The original rules to the legislation on “Disguised Remuneration” (employment income provided by a third party) have undergone a vast number of amendments since being published by HM Revenue & Customs (HMRC) on 9th December 2010.

The original rules sparked trepidation amongst many – especially since the new rules on “disguised remuneration” came into contact with employee trusts which are used for employee share schemes. Changes in the regulation would have led to up front tax charges on any cash or assets that an employee hadn’t yet received and indeed may never do so.

Fortunately, the Government took note and subsequently HMRC published FAQs to address these particular concerns. They have now included more exemptions to the rule. Meaning the original Finance Bill of 25 pages is now over 65 pages long. Conversely, the majority of companies should not have to change their existing practice of making and hedging employee share plan awards through employee trusts.

With these extra pages of complex legislation, a detailed look at the rules is almost a must! This is where Welbeck Solutions can help.

“The new ‘disguised remuneration’ legislation means that  share schemes can still be able to be used  in conjunction with employee benefit trusts (EBTs) without any adverse tax implications”

Introduction to remuneration:

The concept of disguised remuneration is very extensive. Under the rules, up-front income tax and National Insurance contributions charges may arise if a third party – primarily a company – allocates cash, assets, or shares, for an employee with the intention to possibly transfer the shares to the employee. Therefore, a tax charge could arise for the employee concerned even if the sum or asset is not formally awarded to an employee but is somehow allocated to them.

A number of exclusions and reliefs have since been included in order to exclude certain share plans from the disguised remuneration implications. It is essential to be sure measures for employees either fall outside of the new rules completely, or are within one of the stated exclusions. Both of these factors are dependent on whether the person in question may benefit from full relief – please do speak to your tax advisor for further clarification.

Deferral arrangements

The new rules could be applicable to deferral arrangements. There are exemptions to the rule which have been specifically targeted at deferred remuneration. For this reason there are a number of conditions needing to be met for these to apply.

Hedging share awards

Care needs to be taken over hedging arrangements to ensure that shares are not allocated or “earmarked” for particular employees. If shares have been earmarked, the employee will be liable to income tax and national insurance contributions NICs on the value of the shares at the date in which they are allocated – even if they have not yet been received.

Cashless exercise arrangements

If the trustee of an employee benefit trust, or other such third party, offers a cashless exercise facility, the employee will be liable to income tax and NICs on the value of the loan if it is not repaid within 40 days. Should they be offered by the employing company or a company within the same group, cashless exercise arrangements should be unaffected by the new rules.

Employee loans

On or after 6 April 2011, other loans granted to employees by an employee benefit trust or other such third party, are likely to be affected by the new rules.

No disguised remuneration tax charge will arise for loans granted between 9th December 2010 and 6th April 2011 provided the loan is repaid before 6 April 2012, even if it was granted by a third party. Loans made by an employing company or a company within the same group of companies should remain unaffected.

Sub-funds, Sub-trusts and family benefit trusts

If assets are allocated to an employee through any of these means, then the person in question is likely to be liable to an income tax on those assets at the date in which they are allocated.

For existing sub-funds and family benefit trusts, providing certain provisions are taken, no charge should arise. In any event, this can be complicated so specific advice would be beneficial.

In Conclusion:

The changes have now become law and there are some extremely difficult areas that will need careful review.  For further information please speak to one of our introducers at Welbeck Solutions – we can guide you through these complex changes and help decide the best course of action for you.

The Business Premises Renovations Allowance (BPRA) was due to expire on the 11th April 2012. However, in the budget announcements earlier this year, the Chancellor of the Exchequer, Mr. George Osbourne, declared the scheme would indeed be extended by a further five years from this original date of expiry.

The BRPA was originally established with the sole aim to encourage the conversion and renovation of empty business premises in designated, so-called “disadvantaged” areas, by the introduction of a 100 per cent tax relief incentive.

This relief allows property owners of qualifying buildings to claim 100 per cent tax relief for any qualifying capital expenditure when converting or renovating a disused commercial property.

The scheme seems particularly popular with higher-rate taxpayer’s who can offset their higher-rate tax charges against the relief available on such an investment.

To qualify:

1. The building requiring the work must be in one of the determined disadvantaged areas – care must be taken as the areas which have been assigned are not necessarily deemed “disadvantaged” – some areas are just certain districts within their Local Authority, whilst others are the whole of the Local Authority area.
2. The building must have originally been used for specific commercial purposes and shall be used as such once building work has taken place – i.e an office, profession or trade.
3. The original building must not have been used for:
- Synthetic fibres
- The coal industry or steel making
- Certain agriculture – including the production or marketing of certain dairy products
- Fisheries
- Shipbuilding
4. The building must have remained empty for twelve months.
5. The building must not have been used as a dwelling.

There are uncertainties as to which buildings qualify for the BPRA relief, so any person seeking to invest must conduct thorough research to ensure the basic conditions are met.
 
Any capital expenditure from converting or refurbishing a qualifying building into qualifying business premises can be claimed back through the BPRA scheme, however, any capital expenditure from acquiring land, extensions or land development, will not qualify for the BPRA relief – nor will the cost of plant and machinery which will not become permanent fixtures.

Any investor, or company who meets the qualifying business premises criteria and incur qualifying capital costs, can claim 100 per cent tax relief which can be deductible from trading profits.

There are some downsides – including the aforementioned rule whereby the property must have remained empty for at least twelve months prior to its purchase. The empty-rates relief was abolished so this could mean that during the empty period, rates may have been incurred. In addition, if the property is sold, demolished or no longer resides as a qualifying commercial property within seven years of the start of its intended use, any BPRA previously claimed may be returnable. It is important to determine all necessary information in your individual circumstance prior to purchase.

Welbeck Solutions are an introducer to the tax planning industry and can help put you into touch with providers of BPRA structures. This document is for information only and doesn’t constitute advice.  It is based on our understanding of legislative and regulatory aspects in the financial marketplace. 

The following article was written for Welbeck Solutions. Offering expert advice on tax solutions. To find out more contact us at Welbeck Solutions please email marketing@welbeckgroup.co.uk or call us on 0207 776 2135

If you’re self-employed, you probably pay tax every July, called a ‘payment on account’.  At Welbeck Group, we can explore clever ways that may reduce your tax payment due on 31 July.

HM Revenue and Customs calculate your payment on account by looking at your previous year’s tax bill.  Half of this bill is the amount due on 31 July.  That’s where Welbeck Tax Solutions come in.  An expert from our team will meet with you, discuss your situation and investigate ways of potentially reducing July’s bill.

But don’t delay.  Time’s running out to put us to work.  To find out more about how we might save you money this summer, contact us via email or call us now on 0207 776 2135.

This blog is for information only and doesn’t constitute advice.  It is based on our opinion and understanding of legislative and regulatory aspects in the financial marketplace.  We strongly recommend you seek professional advice before taking any course of action.

Whatever your reasons for investing, lining the taxman’s pockets probably isn’t one of them. That’s why it could pay to expand your horizons – and consider the tax-efficient benefits of investing in an offshore bond.

Not only do offshore bonds usually give you a wider choice of investments than you might find in an onshore bond. You can also potentially grow these investments in a virtually tax-free environment, helping maximise your returns.

Reducing and deferring income tax

Like all investment bonds, offshore bonds are subject to income tax, not capital gains tax. However, there are a few ways they can reduce or defer income tax on your investment:

• An offshore bond is known as a ‘non-income producing asset’. This means tax is only paid when you withdraw money from the bond – except for irrecoverable withholding tax on certain funds.
• If you’re a higher-rate tax payer, you could take money from the bond in later years – when you may not be a higher-rate tax payer.
• You only pay income tax on certain ‘chargeable events’. These include surrendering or part-surrendering your bond, or withdrawing over your 5% allowance (more of this later).
• If you assign the bond to a lower-rate taxpayer, they will be charged at their lower income tax rate when they surrender the bond or withdraw money from it.
• You can switch the investments in your offshore bond without being hit by income tax or capital gains tax.
• Every year, you can take up to 5% of the original amount invested – and any top up premium – until 100% of the original premium is repaid as a ‘tax-deferred withdrawal’.
• If you’re a basic-rate tax payer – and any gain on the offshore bond added to other income puts you in the higher-rate tax band – ‘top slicing relief’ can reduce your liability to higher-rate tax.
• If you’re a non-UK domicile, you can take your 5% tax-deferred allowance without having to pay the usual £30,000 remittance-based tax charge.

Trusts and tax planning

When you die, a large inheritance tax bill is the last thing your loved ones need. You can help reduce this tax by placing your offshore bond in a trust. There are a few trusts to choose from that might suit your needs and situation. Generally, your bond will fall outside your estate once 7 years have passed.

An offshore ‘Capital Redemption Bond’ might also be a good option. This type of bond doesn’t end on the policyholder’s death. So if you place it in trust, you’re free to plan reducing inheritance tax without worrying that the bond will end when you die.

Complementing your pension plans

If you’ve reached your pension contribution limits, it might be worth considering potentially boosting your retirement finances by investing in an offshore bond.

No one wants to pay more tax than necessary – especially when you’re investing to improve your finances. To find out more about how an offshore bond could give your money the chance to grow – while reducing the impact of taxation – email or call us now on 0207 776 2135.

The value of your investment can go down as well as up and you may not get back the full amount invested.

The levels, bases of and reliefs from taxation depend on the investor’s personal circumstances and may be subject to change.

This blog is for information only and doesn’t constitute advice. It is based on our opinion and understanding of legislative and regulatory aspects in the financial marketplace. We strongly recommend you seek professional advice before taking any course of action.