Taxation and trusts update: SEISS; Property; Self-assessment; Expenses; IHT
02 June 2020
02 June 2020
Taxation at trusts update from 14 May 2020 to 27 May 2020
Taxation and trusts
- SEISS – Don’t miss out
- New guidance on moving home in England is now available
CGT on property sales and reinvestment in EIS investments
- LISAs – Temporary reduction in withdrawal charge due to COVID-19
- COVID-19: Self-Assessment deferred payments on account – New guidance
- COVID-19: New temporary tax exemption for reimbursed expenses
- COVID-19: CLBILS loan amount to be increased, but dividends not to be paid
- COVID-19: Updated HMRC guidance re probate forms IHT400 and IHT205
- Coronavirus: Mortgage payment holiday extended for a further three months
The Self-Employment Income Support Scheme (SEISS) allows eligible self-employed people to claim a taxable grant of 80% of their average monthly trading profits, paid out in a single instalment covering three months, and capped at £7,500 altogether.
The individual can continue to work, start a new trade or take on other employment including voluntary work, or duties as an armed forces reservist.
The grant does not need to be repaid but will be subject to income tax and self-employed National Insurance.
An individual can qualify if they are self-employed or a member of a partnership and all of the following apply:
- they traded in the tax year 2018/19 and submitted their Self-Assessment tax return on or before 23 April 2020 for that year;
- they traded in the tax year 2019/20;
- they intend to continue to trade in the tax year 2020/21; and
- they carry on a trade which has been adversely affected by coronavirus.
(An individual can’t claim the grant if they are a limited company or operating a trade through a trust.)
HMRC will work out if an individual is eligible, and how much grant they may get, by looking firstly at the individual’s 2018/19 Self-Assessment tax return. Their trading profits must be no more than £50,000 and at least equal to their non-trading income.
If they are not eligible based on the 2018/19 Self-Assessment tax return, HMRC will then
look at the tax years 2016/17, 2017/18, and 2018/19.
More information can be found here.
HMRC started to contact people it has identified as eligible in the week beginning 4 May. Claims became open from 13 May, and payments will be received into claimants’ bank accounts from 25 May 2020 (ahead of the original June schedule).
However, the Low Incomes Tax Reform Group (LITRG) has raised concerns that it is aware that some people who are eligible to apply for the SEISS grant have not received correspondence from HMRC.
It is warning people that if HMRC does not have their up-to-date contact details, they might not hear from the tax authority. For example, they may be living at a different address from that where they usually reside or perhaps have changed address or mobile number but have not updated their contact details with HMRC.
HMRC has used information from 2016/17, 2017/18 and 2018/19 tax returns to identify potential SEISS claimants and have contacted them through either email, SMS messages or letter.
HMRC has produced an online eligibility check which identifies whether an individual may be eligible for the grant. If a self-employed individual thinks they may be eligible for a SEISS grant, they should read the Government’s guidance which sets out the full conditions and use the online checker to see if, and when, they can apply for the scheme. The Government’s guidance can be found here.
To use the SEISS online checker the self-employed person will need their National Insurance number and Unique Tax Reference (UTR), both of which are on their Self-Assessment tax return.
If an individual is eligible, HMRC will tell them the date they’ll be able to make their claim from, and ask them to add their contact details. If they can claim straightaway they’ll also need their Government Gateway user ID and password and their UK bank details. If they do not have a user ID, they can create one when they check their eligibility or make their claim. They’ll also have to confirm to HMRC that their business has been adversely affected by coronavirus.
However, according to the LITRG, the online checker only checks some of the eligibility conditions and may give an incorrect result. The LITRG says that it has also become aware that some people who think they are eligible are using the checker and receiving a ‘not eligible’ response.
They suggest waiting a couple of days and then trying again, and if it still shows they are not eligible they can then ask HMRC to review their eligibility.
- CIOT News: Self-Employment Income Support Scheme (SEISS) – update - dated 4 May 2020;
- LITRG press release: Concern that some self-employed risk missing out on COVID-19 cash – 12 May.
The Government has issued a news story which confirms that new guidance has been published on 21 May on moving home. The guidance broadly states that anyone in England can now move home as long as health guidance can be followed. This guidance applies to those who are renting and buying.
In a nutshell, most were advised against moving house unless they had reasonable grounds for doing so. However, under the new guidance, individuals are free to start looking for a new home. In addition, builders, developers and other property professionals are encouraged to return to work although it is still vital that hygiene measures (which include washing hands and carrying hand sanitisers where possible) and social distancing is still observed to minimise the risk of spreading the virus. If social distancing isn’t possible then viewers and agents should consider wearing face masks. Obviously, the process of finding and moving into a new home will be different given the current situation of the need to reduce spreading the virus with more of the process carried out online. Overall, all parties involved will also need to be flexible especially in cases where someone becomes ill or is required to self-isolate.
In addition, the Government has announced a number of changes to make it easier to operate the planning system, and to help support safe construction work - a new safe working charter has been launched by the Government and the Home Builders Federation, which involves more flexible hours, helping construction sites reopen in line with health guidance.
While the Government’s message is to stay alert and stay safe while continuing to practice social distancing, the reality of this is likely to be difficult from a practical perspective so it will be vital for individuals to consider their own personal situation prior to committing to a house move or even returning to work on certain construction sites.
The sale of a main residence will not usually be subject to any capital gains tax (CGT) because of the principal private residence relief whereas sales of buy-to-let or investment properties could generate a chargeable gain for CGT purposes.
Some time ago the Government announced that the rules on the reporting and the payment of CGT on disposals of residential property in the UK, by UK residents, were to change. One of these changes was that, for disposals taking place on or after 6 April 2020, rather than any CGT becoming payable on 31 January following the end of the tax year in which the disposal occurred, the tax would be payable within 30 days of the date of the completion of the contract for sale.
HMRC is of the view that because people in this position will have received the proceeds of the sale of the property, they will be in a position to pay the CGT. However, it does appreciate that some people may experience difficulty – for example, those who have a liability because they have gifted the property and so have no proceeds of sale or those who need to find money (perhaps to inject into a business) to help them through the COVID-19 crisis. In this regard, HMRC has said it will not adopt a rigid practice on this aspect in the current environment. Those who are experiencing financial difficulties at this time and cannot pay their tax bill can find more information about the help available on GOV.UK.
For those who do not wish to pay CGT immediately on the disposal of the property, they could use EIS deferral relief.
Here, provided an amount of up to the taxable capital gain is invested into a qualifying EIS investment at least 12 months before or 36 months after the gain was realised, the capital gain can wholly or partially (as appropriate) be deferred, so effectively rolled-over into the EIS shares. This means that the original CGT liability will not crystallise until later disposal of the shares in the EIS. Under current legislation, if the EIS shares are held at death then any deferred gain is essentially wiped-out.
For clients who are proposing to shelter the tax on capital gains in this way, it is important that they appreciate that the tax relief on the EIS investment will not be available until the end of the tax year in which they make the investment yet the CGT on the property sale will be payable within 30 days of the sale.
- Matt sells a buy-to-let property on 1 May 2020 for £500,000 realising a capital gain of £212,300.
- £12,300 is covered by the CGT annual exemption leaving £200,000 taxable. As Matt is a higher rate taxpayer this gain is subject to CGT at 28% meaning £56,000 tax is payable.
- This CGT liability now has to be met by 31 May 2020.
Matt decides to invest £200,000 into an EIS investment and claim CGT deferral relief.
This investment will qualify for income tax relief at 30% which amounts to £60,000. This will be given as a reduction in his normal income tax liability for tax year 2020/21, but he won’t benefit from that relief until 31 January 2022. If appropriate, he can carry some income tax relief back to the 2019/20 tax year and get relief on 31 January 2021.
In the meantime, he will need to pay the CGT liability of £56,000 which he can recover from HMRC as at 31 January 2022 (or 2021 if a carry-back claim is made) when he claims the deferral relief.
Where large gains are involved and the client is proposing to shelter the whole gain using an EIS, the mismatch of the date of payment of CGT and receipt of the EIS deferral relief may cause cash flow issues. For example, if Matt incurred a large gain of, say, £412,300 he would have been faced with a payment of CGT of £112,000 before 31 May 2020 leaving £388,000 of net proceeds. He would then have had insufficient cash to make an EIS investment that would cover the whole gain so he would have had to rely on accessing other assets to help defer the full gain.
These CGT changes need to be carefully borne in mind when undertaking CGT deferral relief planning.
HMRC has now issued a policy paper outlining the reduction of the withdrawal charge applicable to lifetime ISAs (LISAs) in response to the current pandemic.
During the current pandemic it is likely that more people may need to rely on certain savings that they have to supplement a reduced income. So, in order to help these people, this change reduces the current LISA withdrawal charge from 25% to 20% during the period 6 March 2020 to 5 April 2021. The change reduces the withdrawal charge so that it does no more than recover the Government bonus that has been paid into the account. This allows account holders to access their funds during the coronavirus pandemic while maintaining the long-term nature of the account.
The Schedule to the ISA Regulations will be amended by the Individual Savings Account (Amendment No.3) (Coronavirus) Regulations 2020 to apply the reduced charge of 20% to unauthorised withdrawals made in the period 6 March 2020 to 5 April 2021 inclusive.
Also note that many financial services providers have waived fees and penalties on fixed-term savings products to make it easier for individuals to access savings.
Source: HMRC Policy paper: Lifetime Individual Savings Account: Reduction of withdrawal charge in response to coronavirus (COVID-19) – dated 14 May 2020.
HMRC has published new guidance on choosing to delay making the second payment on account for the 2019/20 tax year.
In April, the Government announced that Self-Assessment payments due 31 July 2020 could be deferred until 31 January 2021 - interest and penalty free. ‘Payments on account’ are advance payments towards an individual’s tax bill (including Class 4 National Insurance if they are self-employed).
An individual has to make two payments on account every year unless:
- their last Self-Assessment tax bill was less than £1,000; or
- they’ve already paid more than 80% of all the tax they owe, for example through their tax code.
Note that whilst this mainly applies to the self-employed, it can apply to other taxpayers, such as landlords.
Each payment is half their previous year’s tax bill. Payments are usually due by midnight on 31 January and 31 July.
Payments on account do not include anything owed for capital gains, as that will be paid in the balancing payment.
HMRC’s new guidance states that an individual has the option to defer payment of their second payment on account if they are:
- registered in the UK for Self-Assessment; and
- finding it difficult to make their second payment on account by 31 July 2020 due to the impact of coronavirus.
(HMRC adds that they can still make the payment by 31 July 2020 as normal if they are able to do so.)
HMRC will not charge interest or penalties on any amount of the deferred payment on account, provided it’s paid on or before 31 January 2021.
Those who choose to defer will not need to tell HMRC that they are deferring their payment on account.
However, HMRC provides an important reminder that deferring this payment could mean an individual has a particularly large amount to find on 31 January 2021. Other payments that will also be due by that date are:
- any balancing payment due for the 2019/20 tax year; and
- the first payment on account due for the 2020/21 tax year.
Claims to reduce payments on account
Businesses who know that their 2019/20 tax bill is going to be less than the previous year can also make a claim to reduce their 31 July 2020 payment on account.
Going forward it is likely that many businesses will also see a drop in profitability in the 2020/21 tax year. As the first income tax payment on account for 2020/21 will be due on 31 January 2021, businesses should monitor their position and make an appropriate claim if necessary.
However, bear in mind that the 2019/20 tax bill is normally based on the profits ending in the 2019/20 tax year, and the 2020/21 tax bill is based on the profits ending in the 2020/21 tax year. This means that some businesses, whose current profits are falling, may not see a drop in their tax bills for some time yet.
Andy prepares his accounts to 30 April each year.
Andy’s tax bill for the 2018/19 tax year was £3,000. This is based on his profits for the accounting year ended 30 April 2018.
He paid his first payment on account of £1,500 (half his 2018/19 tax bill) towards his 2019/20 tax bill, on 31 January 2020.
His second payment on account of £1,500 is due on 31 July 2020, but as his business is now being impacted by the coronavirus, he defers this payment to 31 January 2021.
His tax bill for the 2019/20 tax year is £4,000. So, the total tax to pay by midnight on 31 January 2021 will be £4,500. This includes:
- the deferred second payment on account of £1,500 for the 2019/20 tax year;
- his balancing payment of £1,000 for the 2019/20 tax year (£4,000 minus £3,000);
- the first payment on account of £2,000 (half his 2019/20 tax bill) towards his 2020/21 tax bill.
Note that in this example, based on his accounts for the year ended 30 April 2020 Andy doesn’t expect his 2020/21 tax bill to be any lower than his 2019/20 tax bill – the coronavirus hadn’t hit his business fully before April 2020 - so Andy can’t elect to reduce his payments on account for the 2020/21 tax year.
This highlights the potential impact for a self-employed individual with a 30 April accounting year end. The impact may differ for individuals with other year ends. In particular a 31 March year end would mean that the 31 March 2020 accounts form the basis of the 2019/20 tax bill, and the 31 March 2021 accounts form the basis of the 2020/21 tax bill, so for a business impacted by the coronavirus, a 31 March year end is more likely to result in a lower 2019/20 tax bill as well as a lower 2020/21 tax bill, meaning a reduced second payment on account, and a reduced or nil balancing payment, for 2019/20, and a reduced first payment on account for 2020/21, on 31 January 2021.
Those unable to pay may well need to contact HMRC regarding a Time to Pay instalment arrangement.
Source: HMRC Guidance: Defer your Self-Assessment payment on account due to coronavirus (COVID-19) – dated 15 May 2020
The Financial Secretary to the Treasury, Jesse Norman, announced on 13 May that the reimbursement of expenses that would be for home office equipment (i.e. where the employer reimburses the employee) are now exempt from tax and NICs. The relevant Regulations will have effect for the 2019/20 (from 16 March 2020 only) and 2020/21 tax years.
The current situation would have meant that many employers would not have been able to procure office equipment through their normal processes so, instead, they have allowed employees to buy equipment and claim a reimbursement. And such expenses would have been taxable, i.e. where the employee bought the equipment and claimed a reimbursement rather than the employer buying the equipment direct.
This temporary income tax and National Insurance contribution (NIC) exemption will ensure that no tax liability arises where employers reimburse employees’ personal expenditure on home office equipment arising from arrangements to work from home during the COVID-19 outbreak, provided:
- The equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak; and
- The provision of the equipment would have been exempt from income tax if it had been provided directly to the employee by or on behalf of the employer (under section 316 of ITEPA).
HMRC’s full guidance can be found here.
Source: CIOT News: New exemption for COVID-19 related reimbursed home office expenses – dated 13 May 2020.
The Government has announced on 19 May that eligible businesses will be able to benefit from larger loans under the Coronavirus Large Business Interruption Loan Scheme (CLBILS).
The maximum loan size available under the CLBILS will be increased from £50 million to £200 million to help ensure those large firms, which do not qualify for the Bank of England’s Covid Corporate Financing Facility (CCFF), have enough finance to meet cashflow needs during the outbreak.
The expanded loans, which have been introduced following discussions with lenders and business groups, will be available from 26 May.
However, companies receiving help through the CLBILS, and the CCFF, will be asked to agree to not pay dividends and to exercise restraint on senior pay.
Companies borrowing more than £50 million through the CLBILS will be subject to restrictions on dividend payments, senior pay and share buy-backs during the period of the loan, including a ban on dividend payments and cash bonuses, except where they were previously agreed.
These restrictions will also apply to CCFF participants that wish to borrow money beyond 12 months from 19 May. This will, says the Government, ensure that the money is used to keep the company going through the crisis. The Bank will also publish a list of companies who are benefiting under CCFF on 4 June.
Borrowers under the CLBILS will be able to borrow up to 25% of turnover, up to a maximum of £200 million;
- Lenders who wish to offer larger loans will need to undergo further accreditation checks.
The restrictions in place will include:
- Dividends: Borrowers cannot make any dividend payments other than those that have already been declared;
- Share buyback: Borrowers agree not to undertake any share buybacks;
- Executive pay: Borrowers cannot pay any cash bonuses, or award any pay rises to senior management (including the board) except where they were a) declared before the CLBILS loan was taken out, b) in keeping with similar payments made in the preceding 12 months, and c) do not have a material negative impact on the borrower’s ability to repay the loan.
According to Government figures, businesses have benefited from over £32 billion in loans and guarantees to support their cashflow during the crisis. This includes £359 million through the CLBILS and £18.7 billion through the CCFF.
The Government wants to ensure that money advanced to larger companies to help them keep going through this crisis is not used to pay dividends to shareholders. However, this will inevitably have an impact on investors. UK dividend payments were already set to fall sharply this year. There will be a natural lag before income funds start reducing their dividends, but cuts look inevitable.
Source: HM Treasury News story: Larger businesses to benefit from loans of up to £200 million – dated 19 May
HMRC has updated its guidance regarding processing inheritance tax accounts to say that until further notice IHT400 forms do not need to be signed by all executors/administrators, whether or not they have a professional agent, and IHT205 forms from professional agents do not need to be signed.
Forms IHT400 and IHT205
When applying for probate, the return of estate information form must also be completed. For most estates form IHT205 (in Scotland form C5) will be sufficient, which asks for only brief details of the estate. In particular, this applies in cases where the value of the estate is below the excepted estate limit (usually the same as the nil rate band) or the value is less than £1,000,000 and there is no inheritance tax (IHT) to pay because of spouse, civil partner or charity exemption only. In other cases, a more formal account is required on form IHT400 and supplementary schedule IHT421 (Probate Summary).
HMRC says that it will accept the forms from professional agents if:
- the names and personal details of the legal personal representatives are shown on the declaration page;
- the account has been seen by all the legal personal representatives and they all agree to be bound by the declaration.
The agent must include the following statement:
‘As the agent acting on their behalf, I confirm that all the people whose names appear on the declaration page of this Inheritance Tax account have seen the Inheritance Tax account and agreed to be bound by the declaration on page 14 of the IHT400’.
HMRC will also accept the forms from executors or administrators acting without the help of a professional agent if:
- the names and personal details of any other executors or administrators are shown on the declaration page;
- the account has been seen by all the executors or administrators and they all agree to be bound by the declaration.
Where there is more than one person acting for the estate, they must include the following statement:
‘As a legal personal representative acting for the estate, I confirm that all the people whose names appear on the declaration page of this Inheritance Tax account have seen the Inheritance Tax account and agreed to be bound by the declaration on page 14 of the IHT400’.
Until further notice, HMRC will accept forms IHT205 that are not physically signed from professional agents, if:
- the names and personal details of the legal personal representatives are shown on the declaration page;
- the account has been seen by all the legal personal representatives and they all agree to be bound by the declaration; and
- the agent includes the following statement:
‘As the agent acting on their behalf, I confirm that all the people whose names appear on the declaration page of this Inheritance Tax Return have both seen the Inheritance Tax Return and agreed to be bound by the declaration on page 8 of the form IHT205.’
Source: HMRC Forms: Inheritance Tax account (IHT400/IHT205) – IHT400 information added about executors or administrators acting without the help of a professional agent/IHT205 updated to include COVID-19 provisions – dated 19 May 2020.
(ER1, LP2, RO7)
The Treasury has announced that homeowners struggling to pay their mortgage due to Coronavirus will be able to extend their mortgage payment holiday for a further three months, or start making reduced payments
The availability of a three-month mortgage holiday was first announced in March.
According to the Treasury, over 1.8 million mortgage payment holidays were taken up.
The first of these will be coming to an end in June.
The Financial Conduct Authority (FCA) has published new draft guidance for lenders which sets out the expectations for firms and the options available to their customers.
The guidance sets out that:
- at the end of a payment holiday, firms should contact their customers to find out if they can resume payments, and, if so, agree a plan on how the missed payments will be repaid. Borrowers that resume their mortgage payments will be given options on how best to do so, such as the opportunity to extend the term of their mortgage in order to leave their monthly payments at around the same level as they were prior to their mortgage holiday;
- lenders should continue to support customers who have already had a payment holiday where they need further help, including a further three-month deferral;
- customers that have not yet had a payment holiday and are experiencing financial difficulty will be able to request one;
- the current lender ban on repossessions of homes will be continued to 31 October 2020;
- payment holidays and partial payment holidays offered under this guidance should not have a negative impact on credit files.
Full details have been published by the FCA – for more information please see here.
The FCA is looking for any comments on its proposals until 5pm on Tuesday 26 May, and expects to finalise the guidance shortly afterwards.
Source: HM Treasury News story: Help with mortgages to continue for homeowners affected by Coronavirus – dated 22 May 2020.
This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.