In 2021, The Office of Tax Simplification (OTS) reviewed the current CGT rules relating to separating couples or civil partners and proposed a number of recommendations which have been accepted by the Government, although is yet to be progressed through Parliament.

This proposal has come into light as at present, no capital gains tax (CGT) is charged on a transfer of assets between a married couple or civil partners who live together. However, if the couple separate or divorce, this tax relief does not necessarily apply.

The new rules intend to enable a couple to separate and divorce without undue pressure to reach a financial agreement due to CGT consequences.

The Chancellor of the Exchequer, Jeremy Hunt, announced significant changes to the personal tax code for pensions.

The Changes taking place from April 6th, 2023:

Annual Allowance (AA) – will rise from £40,000 to £60,000 annually.

Money Purchase Annual Allowance (MPAA) and Tapers Annual Allowance (TAA) will rise from £4,000 to £10,000 per year.

Lifetime Allowance (LTA). LTA will be completely abolished in a future finance Bill.

Pensions Commencement Lump Sum (PCLS). The maximum PCLS for individuals without protections will remain at 25% of the current LTA (£268,275) and will then be frozen.

What are the effects of the changes on individuals?

In its most recent Pension Schemes Newsletter, HMRC clarified the situation, stating that participants with active enhanced or fixed safeguards will be able to accrue new benefits, join other programmes, or move without losing such protections if the application was made by 15 March 2023. Members who have a protected right to a higher PCLS will continue to have that privilege. Despite this, there are still a lot of unanswered concerns, especially around what a Labour government might accomplish.

What are the effects of the changes on employers and trustees?

While the announcements of the Chancellor’s reforms will be welcome news for some, the unanswered questions will leave many wary. Pensions is a long-term financial planning tool, so individuals need reliable and consistent rules in order to plan effectively. Ultimately, the devil will be in the detail. Some (but not all) of that will be introduced in future Finance Bills, and (relative) certainty may not be achieved until after the next general election.

HMRC has increased the interest rate it charges on unpaid income tax, national insurance, capital gains tax, stamp duty, corporation tax and inheritance tax to 6.75% following last month’s Bank of England base rate rise. The rate now stands at a 14-year high and is more than double what it was last January, when it was 2.75%.

However, those owed money by HMRC will receive just 3.25% interest, up more than two percentage points since January last year. The interest rate on late paid tax has doubled in less than a year therefore delaying paying HMRC has a real cost to it. Therefore, If you are going to struggle to pay your bill on time, agreeing a formal time to pay arrangement with HMRC before the penalty is charged will mean as long as you stick to the instalment payments agreed, the penalty won’t be charged. However, interest will be applied.

Chancellor Jeremy Hunt presented a “Budget for Growth”, after the Office for Budget Responsibility predicted that the UK economy will perform better than expected this year with inflation continuing to fall. We have summarised the changes that were outlined and we hope this will help you to better understand the UK’s current position. Here are some key points to note:

• Tax on dividends, where taxable, will increase by 1.25% from 6 April 2023.

• The Annual Allowance for pensions has increased from £40,000 to £60,000.

• The pensions Lifetime Allowance charge abolished.

• Limitations to the maximum an individual can claim as a Pension Commencement Lump Sum to 25% of the current Lifetime Allowance (£268,275), except where previous protections apply.

• The expected increase in the rate of corporation tax for many companies from April 2023 to 25% will go ahead.

• From April 2023, companies will be able to raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, a two-thirds increase.

• The annual investor limit will be doubled to £200,000 for SEIS.

• No changes to the current rates of CGT have been announced.

• Inheritance Tax nil-rate bands will remain fixed until April 2028.

You can view our summary HERE and if you have any questions feel free to contact us.

As you may already be aware, offshore entities which own UK property needed to register on the Register of Overseas Entities (“ROE”) before the deadline on January 31^st, 2023. HMRC will use the information submitted to investigate any arrangements which they suspect have failed to comply with their UK tax obligations.

However – taxpayers still have time to submit a disclosure should they feel that they have not paid the correct amount of tax in respect to a UK property; HMRC has allowed taxpayers until February 28^th, 2023 to inform them that a disclosure will be submitted which may reduce any penalties charged.

The penalty regime for not notifying HMRC of taxable offshore income, assets or activities could potentially be severe and where unpaid tax exceeds £25,000, imprisonment of up to 51 weeks and an unlimited fine may be applicable, irrespectively of whether tax evasion was intentional.

The State of Massachusetts have recently approved a 4% tax on annual income above $1 million, on top of the State’s current 5% flat income tax rate. The additional tax has become effective from January 1, 2023. Although this tax will only apply to around 0.6% of Massachusetts households, it is estimated that the levy will bring in roughly 1.3 billion in revenue during 2023. The aim is to use the additional tax to fund public education, roads, bridges, and public transport.

Since the announcement, many high earners in Massachusetts have already put a number of plans in place such as accelerating their income into 2022 if at all possible. This would include accelerating receipt of deferred compensation or selling as asset before the new levy comes into effect. Some have opted to spread their income over a number of years to stay below the $1 million threshold.

Some are even considering moving. As a final option higher earners may choose to leave Massachusetts and opt to live and work in a lower tax State. Although a big step, this may be the only option for some and worthwhile if the levy means a huge tax increase for them.

California State recently rejected a similar proposal of a 1.75% on annual income of more than $2 million, where the funds were earmarked for zero emission vehicle subsidies. California already has a much higher rate of tax of 13.3% for those earning over $1 million. So, has a State trend begun? Experts do not believe there is a broader trend at State level of a millionaire tax rate, as most States have actually reduced their tax rates for 2023. However, this is something to keep an eye on.

The findings of the Obus v. New York State Tax Appeals Tribunal proves beneficial to those taxpayers who do not reside in New York, however, owns a vacation home in this state.

Under New York law, a taxpayer is deemed ‘New York resident’ in two ways:

1. Domicile Test: The individual is domiciled in New York and views New York as their permanent home.
2. Statutory Resident Test: The individual is domiciled outside of New York, however:

• (a) maintains a “permanent place of abode” in New York *
• (b) spends more than 183 days of the year in New York.

*Note – New York previously implemented that a permanent place of abode is a residence that is suitable for year-round use; including rentals and vacation homes.

Application to the Obus Case

Key notes:

1. Obus was a domiciliary of New Jersey and commuted daily to New York City for work and in 2011, Obus and his wife purchased a vacation home in New York
2. Obus used the home for 2-3 weeks per year for personal activities.
3. The home also included an attached apartment, which was occupied by a tenant.

Upon filing a Non-Resident New York State Tax Return and stated that they did not maintain a permanent place of abode in New York; they were audited, and it was determined by the New York Division of Taxation and Finance that the vacation home was in fact a permanent place of abode as they had a right to reside there.

Obus appealed this decision based on the below facts:

1. He used the home for only 2 – 3 weeks per year.
2. The home was not bought to commute to and from his workplace as the location of the New York home was more than 4 hours commute away.
3. Obus did not keep personal possessions in the home and therefore was not a residential interest.
4. He would inform his tenant when he would be staying at the New York home.

With the Obus ruling, a vacation home in New York no longer automatically qualifies as a permanent place of abode for purposes of the statutory resident test.

Instead, this will be determined as to whether a taxpayer has a residential interest in the vacation home.

As the new tax season is upon us, it is a good time to go over the inflation adjustments that the IRS had announced for the 2023 tax year. As a result of the high level of inflation that many taxpayers have seen throughout 2022, several key provisions such as income tax thresholds will increase by roughly 7%. Below are some of the key adjustments that may affect you.

Although the marginal tax rates remain unchanged the federal tax brackets have all increased for 2023. We will see the top tax bracket (37% tax rate) increase to $578,126 for single filers and $693,751 for those who are married filing jointly.

The standard deduction for all has also increased. Single filers will receive a standard deduction of $13,850, up by $900, while married filing jointly standard deduction will be $27,700, up by $1,800.

The Foreign Earned Income exclusion for 2023 will be $120,000, up from $112,000.

There has also been changes on how much you can contribute to your retirement plan. You can contribute up to $22,500 into your 401k plan. The annual contribution limit for IRA’s has also increased to $6,500 ($7,500 if you are aged 50 and over).

We will also see an increase in the Estate Tax lifetime exclusion from $12,060,000 to $12,920,000. The annual gift exclusion has also increased from $16,000 to $17,000 meaning a married couple can now make a gift to up $34,000 without using their Estate tax exclusion.

We will be happy to answer any question you have on the 2023 changes so feel free to get in touch.

From April 2023, companies will be able to raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, a two-thirds increase. To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from two to three years. To support these increases, the annual investor limit will be doubled to £200,000.

The government has announced that the capital gains tax annual exempt amount will be reduced from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024.