On 17 July 2014, Finance Act 2014 received Royal Assent. The key changes made to the draft Finance Bill during its passage through Parliament are detailed below.
Venture capital schemes
Investments in venture capital trusts (VCTs)
A number of changes that were introduced during the consultation period that ran from July to December 2013 have been included in the Finance Act 2014 provisions. These have been enacted in a form almost identical to that in the draft legislation published together with the Budget press announcement.
The changes were concerned mainly with avoidance, and deny relief for investments in VCTs where investments are:
- Conditional on a share buy-back, or where the share buy-back is conditional on the investment being made; or
- Made within a six month period of a sale of shares in the same VCT.
These measures will affect subscriptions for shares where the monies being subscribed represent dividends which the investor has elected to reinvest.
These changes took effect from 6 April 2014, and can be found in ITA 2007, s 264A.
Finance Act 2014 also introduces changes to the legislation to allow individuals to subscribe for shares in a VCT via a nominee. These changes took effect from Royal Assent on 17 July 2014.
Investments in SEIS, EIS and VCTs
An important change to the qualifying activities for venture capital scheme companies was introduced by the government during the Report stage. This change, introduced by Finance Act 2014, s 56, denies relief for investments in companies benefitting from DECC renewables obligations certificates or renewable heat incentive subsidies. This change took effect from 17 July 2014.
Employee Share Schemes
The abolition of the approval process, under which companies setting up SAYE and CSOP schemes would have to get clearance from HMRC before granting options, has resulted in a host of minor changes being made to the Taxes Acts to remove references to the approval process.
A small number of amendments were made during the passage of the legislation to clarify that, where a company had implemented an approved plan under the old process earlier this year, the change to the statutory language does not affect their ability to claim statutory tax relief on the costs of establishing such a plan.
Over the coming months it will be interesting to see if the legislature has picked up all of the potential disconnects in the legislation caused by the reform of the implementation process for tax advantaged share plans.
The new “Employee Ownership” regime affords generous tax reliefs to owners of trading companies who sell shares to an employee trust which, effectively, gives an equal indirect interest in the capital of a company to all of the employees of that company. Under the new rules, such a disposal is treated as taking place on a no gain/no loss basis.
The changes to the Bill before its enactment are intended to ensure that the new relief cannot be abused by arranging for owners to sell shares that meet the criteria at the time that the sale is made, but then do not subsequently continue to meet the criteria (examples might be a company that will cease trading after the vendor’s withdrawal, because the sale has used up all of the working capital, or a company that falls back under the direct ownership of the vendor).
The changes take two forms:
- the test as to whether a company and a trust meet the qualifying criteria become continuous, they must be met throughout the tax year in which the disposal takes place;
- a new clawback of relief if a “disqualifying event” occurs in the tax year following the year in which the disposal is made.
The legislation originally imposed a tax penalty only on the trustees of the trust if there was a “disqualifying event”, but the changes mean that the vendors will also suffer a tax cost if the requirements of the Act are not met.
Internationally mobile Employees
Two minor changes to the rules on employment related securities for internationally mobile employees were also introduced before the Bill was enacted. The changes affect the calculation of tax charges under the restricted securities rules and extend the definition of exempt income to cover situations where employees would have been treated as having exempt income had they been resident in the UK.
Stamp Duty Land Tax
Under s74 Finance Act 2003, relief is provided against SDLT for leasers who collectively acquire the freehold to their property under the rights given either under the Landlord and Tenant Act 1987 or under the Leasehold Reform Housing and Urban Development Act. This relief sets the rate of SDLT according to the consideration given for the freehold divided by the number of flats, so that SDLT is more comparable to the SDLT that would have arisen if the lessees had separately acquired the freehold to their flat.
However, it is quite common for the freehold interest to be acquired by a company, in which each of the leaseholders are shareholders. Given the acquisition is being made by a company, the higher rate of SDLT at 15% could be applied, historically this would have applied where the mean value of the flats were in excess of £2,000,000. Since 20 March 2014, this higher rate of SDLT applies to transactions by certain non-natural persons in excess of £500,000. Changes made at the committee stage of the Finance Act ensured that this reduction was also reflected in s74 Finance Act relief. Therefore where the mean value of the freehold value per flat is in excess of £500,000 and the transaction is effected after 20 March 2014, the rate of SDLT will be 15%.
Business Premises Renovation Allowances
The Finance Act 2014 sets out key changes to the Business Premises Renovation Allowances (‘BPRA’) regime. Broadly, BPRA provides a 100% allowance for capital expenditure incurred on the renovation or conversion of business premises that have been unused for at least a year in designated disadvantaged areas within the UK. The changes enacted clarify the scope of the expenditure that would qualify, including some specific plant and machinery. Relief is also made available for some unspecified expenditure (such as project management services) provided, subject to a cap of 5%. Originally, the 5% cap was referred back to building works only. However, during the committee stage of the Finance Act, the 5% cap was amended to refer to total overall expenditure (i.e. including architectural, design and surveying and engineering services as well as the building works).