March Monthly News
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Bounce-back loans – where are we now?
The bounce back loans, CBILS and CLBILS for larger companies were some of the most generous schemes available to businesses suffering from the impact of lockdowns due to the Covid-19 pandemic, paying out a total of £80 billion to help keep businesses afloat.
The Bounce Back Loan Scheme was the largest of these, paying out £47.36 billion in total to around 1.6m recipients, with amounts up to £50,000 available to companies that would have faced real financial difficulty without them.
Fraudulent loan claims
Due to the speed that these loan schemes were implemented, and the fact that the Government backed them 100% – meaning taxpayers would pick up the tab for any loans that were not repaid – there was predicted to be a considerable amount of fraud. PwC initial suggested there would be around £4.9 billion of fraud associated with the Bounce Back Loan Scheme, which it subsequently reduced to £3.5 billion.
Lord Agnew, the former minister for counter-fraud described the oversight of the loan payments by the British Business Bank as “nothing short of woeful” when he spoke about his resignation from that role in the House of Lords. He highlighted what he described as “schoolboy errors” such as more than 1,000 companies receiving these loans despite not even trading when the pandemic hit.
What to watch out for if you need additional business loans
However, for the millions of companies these loans helped, there has been considerable benefit. They were applied for through business banks and you could get up to 25% of the self-certified annual turnover, or £50,000 – whichever was less. The biggest appeal for many though was the 2.5% interest rate – lower than many other business loans available – and the option to repay the loan over six years, although you can request that this is extended to 10 years, with the Government covering interest payments for the first 12 months.
One important thing for companies to remember is that the interest on these loans can be offset against tax, which is one benefit. But there are a few banana skins to avoid if you need additional lending within the period that you have the loan, according to the Association of Taxation Technicians (ATT).
It said: “Be particularly careful if your business needs any other source of funding during the life of the BBL taking any form of security, mortgage, charge pledge, lien or encumbrance over its assets whatsoever. You must check this is allowed under the loan terms, and often it is not.”
Be careful if your business becomes insolvent
It was possible to use the BBLS to pay dividends if the business has retained profits but was struggling with cash flow, but if your company was to become insolvent then you may be asked to repay these dividends as it is not possible to pay a dividend from an insolvent company. Any personal use of these loans could also result in the requirement to repay the money used, which potentially puts your personal assets at risk.
We can help you
If you are concerned that your BBLS may not have been used for the correct purpose, or that business risks could leave your company insolvent and you personally exposed due to the way the loan was used, then please contact us and we will explain the best course of action.
IHT receipts up by £700m – but why you should see this as a ‘voluntary’ tax
Inheritance tax (IHT) is one of the most hated taxes there is, mainly because for many people their estate faces a 40% tax rate which is higher than they would have paid during their lifetime.
HMRC’s latest figures reveal there has been a £700m increase in IHT receipts in the financial year to January 2022, with £5 billion going into Treasury coffers. Much of this additional revenue will have come from property price inflation, which has increased the value of many estates, especially as the £325,000 personal IHT allowance has stayed at the same level since 2009. Had it been left to rise with inflation, it would have been worth £428,000 in 2022/23 according to Quilter.
Transfer of allowances
Any remaining allowance can be transferred on the first death between spouses or civil partners, meaning a married couple where the first spouse or civil partner uses none of his or her NRB leaves a £650,000 allowance for the second spouse or civil partner.
The Residence Nil Rate Band (RNRB) of £175,000 is also available – and can also be transferred in the same way as above – but this has added complexity to IHT. In fact, for those who have no children, the RNRB cannot be used at all, which increases the complexity around advising on this.
However, with the average house price now at £288,000 – just £37,000 shy of the £325,000 threshold – many more people look likely to get drawn into this tax net without some prior planning.
You can mitigate this tax
Given the ways that IHT can be mitigated during our lifetimes, this can be considered a ‘voluntary tax’ and one that richer people have been planning to mitigate for years. Yet it is still considered solely a tax on the rich by many, even though those with relatively modest estates that include a property can be caught in this trap.
So, using every available way you can reduce your estate’s exposure to IHT before you pass makes sense, even if you feel you are someone of relatively modest means.
Ways to reduce your IHT liability
There are a number of ways you can lower your IHT bill, including making gifts during your lifetime to reduce your estate to below these thresholds so there is no IHT for your beneficiaries to pay.
You can make gifts to spouses or civil partners without any IHT, but you can also gift up to £3,000 a year to other people using your annual exemption. For a couple, this means they can gift up to £6,000 a year with no IHT impact.
You can also gift unlimited amounts above your normal expenditure, providing it does not alter your standard of living. If you want to make larger gifts, then providing you survive them by seven years, it will be considered a potentially exempt transfer and free of IHT.
If you die within this seven-year period, a tapered amount of IHT would be applied.
We can help you mitigate IHT
There are many more ways you can reduce your IHT liabilities, but IHT planning is a complex area, and you can easily fall foul of the rules without expert help. So, if you would like to find out more about how you can reduce your liabilities for your beneficiaries, then please do get in touch.
Stamp Duty Land Tax – why this will increase as house prices rise and what you can do to reduce it
Stamp Duty Land Tax (SDLT) receipts were somewhat skewed in the last year as the SDLT holiday for properties worth up to £500,000 was phased out on June 30, 2021, and the holiday for properties worth between £125,000 and £250,000 ended on September 30.
These two deadlines resulted in a flurry of activity as people tried to complete purchases under the wire and avoid having to pay SDLT on their purchases. The result, according to Government data, was that transactions in October to December last year were 10% lower than the previous quarter, and 13% lower than Q4 2020.
Total receipts up in Q4 2021
However, despite this, total receipts in Q4 2021 were 22% higher than Q3 2021, and 55% higher than Q4 2020. This change in receipts will have largely been impacted by the lower residential nil-rate band of £125,000 for Q4 last year compared to £250,000 for Q3 2021 and £500,000 for Q4 2020.
House prices continue to rise, and while the thresholds stay the same, the receipts are likely to increase if property sales continue at the same pace.
2% SDLT surcharge for non-residents
One additional consideration is the application of additional taxes on properties bought by people who are non-resident in the UK. These purchases have faced a 2% SDLT surcharge since April last year. To the end of Q4 last year, this had resulted in 8,500 transactions paying £86m.
Possible ways to reduce SDLT
There are a few things you can do to mitigate your SDLT, including buying a property in a lower price bracket or negotiating a different price with the seller that brings you below a threshold. But beware, HMRC would be likely to take a dim view of any price cuts that mean you are buying a property for what would not be considered the full market value.
If you bought a second home and paid the additional 3% SDLT as a result, then if you sell your main residence within three years of completing on the second property, you may be able to reclaim a refund of the 3% surcharge amount. This could be a substantial sum and is worth considering if you plan to sell your main home soon after buying a second home.
You can also negotiate a price for removable fixtures and fittings that the seller is prepared to leave behind, as you only pay SDLT on the property purchase itself. This could reduce the price to drop you into a lower tax band, but HMRC insists this is done on a “just and reasonable basis” so you would need to make sure you get legal advice on how to do this properly.
First-time buyers also currently do not pay SDLT on properties worth up to £300,000 so providing you buy a property below this level, you will not pay SDLT.
You can also build your own property if that is something that appeals to you. You would pay the SDLT purely on the cost of the land purchased, which is likely to be considerably lower than buying a property already on the land. Extreme, yes, but an option for the right person.
Find out how we can help you
If you have a query about SDLT and how you can deal with tax, then please give us a call and we can guide you through what you can and cannot do to mitigate this tax.