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ICAEW calls for withdrawal of Finance Bill clauses

27 April: ICAEW has urged government to withdraw and consult on changes to inheritance tax rules on excluded property and the tax liabilities of company directors. It’s also called for the delay to changes to capital gains tax relief for private residences and raised concerns over the recovery of taxes in insolvency cases.

In a series of representations to government, ICAEW has argued that some of the measures contained in the Finance Bill 2020 are at odds with the government’s aim of encouraging enterprise, while others should not take effect retrospectively.

The key measure that ICAEW has responded to is the changes to private residence reliefs for capital gains tax. The amendments include: halving the final period exemption period from 18 months to nine months; restricting lettings relief to periods when owner is in shared occupancy; and legislating two existing extra-statutory concessions.

Under the existing text these changes would take effect on disposals from 6 April 2020, along with changes to rules on transfer of ownership between spouses and civil partners. From that date, the recipient inherits the transferring spouse’s ownership history, including previous use of the property, regardless of whether the property is the main residence at the time of the transfer.

As well as arguing that the clause is retrospective, which is not appropriate as it is not an anti-avoidance measure, ICAEW recommends that delaying commencement to 6 April 2021 could help to stimulate a currently-stagnant property market arising from the coronavirus pandemic.

ICAEW has also concluded that the proposed amendments to the excluded property rules for inheritance tax (IHT) should be removed from the Bill, so a promised consultation can take place.

The amendments would result in chargeable transfers made on or after the date of the Bill becoming law, being treated as if the rules have always applied. In its response, ICAEW explains: “The clause changes the IHT status of trusts to which assets are added. This change will have effect from the time that the trust was set up, so is retrospective.”

It concludes that a formal consultation and delaying commencement would: “Make it simpler for trustees and settlors to understand from when they have to comply with the new provisions, and not impose unexpected IHT liabilities where none exist on the basis of current law as generally understood.”

The Finance Bill if enacted will bring in changes to HMRC’s recovery of tax debts from insolvent companies as 1 December 2020. Under the changes HMRC would focus on taxes collected by companies (such as VAT and employees’ income tax) rather than taxes owed directly by the business (including corporation tax and employers national insurance contributions).

In ICAEW REP 17/20 prepared by ICAEW Tax Faculty and ICAEW Business Law, ICAEW concludes: “The measure is at odds with government efforts to foster an enterprise culture in the UK in recent years. It can be expected to deter lending and have other adverse consequences and costs that have not been sufficiently considered.”

It argues that the relevant clauses should be withdrawn and if they are not government must issue an assurance that VAT liabilities which businesses can defer payment of up to 31 March 2021, as a result of coronavirus, will be excluded from the scope of these new measures.

The final measure that ICAEW has made a representation on is the introduction of a new regime making company directors jointly and severally liable for a company’s tax liabilities, where the company is insolvent and the liability arises from tax avoidance, evasion or repeated insolvency. However, ICAEW has raised concerns that the government has not sufficiently considered the ramifications.

In a representation prepared by ICAEW’s Tax Faculty and ICAEW Business Law, ICAEW argues: “The legislation would give HMRC powers that may make doing business through UK incorporated companies significantly less attractive.”

ICAEW concludes that the measure should be withdrawn and a fuller consultation is undertaken to ensure that the risk of unintended consequences is minimised.

Read ICAEW’s representations in full: