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Office of Tax Simplification announces tax reliefs review
Practical Law UK Legal Update 1-503-8605 (Approx. 5 pages)
Office of Tax Simplification announces tax reliefs review
by PLC Tax, PLC Share Schemes & Incentives, and PLC Private Client
| Published on 09 Nov 2010 • England, Wales |
The Office of Tax Simplification will carry out a review of all tax reliefs for businesses and individuals across all taxes administered by HMRC. (Free access.)
Speedread
The government announced on 8 November 2010 that it has requested the Office of Tax Simplification to carry out a review of all tax reliefs, allowances and exemptions for businesses and individuals, across all taxes administered by HMRC. Following a consultation period, the OTS is to evaluate the effectiveness and relevance of the reliefs and recommend those which could be repealed or simplified when it reports back to the Chancellor of the Exchequer before Budget 2011.
Practitioners advising in any area of taxation may wish to review the list and provide comments to the OTS before 30 November 2010.
Background
On 20 July the government created the Office of Tax Simplification (OTS) to provide the government with independent advice on simplifying the UK tax system (see News round-up to 20 July 2010).
Tax reliefs review
The government announced on 8 November 2010 that it has requested the OTS to carry out a review of all tax reliefs, allowances and exemptions for businesses and individuals, across all taxes administered by HMRC.
On the same date the OTS published a list of over 1000 reliefs, which includes specific deductions from taxable income or profits, allowances and tax-free amounts, exemptions from tax, tax credits and reduced rates of tax. Structural reliefs (such as mechanisms to prevent double taxation) are also included but administrative reliefs such as provisions for error and mistake claims are outside the scope of the review. The OTS also published the background and approach to the review, and its terms of reference.
Business tax reliefs
The list contains a large number of tax reliefs available to businesses. These include some of the foundations of the tax regime such as:
- Group relief and consortium relief (for further information see Practice note, Groups of companies: tax: Group relief).
- Loss relief.
- Relief for disposals between group companies (for further information, see Practice note, Groups of companies: tax: Chargeable gains).
- Demerger reliefs (for further information, see Practice note, Statutory demergers: tax).
The list also includes some discrete relieving provisions including (amongst others) the substantial shareholding exemption (SSE), the corporate venturing scheme (see Practice note, Corporate Venturing Scheme), entrepreneurs relief, land remediation relief (see Practice note, Tax relief for remediation of contaminated land) and real estate investment trusts (see Practice note, UK REITs: questions and answers). In relation to indirect taxes, a large number of SDLT relieving provisions and categories of goods and supplies which benefit from reduced rating or zero-rating from VAT are included.
Share schemes and incentives reliefs
The list of tax reliefs includes various reliefs which are important to the operation of share schemes, including:
- The income tax and NICs reliefs available for:
- qualifying options granted under an HMRC-approved company share option plan (CSOP);
- qualifying options granted under an HMRC-approved savings-related share option scheme (SAYE scheme);
- qualifying enterprise management incentives (EMI) options; and
- awards under an HMRC-approved share incentive plan (SIP).
- The income tax relief available for employees who bear the cost of employer NICs on share option gains (see Practice note, NICs and share incentives: an overview: transfer of employer NICs).
- The corporation tax relief available for qualifying companies whose employees exercise share options.
- The reliefs from inheritance tax and capital gains tax available to employee benefit trusts.
Incentives practitioners may wish to review the list of reliefs and comment on the usefulness of share schemes reliefs. For more information on taxation of different types of employee share incentive arrangements, see Practice note, Employee share schemes: an introduction.
Private client reliefs
Among the many provisions relevant to private client within the scope of the review are:
- Reliefs from inheritance tax (IHT). For example:
- business property relief and agricultural property relief (Chapters I and II, Part V, Inheritance Tax Act 1984 (IHTA 1984)); and
- the exemption from IHT on normal gifts out of income which do not result in a reduction in a person's standard of living (section 21, IHTA 1984).
- Reliefs from capital gains tax (CGT). For example:
- principal private residence relief from CGT on the disposal of an individual's main residence (sections 222 to 226B, Taxation of Capital Gains Act 1992 (TCGA 1992)); and
- holdover relief for gifts chargeable to IHT and gifts of business assets (sections 165 and 260, TCGA 1992).
- Exemptions from income tax, including the exemption available for gift aid donations if applied for wholly charitable purposes (section 521, Income Tax Act 2007).
This wide-ranging review provides private client practitioners with an opportunity to comment on tax reliefs, allowances or exemptions that they feel are not working and, perhaps equally importantly, those that they feel are working. For further information on tax reliefs, allowances and exemptions relevant to private client practice, see Practice note, Tax data for individuals and trustees.
Consultation and report to the Chancellor
The OTS is to evaluate the effectiveness and relevance of the reliefs and recommend those which could be repealed or simplified when it reports back to the Chancellor of the Exchequer before Budget 2011.
An interim report will be published in the late autumn following a public consultation period.
Comments on the draft list and the OTS's proposed approach are invited by 30 November 2010.