The IRS has released annual inflation adjustments for 2022 and these include the increase of the estate, gift and generation-skipping transfer tax as follows:

• Increase to $12.06 million federal estate tax exemption from $11.7 million
• The annual gift tax exclusion amount increases to $16,000 for gifts made by an individual ($32,000 if made by a married couple)
• The gift tax annual exclusion amount for gifts to a non-citizen spouse will increase to $164,000

The applicable exclusion amounts currently remain scheduled to expire on December 31, 2025, which would result in a reduction in the exclusion amounts to $5 million (adjusted for inflation). However, new laws could always be passed that could adjust these exclusion amounts sooner.

Owners of second homes in England who claim to be renting out their properties as holiday lets, although generally the homes are left empty, will no longer be able to access certain tax reliefs, the UK Government has announced.

Under existing rules, owners of second homes in England are exempt from council tax and can access small business rates relief if they declare they intend to let the property out to holidaymakers. However, the Government has noted concerns that many second homeowners are claiming these tax reliefs while leaving their second homes empty.

Following a public consultation, the Government has now announced its intention to proceed with new rules, which are intended at ensuring property owners pay council tax on their second homes if they are not genuine holiday lets.

A proposed Directive was published by the European Commission on 22nd December 2021 in order to prevent “shell entities” that are based in the EU member states from the entitlement to particular tax benefits granted by other EU Directive and member states’ double tax treaties.

Should the proposed Directive be adopted, it will be implemented on 01st January 2024 – a point to be noted is that initiative is known as to “Unshell”.

The proposed new measures will allow for misuse of shell entities to be easily detected by tax authorities due to the introduction of new transparency standards. The proposal also intends to help national tax authorities detect entities that exist with insufficient commercial substance to merit access to tax benefits..

The draft Directive sets out three “gateways”:

• The first gateway looks at the activities of the entity based on the income it receives.
• The second gateway requires a cross-border element.
• The third gateway focuses on whether corporate management and administration services are performed in-house or are outsourced.

If an entity passes through all three gateways, then it will be required to report information in its tax return.

The entity must also be able to show:

1. it has at least one director resident in its member state, the director is not provided by a service provider.
2. the majority of its full time employees are resident in the member state or live close to it and are qualified to carry out the undertaking’s relevant income generating activities.

There are exceptions from these rules for certain regulated, holding or for example companies with 5 full time employees!

If you have any further questions following this article, please contact a member of our team.

In a bid to ease pressures from COVID-19, HMRC have announced that the following penalties for 2020/21 will be waived:

• anyone who cannot file their return by the 31 January deadline will not receive a late filing penalty if they file online by 28 February
• anyone who cannot pay their Self-Assessment tax by the 31 January deadline will not receive a late payment penalty if they pay their tax in full, or set up a Time to Pay arrangement, by 1 April

Interest will be payable from 1 February, as usual, so it is still better to pay on time if possible.

Self-Assessment timeline:

• 31 January – Self Assessment deadline (filing and payment)
• 1 February – interest accrues on any outstanding tax bills
• 28 February – last date to file any late online tax returns to avoid a late filing penalty
• 1 April – last date to pay any outstanding tax or make a Time to Pay arrangement, to avoid a late payment penalty
• 1 April – last date to set up a self-serve Time to Pay arrangement online

The Chancellor Rishi Sunak presented his third Budget on 27 October 2021. In his speech he set out the plans to “build back better” with ambitions to level up and reduce regional inequality.

The report can be found here

Main Budget proposals

Tax measures include:

• a change in the earliest age from which most pension savers can

access their pension savings without incurring a tax charge. From

April 2028 this will rise to 57

• individuals disposing of UK property on or after 27 October 2021

now have a 60 day CGT reporting and payment deadline, following

• the retention of the £1 million annual investment allowance until

31 March 2023

• a new temporary business rates relief in England for eligible

retail, hospitality and leisure properties for 2022/23

Should you need any further help or support please contact us.

In a recent tax case it was found that foreign tax credits did not apply against the net investment income tax (NIIT). In summary, the structure of the Internal Revenue Code made the credit inapplicable to the NIIT, and tax treaties did not override that fact.

Each year, the IRS produces a list of “Dirty Dozen Tax Scams” to warn the public of the worst ways taxpayers are being scammed. The IRS has placed certain Malta-based pension plan arrangements on this list. The IRS warns that it is evaluating the validity of such arrangements and may challenge the tax treatment of Maltese pension plan contributions and distributions. IR-2021-144 (July 1, 2021).

The types of pension arrangements that have attracted IRS attention involve a U.S. citizen or resident who contributes appreciated assets to a Maltese pension plan, sells the assets within the plan, and receives a distribution of proceeds relating to the asset sales from the plan. Relying on an interpretation of the U.S.-Malta Income Tax Treaty, U.S. citizens and residents, and their advisors, take the position that the transactions, both the realized gain and distributions, are not subject to tax.

Participants in Maltese pension plans should be aware that the IRS is scrutinising tax positions and treaty interpretations related to these plans. The appearance of an arrangement on the “Dirty Dozen” leads to increased IRS activity, and participants in Maltese pension plans should prepare to defend their tax reporting positions.

Although, the elimination of the $10,000 cap on individual taxpayers’ ability to deduct state and local taxes was not mentioned in the proposal; there is talk of this being added to the final version of tax changes before implementation.

If you have any questions, please feel free to contact our team.

On September 13, 2021, proposed tax changes were released as part of the reconciliation bill by the House Ways and Means Committee – this reconciliation bill is familiarly known as ‘Build America Back Better’.

The proposed tax changes apply for both individuals and business which include: –

A recent judicial review case (Murphy v HMRC [2021] EWHC 1914 Admin, 13 July 2021) confirmed HMRC’s view that UK resident beneficiaries who receive discretionary income payments from offshore trusts can only claim relief for income tax paid by the trustees on income that arose in the 6 years before the end of the tax year in which the payment to the beneficiary was made.

The decision turned on the interpretation of an extra statutory concession (ESC18) which concerns the income tax credit available on discretionary payments out of both UK and non-UK resident trusts. The taxpayer had argued that the concession did not impose a time limit on UK residents but the decision confirms that payments to a UK resident from a non-UK trust are subject to the same 6 year time limit for claiming credit for income tax already paid, as applies to non-UK resident beneficiaries of a UK trust. The decision also shines a spotlight on the authority of HMRC concessions, emphasising that they can only be relied upon if they are absolutely clear in scope.