Know about long awaiting tax relief consultation
This week, the government released draft legislation for the Finance Bill 2022-23. It includes consultations regarding changes to capital gains tax and R&D tax relief. Rebecca Cave highlights key points from legislation day.
The civil service publishes all pending consultations and draft tax legislation. This happens usually at the end of each Parliamentary term. We have a lot of suggestions for the next Finance Bill this summer to worry about until the government can get back to real work.
Sometimes, tax law requires minor adjustments to correct any unfairness that has occurred due to an earlier change or has evolved over time. This heading includes two types of pension proposals and capital gains.
Divorce of a married couple requires assets to be divided between the parties, which often includes a share of the value of the home. Transfers between married couples are subject to CGT only if they take place within the same tax year as their separation. Between that date, and the decree nisi, the couple is connected but not living together. Therefore, the CGT no gain/no lose treatment for transfers between civil partners/married couple does not apply.
The proposals will extend this CGT exempt period by three years for separated couples and allow assets that are subject to a divorce agreement to transfer on a non-gain/no-loss basis without any time limit.
This applies to all disposals occurring after 6 April 2023. It was made following a recommendation from the Office of Tax Simplification.
The second CGT simplification is for homes and land exchanged by LLPs and Scottish partnerships. Roll-over relief and private residence relief will apply to any gains. This modification is retroactive to 23 March 2022 when it was first announced.
Pensions – Net pay
If the individual taxpayer is paying pension contributions from Net Pay, then it’s fine. They get the same tax relief as if the employer has a relief-at-source scheme. But under Auto-enrolment many low-paid employees contribute to pensions even though they aren’t earning enough to pay income taxes. They, therefore, miss out on tax relief.
Employees on net-pay plans will be eligible to receive a rebate from the government for the tax relief that they are due starting in 2024/25. It is not clear why this hasn’t been resolved earlier.
Clarifications will be made regarding the treatment of regular income from collective-money purchase pension schemes that are being wound down. These payments will be taxed as pensions, and not as unauthorised. This change will be effective from 6 April 2023.
R&D tax relief credit
To make the R&D tax relief program less susceptible to fraud, there have been many consultations. The Finance Bill proposal goes further. This means that small businesses who wish to claim R&D tax relief must inform HMRC at least six months before they plan to file their claim. The claim must also include the names of both the senior tax advisor and the company’s chief officer.
15% Minimum International tax
Under the OECD Pillar 2 proposal, large multinational companies will be required to pay a minimum 15% tax in every jurisdiction where they operate. To ensure this minimum tax in the UK, the Finance Bill will contain a new multinational topping tax. It will be effective 31 December 2023.
UK businesses will be required to maintain evidence of transfers pricing decisions in a prescribed format and standardised format as per the OECD transfer price guidelines.
The government can collect tax by way of something called a “levy” or a “duty”, but not a tax, if they don’t announce a new tax. To make these taxes more effective, three of them need to be adjusted:
- The four aggregates exemptions will now be combined into one general exemption and one exemption for construction sites.
- The soft drinks levy will be extended for drinks dispensed at fountain machines.
- To reduce the band for domestic passenger duty and to add a higher band on ultra-long-haul flights, we will reform them.
These two areas are important to understand about tax treatment:
- The payment will be taxed capital gain for farmers who receive it from the lump sum exit program (LSES).
- Companies that allow their residential properties to become part of the Homes for Ukraine scheme are exempted from ATED as well as the 15% SDLT rate on these properties.
What next -Consultations
Two new consultations were launched concerning new powers for HMRC to collect data from businesses and to digitize business rates, including linking those data to the wider tax system. These consultations will be covered in more detail over the coming days.