ETC Tax- Autumn Newsletter 2022 | Tax Matters That Matter by ETC Tax

Autumn 2022

TAX MATTERS Global Mobility Coming to work in the UK

INHERITANCE TAX

INVESTMENT EGGS

CASE OF THE MONTH

– Clive Haworth discusses Inheritance Tax Trusts

– Guest feature from Clarion Wealth Planning Ltd, why you shouldn’t put all your investment eggs in one basket

– Angela Wood tells us about a Capital Reduction Demerger

Online Conference

Cryptoassets and Related Activities: Tax and Associated Legal Issues The conference will take place across a full day, but you have the option to attend for the morning or afternoon only should this be preferable. (Please select the appropriate option when purchasing your ticket). GUEST SPEAKERS Andy Wood Director of ETC Tax and Barrister. Author of the book ‘Cryptocurrency and Other Digital Assets’ Sam Hall Senior Partner at Hall Brown Solicitors James Brockhurst Partner at Forsters LLP Chris Recker Senior Associate at Duane Morris

17TH NOVEMBER 9. 30 A M - 4.30 P M

To view the full agenda and to purchase your tickets click here

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Contents

Autumn 2022

First word

“ As long as autumn lasts, I shall not have hands, canvas and colours enough to paint the beautiful things I see.” – Vincent Van Gogh

Features

We hope you enjoy our first quarterly edition of tax matters, that matter.

Global Mobility – Coming to work in the UK

Our next newsletter will be released in February but please look out for our e-Newsletter which will arrive in your inbox each month. We don’t want you missing out on news and tips from the team here at ETC Tax! This month we bring you…

Global Mobility - Coming to Work in the UK – Amie Manchester reviews the considerations when looking at working in the UK.

Inheritance Tax – Clive Haworth discusses Inheritance Tax Trusts

Investment Eggs - Why you shouldn’t put all your investment eggs in one basket. - A NEW feature guest article – Ella Davies of Clarion Wealth Planning Ltd talks diversification and it taking many forms. Inheritance Tax – Some Planning Options Using Trusts – Clive gives us our options for inheritance tax.

Investment Eggs – Why you shouldn’t put all your investment eggs in one basket

Case of the Month – Angela Wood tells us about a Capital Reduction Demerger

Case of the month – Angela Wood tells us about a Capital Reduction Demerger. As always, we have our usual round-up of the goings-on here at ETC Tax. Don’t forget to reserve your place on our next online conference Cryptoassets and Related Activities: Tax and Associated Legal Issues – click here for more information Many thanks to Sarah Aston and all the contributors who made this edition happen. If you have any queries, comments, or observations, then please let us know. We’d love to hear from you.

Regulars

Best wishes, Bulletin

Angela

Angela Wood Managing Director angela.wood@etctax.co.uk

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Global Mobility Coming to work in the UK

If you are working somewhere other than your home country, even for a short period of time, you could be exposed to additional tax implications. Tax can seem daunting and can quickly fall to the bottom of the agenda, which comes with a huge risk. With the world of travel opening back up, we are seeing lots of individuals decide to travel once again, especially for work purposes. When working in more than one jurisdiction, tax can seem complex and we are here to help. 4

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Amie Manchester Tax Manager amie.manchester@etctax.co.uk

If an individual is temporarily working in the UK for a period of 24 months or less, relief can be available on their travel and subsistence expenses.

UK tax residence

Domicile

To determine an individual’s UK tax residence status, we are required to review the Statutory Residence Test (SRT), which was set out by HMRC in 2013. Prior to this, whether an individual is considered a UK tax resident or not was largely determined on piecemeal case law. The SRT can be thought of as a road map, and there are a series of tests to look at in turn. There are various automatic overseas tests to consider first, followed by automatic UK tests, and if none of these are met, we are required to move on and review the sufficient ties test. Once one of the tests are met, no further steps need to be taken.

Unlike residence, an individual’s domicile status can be difficult to change and has an ‘adhesive’ nature. If an individual is considered non-UK domiciled, they may be eligible for favourable tax treatment, by claiming the remittance basis.

An individual’s residence status can change year on year, which is why reviewing the SRT each year is important. Various factors such as the days present in the UK (whether these are workdays or not) and whether a UK home is available, are a few examples of what the SRT entails. Where a person either arrives in or departs the UK during a certain tax year, it may be possible to claim split year treatment. This treatment (if applicable) would mean that the individual can split the tax year into a period of residence and non-residence, which can be tax advantageous. There are further tests to review when it comes to claiming split year and these are equally as detailed as the SRT.

Domicile is a concept of common law and is only really of interest where an individual has foreign income or gains. Recent changes to the deemed domicile rules have meant that more people are now being considered domiciled in the UK for tax purposes. HMRC would be unlikely to argue with an individual who claims that they have a UK domicile. Double tax agreements Where an individual performs duties in more than one country, the tax position between the jurisdiction can become complex, especially where multiple sources of income are involved. Double tax agreements exist between the UK and a large number of other countries to help minimise or, in some cases, eliminate any double taxation. Double tax agreements are also used to review an individual’s treaty residence status where they are considered domestically resident in two countries. This can help determine where the primary taxing rights lie.

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Remittance basis

Other tax reliefs

The remittance basis is a favourable tax treatment available to millions of non-UK domiciled individuals living in the UK. The treatment allows for overseas income and gains to be exempt from the scope of UK tax on the basis that they are paid and retained overseas.

There are various other reliefs available to individuals coming to work in the UK, either on a temporary or permanent basis.

If the income is remitted to the UK (e.g. spent on a card linked to an overseas bank account or taken out at a cash machine) then a tax charge will arise. The remittance basis will apply automatically where a person’s unremitted foreign income is less than £2,000 in the tax year, otherwise, an election will need to be made via their Self-Assessment. Making a claim for the remittance basis would result in an individual’s personal allowance being lost, however where this applies automatically, the personal allowance remains available. Where an individual is not entitled to claim the remittance basis, the arising basis will apply. The arising basis will subject an individual’s worldwide income and gains to UK tax. A comparative calculation is often helpful to determine whether making a claim for the remittance basis (against arising basis) is beneficial, based on the facts given. Where an individual has been resident for seven out of the previous nine tax years, and makes a claim for the remittance basis, a remittance basis charge of £30,000 will apply. After twelve out of fourteen years, this will increase to £60,000. Claiming the remittance basis is optional and alternating between the remittance and arising basis is possible. Overseas workday relief If the remittance basis applies and duties are split between the UK and overseas, a claim for overseas workday relief can be made. This will enable an individual to exclude any overseas workdays from the scope of UK tax, on the basis the income relating to these duties is paid and retained overseas.

Enjoying this article, but need more advice on any of the topics covered?

If an individual is temporarily working in the UK for a period of 24 months or less, or for under 40% of their total working time, relief can be available on their travel and subsistence expenses. It is worth noting that where an individual’s intention changes and they expect to be in the UK for a period of longer than 24 months, the relief will cease to be available from the date of their intention change. In addition to the above, the reimbursement of removal expenses can be exempt, up to a maximum of £8,000. This is applicable where an individual is changing their main residence and can cover a wide range of expenses, such as removal costs, legal fees associated with disposal and acquisition, survey costs and estate agent fees to name a few. Where a non-domiciled individual is working in the UK, relief may be available on their travel expenses and also for their spouse and family to visit twice a tax year. There are many favourable reliefs worth exploring and taking advantage of, if an individual is working in the UK on a temporary basis. Social security Reciprocal agreements are in place between the UK and a number of other countries to ensure that social security contributions are not paid twice on the same income. If an individual is coming to work in the UK from a country with which the UK has a reciprocal agreement, it might be that UK National Insurance is not due and the individual can remain within their home country social security system. This would need reviewing on a case by case basis and there are various conditions to be met.

The criteria for claiming this relief can be complex, however, if implemented correctly, can carry huge tax savings.

To discuss how ETC can help with your tax questions call the team on 0161 711 1320 or email enquiries@etctax.co.uk 7

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Inheritance Tax - Trust planning options

Trusted Solutions IHT could be considered a 'voluntary' tax - give away assets, live seven more years, assets outside your estate for IHT purposes….except it is usually not as simple as that. Giving away assets also means giving away the income from that asset and losing control over that asset. Where a gift of property is concerned, an outright gift may also crystallise a capital gains tax charge. In this article you will find three types of trust which might be a suitable alternative to outright gifts in some circumstances. Note that, whilst important, the income tax treatment of trusts is not being discussed.

Discretionary Trusts These are useful for gifts of property as any capital gain can be 'held over', thus avoiding crystallising a 'dry' capital gains tax charge. However, there is a lifetime IHT charge at 20% if the value of the asset transferred exceeds the available IHT nil rate band of £325,000. A married couple/civil partnership can jointly gift £650,000, and after seven years, the IHT' clock' is reset to zero, so a further £650,000 can be given away at that time, and so on. Typically, a family trust is set up with parents as the settlors and also trustees who therefore have control of the trust's assets and decide how to appoint out income and capital.

Clive Haworth Senior Manager clive.haworth@etctax.co.uk

The trust is liable to IHT at each ten year anniversary if the value of the trust's assets at that date are above the available IHT nil rate band at a maximum rate of 6%.

Vulnerable Person's Trust ("VPT") A VPT is a discretionary trust, but there is no lifetime IHT charge if the value of the gift exceeds £325,000. Gifts to a VPT are treated as lifetime gifts, so the 'seven-year rule' applies. It is vital to check whether or not the vulnerable person qualifies under these provisions as it can make a significant difference to the tax charges of both the trust and the disabled person. There are no ten-year charges on a VPT – instead, the trust assets are treated as assets of the vulnerable person's estate for IHT purposes.

Discounted Gift Trust (DGT) DGTs are widely marketed by life assurance companies and offer a 'halfway house' where an individual wants to give assets away to save IHT but still requires some level of income from the assets gifted. The basic principle is that the individual (as the settlor) gifts an amount into trust -usually cash - whilst retaining a right to fixed, regular payments for the remainder of their lifetime. The value of the settlor's gift for IHT will be discounted by the estimated value of these future retained payments. For example, a 63-year-old in good health, invests £200,000 and requires income of 5% per annum; the initial discount might be £110,000, leaving a gift of £90,000. This would mean that £110,000 would be outside the estate immediately, and the £90,000 would be after seven years. 9

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hen we think of diversification in this context, you would be forgiven in thinking it relates solely to investments. But if we broaden the lens and consider diversification’s role within a robust financial plan, you’ll find there are many more eggs which can be added to the basket. Think of it as a range of different pieces within a jigsaw puzzle, all shapes and sizes, coming together to create the structure of a financial plan. As more and more people find themselves with significant wealth as a result of investing in non traditional assets such as cryptocurrencies, or as a result of soaring property prices it may be time to consider a holistic approach to financial planning.

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Diversification can take many forms. It can be achieved by adopting different investment strategies, different time-scales (short, medium and long term), maximising different tax allowances and the use of different financial products. The blend of which will all ultimately depend on your specific goals and objectives; put simply, what are you trying to achieve and where are you aiming to get to? This is the crux of the matter, and everyone’s objectives are different, meaning not one financial plan is the same, as they should be bespoke to the individual or family in question. Inherently, those jigsaw pieces I mentioned earlier will therefore look different for everyone.

Diversification –

Why you shouldn’t put all your investment eggs in one basket.

Investme

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GUEST ARTICLE FROM:

ent Eggs

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Ella Davies Clarion Wealth Planning Ltd Ella Davies of Clarion Wealth Planning Ltd, is a Chartered Financial Planner who specialises in true, holistic, lifelong financial planning.

Goals and Objectives

Timescales

These are different for everyone, and a robust financial plan should account for these individual nuances. I have listed a few examples below, but the list is endless. Naturally as human beings our personalities and values are very different, therefore we tend to have different goals in life. I find that some of our goals and objectives can be similar, however we place a different level of emphasis on each when prioritising them.

You may wish to adopt different investment strategies for different pots of money depending on the timescales involved. For instance, for a pension fund which won’t be accessed for decades or will be left untouched for future generations, it may be prudent to adopt a more adventurous risk profile in comparison to an investment fund which may need to be accessed in the relatively short term. In this circumstance it would perhaps be wise to consider a more cautious approach given you may not have the ability to ride out any market volatility before this particular pot of money is needed.

• Helping children on the property ladder • Protecting your family in the event of illness or death • Spending more time with loved ones • Assisting loved ones financially with a warm hand rather than a cold hand, so you can see them benefit from your gifts • Saving for your dream home or setting funds aside for a lavish retirement • Providing a defined level of income Diversification within a financial plan is very much led by these personal objectives, meaning the jigsaw pieces look different for everyone.

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The decision around timescales, very much depends on an individual’s objectives at each stage of their lifetime. Investment Styles There are various different options when it comes to where to actually invest your money, and this is most definitely one area where it would be unwise to have all your eggs in one basket. In terms of mainstream investment styles, these can be actively managed funds, passive style investments such as Exchange Traded Funds (ETFs) which track particular indices, or a multi-asset approach which tends to adopt a blend of both active and passive strategies.

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There is a lot to consider when building a diversified portfolio and it doesn’t necessarily solely come down to your investment choices.

You can of course invest in more esoteric investments which tend to be directly held assets such as farmland, forestry, gold and other precious metals, property and other tangible assets. The benefits of which is that these are not correlated to standard investment funds and so provide an additional layer of diversification. However, it is important to note that there is little regulation around these directly held assets and as such the investment risks tend to be higher. Nowadays, there are a lot of different options available to investors which can easily be accessed online without taking any form of advice. Whilst I am sure these may offer some potential, it is important to remember that you should only invest in anything high risk and unregulated that you can afford to lose. There are also various options when it comes to venture capital. Whilst these are inherently higher risk due to the less established counterparts involved, venture capital can be accessed via HMRC approved structures such as Enterprise Investment Schemes (EIS), Venture Capital Trusts (VCT), and AIM listed portfolios which offer valuable tax reliefs when used in the right context. This leads me nicely on to my next point regarding tax allowances. Tax allowances

Enjoying this article, but need more advice on any of the topics covered? To discuss how ETC can help with your tax questions call the team on 0161 711 1320 or email enquiries@etctax.co.uk

There are various methods and strategies in which you can invest tax efficiently. Making use of annual tax allowances through financial products such as Individual Savings Accounts (ISAs), pensions, Junior ISAs, Junior Pensions, General Investment Accounts and Investment Bonds to name a few. These products will allow you to make use of ISA allowances, capital gains tax allowances, tax deferred bond income, charitable donations and gifting allowances.

The allowances may seem small to some, however used correctly can make a huge difference over the longer term. I once had a client refer to these smaller allowances as ‘buttons’, however once I modelled the difference a disciplined approach of maximising these smaller allowances can make, he soon became an avid supporter of ISAs and pensions for his family. In summary, there is a lot to consider when building a diversified portfolio and it doesn’t necessarily solely come down to your investment choices. A blend of the above strategies and how they all come together is important when visualising that completed jigsaw puzzle. It is always best to take financial planning advice to ensure your objectives are met. Risk Warnings The content of this article does not constitute financial advice and you may wish to seek professional advice based on your individual circumstances before making any financial decisions. Any investment performance figures referred to relate to past performance which is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy. The value of investments, and the income arising from them, can go down as well as up and is not guaranteed, which means that you may not get back what you invested. Unless indicated otherwise, performance figures are stated in British Pounds. Where performance figures are stated in other currencies, changes in exchange rates may also cause an investment to fluctuate in value. Tax planning and trusts are not regulated by the Financial Conduct Authority.

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Case Case ofofthe the month month

Capital Reduction Demerger -

Family Business O

ur clients, (mother and father) had established a successful student let business comprising of in excess of 40 properties. They planned to pass the company to their two children as they were reaching retirement age. The children had recently become shareholder-directors of the company. However, the children could not agree on whether they wished to continue letting those properties to students and approached us for advice. The current ownership structure was complicated and there were several trusts involved, as well as lot of different classes of shares. The properties stood at a significant gain, and the potential SDLT costs of moving properties around could have been significant.

Angela Wood Managing Director angela.wood@etctax.co.uk 14

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We considered how it might be possible to achieve the client’s objectives by splitting the properties into two separate companies, each under the sole ownership of one of the children. It was determined that a capital reduction demerger was the best option for this and would allow the properties to be separated with minimal tax cost.

When contemplating such a process, there are a number of factors to be considered, not least: • Obtaining tax clearance from HMRC • Valuing the assets to be retained and those to be demerged • Consideration of the nature of the assets to be demerged – this can have an impact on how the assets are moved between the various companies and the time-scales involved • Whether the business will be affected by the demerger – the process involves a change of control of the business, which may have undesirable commercial or tax consequences if not properly planned for • Any claims for stamp duty relief ETC Tax work with clients, and their legal advisers to ensure that all aspects of a demerger are handled appropriately. If you have clients in a similar scenario, wishing to separate their interests in a trading or investment company, please do get in touch.

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Bulletin:

The latest news round-up from the ETC team

The Report

Our quarterly case review and activity report • Share sale from Company share scheme • Non dom thinking of buy to let investments • Due Diligence on Restaurant Purchase • Company Share Reallocation • Parking VAT Advice • Property incorporation • R&D for year end • Significant NFT sales

PCD comes to Manchester Once again, another successful night in Manchester for Private Client Dining Club. The event, hosted by David Bell, did not disappoint, and as always was well supported by professionals in and around the area. “This was my first time networking with PCD representing ETC Tax, and I was a little nervous to be heading to this well respected event. As soon as I arrived, with a glass of fizz in hand, I settled into the evening and made lots of new connections. I look forward to the next event!” commented Amie Manchester.

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ETC Tax join Altrincham BID Altrincham BID is a business-led and business funded organisation formed to contribute to the improvement of Altrincham and we are pleased to be the latest business to join. Angela Wood, our Managing Director, commented “we decided to join the BID voluntary members scheme as we recognised they aimed to ensure Altrincham was a better place to do business, something we advocate, and want to be part of. We also felt passionate about integrating within the local community and getting involved with the networking and business opportunities BID provides. Here at ETC Tax we look forward to more opportunities in meeting likeminded businesses who back the scheme as well as getting even more involved with the business community in Altrincham.”

Up and coming ETC Tax online events

Day out for the team

17th November Cryptoassets and Related Activities: Tax and Associated Legal Issues Click here to book tickets

Taking in the city's atmosphere, colour profiling, lunch, The Cube, crazy golf, food and drinks! Have you got what it takes to beat the cube!

8th December Use of Family Investment Companies in Inheritance Tax Planning Click here to book tickets

Another great team day out with ETC Tax!

Out now: Crypto & Other Digital Assets Lots of hype in the office this month with the release of Andy’s book: Cryptocurrency and Other Digital Assets. Have you managed to get hold of a copy yet? Click here to order