective U.S. tax rates on that income of 10.5 percent through 2025 and 13.125 percent thereafter. These deductions are limited under certain circumstances.

To the extent that GILTI is earned overseas, U.S. foreign subsidiaries may have paid foreign tax on that income. Consistent with other elements of the TCJA and prior tax law, taxpayers may claim credits against foreign taxes paid, but the TCJA limits foreign-tax credits (FTC) against GILTI income to 80 percent of taxes paid. This limitation has the effect of increasing the effective tax rate that firms face compared to if they could claim credits for all of their paid foreign taxes.

GILTI By Example

For the purposes of this example, assume the owner is a US individual and is the sole shareholder of an entity operating out of a foreign country that has a 10 percent tax rate. For this example, assume the foreign entity is essentially earning income ($100 in this example) with $100 intangible assets (essentially the office equipment). In this case, the excess over the 10 percent return on $100 in office equipment would equal the GILTI amount that the individual would need to report this on his/her tax return.

Hypothetical Firm’s GILTI Income

The individual would then report this income on his or her U.S. tax return. There is no 50 percent deduction unless a specific election is made for individuals. The income would be taxable at ordinary federal rates potentially 37%.

Therefore, as can be seen, by this example, this can be very onerous and careful planning is required to ensure over-burdensome tax liabilities are avoided.

The Chancellor’s 2019 Spring Statement gave the government the opportunity to consider the longer-term fiscal challenges ahead of Brexit, and initiate consultations on how these can be addressed.

Following this, we have put together a PDF which provides an overview of the updated forecasts for the UK economy and public finances, which we trust you will find useful

Spring Statement 2019

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.

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.

• If you have not sent us your information yet please do not delay and send through your information.

• Please note that we cannot guarantee filing of the UK return if you leave it too late.

• From 6 April 2017, a two-year window of opportunity is permitted to separate mixed funds

• This process requires transferring parts of the fund into new bank accounts and nominating the composition of that transfer

• This results in freeing up funds that can be remitted to the UK tax-free

• 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.

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