Welcome to Issue 21
of In Business

We hope that all our readers are enjoying the summer and that you find the articles below interesting and informative.

In Business has been published for over 10 years now on a biannual basis, firstly in a paper only option! Time and technology has moved on and we feel that it is now the time to retire In Business from publication using our monthly e-news to provide clients and contacts with topical articles and updates.

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In this last issue we include:

  • The announcement of the appointment of Kevin Hancock as a new partner of the firm
  • Exciting news about Humphrey & Co obtaining Probate Authorisation
  • A reminder about claiming child benefit even if you are a high earner
  • The importance of obtaining a state pension forecast with the impending abolition of Class 2 National Insurance
  • A residence and domicile taxation article
  • A client spotlight illustrating the benefits of the Enterprise Investment Scheme (EIS) used by our client Driving Classics

A new Partner at Humphrey & Co

We are pleased to announce the appointment of Kevin Hancock as a Partner.

Kevin is a Chartered Tax Adviser and provides our clients with advice on all aspects of UK taxes. In addition one of his areas of specialisation is US tax. He is a qualified US tax adviser authorised to represent tax payers in any US state and worldwide.

When discussing his new role Kevin commented “I am delighted to be offered a partnership with Humphrey & Co. Having joined the firm in 2011 I have watched the firm grow and develop in the past 6 years and look forward to being with the firm as it continues to grow.”

Senior Partner Bob McTear comments “We welcome Kevin to the partnership. His in depth tax knowledge is invaluable to clients and we look forward to our specialist tax team growing with Kevin at the helm.” 

Trust & Estate Support Services team obtains Probate Authorisation

We are very pleased to announce that following a major change in the law we have now been formally authorised as a licensed probate firm by the Institute of Chartered Accountants in England & Wales (ICAEW). (Prior to this change only solicitors and banks were able to carry out this work.)

Although we have been assisting and advising clients for many years in connection with the administration, taxation and accounting for trusts and estates the Probate authorisation means we can now provide our clients with a complete estate administration service.

There are less than 300 firms licensed by the ICAEW in the UK. We are therefore delighted with this news.

At Humphrey & Co we are able to guide and support our clients and their families assisting them with their financial and tax affairs perhaps starting with setting up in business, completion of their annual tax affairs, planning for later life including Will and Lasting Power of Attorney drafting, setting up Trusts and then finally assisting with Probate.

We understand how difficult it can be to handle someones legal and financial affairs, particularly at a time when you are likely to be coming to terms with the death of someone close.

If you have any questions relating to Wills, Lasting Powers of Attorney, Probate or Trusts please contact Sue Pocklington.

Do you have children aged under 16?

It is essential that all clients who have children under the age of 16 ensure that one of the parents has completed a Child Benefit claim form. This is even if they decide not to actually receive the child benefit as they would be liable to the High Income Child Benefit Tax Charge.

We are aware that some clients who have recently become parents think that if their taxable income is in excess of £60,000 net per annum there is no reason to complete a Child Benefit claim form. This is not the case.

In many instances it is still advisable to complete a Child Benefit claim form as this will help the claimant receive National Insurance credits which count towards their state pension.

GOING BACK TO BASICS

An individual who cares for a child can apply for Child Benefit. There are two weekly benefit rates:

Eldest or only child £20.70
Additional children £13.70 per child

INCOMES OVER £50,000

If you or your partner’s individual income is over £50,000 the partner with the highest level of income will need to pay the ‘High Income Child Benefit Charge’. In reality if the higher income is in excess of £60,000 the High Income Child Benefit Charge will equal the Benefit received. In this case you can choose to stop receiving the Child Benefit.

EXAMPLE

Andrew and Charlotte a couple have just had their first child. Andrew’s annual net profit is in the region of £70,000. Charlotte has decided to stay at home for a few years before returning to work so has no income of her own.

Although Charlotte could claim Child benefit of £20.70 each week equating to an annual total of £1,076.40. Andrew would be charged the High Income Child Benefit of £1,076.40 so as a unit there would be no cash advantage in actually receiving the benefit.

Charlotte should still complete a Child Benefit claim form to help protect her National Insurance credits towards her state pension.

For more information on child benefit visit: www.gov.uk/child-benefit

Class 2 National Insurance & obtaining a State Pension forecast

Class 2 National Insurance contributions (Class 2 NIC) will be abolished from April 2018. This means that instead of paying two classes of National Insurance (Class 2 and Class 4), the self-employed will pay just one (Class 4) in the future.

Class 2 NIC currently costs £148.20 per annum and for the self-employed if your profits exceed £6,025 a year for 2017/18. Since 2015/16 the bill should have been added to your self-employment tax payable on 31 January each year. (However we have come across instances where HMRC have not done this as their records concerning self-employment have not been set up correctly.)

Class 2 NIC counts towards

  • State pension
  • Contribution-based employment and support allowance
  • Maternity allowance
  • Bereavement benefits 

For self-employed earnings below the exception limit it has been possible to pay Voluntary contributions to assist with ensuring they have a “full contributions” record to be eligible for certain benefits.
(Again we are aware of instances for those paying voluntary Class 2 NIC where the payment has not been accounted for by HMRC.)

With the changes to the National Insurance it is an ideal time for all clients who have not yet started to draw their state pension to check: 

  • how much State pension you may get
  • any gaps in your National Insurance record

Please follow the links below to do this.

https://www.gov.uk/check-state-pension

https://www.gov.uk/check-national-insurance-record

If you have any questions concerning any shortfalls in your National Insurance records then please do contact us.

Residency & Domicile tax rules

We are often asked questions concerning the tax implications of living in countries other than the UK. Here are a few of the frequent questions together with our answers.

How many days can I spend in the UK without becoming resident here for tax purposes?

Residence status is not determined solely by the number of days an individual is physically present in the UK; other factors must also be taken into account.

As an overview, if you have not been resident in either of the three previous tax years (year to 5 April) and spend fewer than 46 days in the UK during the current tax year, you will be non-resident. If you have been resident in the UK for one or more of the three previous tax years you will be non-resident if you spend fewer than 16 days here. Furthermore, if you work abroad full time throughout the tax year in question and spend fewer than 91 days physically present in the UK and fewer than 31 of those days are spent working in the UK, you will be non-resident.

If you are unable to meet any of the above tests, non-resident status can still be achieved under the “sufficient ties” test. In general terms, the number of ties you have to the UK will determine the number of days you can be physically present here before becoming resident. The ties are as follows:

  • Having a spouse or minor child resident in the UK for the tax year in question
  • Having accommodation available for your use in the UK during the tax year
  • Working in the UK on 40 or more days in the tax year
  • Spending more than 90 days in the UK in either of the two previous tax years
  • Being present in the UK more than any other single country in the tax year

The number of days you can spend in the UK based on the above ties will depend on whether you have been non-resident throughout the three previous tax years.

Using an individual who has not been resident in any of the three previous tax years as an example, they will be non-resident in the following circumstances:

  • 1 tie – can spend up to 182 days in the UK
  • 2 ties – can spend up to 120 days in the UK
  • 3 ties – can spend up to 90 days in the UK
  • 4 or more ties – can spend up to 34 days in the UK

Professional advice should always be obtained to determine residence status as the rules are complex.

I am not domiciled in the UK. How does this affect my UK tax position?

UK resident individuals who are domiciled outside the UK can claim the “remittance basis” of taxation, which means that rather than being liable to UK Income Tax on worldwide income and UK Capital Gains Tax on worldwide assets, a charge to tax will only arise on foreign income and gains to the extent that they are brought into or used in the UK.

Long-term residents of the UK will be required to pay an annual “Remittance Basis Charge” (“RBC”) to access the remittance basis as follows:

  • Resident in the UK for 7 out of the previous 9 tax years – RBC of £30,000
  • Resident in the UK for 12 out of the previous 14 tax years – RBC of £50,000
  • Resident in the UK for 17 out of the previous 20 tax years – RBC of £90,000

The second Finance Act of 2017 was going to deem all individuals who had been resident in the UK for 15 years or more as deemed domiciled from 6 April 2017 onwards and thus unable to claim the remittance basis (and making the 17 out of 20 RBC rule above obsolete). However, this deemed domiciled provision was dropped from the final legislation although reintroduction is expected.

Individuals domiciled outside the UK are liable to UK Inheritance Tax (“IHT”) on UK situated assets only. However, under current rules, individuals will be deemed domiciled (and thus liable to IHT on worldwide assets) if they have been resident in the UK for 17 out of the last 20 years. The 15 year deemed domiciled rule mentioned above, if reintroduced, will mean that long-term residents of the UK might be liable to IHT on their worldwide assets two years earlier.

I am resident in the UK and another country for tax purposes. Do I pay tax in both countries?

A dual resident might be regarded as resident in the UK and another country under domestic laws.

In this situation reference should be made to the Double Taxation Agreements (“DTAs”) to determine “treaty resident” status. The UK has DTAs with a number of countries that will give a “tie-breaker” test to determine where the individual is resident for treaty purposes.

Once treaty residence has been established, the tax position of an item of income or a capital gain will be determined by the provisions of the DTA which generally will either give taxing rights to the country of treaty residence instead of the country in which the income/gain arises (or vice-versa) or give taxing rights to both countries but allows tax in one country to be set against the tax liability of another.

I am not resident in the UK. Do I still have to pay UK Capital Gains Tax (“CGT”) when I sell UK assets?

The general rule is that individuals resident outside the UK are not liable to CGT. However, there are exceptions:

  • Gains arising post 5 April 2016 on the sale of UK residential property are potentially liable to CGT and the individual must file a Non-Resident CGT (“NRCGT”) Return and settle any liability within 30 days of conveyance (although payment of the CGT can be deferred if the individual files a UK Self Assessment Tax Return)
  • Individuals who acquire an asset (any asset, not just UK sited assets) when UK resident (and have been resident for at least 4 out of the 7 years), sell the asset when non-resident and return to the UK within five tax years will be liable to CGT when they return to the UK
  • Individuals who are non-resident but trading in the UK and dispose of a UK business asset at a gain are also potentially within the scope of CGT

We appreciate that these rules are not easy to understand. If you do have any questions please do not hesitate to contact us.

If you require further information,
please contact Kevin Hancock.

Client spotlight

We are delighted to introduce Driving Classics, a new client of the firm. In their article, Driving Classics provides an example of using the tax efficient Enterprise Investment Scheme as reviewed in Issue 20 of In Business. 

An exciting new opportunity for investors commenced trading on 1st May 2017. Driving Classics Limited (DCL), a highly selective specialist retailer of classic cars, received approval from HMRC as a qualifying Enterprise Investment Scheme (EIS), thereby offering shareholders a tax efficient way to participate in the strongly performing classic vehicles sector of the ‘alternative assets’ market, which has seen growth of 257% since 2015.

DCL offers an extremely low risk, low overhead investment opportunity where operational costs, and management remuneration, are predominantly linked to trading performance.

DCL has brought together a unique mix of talent comprising individuals with a long established track record in the sourcing, selection, restoration, sale, and storage of rare and valuable vehicles. Through their networks and long established relationships, DCL has access to quality classics that may not yet be offered to the general public. 

Using its financial muscle, DCL offers convenience, speed and certainty to vendors of classic cars at a price that is acceptable to the seller but offers DCL sufficient margin to generate trading profits from their resale.

In addition, DCL has access to renovation specialists that will be able to suitably prepare the vehicle for sale in order to maximise the returns on the vehicle.

On the basis of total investable funds of £2 million, the business plan predicts an annual internal rate of return of 16%, with a total return to investors at exit of 55%, after accounting for the EIS rebate of 30% of invested funds. In addition to the benefits afforded to shareholders as a result of the EIS, after holding the shares for two years, the investment will qualify for Business Property Relief.

DCL has been established with the help of a longstanding client of Humphrey & Co, and the firm is pleased to be providing audit, payroll and company secretarial services to the Company.

Anyone interested in obtaining more information should contact Michael Walton at DCL michael@drivingclassics.co.uk

The article is neither an endorsement nor a recommendation of the specific product. Independent investment and tax advice should always be taken before proceeding when considering an investment of this nature.