August 2010

Welcome to the first edition of Legal Online. We hope you like the new format and find the articles below of interest.

Can you have your cake and eat it?

With high income tax rates, declining corporation tax rates and low capital gains tax rates for those eligible for Entrepreneurs' Relief, there is the temptation to retain surplus profits in the business for the time being. Whilst this is attractive in the short term, retaining surplus cash can lead to capital gains tax and inheritance tax problems in the future with potential loss of tax reliefs.

Click here to read the full article (pdf)

Dealing with those unpresented cheques to clients

Now that solicitors are obliged under Rule 15 (3) to return any balance of client money promptly to clients and, if they do not, have the onerous task of informing the client annually that they are still holding their funds, many solicitors are sending cheques to client for small sums of money which are not then being presented at the bank. There is inevitably a cost both financially and timewise to the solicitor to chase these cheques. With banks now accepting many cheques whatever the date, you cannot rely on them returning an old cheque, so you do need to stop them.

We recommend that you regularly review the list of unpresented cheques that are more than 6 months old and that you take steps to notify the client in writing that you will reissue the cheque if required, and inform the client of any additional charges or administrative costs that will be applied. You will then be able to recoup at least some of the costs from your client.

Three rates of CGT in 2010/11?

Following the Emergency Budget it is possible that individuals and Trustees may be paying three different rates of CGT in one tax year – (1) 10% where entrepreneur's relief is available; (2) 18% (a) on gains realised on or before 22 June 2010, or (b) on gains realised post 22 June 2010 to the extent that all or part of the basic rate band remains available or (3) 28%.

The basic rule is that for trusts and higher rate taxpayers gains are protected from the new higher rate of 28% only if made on or before 22 June 2010 and it is accordingly key to ascertain the exact date of disposal for CGT purposes.
 
However, there are three planning opportunities to crystallise gains before 5 April 2011 and still pay CGT at only 18%: -

• Where a person domiciled outside the UK and taxed on the remittance basis remits the proceeds of an offshore gain before 6 April 2011;
• Where gains of an offshore trust are attributed to a UK-domiciled settlor (under S86 TCGA 1992);
• Where a "short-term non-resident" resumes UK residence in the tax year 2010/11 and thereupon becomes chargeable on gains which have arisen in his period of non-residence. 

If you are dealing with these cases, there may be merit (in particular circumstances) in taking action within the next seven months to avoid a future charge at the 28% rate.
 
Taxable profits over £100,000 in 2010/11?

If so don’t forget to budget for an increased tax bill in January 2012 due to (1) the phasing out of your Personal Allowance (£6,475 tax free) and (2) 50% income tax rate for income over £150,000.

Employees will also face a bill as HMRC’s tax tables only collect tax at a maximum rate of 40%.

Liechtenstein Disclosure Facility - Protecting clients

Many clients have offshore assets (bank accounts, trusts, company structures etc). Some may have failed to declare income or gains from such assets on their UK tax returns.

It may be possible to save significant amounts of tax for such clients by using the Liechtenstein Disclosure Facility (LDF), an HMRC disclosure process.

Ostensibly the LDF is available for taxpayers with a Liechtenstein bank account (or other assets in Liechtenstein). We understand that it may also be available to taxpayers with qualifying bank accounts and assets in other offshore jurisdictions, providing they meet certain criteria.

The main benefits of the LDF disclosure are that: -

1. It needs to cover only the period from 6 April 1999 (rather than up to 20 years),
2. The penalty, in most cases, will be only 10% and
3. There is immunity from prosecution for tax offences (normal disclosure routes do not offer such a guarantee).

Liechtenstein financial institutions will write to UK account holders in the next few months and under the LDF, the UK and Liechtenstein tax authorities have agreed that financial institutions will have to cease acting where the UK customer is not UK tax compliant, or does not register for the LDF if appropriate.

Trustee Act 2000

The Trustee Act 2000 broadened the statutory investment powers available to trustees but also imposes duties on them. The duty imposed on professional trustees who are paid for their services is higher than expected of other (non-remunerated) trustees.

There are three key areas to the Act:

1. Delegation of Duties
2. Powers of investment
3. Duty of care

Click here to download the full article (pdf)

For more information on any of the issues raised please contact your usual Hillier Hopkins contact or call us on 08452 770660.