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The Schmidt Tax Report Tax, Money & Property November 2016 Be wary of strong drink. It can make you shoot at tax collectors...and miss. - Robert A. Heinlein 10 The Offshore Column A roundup of offshore news, tips and information The Schmidt – plus is Hungary the perfect offshore centre? Tax Tax Report Money 12 Alternative Investment: Private equity Tax, Money & Property What sort of returns are available from investing in private companies? How do you Tax find the opportunities? What are the risks? An in-depth sector report. 3 News The month’s roundup of tax-related news stories. 16 Brazilian Adventure The funds that invest in distressed debt (such 4 Editor’s Notes as junk bonds) can achieve extraordinary How to use a strategic start-up to reduce your returns. Is Brazil the next place to look? tax burden to 10%, plus tips on not being an employee, saving VAT and tax-free investment. 17 Inflation Report Inflation has just doubled to 1%. Is this the 5 Ask the Experts beginning of an inflationary period and – if it Our panel answers questions about business is – how can we plan for it? property relief for trading businesses and claiming VAT on company cars. All articles this month by Jonathan Self 5 Feature: Pension Protection Property An update. 18 Property Tax Tips 6 Feature: Employed or Self-Employed? Using companies to save extra tax, making A clever way for limited-liability partnerships money from your garden and avoiding IHT. potential effect on other HMRC services, instructed to draft a directive authorising to save stamp duty land tax. News and approved a motion calling for urgent an EU financial transaction tax that would 19 Property Companies action to compensate people who have had apply to 10 of the EU’s 28 member states. The gap is closing 8 Feature: Do-It-Yourself EIS Companies Avoid the 7.5% surcharge! tax credits withdrawn incorrectly. HMRC The new tax would initially be introduced chief executive Jon Thompson said the in Austria, Belgium, France, Germany, We look at Enterprise Investment Scheme The UK tax gap – the gap between tax department “will not be going back to the Greece, Italy, Portugal, Slovakia, Slovenia companies, how much tax they can save you 21 Property News A range of news stories covering everything collected and what the government market” for support in order to deal with and Spain. The EU taxation and customs and which companies qualify (a surprisingly believes it would be collecting were it not tax credit claims. commissioner, Pierre Moscovici, welcomed high number). from buying property in commuter areas to the latest mortgage rates. for the black economy and criminal evasion the decision and explained that the tax – is closing. Newly released figures suggest Making tax digital would be imposed on a “broad base, at 8 The Business Column 23 Saving VAT on Property Investment that in 2014/15 it fell to its lowest ever level very low rates” (still to be defined) to How to have your cake and eat it when of 6.5%. To put this into perspective, some How to save money when building, Plans by HMRC to “make tax digital” have preserve the competitiveness of European diversifying a limited company. 10 years earlier it was running at 8.3%. The been severely criticised by small-business financial products against those of the UK. purchasing or converting property. figures show record revenues of £518bn experts. Witnesses called to give evidence to It is planned to levy it on equities, bonds, being collected from 2014 to 2015. MPs on the Commons Treasury Committee derivatives and possibly share trading. 24 Property Opportunities said the proposals would impose significant Investing in HMOs, self-storage, serviced Parliament put HMRC under additional tax compliance costs on small Tax-efficient investment up apartments (especially something new called pressure businesses for little or no medium-term renting to rent) and the East Midlands. benefit. The proposed project will impose A record £1.8bn was invested in tax-efficient The Public Accounts Committee has been quarterly digital tax reporting upon SMEs. Enterprise Investment Scheme (EIS) funds last year with the highest percentage going putting HMRC under severe pressure over While free software has been promised for Login details for our new site to companies based in the north of England. its contract with Concentrix, the company the smallest businesses, others could expect The region secured 50% more funding in Please note that back copies of The Schmidt responsible for managing tax credit a cost of £20–£30 a month. the year to April 2015 than the previous Tax Report are now available online in PDF checks. MPs called on the government to year. Technology and business services form via our website: www.schmidtreport.co.uk conduct a “comprehensive” investigation EU transaction tax update companies dominated the fundraising. into Concentrix’s performance under the The password is all lower case: str Venture capital trust (VCT) investments contract, to include consideration of the The European Commission has been did less well overall, attracting just £435m 4 - Tax Tax - 5 now might be a good time to review the business”. This is not the case where the entrepreneurs’ relief on the actual land. To inflows in 2015/16. Seed EIS (SEIS) to crack down on US companies using Irish vulture fund tax crisis is proving a small but growing sector – inversion deals to reduce their American tax situation and take professional advice. business use continues but the business quote one expert: “Unfortunately, where increasing to £175m in the year to April bills, as they feel it may result in collateral In 1997, the Irish government introduced tax has deregistered. There is, therefore, no commercial woodland is sold the capital 2015, up from about £155m a year earlier. damage to other businesses. The US rules designed to attract the global investment Unexpected VAT savings possibility of a clawback once the input tax gain arising on that disposal is calculated Treasury secretary, Jack Lew, has stated that fund industry to establish itself in Dublin. has been claimed, if input tax recovery is due in the normal way, but the part of the You aren’t registered for VAT but you on general principles. This is a complicated disposal proceeds which relates to the trees Capital gains tax takeup he will be modifying the proposed rules Today, that sector has €1.8tn of assets based in the country. However, the same rules are are about to incur some property-related area but recent correspondence in Tolley’s growing on the woodland is ignored.” Is because they had heard from businesses Thanks to soaring property values and a sell- now being used by foreign investors – mainly expenditure below the capital goods scheme Taxation suggests that a good VAT adviser there any way around this? The answer is that they “could unduly constrain ordinary off by buy-to-let investors HMRC’s annual US hedge funds and private equity groups threshold that will be VAT-able. Could you can achieve wonders in this particular that where the woodland is part of a larger, business practices”. The IRS had intended take from CGT grew by 25% to £6.9bn in – to avoid all tax on their profits. This has get away with registering for VAT, claiming situation. agricultural enterprise, it is. Imagine a to limit the way companies lend money caused political uproar and the government the year 2014/15. This represents the highest the input tax and then deregistering? The farmer with 1,000 acres. Of this land 700 between their subsidiaries (‘earning is being pressured to close what is seen as answer is – very possibly. The fear is that Sorting the woodlands from the acres is turned over to sheep and 300 acres yield since 2007/08, the year of the credit an unacceptable tax loophole. There is a lot stripping’) in order to substantially reduce any VAT you have had repaid to you by trees is turned over to the growing of timber. In crunch. of money at stake. The foreign investors – US tax liabilities. Non-inverted businesses technically referred to as non-bank entities HMRC will be clawed back. However, these circumstances a sale ought to result Good news for US multinationals pointed out that the proposed crackdown but called ‘vulture funds’ locally – now the mechanism to claw back input tax on There are fantastic tax breaks to be had in entrepreneurs’ relief being applied to would severely inhibit their ability to make own 5% of the €100bn of outstanding Irish services only applies where services are from investing in woodland, but ironically the whole. There are other tax reasons to The US government is reviewing its plans ordinary intra-company loans. mortgages. purchased for the purposes of the business when you sell the forest even if there is still consider an investment in farmland – not but are then put to “private use” or “for timber to be cut and you can show that it is least the inheritance tax (IHT) benefits. Editor’s Notes a purpose other than a purpose of the an active business it is very difficult to claim Moreover, the price is currently falling. The strategic start-up Rodney’s home to begin with and later in How not to be employed separate offices – and he was able to work for Ask The Experts Nowadays, our tax legislation is so written the existing business and build up the new Sometimes, it makes much better tax sense Q. In the October issue you deal on page 21 the same ownership as the business: the taxable supplies, but the examples provide that if someone decided to give up smoking business at the same time.