Prosperity Private Wealth Newsletter - September 2021

SEPTEMBER 2021

PROSPERITY P R I VAT E C L I E N T N E W S L E T T E R

albertgoodman.co.uk

welcome

Welcome to the latest edition of the Prosperity newsletter.

As I’m writing this, things have finally started to return to normal, albeit a ‘new normal’, with the vaccines largely administered, schools returning to classrooms for a new academic year and travel somewhat available, there does seem to be some reminders of what life used to be like before Covid-19.

However, it’s safe to say that the larger part of 2021 has been as turbulent and uncertain as its predecessor, and with the governments worries surrounding how well the NHS will cope this winter, who knows how long this will last, however, let us enjoy it while it does!

We are just now welcoming our teams back into our offices, allowing us to return to giving our clients great service face-to-face as well as virtually, we look forward to seeing all of our clients, in-person, again soon!

In this Autumn edition, we are looking at upcoming deadlines of Making Tax Digital for Income Tax Self-Assessment, additionally, our new Tax Director Chris Thorpe, tells us why we should put our trust in Trusts. Also in this edition, we are looking at making the most of your cash savings, Family Investment Companies and ESG investing.

I hope you enjoy the change of season and with it, hopefully, some new found freedom!

Louise Osborne Partner

04

06

08

10

12

14

CONTENTS 04

Tax deadlines

05

MTD for ITSA is coming

06

In Trusts we trust

07

When your profits are taxed, is changing

08 - 09 Making the most of cash savings 10

Increase to the normal minimum pension from 55 years to 57 years

11

Family Investment Companies

12 - 13

ESG investing

14

Is my company trading and why does it matter?

15

Case study PROSPERIT Y NE WSLE T TER

03

UPCOMING TAX DEADLINES OCTOBER 2021 5th

Deadline for notifying HMRC that you need to complete a tax return for the year ended 5 April 2021,

unless you are already in the self assessment system. This might be due to the commencement of

a self employment, a capital gain, the let of a rental property or receipt of some other income not

taxed at source.

31st

Deadline for submitting a paper tax return to HMRC for the year ended 5 April 2021.

DECEMBER 2021 30th

Deadline for submitting your tax return online, if you have a tax liability of up to £3,000 and want

the tax to be collected via an adjustment to your PAYE code for 2022/23, rather than paying the

tax by 31 January 2022.

JANUARY 2022 31st

Deadline for submitting your tax return online for the year ended 5 April 2021, as well as the

deadline for paying your tax for the year, as well as the first payment on account towards the

year ended 5 April 2022.

04 P R O S P E R I T Y N E W S L E T T E R

MTD FOR ITSA IS COMING Making tax digital (“MTD”) is due to become mandatory for income tax self assessment (“ITSA”) from 6 April 2023. This means the majority of individuals and partnerships will be required to complete quarterly reports of their income to HMRC under MTD. Returns will need to be filed within one month of the quarter end, meaning those with a 5 April year end will file their first MTD return by 5 August 2023.

This affects individuals who meet the following criteria: Sole trade income with turnover exceeding £10,000.

Property landlords with gross rental income (before deducting expenses) exceeding £10,000.

Individuals with a combination of any of the above that takes them over £10,000 of gross income.

Partners with an income share from a partnership representing income exceeding £10,000, although how this will be measured is yet to be defined.

An end of year submission will also be required, where the details submitted in the quarterly reports will be reconciled and adjusted as necessary. The year end filing will also incorporate other sources of income for which quarterly reporting is not required, such as investment portfolio income, pensions and employment income.

All returns must be filed using MTD compatible software, with a new points based system for penalties if submissions are made late.

This is the latest step of HMRC’s goal to become one of the most digitally advanced tax administrations in the world.

MTD for VAT has already been rolled out to most businesses and will become mandatory for all VAT registered businesses from 6 April 2022, with early indications being that this implementation date will go ahead as planned.

While it is not possible to confirm at this point the finer details of how HMRC will operate MTD for ITSA, and we cannot be certain that this will become mandatory on the proposed date, we are working towards ensuring that our clients are ready for online filing by April 2023. We already have experience of onboarding our VAT clients for MTD and are working with software providers to ensure we have the best solutions to ensure our clients are compliant with MTD for ITSA. We hope this change in reporting will also provide benefits to us and our clients, by having more current business information and being able to identify “real time” financial results.

We will be able to offer different levels of service depending on your requirements, from assisting with the year end return right through to a full bookkeeping package and filing all the quarterly returns. We will also be able to offer, in partnership with our software providers, training programs for those who want to use the software solution to undertake the record keeping themselves. We will provide more detail on our offerings in due course.

There is an HMRC pilot underway for MTD for ITSA, although the taxpayers that are currently able to use this are limited, with very few individuals satisfying the restricted criteria.

Once the scope of the pilot is widened, we will be keen to identify clients to participate so we can test our MTD filing solutions with HMRC’s systems before the reporting becomes mandatory.

There is much to think about and, while the deadline seems like it is a long way in the future right now, we will be working with our clients and software providers to identify the solutions and roll these out well in advance of mandatory implementation, to make the transition for you as smooth as possible.

Katie Hodge & Helen Cross Tax Consultants

katie.hodge@albertgoodman.co.uk helen.cross@albertgoodman.co.uk PROSPERIT Y NE WSLE T TER

05

IN TRUSTS WE TRUST Trusts have been a part of UK law long before the UK even came into existence – the popular story being that they rose to prominence during the crusades. Certainly, it was around that time that trust law as we know it today, took shape, but the concept was alive and well in Roman times - that concept being one person owning and possessing an asset, but doing so on behalf of someone else.

A modern trust takes the form of a legal owner (a ‘trustee’) and a beneficial owner (the ‘beneficiary’). The legal owner assumes all the rights of any owner of any asset, but they also assume the responsibility of a custodian and of ensuring that the beneficiary is given full use/benefit of the asset. These custodial duties are fiduciary in nature and a breach of those is a serious matter.

The person who establishes the trust is known as the ‘settlor’, they are the original owners of the asset and have passed legal ownership to the trustees. Often, the settlor will also assume the role of trustee but there will be more than one (there can be up to four trustees where land is held). The settlor may involve a professional trustee (who could be a solicitor or accountant etc); but at the end of the day, the trustees can be anyone whom the settlor can trust – the clue is in the name! Financial advisors can also be professional trustees, but usually such advisors are instead hired by the trustees for their ongoing assistance where the trust’s assets consist of financial investments.

There are several types of trusts, but the most common are ‘discretionary’ or ‘Interest in Possession’ (‘IIP’, also known as ‘Fixed Interest’ or ‘Life Tenants’) trusts. The income tax rules vary between discretionary and IIP trusts, and even then can depend on the circumstances. A discretionary trust, as the name implies, gives the trustees complete discretion over the assets – they can distribute income, capital or both or neither to the beneficiaries. There are usually multiple beneficiaries, a group (e.g. the settlor’s children) and often spread over multiple generations to include the settlor’s future grandchildren – and even great-grandchildren, as a trust can last for up to 125 years.

An IIP trust, on the other hand, tends to focus on one particular beneficiary, known as the ‘life tenant’. This life tenant has a right to benefit from the trust asset (usually the income) for the

rest of their life; meanwhile the ownership and capital value of the asset remains with the trustees (who do have some discretion regarding the capital). When the life tenant dies, unless there is another life tenant or one with a successive interest, the trust will come to an end with the assets going into the ownership of a ‘remainderman’. This remainderman is usually a life tenant’s child or maybe a member of the settlor’s wider family, and that asset will become theirs absolutely.

Trusts are advantageous for both tax and non-tax reasons.

For inheritance tax purposes, assets held in a trust are outside the estate of the settlor; and assets going into a trust usually pay no capital gains tax, which would otherwise be chargeable if it were a direct gift. Trusts allow assets to be used by an individual(s) but without it being in their ownership - maybe that individual is too young to own the asset, or even untrustworthy. If that individual is likely to be subject to a divorce, then assets held in trust usually avoid being subject to settlements. It’s a way of making a gift, but still keeping an element of control. It allows the family silver to be safely locked away, but for it to still be used by the intended beneficiaries.

Trusts are therefore very useful tools, not only for tax purposes, but also for succession planning and gifting. They allow all the benefits of direct gifting but give the original owner some control and peace of mind for the future, thus making them potentially invaluable. Please get in touch if you feel you or your family could benefit from creating one.

Chris Thorpe Tax Director chris.thorpe@albertgoodman.co.uk

06 P R O S P E R I T Y N E W S L E T T E R

WHEN YOUR PROFITS ARE TAXED IS CHANGING Since the 1990s, business owners have paid tax based on their accounts which end in a particular tax year, so if you draw your accounts to 30 September, your profits for 30 September 2020 will be taxed in the tax year 2020/21. The rules can be slightly more complicated in a business’ first few years or as it ceases, but the rules have been in place now for many years and are familiar to many. Only one tax return a year is needed for businesses, which also deals with the owners’ personal tax, although separate returns are needed where the business is VAT registered (quarterly VAT returns) or where a taxpayer sells a residential property in the year (30 day CGT return).

However, HMRC’s Digital Roadmap has long set out HMRC’s desire that all taxpayers, including businesses, should report all income sources on a quarterly basis, whether VAT registered or not, placing a significant burden on those less familiar with digital filing, and increasing the number of filings required each year. Increased filings will inevitably mean increased costs. HMRC’s stated objective for this is to enable taxpayers to have greater visibility over their tax affairs and to be provided with regular tax estimates by HMRC so that they can better plan their cash flows.

Business owners above the VAT threshold are already required to file their information digitally under the Making Tax Digital (MTD) rules for VAT. HMRC are extending this to all business and property owners with income of more than £10K per annum from April 2023 under MTD for Income Tax. However, just when businesses, property owners and accountants were coming to terms with this deadline, HMRC launched a grenade under their Basis Period Reform consultation issued on 20 July 2021, proposing that all unincorporated businesses should now be assessed based on the profits in each tax year, regardless of their accounting date, in a possible drive to force more businesses to change their year end to 31 March.

The changes would mean that if a business had a September year end, then in 2023/24, you will be taxed on a prorated 6 months of your profits to 30 September 2023 and a prorated 6 months of your profits to 30 September 2024, requiring your return to be estimated first, and then revised once your second set of accounts are completed. This is being cited as a simplification. The alternative will be to change your accounts date to 31 March, but this will not be practical for all businesses and will not be serviceable by accountants.

It is currently prosed that 2022/23 will be the transitional period, with up to 23 months of profits being taxed for some businesses (30 April year ends), less any overlap relief from earlier years; such relief is likely to be low for mature businesses.

Where this still gives a higher figure than would normally be taxed, taxpayers will have the option of spreading the surplus profits over a 5 year period, or having this taxed sooner. However, more profits will be being taxed each year in either event and this is going to be at marginal rates, which will likely impact on tax rates, loss of personal allowances, pension allowances, child benefit and child care payment claw backs and national insurance costs, to name but a few.

In our view, the proposals are being rushed through. The timings will not allow businesses to properly plan for this and nor will there be adequate time for all implications to be properly considered and legislated for, or communicated to taxpayers. Further, the consultation period is exceptionally short and all responses had to be made by 31 August 2021, which in our view may impact on our tax system’s integrity.

If you would like more information on this, please contact us.

Tracey Watts Partner

tracey.watts@albertgoodman.co.uk PROSPERIT Y NE WSLE T TER

07

MAKING THE MOST OF CASH SAVINGS In a low interest rate market, it can be difficult for savers to get excited about the prospect of managing cash savings.

However, cash is a vitally important asset for both short term liquidity and meeting future liabilities. Ensuring your cash is working hard for you, often involves the management of multiple cash deposits and the constant review of the bank interest rates. This can be a time-consuming and painful process.

Business owners, Charities and individuals often don’t have the time to manage their cash to gain a small advantage.

Historically, the administration of multiple cash accounts has been very time-heavy and as such, not a reasonable return on investment. To help address these challenges, Albert Goodman Chartered Financial Planners have partnered with a leading cash management service provider, Insignis Cash Solutions.

Insignis offers a single sign-up service that gives you access to up to 29 banks and building societies offering exclusive, market-leading savings rates. Insignis is available to Businesses, Charities, Trusts and Individuals so caters for all possibilities.

How Does It Work?

For clients wanting to benefit from this service, they simply register through an online portal and create an account. The desired amount of savings is then transferred into a main bank account through the platform (also known as a hub account) before being spread across a number of different banks.

This process is completed online, and clients can switch funds between accounts with ease. Insignis manages the complex administration on your behalf, providing you with a hassle-free service that enables you to access the best interest on your accounts through one place.

08 P R O S P E R I T Y N E W S L E T T E R

The graphic below highlights how the process works in more detail:

WHAT ARE THE BENEFITS?

Summary

One-Time Sign-Up & management process - By signing up to an Insignis Cash solution, you are accessing a wide range of bank accounts through one place, rather than having multiple different banking apps or paper statements. This leads to a huge time saving, freeing your time up to focus on what is important.

Insignis offers hassle free, active management of your cash deposits to improve the potential returns on your money.

Opening multiple bank accounts to benefit from everchanging rates is too time-consuming. With a single Insignis account, you gain access to the whole savings market through one, easy to use platform. Whether you are an individual, company, charity, trust, or local authority, Insignis can help manage your cash in a more secure and efficient manner.

Top interest Rates - Insignis presents the top interest rates across all savings account on a daily basis to ensure that clients are receiving the best rates. In addition, the smaller ‘challenger’ banks in the market at the moment. They have rapid growth objectives and as a consequence often offer better returns than the traditional high street names to attract deposits.

If you would like to discuss the Insignis Cash solution with one of our advisers, please get in touch and we will be happy to discuss this in more detail.

Multiple Term Options - The solution offers a variety of term options to keep your funds as liquid as possible. You can hold different accounts with different terms to ensure that you meet your cashflow and liquidity requirements at the right time.

Full FSCS Protection - The solution benefits from the Government-backed FSCS protection eligibility of up to £85,000 per individual for each account opened. The solution has the ability to split larger sums of money across accounts to ensure this FSCS protection remains in force.

Cash Moved Securely - Cash is moved securely within the UK banking system and you remain the beneficial owner of your money. This is key to ensuring that you funds are protected at all times.

Calum Butt

Financial Planning Consultant

calum.butt@albertgoodman.co.uk

PROSPERIT Y NE WSLE T TER

09

INCREASE TO THE NORMAL MINIMUM PENSION FROM 55 YEARS TO 57 YEARS The government has introduced draft legislation proposing to increase the Normal Minimum Pension Age (NMPA) from 55 years to 57 years from 6 April 2028.

This followed an initial Consultation Document issued by the Treasury to the pensions industry.

The resulting published draft legislation raised several key factors for anyone wishing to make use of the NMPA at age 55.

These are summarised in this article.

At the outset, we can establish that for those born before 6 April 1971, they will be able to continue to access their pension benefits at age 55. However, for those born after 5 April 1973, the earliest date from which pension benefits may be accessed, will move by two years to age 57.

For those born between 5 April 1971 and 5 April 1973, they may still have the prospect to draw pension benefits from their 55th birthday prior to 6 April 2028, the date from which the new NMPA becomes effective.

The draft legislation will also introduce a window that will give individuals an opportunity to join a pension scheme by 5 April 2023 where, if the scheme rules on 11 February 2021 already establish an unqualified right to take pension benefits before age 57, this will be upheld, allowing access to benefits from the lower age of 55.

The term unqualified right is where an individual has the option to draw benefits from age 55 without the requirement to have consent from any other person (such as an employer or trustee) before they take their pension benefits.

Pension members participating in a pension scheme which already has a right to access benefits at age 55 written into the rules, will have this protected even after the changes in 2028, whilst they remain in the scheme.

This will include the following: • Certain occupational schemes such as the Armed Forces, Police and Fire Service.

• A protection regime will be introduced with effect from 11 February 2021 that will establish that a pension member of a registered UK pension scheme (occupational or non-occupational including private schemes) who had an unqualified right under the existing scheme rules at the date of the consultation, to take the pension benefits at an age below 57, will be protected from the increase in April 2028.

010 P R O S P E R I T Y N E W S L E T T E R

• Anyone with an existing protected pension age will see no change in respect of their current protection, whilst they remain within the scheme.

• Where a pension member has a protected pension age, the protection will also apply to benefits accrued after 5 April 2028.

• There will be no change to the basis upon which pension members can access pensions early because of ill health.

It is important to note that where a NMPA of 55 years has not been specified within the scheme rules, it could result in the scheme automatically moving to the revised minimum retirement age of 57 years after April 2028.

The draft legislation has proposed that pension members who have a protected pension age of 55 within their scheme, will have this age protected, where a block transfer of members to a new pension scheme takes place.

Where a pension member is making an individual pension transfer to a new scheme, they will need to establish whether there is the prospect they could lose their protected pension age from the previous scheme, upon joining the new scheme.

Clearly, for pension members wishing to take advantage of the current NMPA age of 55 years, they need to speak with their existing pension providers to establish the position.

For those pension members who are thinking about transferring their pension benefits with the expectation that they may access their benefits at age 55, the appropriate checks will need to be undertaken first, and timing is critical.

As with any pension matter, it is always prudent to take professional advice to ensure that you are not restricting your future retirement options.

Paul Holt Chartered Financial Planner paul.holt@albertgoodman.co.uk

FAMILY INVESTMENT COMPANIES Family Investment Companies (FICs) have slowly become popular since the major change in the tax treatment of trusts in 2006.

Prior to that time, when a family wished to pass on wealth to the next generation of the family, but desired to retain some control over the assets, it was common to set up a family trust.

The changes in 2006 brought these trust arrangements within the charge to Inheritance Tax so that a 20% tax charge is made on creation of the trust, and further charges were applied every ten years.

Since 2006 the FIC has become a useful alternative as there is no Inheritance Tax charge on their creation. In essence a FIC is a limited company which is established to hold family property for the benefit of future generations. Typically, Grandparents will introduce funds or assets to the company and will gift shares in the company to children and grandchildren. This normally occurs when the company value is low to avoid unwanted capital gains tax charges, but as the company grows over time and Grandparents withdraw their initial investment to live on, so the value in the company transfers to the benefit of all the family shareholders. The share structure needs to be considered carefully but it can achieve a flexible redistribution of income and capital under the control of the founder Grandparents until they feel confident to hand it on to the next generation.

In the light of their increased popularity HMRC set up a special unit in April 2019 to investigate whether these new arrangements were promoting tax avoidance. HMRC have recently announced the finding of this unit, and we are pleased to see that they have concluded that FICs are not being used for tax avoidance and the unit has been disbanded.

Care is still required in establishing FICs to ensure the desired tax profile is achieved, but this means that families can make use of FICs in their tax and financial plans with more confidence that they will not attract undue attention from HMRC.

Andrew Law Senior Manager andrew.law@albertgoodman.co.uk PROSPERIT Y NE WSLE T TER

011

ESG INVESTING 1. WHAT’S THE DIFFERENCE BETWEEN ETHICAL, RESPONSIBLE AND SUSTAINABLE INVESTING AND ESG INVESTING? Some form of investing, on the basis of beliefs, has been around since Islamic banking prohibited investments in alcohol, gambling and pork, back in the 7th Century, but the term ESG is less than 20 years old.

Many different terms have been utilised for investing in a more responsible way over the years. ‘Ethical’ Investing tended to be used historically for portfolios which excluded shares in firms perceived to be ‘bad’, such as fossil fuels or animal testing.

ESG (Environmental, Social and Governance) is a term used most commonly for portfolios being offered today. Whilst some companies are excluded , these portfolios tend to be much more proactive in engaging firms to change for the better, rather than just excluding them. This engagement process can create real change.

To clarify the terminology; The ‘Environmental’ covers a range of aspects, but the focus is particularly on reducing carbon emissions, avoiding biodiversity loss and resource depletion.

‘Social’ refers to issues such as health and safety for workers and avoiding slavery and child labour.

‘Governance’ issues include executive pay, business ethics and transparent disclosure of information.

The term ‘responsible’ investing is helpful in being a more over-arching term for all of the above, and is a way of introducing these topics without, for example, having to explain what the E, the S and the G mean.

012 P R O S P E R I T Y N E W S L E T T E R

2. DOES AN ETHICAL INVESTING STRATEGY MEAN SETTLING FOR LOWER RETURNS? No, there is really no evidence to support this. At AG we focus very much on what the evidence tells us and use this as the basis for our investment philosophy.

Historically, as mentioned above, a pure ‘exclusionary’ portfolio may have meant lower expected returns, because the pool of firms whose shares make up your portfolio was smaller.

Many people now believe that more sustainable portfolios will do better in the future, and it is hard to argue this logic, after all, no company was ever penalised for being too sustainable.

The public are more aware than ever, and evidence suggests a significant move of consumers away from those firms not showing their ESG credentials.

Recently ESG portfolios have outperformed similar non-ESG ones, although this has been more to do with chance in the short term; those sectors which have done well in the last 12 months happen to be those which are more aligned with ESG principles.

So, whilst only time will tell (and of course nobody can make any guarantees), it does not appear to be the case that a more sustainable portfolio will do any long-term harm to your returns.

3. HOW DO FUNDS MEASURE COMPANIES’ PERFORMANCE IN ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) AREAS? - HOW DO YOU GUARD AGAINST ‘GREEN WASHING’!

This is quite a complex area. A portfolio is typically made up of a very large number of equities (shares) . Each and every company whose shares make up the portfolio are judged by ratings agencies on their ESG credentials. These can vary

considerably, depending on the methodology applied, and what is reported by these companies. The growth in ESG investing has been huge in the last few months and years and continues to snowball. All the time, the methods of reporting and the robustness of the data are constantly being tested, standardised and improved.

Clearly this is not a perfect situation however, and whilst this kind of analysis is improving all the time, we should consider the alternative; to do nothing and wait for better reporting?

Of course ‘greenwashing’ can be a problem, but it should not stop us acting in the best way that we can, in order to try to make positive change and, as analysis improves and becomes more robust, things will continue to improve.

4. CAN I CHOOSE TO INVEST SPECIFICALLY IN COMPANIES HAVING A POSITIVE IMPACT ON THE ENVIRONMENT FOR EXAMPLE OR IMPROVING GENDER DIVERSITY OR WORKERS’ RIGHTS IN DEVELOPING ECONOMIES? Yes you can. Responsible investing can be thought of on a sliding scale (below), from a ‘non ESG’ portfolio on the left, right up to giving away money direct to good causes.

1. Agnostic: A ‘non’ ESG portfolio 2. Integrating some ESG objectives.

3. Sustainability focus, and exclusions.

4. Impact Investing: investing specifically in companies making a positive change.

5. WHAT ARE THE KEY THREE THINGS I SHOULD THINK ABOUT BEFORE PURSUING AN ETHICAL INVESTMENT STRATEGY? 1. All of the same thoughts and considerations should apply as any other investment strategy; how long you plan to invest for, how much risk you wish to take, and why you are investing. These are key to all investment decisions.

Additional points to consider in ESG investing would be; 2. Do you have very specific environmental or other requirements, or are you aiming simply to be more responsible than not? If so, can you communicate these clearly?

3. Does the adviser you have chosen have the right knowledge and experience in ESG investing?

Finally, don’t lose sight of the fact you’re making a positive change. Global finance has a significant impact on firms all over the world, and investing in this way does make a difference to the world we all live in.

Note: Past performance is no guarantee of future returns.

The information given is for information purposes only and does not constitute a recommendation. You should contact an appropriately qualified adviser for more information.

5. Philanthropy; Giving away money to good causes.

If you have specific objectives, either that you wish to include companies making a change or exclude those that you particularly object to, this can be done. It is important to be aware that some further investment risks can be associated with doing this, for example it may be a higher risk portfolio than a more mainstream solution however an adviser will be able to give you more information and we would be happy to discuss this with clients.

David Scull Client Services Team Leader david.scull@albertgoodman.co.uk

PROSPERIT Y NE WSLE T TER

013

IS MY COMPANY TRADING AND WHY DOES IT MATTER? A recent flurry of company succession reviews has led to discussions about previous director decisions in relation to excess company cash.

I understand that owner managers of private companies with cash in excess of working capital or growth needs, do not always wish to extract the value in full but are equally reluctant to leave it in the bank with today’s dismal interest rates. Choosing alternative investments to provide a better return can seem like a sensible commercial decision, but the negative impact upon various capital tax-based reliefs can outweigh the returns to a significant degree.

When tax professionals talk of capital tax-based reliefs, they generally mean those associated with assets on sale, gift or death which can mitigate tax charges or attract the lowest rates of tax .

Whether or not a company is trading or holds investment assets, becomes an important area of review at these trigger points in particular.

Our tax legislation unhelpfully does not provide a common definition of trading companies and as is the nature of our evolving tax law, uncertainty over future changes is a further risk. Whilst this article focuses on the shareholder and capital tax-based reliefs, trading status can impact a number of other areas of tax legislation.

To provide some context for shareholders of private trading companies, I have identified a number of common examples: A trading company owning an investment property.

• For larger private trading companies, this may not impact the trading status for Business Asset Disposal Relief or Business Property Relief, but should still be considered.

• Dependent upon your shareholding percentage, a restriction can be placed on the availability on Gift Relief (perhaps when transferring shares to the next generation), generally creating a tax charge on direct transfer. Gift Relief associated with trusts are not impacted by this restriction.

A trading company owning a 20% shareholding in another trading company.

• For Gift Relief and Business Asset Disposal Relief this may not impact the trading status (the latter depending upon your personal shareholding).

• Business Property Relief can be impacted and should be reviewed closely.

• Note interests <10% can have an impact on all capital taxbased reliefs.

Building up investment activities with one eye on the 50/50 Business Property Relief test.

• The majority of capital tax reliefs look to an 80/20 trading/ investment test as a starting point.

• The 50/50 Business Property Relief test could well be aligned with the 80/20 based tax reliefs.

Most tax professionals I have come across do not live to pour water on your commercial ideas. We are largely here to try and understand the future plans for your company and to outline tax risks and opportunities associated with your business strategy.

In my experience, it is more cost effective to take the time to consider your plans with tax professionals before you do them, rather than suffer the cost of undoing them or worse yet not being aware of the impact until it is too late.

Once the areas of risk and opportunities have been identified, this then enables you to make informed decisions which very well may include losing particular tax reliefs!

If this article raises any concerns, please do get in touch with a member of the AG tax team.

Elaine Grose

Senior Tax Manager

elaine.grose@albertgoodman.co.uk 014 P R O S P E R I T Y N E W S L E T T E R

CASE STUDY We were introduced to a director of a successful, expanding business, which required new larger commercial premises from which to operate.

The director each had Defined Contribution Money Purchase Pensions which collectively had a value that was more than sufficient to buy the new premises.

The director therefore decided to transfer and consolidate his pension fund within a Group SIPP to acquire the new property.

By making use of this pension scheme in this way, he saved money, having negated the need to go to his bank to borrow funds.

Holding the commercial property within his pension scheme allowed him to benefit from future tax-free rental payments to the scheme, paid by the business (also treated as a trading expense).

The property is now retained within the protected environment of his new pensions scheme. The property will not be subject to capital gains tax at the point of disposal and, furthermore, under normal circumstance, the pension’s property asset would also be exempt for Inheritance Tax purposes.

The pension member also secured a tangible pension asset with the ability to generate a known future income stream, to help with his long- term retirement plans.

This was received well by the company director. The client appreciated the firm’s proactive team approach supporting him through the relevant service lines, delivering a positive, tax efficient solution.

Please note that this option doesn’t work for everyone and that appropriate professional, financial advice should be taken at all times.

Paul Holt APFS, Cert CII (FS) Chartered Financial Planner paul.holt@albertgoodman.co.uk

PROSPERIT Y NE WSLE T TER

015

Albert Goodman Chartered Financial Planners is the trading style of Albert Goodman Financial Planning Ltd, which is authorised and regulated by the Financial Conduct Authority.

TA U N T O N | BR I S T O L | C H A R D | W E S T O N -S U P E R- M A R E | W E Y M O U T H | Y EO V IL

albertgoodman.co.uk