Tax Connect – August 2016

Potential Reform of Substantial Shareholding Exemption (SSE)

SSE provides an exemption from corporation tax on capital gains and losses derived from the disposal of substantial shareholdings.  SSE was introduced to ensure that groups were not discouraged from making rational and commercial decisions regarding restructuring or disposals.

The Government is now considering reforming SSE to simplify the rules and allow more transactions to benefit from the exemption.  The intention is to help make the UK more attractive as a holding company location.

The Government is currently considering the following possible reforms:

  • Introduce a comprehensive exemption with minimal requirements to qualify but backed up by anti-avoidance provisions.
  • Remove the trading status condition for the investing company but retain this for the company being disposed of.
  • Extend the definition of qualifying activities for the trading status tests applicable to the investee and investor companies.
  • Lowering or extending the definition of “substantial” shareholding (currently 10%).

A consultation is open until 18th August and any changes could be included in Finance Bill 2017.

More information and details of how to respond can be accessed here.

Inheritance Tax Receipts Rise by over 60%

HMRC have recently published statistics that show Inheritance Tax (IHT) receipts have increased by over 60% in the period covered by the report.  Total receipts in 2008/09 were £2.8bn and these increased to £4.6bn in 2015/16.  The receipts have been increasing year on year since the IHT nil rate band was frozen at £325,000 in April 2009.

A significant amount of the increase in IHT is due to rising house prices.  The majority of the chargeable estates contained property, stocks and shares and other household savings.  The increase may in part be addressed by the introduction of the new residence nil rate band for property owners.  The additional allowance will be introduced over 4 tax years and will gradually increase from £100k in 2017/18 to £175k in 2020/21.  This means that in 2020/21 the residence nil rate band will allow for a tax free transfer of a home up to the value of £500k for an individual or £1m for a couple. It should be noted, however, that there will be a tapered withdrawal of the allowance for estates with a net value of more than £2m.

IHT is viewed by some as a voluntary tax as with careful planning it is possible to significantly reduce the potential liability.  As estates increase in value and become more complicated, Henderson Loggie can help to minimise the IHT payable and increase the amount that can be passed on to your family.

The Common Reporting Standard for Charitable Trusts

The UK and US entered into a treaty in 2012 to bring the Foreign Account Tax Compliance Act (FATCA) into UK law.  The aim of FATCA was to prevent tax evasion by US citizens by requiring financial institutions in the UK, and other countries outside the US, to pass information about their US clients to the US tax authorities.

The Common Reporting Standard (CRS) was published by the Organisation for Economic Co-operation and Development (OECD) in 2014 and it builds on the principles of FATCA using much of the same terminology.  The objective is to enable tax authorities to obtain a clearer understanding of financial assets held abroad by their residents.

While FATCA excluded charities from the requirement to report, the CRS does not and is more wide reaching.  To date, over 100 countries have committed to the CRS, including the UK and all EU Member States.  The CRS has been implemented into UK.

What does CRS mean for Charities?

There are two principal ways in which the due diligence requirements of the CRS will affect charities.  Firstly, the charity may receive forms from its bank or investment manager requesting that it “categorise” itself for the purpose of the CRS.  The CRS divides all entities into two broad categories – these are financial institutions (FI) and non-financial entities (NFE) and there are also a number of sub-categories.  Charities will either need to become acquainted with the CRS rules and guidance or ask their professional adviser to assist with this determination.

Secondly, the charity may be required to make reports to HMRC.  While the majority of charities don’t provide financial services and therefore would not expect to be classed as a “financial institution” the definition under CRS is very broad.  This means that some charities, particularly those that receive a large proportion of their income from investments, will be categorised as a “financial institution”.  In this case the charity may itself be under an obligation to make a report to HMRC.

The first reporting deadlines for financial institutions under the CRS is May 2017.  Charities that suspect they may be within the scope of the CRS should now start considering their due diligence and reporting requirements.

To discuss any of the issues highlighted within this newsletter, or any other matter you require our help with, please contact any member of our tax team

Alan Davis – Partner & Chairman

Email: or tel: 07719 295827

Barbara McQuillan – Partner

Email: or tel: 0131 226 0200