Loss Relief: The Give and The Take
Share Loss Relief
There has been some good news for those companies wishing to offset losses from previous years to reduce their tax liability. This follows the European Commission’s challenge against the UK’s conditions to qualifying for the share loss relief scheme for income and corporation tax. Under this scheme, certain taxpayers could set a capital loss on a disposal of unquoted shares in a trading company against its income. The Commission took exception to one of those conditions, namely that the unquoted trading company had to carry on its business wholly or mainly in the UK.
A reasoned opinion was issued by the Commission in January 2019 which found such a condition to be incompatible with EU law. The Finance Bill 2020, which was debated at second reading on 27 April 2020, repeals this condition. However, this will only effect disposals that take place on or after 24 January 2019. This said, as the illegality of this condition has been confirmed by the Commission and impliedly accepted by the Government, it is possible that taxpayers could make claims for share loss relief where disposals occurred before 24 January 2019.
Should you be interested in the broader applicability share loss relief, please contact any member of our team who will be able to advise further.
Corporate Capital Loss Restriction
Unfortunately, the Finance Bill 2020 does not bring entirely good news for those seeking loss relief. This is because it also implements the corporate capital loss restrictions (CCLR) originally announced in Budget 2018.
This will bring carried-forward capital losses into the same regime as the corporate income losses restrictions (CILR) regime. Once enacted, this will mean that a deductions allowance of £5 million, which originally only applied to CILR, will be shared across the two restrictions. As such, where carried-forward capital losses exceed this allowance, the amount of chargeable gains that can be relieved will be restricted to 50%.
The CCLR will not, however, apply to the following:
- The offset of Basic Life Assurance and General Annuity Businesses (BLAGAB) losses against BLAGAB gains;
- Ring fenced allowable capital losses arising in certain UK extraction activities of oil and gas companies;
- Real estate investment trusts where the capital losses are attributable to property income distributions.
Although the Bill has only just debated at second reading at the end of last month, and the Public Bill Committee are not scheduled to report until 25 June 202, these provisions will apply to accounting periods beginning on or after 1 April 2020. Accounting periods that begin before this date but end after it will be split into two notional periods and will generally be treated as if they were two separate accounting periods.
Increased Investment in Personal Tax Compliance in the UK (Published in Thought Leaders 4 Private Client)
Advances in technology and increased international fiscal co-operation have made global personal tax compliance initiatives pop up in abundance in recent years. To compound the issue, the Russian invasion of Ukraine and the corresponding economic fallout prompted domestic governments to increase transparency in relation to investments held by wealthy foreign individuals (with a focus on oligarchs).
In the UK, in the context of the cost-of-living crisis, public opinion certainly seems to be in favour of increased accountability for high-net-worth individuals (eg, on 9 October 2022, 63% of Britons surveyed thought that “the rich are not paying enough and their taxes should be increased”).1
HMRC is one of the most sophisticated tax collection authorities in the world and the department is making significant investments in technology in the field of compliance work; they are well placed to take advantage of new international efforts to increase tax compliance, particularly considering the already extensive network of 130 bilateral tax treaties in the UK (the largest in the world).2 The UK was also a founding member of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) forum.
This article discusses the main developments in support of the increased focus on international transparency and personal tax compliance in the UK. There are other international fiscal initiatives, particularly in the field of corporate taxation, but such initiatives are beyond the scope of this article.
It should be noted that a somewhat piecemeal approach, with constant tinkering makes compliance difficult for the taxpayer and is often criticised for lacking the certainty that a stable tax system needs to thrive.
This article was first published with ThoughtLeaders4 Private Client Magazine
Tax-Related Measures in the Autumn Statement 2022
On 17 November 2022, the Rt Hon Jeremy Hunt MP, the Chancellor of the Exchequer, unveiled the contents of the Autumn Budget 2022. This comes after the International Monetary Fund (IMF) published its world economic forecast on 11 October 2022. The IMF expects the British economy to grow 3.6% in 2022 and 0.3% in 2023. Other major developed economies are also expected to stagnate next year, namely Spain (1.2%), the US (1.0%), France (0.7%), Italy (-0.2%) and Germany (-0.3%).
This note focuses on tax measures included as part of that statement.
Offshore Structures and Onward Gifts
The so-called “onward gift” tax anti-avoidance rules were introduced by the Finance Act 2018 to complement the changes brought in the previous year aimed at restricting the UK tax privileges afforded to non-UK domiciled individuals. The rules were designed to close some perceived loopholes in relation to the taxation of non-UK resident structures (including but not limited to non-UK trusts). With effect from 6 April 2018, it would no longer be possible for an individual to receive a gift without questioning its providence, particularly where family trusts are involved.
The rules were designed to prevent non-UK structures from using non-chargeable beneficiaries as conduits through which to pass payments in order to avoid tax charges. Gone are the days of “washing out” any trust gains that could be matched to offshore income or gains by prefacing a payment to a UK-resident taxable beneficiary with a non-taxable primary payment to a non-UK resident beneficiary.
“It is notoriously challenging to prove a negative (especially to HMRC) and even more tricky where the taxpayer must speak to someone’s intention other than their own.”
Note that the new rules will apply where funds are received from non-UK resident structures before 6 April 2018 to the extent that they are subsequently gifted after that date.
Increased Investment in Personal Tax Compliance in the UK
Changes in public opinion, advances in technology and increased international fiscal co-operation have made global personal tax compliance initiatives pop up in abundance in recent years. In addition, the Russian invasion of Ukraine and the corresponding economic fallout have prompted governments to increase transparency in relation to investments by wealthy foreign individuals in their countries.
The UK’s HMRC is one of the most sophisticated tax collection authorities in the world and the department is making significant investments in technology in the field of compliance work.
It should therefore be well placed to take advantage of new international efforts to increase tax compliance, particularly against the backdrop of the already extensive network of bilateral tax treaties in the UK, and not forgetting that the UK was a founding member of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) forum.
This article discusses the main developments in support of the increased focus on international transparency and tax compliance in the UK. There are other international fiscal initiatives, particularly in the field of corporate taxation, but such initiatives are beyond the scope of this article.
Case note: Lynton Exports (Alsager) Ltd v Revenue and Customs Commissioners  UKFTT 00224 (TC)
As HMRC continue to apply the Kittel principle to increasing numbers of industries and businesses, taxpayers need to be vigilant about evidential requirements that HMRC must fulfil in order to discharge their burden of proof. Read JHA’s latest insight into the First-tier Tribunal’s decision in Lynton Exports (Alsager) Ltd v Revenue and Customs Commissioners  UKFTT 00224 (TC).
If you require any further information about the Kittel, Mecsek, and Ablessio principles, or any other allegations by HMRC of fraud or fraudulent abuse, please contact Iain MacWhannell (firstname.lastname@example.org).