Showing posts with label tax avoidance. Show all posts
Showing posts with label tax avoidance. Show all posts

Thursday, December 1, 2016

Saving tax with Deferral of Capital Gains

While Capital Gain Taxes have been slashed in the recent budget to 10% and 20% (from the 18% and 28% that it used to be), CGT has remained unchanged for residential property gains. While the tax rate for gains is lower than the one for income, amounts tend to be much bigger and far appart, making it harder to use allowances and low rate bands.

This is where deferral comes in handy. The Enterprise Investment Scheme (EIS) provides one of the mechanisms that allows such a deferral. Most people misunderstand that the general EIS conditions for income tax relief are much more restrictive than the conditions for CGT deferral. In particular the requirement that one owns less than 30% of the company or that one is connected to the business only applies to the income tax relief component of the EIS, not the CGT deferral. Same thing for the requirement that the investment be held 3 years or more: if you sell earlier the deferral just ends then (see HMRC note).

Tuesday, February 17, 2015

HMRC defeats film scheme in ‘watershed’ ruling

HM Revenue & Customs has defeated in the Court of Appeal a tax avoidance scheme which made false investments into Disney films. Eclipse 35 LLP claimed to trade in film rights but has been defined as a tax avoidance scheme by UK courts. HMRC said an estimated £635m in tax has been "protected" by the scheme's defeat. Investors into the scheme borrowed money which qualified for interest relief claims because it was intended for trade use. Eclipse used the money to acquire the rights to Disney films before sub-leasing them back to a different Disney entity for a guaranteed income stream.

In reality, the borrowed money earned interest, which was then filtered through Eclipse as a tax-efficient trading transaction to pay the interest on investors’ loans. The Court of Appeal upheld its earlier tribunal decision, which ruled that investors were not eligible for interest relief and profits from Eclipse 35 because the partnership was not trading. There were 31 Eclipse partnerships that ran for between 11 and 20 years, but Eclipse 35 is the first to be taken into litigation.