20150514 andy wood taxation presentation BRANDED v1

Verdict – everybody’s at it• HELD - Not guilty • Contributing to a pension scheme or ISA is taking advantage of a specific relief intended by Parliament to be used in that fashion • N

Practical tax planning ideas for entrepreneurs, SMEs and

their advisers post Budget 2015

May 2015

About ESRG TaxationWe are a firm of Chartered Tax Advisers (CTAs) and Trust & Estate Practitioners (TEPs).

on how to structure their affairs to meet their

personal and commercial objectives in the most tax efficient manner.

About me

Andy Wood has spent his career working in the Big 4 and latterly as a senior member of another large international accountancy firm He is a:

• Chartered Tax Adviser; and

• Member of STEP;

He has a great deal of experience in advising

Entrepreneurial clients, with a particular interest where there is an international angle to their affairs

Part one

The current climate

Current tax planning climate

• Press, politics & Court of public

opinion

• Election 2015 – result now in!

• Could have been worse – but expect

tightening of the screw on avoidance /

evasion

The

draughtsman flourishes

DoTAS & Accelerated Payments

• In 2004 - DoTAS was a source of market

information / early warning system

• Over a decade later, an indelible mark of

‘unacceptable’ tax avoidance

• Link with APNs

• Pay your tax before liability established by Court

• Lack of appeal (though can make ‘representations’)

• Judicial review

• Moral of the story- steer clear (if have not done so

already)!

• GAAR?

The tax dodger’s ducking stool…

Case: Avoidance – everybody’s at it

• “Many of them [critics of tax avoidance]

buy ISAs, to shield savings from taxes…

They [should] refuse to tax shelter their

savings.

• “Just as they decide to use these

“loopholes” or legitimate tax breaks to

increase their own savings and wealth, so

companies use tax loopholes or legitimate

breaks ”

• The morally repugnant pension contributor

and /or ISA investor?

• Sink or swim?

Verdict – everybody’s at it

• HELD - Not guilty

• Contributing to a pension scheme or ISA

is taking advantage of a specific relief

intended by Parliament to be used in

that fashion

• Not avoidance at all

Case – The Prince of Darkness

• At the end of January, the Guardian accused the

former King of Spin, Lord Mandelson, of tax

avoidance.

• He had taken a loan from this Company instead of

taking a completely different approach which would

have lead to a heftier tax charge.

• “It’s just about impossible to think this is motivated

by anything but tax avoidance.”

Verdict – Prince of Darkness

• Basic options: Salary, dividend, or a loan

(or a combination of these);

• All these options are perfectly legitimate

payments with their own legal

implications;

• All have their own, long evolved tax

framework;

• How can this be tax avoidance?

• HELD – not guilty

Case – anti-Labour business leader

• “I am afraid that the head of Boots lost

quite a lot of moral authority once it was

discovered he was lecturing political

parties from the standpoint of paying his

tax in Monaco”

• A great tax wheeze – being neither

resident or domiciled in the UK Tax

avoidance?

• Sink or swim?

Verdict – anti-Labour business leader

• Mr Pessina (hardly a plastic non-dom) not

resident in the UK either;

• He might have caused a storm by

commenting on the UK election from

Monaco but, whilst he stays there, should

only be subject to UK tax on UK income.

• Radio presenter and 450 other celebrities,

sports stars and city workers club together

to form a used car trading business

• Our star paid a fee of £1m to raise £5k of

finance for the trade

• Large trading loss was claimed to offset

against other income

• Sink or swim?

Case – wheels fall off for radio star

• No trade

• “fiscal drivers for the so-called trade

were so great that the shape and

character of the transaction is no

longer that of a trading transaction”

• Payments not incurred W & E for

(non-existent) trade

• Ramsay principle / Arrowtown

HELD – guilty (of tax avoidance)

Verdict – wheels fall off for radio star

Three important distinctions

1 Tax planning

2 Tax avoidance

3 Tax evasion

Top tax tips….

• Make sure you are doing (1), not (2) and defo not

(3)!

• Commercial, commercial, commercial

• Do it properly!

PART TWO

Key pension changes & opportunities

Key Pension Changes

Flexi-access drawdown v Uncrystallised lump sums• Flexi-access:

• Drawdown without limits on the

• Uncrystallised lump sums:

• Must have lifetime allowance available

• Each withdrawal = 25% TFC / 75%

income

• Taxed at individual’s marginal rate

Example One – JP cracks open his SIPP in one go

• JP has £50k in a SIPP He is 55 He

wants the money.

• JP has other earned income of

£35k in 2015/16

• His £50k withdrawal (25% TFC,

75% taxed) will cost him an extra

c£15k after PAYE.

Example two – JP cracks open his SIPP over 3 years

• JP has £50k in a SIPP He is 55 He

wants the money but will spread

over three years

• JP has other earned income of

£35k in current and next two years

• His £50k withdrawal (25% TFC) will

cost him an extra £13.5k after

PAYE.

Example three – JP cracks open his SIPP (and invests in EIS /SEIS fund)

• JP has £50k in a SIPP He is 55 He wants the

money

• JP has other earned income of £35k in 2015/16

• His £50k withdrawal is now neutralised by:

• £30k investment in SEIS fund

• £50k investment in EIS fund

• Rather large caveat re investment risk –

neutralisation might become vaporisation!!!

Pension changes – other points

• Death benefits

• QROPS

• Non-resident members of UK

schemes

Pension Led Funding

• Statutory basis

• Use up to 50% of pension scheme to finance business – working capital, expansion etc

Pension Led Funding

SSAS

Existing pension funds

Trading Co

Establish scheme

Transfer in

invested

as wish

Pension Led Funding & capital investment• What about borrowing from pension

scheme for plant and machinery?

• Carveout of taxable property rules

Other points for entrepreneurs & pensions

• Lifetime Limits and Annual

Allowance

• Commercial property

• Pension with small “p”?

• Ask about our detailed guide to

the pension changes!

PART three

profit extraction

• Crystallise value net of 10% CGT

• Remain as a Director of the Company so

absolutely no change to the day to day activity

of running the company

ERFB - overview

InvestCo UK

ABC Trading Limited

£ outstanding

Establishes bond

Client continues

to participate in Company growth via bond

ERFB

• Typical clients will include:

• Larger owner managed business with key directors and employees

• Public companies needing to retain key staff

• Large partnerships

• Total conts of at least £200,000 / three employees +.

CARBS – overview (2)

• key benefits for the Employer are:

• Full tax deduction in respect of the contributions

• Incentivise, reward and retain key staff in an efficient manner.

• Remove any issues with “disguised

remuneration” rules.

• The key benefits for Employees are:

• Does not count towards AA or LTA

Co Contribution

Pooled investment

• Their ‘relevant percentage’

Life Co has visibility of:

• Employees

• (Unaware of who is entitled to what)

Part Four

Funding / financing a new or growing business

Funding / Financing a new or growing business

EIS / Seed EIS

Pension Led Funding

Obtaining pension investment – eg

loan note

Business Property Relief (BPR)

Business Investment Relief (BIR)

Part Six

Protecting an estate from IHT (and other taxes)

Estate and IHT ideas

• Freezer trusts

• QNUPS

• Other business structures

Freezer arrangements

• Give away that which has no present value

• PET or CLT – tax charge on nil

• Perhaps part disposal for CGT – nil value

• Examples

• A and B Shares

• Partnership interests (similar to hybrid structure)

Another use of freezer trust – school fees

School fees

Create trust

Trustees pay

Another use of freezer trust – school fees

• Take investment return / growth out

of estate (like freezer ideas)

• Bond wrapper – returns should be tax free

• Ability for the debt to be repaid if

required

• Access as a pension in retirement

• Take care when calculating

contributions

QNUPS Individual

Cash loan

Original debt (less any amount waived) remains in estate

Investment bond

Growth + debt waived

is outside of estate Overseas pension scheme

Open forum & Wrapping up