ATED-related capital gains tax meaning

HMRC v Vermilion Holdings Ltd [2023] UKSC 37 Background This appeal revolved around the construction of ITEPA 2003, s 471. That provision identifies when an option to obtain securities (including company shares) is given ‘by reason of employment’ and so chargeable to income tax rather than capital gains tax. In 2006, Vermilion Holdings Ltd (Vermilion) granted Quest Advantage Ltd (Quest) an option to acquire shares in Vermilion (the 2006 Option). By late 2006, Vermilion’s performance had deteriorated. As part of a rescue funding arrangement, Vermilion and Quest agreed to vary the 2006 Option. In July 2007, they executed a fresh option agreement (the 2007 Option), under which Quest subscribed for a new class of Vermilion shares and the 2006 Option lapsed. In 2016, Quest assigned the 2007 Option to Mr Noble. Quest sought HMRC’s confirmation that the assignment fell within capital gains tax. HMRC refused, stating it was within income tax because it had been conferred on Mr Noble due to his role as a director of Quest. Quest...

In this issue: General election 2024 Trusts Court of Protection HMRC Manuals updates Tax avoidance, evasion and non-compliance Insolvency—Private Client Contentious trusts and estates Pensions, insurance and tax efficient investments International Question of the week Additional Private Client updates this week Daily and weekly news alerts LexTalk®Private Client: a Lexis®PSL community New and updated content Dates for your diary Trackers Latest Q&A Useful information General election 2024 General Election 2024: tax aspects of manifestos The Liberal Democrat manifesto, ‘For a Fair Deal’, was issued on 10 June 2024. The Conservative and Unionist Party’s 2024 manifesto was released on 11 June 2024. The Green Party’s manifesto followed on 12 June 2024. The Labour Party manifesto was published on 13 June 2024. Each manifesto sets out the parties’ tax-related pledges should they prevail in the General Election on 4 July 2024. For more on the...

The Chancellor of the Exchequer, Rachel Reeves, delivered the government’s Autumn Budget on 30 October 2024 Keenly awaited and watched, this was the first Budget from a Labour administration in fourteen years, and the first ever presented by a woman Chancellor. Many headline measures for Private Clients had been trailed in one form or another, and several of the changes—such as the Capital Gains Tax reforms—were not as draconian as many had feared, proving less severe than anticipated. It was definitely a Labour Budget, unmistakably Labour in flavour, with the Chancellor honouring election pledges not to raise income tax or National Insurance for ‘working people’, and instead securing the £40bn of tax rises by lifting employers’ National Insurance, narrowing the scope of IHT agricultural and business property reliefs, increasing CGT rates, reforming the taxation of carried interest, changing the rules for non‑UK domiciled individuals, bringing inherited pensions into the IHT net, confirming VAT on private school fees, increasing the SDLT surcharge for second homes, and even a hike in...

Direct tax treatment of UK companies investing in UK land While purchasers may have grounds to hold commercial and, at times, residential property through an offshore structure, the UK limited company is still the predominant vehicle for investing in UK real estate. An important exception is privately used dwellings, for which a UK company is generally not a tax-efficient holder. This is a consequence of the April 2013 introduction of the annual tax on enveloped dwellings (ATED) and associated measures, alongside the Single higher rate of SDLT for high-value residential transactions. ATED now extends to dwellings valued above £500,000, subject to a number of reliefs. For more information, see the Practice Notes: ATED—the basics and Single higher rate of SDLT for high-value residential property transactions. This Practice Note sets out the direct tax (that is, corporation tax) position of a UK-incorporated and tax-resident company (referred to here as a UK company) investing in or dealing with UK land...

The most straightforward way to invest in property together is for the investors to hold the asset jointly. Though this is comparatively uncommon in a commercial setting, where investors tend to create a structure such as a partnership or a company to serve as the joint venture vehicle, it still represents the prevailing and most familiar form of joint investment. For many individual investors, this is the route most often taken in practice. Contractual joint ownership Contractual joint ownership can take several forms, including: where each participant holds a direct legal interest in the asset (see Practice Note: Establishing a beneficial interest (joint ownership)) where a trust—express or implied—is established over the property, so that trustees hold the property for the trust’s beneficiaries (see Practice Note: Trusts of land—property) where an implied partnership arrangement is in place (see Practice Note: Forming a general partnership and continuing obligations) This Practice Note examines each of these joint ownership routes, their direct tax...

The substantial shareholdings exemption (SSE) removes corporation tax on chargeable gains arising on certain disposals of shares by companies. It does not extend to individuals or other non-corporate bodies. The purpose is to simplify corporate restructuring and strengthen the UK’s competitiveness against the ‘participation exemption’ regimes found in some other European countries. Under the general rule that an exempt asset’s disposal cannot create an allowable loss, any loss realised on a shareholding that qualifies for SSE is not allowable for capital gains. The exemption applies automatically; there is no requirement to claim it, and no option to disapply it where a loss claim would be beneficial. This Practice Note sets out the scope of the SSE, the conditions that must be satisfied, and the specific rules for institutional investors, company groups, share exchanges and reconstructions. Summary of conditions A company (the investing company) disposing of a holding in another company (the target company) may meet the SSE requirements...

Archived: The ability to offer tax-favoured employee shareholder shares or ESS (commonly used in private equity company arrangements) has now been removed In the Autumn Statement 2016, the government confirmed that certain ESS-related tax reliefs would be withdrawn. The changes remove: The income tax and NICs relief applying to the first £2,000 of employee shareholder shares an individual receives The capital gains tax exemption in respect of all, or a portion, of ESS shares The provision ensuring that, when a company purchases employee shareholder shares from an employee shareholder, the consideration is not treated as a distribution in the shareholder’s hands The withdrawal of these reliefs applies to any employer shareholder agreements entered into on or after 1 December 2016. However, an individual who had obtained independent advice about entering an employer shareholder agreement before 23 November 2016 could still complete the agreement before 1 December 2016 and retain the beneficial income and CGT tax advantages...

Key points Residence determines the scope of a person’s liability to UK income tax and capital gains tax (CGT). An individual’s tax residence is established under the Statutory Residence Test (SRT). A person can be tax resident in multiple countries at the same time, as each jurisdiction applies its own domestic rules. Someone who is not resident in the UK is taxed only on UK‑source income and on certain gains from disposing of UK assets, including residential property. Value added tax (VAT), stamp duty land tax (SDLT) and the Annual Tax on Enveloped Dwellings (ATED) may apply to both residents and non‑residents. Before 6 April 2025, domicile—rather than residence—was the principal factor in determining exposure to inheritance tax (IHT). From 6 April 2025, IHT liability is largely linked to the period an individual has been resident in the UK. Residence of individuals—summary An individual’s UK tax residence is relevant when determining liability to income tax and CGT. Those...

Archived: This Precedent is for illustrative purposes only as it reflects the position up to 1 December 2016. The facility to issue tax‑favoured employee shareholder shares (ESS), frequently seen in private equity company arrangements, has now been withdrawn. In the Autumn Statement 2016, the government confirmed that the following ESS-related reliefs would be abolished: the income tax and NICs relief applying to the first £2,000 of employee shareholder shares allotted to an individual the capital gains tax exemption covering some or all of the ESS shares the rule ensuring that, where a company buys back employee shareholder shares from an employee shareholder, the price paid is not treated as a distribution in the shareholder’s hands These withdrawals apply to any employer shareholder agreements entered into on or after 1 December 2016. Nonetheless, any person who obtained independent advice about entering into an employer shareholder agreement before 23 November 2016 could still complete the agreement before 1 December 2016 and retain the...