Relevant to Advanced Taxation – United Kingdom (ATX – UK)
This article looks at the changes made by the Finance Act 2019 (which is the legislation as it relates to the tax year 2019/20) and should be read by those of you who are sitting ATX-UK in the period from 1 June 2020 to 31 March 2021.
All of the changes set out in the TX-UK article (see ‘Related links’) are relevant to ATX-UK. In addition, all of the exclusions set out in the TX-UK article apply equally to ATX-UK unless they are referred to below.
This article summarises the additional changes introduced by the Finance Act 2019 which have an effect on the ATX-UK syllabus. As with the TX-UK article, this article also includes details of legislation which was enacted prior to 31 May 2019, but has only come into effect from 6 April 2019.
This article does not refer to any amendments to the ATX-UK syllabus coverage unless they directly relate to legislative changes and candidates should therefore consult the ATX-UK Syllabus and Study Guide for the period 1 June 2020 to 31 March 2021 for details of such amendments.
Please note that if you are sitting ATX-UK in the period 1 June 2019 to 31 March 2020, you will be examined on the Finance Act 2018, which is the legislation as it relates to the tax year 2018/19. Accordingly, this article is not relevant to you, and you should instead refer to the Finance Act 2018 article published on the ACCA website.
Lump sum receipts
As noted in last year’s article, the £30,000 exemption which applies to certain discretionary (ex gratia) lump sum payments is not available in respect of non-contractual payments in lieu of notice (PILONs) following the enactment of Finance Act (No. 2) 2017.
The implications of these changes in relation to national insurance contributions have not yet been legislated. Accordingly, they will not be the subject of a question in the ATX-UK exam in the period from 1 June 2020 to 31 March 2021.
Structures and buildings allowances (SBAs)
SBAs have been introduced in respect of buildings/structures constructed on/after 29 October 2018.
Draft legislation has been published which is subject to further consultation. Since this legislation has not yet been enacted, for exams in the period 1 June 2020 to 31 March 2021, the SBA is not examinable.
Disposals of UK land and buildings by non-UK residents
In general, CGT applies where a UK resident person (i.e. an individual or a company) makes a disposal of a chargeable asset situated anywhere in the world. It does not normally apply to disposals by persons who are not resident in the UK, even if the asset is situated in the UK.
However, gains/losses on the following assets come within the scope of UK CGT even if the owner is non-UK resident:
From 6 April 2019, non-UK residents will be subject to CGT on disposals of all UK land and buildings, not just residential properties.
These rules apply to disposals by both individuals and companies. However, the rules as they apply to companies are excluded from the ATX-UK syllabus. Having said that, it should be noted that where a non-UK resident company disposes of a UK property used by a UK permanent establishment, the chargeable gain will continue to be subject to UK corporation tax in the normal way (as set out above).
These rules also apply to interests in entities which derive at least 75% of their value from UK property where the person making the disposal has a substantial interest (25% or more) in the entity holding the property. The rules as they apply to indirect interests are excluded from the ATX-UK syllabus.
Where the property was acquired prior to 6 April 2019, the amount which will be within the scope of UK CGT will be either:
Where the UK land/building is used for business purposes, rollover relief may be available. However, the replacement asset would have to be UK land/buildings (and not, for example, fixed plant and machinery).
Normally, gift relief is not available where the donee is not resident in the UK. However, where the asset disposed of is subject to CGT despite the owner being non-UK resident, gift relief will be available regardless of the resident status of the donee.
In the ATX-UK exam:
Where an unincorporated business is sold to a company in exchange wholly or partly for shares, incorporation relief automatically applies (provided the relevant conditions are satisfied), such that some or all of the chargeable gains on the disposal of the business assets can be rolled over against the base cost of the shares.
A taxpayer may choose to disapply incorporation relief if it is advantageous to do so. This may be advantageous if entrepreneurs’ relief would be available on the sale of the unincorporated business to the company, but not on the eventual sale of the shares. It is therefore particularly relevant to consider the conditions in respect of the availability of entrepreneurs’ relief.
There has been an important change in respect of the two year qualifying time period for entrepreneurs’ relief where an unincorporated business has been sold to a company wholly or partly in exchange for shares where incorporation relief has applied. Previously, the qualifying time period for entrepreneurs’ relief restarted from the date the shares were issued. With effect from 6 April 2019, the period for which the individual owned the unincorporated business will also count towards the two year qualifying time period.
This change is particularly interesting where a business is to be incorporated prior to sale. Entrepreneurs’ relief may now be available on the sale of the shares, even though that sale occurs within two years of the incorporation of the business.
Transfer of intangible assets
Intangible assets are transferred between members of a capital gains group on a tax neutral basis. Where the transferee company leaves the group within six years of acquiring the asset, whilst still owning it, there is a deemed disposal and reacquisition of the asset using the market value of the asset at the time of the inter group transfer. This is similar to the degrouping charge which can arise in respect of tangible assets.
A change has been made to the intangible asset rules: no such deemed disposal of the intangible asset will now occur where the sale of the company, which would otherwise bring it about, qualifies for the substantial shareholding exemption.
The following articles will be published on the ACCA website later this year.
Written by a member of the Advanced Taxation – United Kingdom (ATX-UK) examining team