Archive for May, 2014

Pandora’s Pension Box is Opened

Thursday, May 1st, 2014

By Scott Middleton, Consultant
James & George Collie Financial Management Limited

pensionsWhen George Osborne stood at the Dispatch Box in the House of Commons to deliver his 2014 Budget speech there were very few people expecting him to announce anything of any real importance. However, by the time he was finished, he had ensured that Wednesday the 19th March will go down in history as the day in which pensions, and the way investors could take their benefits from them, changed forever.

The main announcements regarding the options for those with pension arrangements at retirement were split into two parts – the first were interim changes that were to be put in place immediately and the second were proposed changes that would be subject to a consultation process, but which are aimed to be implemented from April 2015.

Interim Rules

The temporary rules will run from 27 March, 2014 to 6 April, 2015 until the full proposed reforms come into force.

The first major change was in relation to the “triviality” rules regarding pensions. Previously, if you were aged over 60, had not touched your pension pot, and your total pension savings are no more than £18,000, you could withdraw all of the savings. This has increased to £30,000.

The first 25% of the money you take out is tax-free, and the rest is taxed as the top slice of your income in the tax year of withdrawal. To take some fictional examples: Clara is 62 and has no other income, but does have a £20,000 pension pot. She withdraws all £20,000 in one year. She receives £5,000 (25%) tax-free and pays no tax up to her personal allowance of £10,000. She pays 20% tax on the remaining £5,000.

In comparison, Denise’s pension pot is also £20,000. She is still working, and earns £65,000 a year. She decides to empty her pension pot. Like Clara, the first £5,000 would be tax-free, but the balance of £15,000 is taxed at 40%, because she has already used all her basic rate tax band.

The second major change has come in relation to the way in which benefits are taken from “drawdown” arrangements. These are where income is taken directly from an individual’s pension fund on retirement, rather than the fund being used to purchase an annuity.

If you have a pension which is in “capped drawdown”, so that you are taking some money out each year, the maximum amount available to withdraw from your drawdown fund will increase by 25%. This will provide a very welcome increase in potential income for some.

Alternatively, if you are in capped drawdown and have at least £12,000 a year of “secure pension income”, including the state pension and annuities in payment, you can move to “flexible drawdown” which gives you complete freedom over how much you take out of the pension pot. Before 27 March you could only move to flexible drawdown if you had secure pension income of at least £20,000 a year.

Remember that any money you take out of your drawdown fund will be taxed at your marginal rate, so you may want to take the money out in stages so as to minimise the tax cost.

Proposed Rules

Whilst the interim rules announced would have been sensational news in their own right, it is the proposed changes that really caught the imagination of investors and advisers alike.

The government is consulting on the rules which will apply from 6 April, 2015, but it is expected that you will be able to take your entire pension savings as a lump sum and spend or invest it as you like, as long as you are over 55. Up to 25% of the money will be tax free, as now, and the balance will be subject to tax at your marginal rate.

For example, Emily is 60 and has taxable income of £50,000. She has £250,000 in her pension pot, and takes all this money out on 7 April, 2015. She will receive £62,500 without tax (25%) and the balance will be taxed at a mixture of 40% and 45%.

This freedom to do “what you like” with your pension is something that completely changes the manner in which pensions will be viewed in the future. The idea that money placed in a pension is “lost” to you, over and above the 25% tax free lump sum, is now redundant. Pensions can now be seen as a great, tax efficient way in which to save for retirement, but potentially for planned capital expenditure also.

Our advice at this time is that it is not only those coming up to retirement who should be reflecting on the impact of the proposed legislation on their pension plans, but ANY person eligible to pay into a pension arrangement should also be considering their options and looking to see how they might be able to utilise their pension to help meet current and future financial objectives.

As always our team of highly qualified and experienced IFAs are available to help and you can make an appointment for your initial consultation, at no cost to you but at our expense, by phoning us on 01224 581581, or by e-mailing jduncan@colliefinancial.co.uk .

A Training Firm

Thursday, May 1st, 2014

kingsNot only is James and George Collie one of the oldest legal practices in Aberdeen we are also proud to have close links with Aberdeen University.  The University is the second oldest university in Scotland, having been established in 1495.  St Andrews is the oldest having been established in 1413.

At James and George Collie we are proud to not only provide a quality service to our large and established clientele but we are also a “training” office and recruit young fresh professionals out of University to complete their two year Traineeship with us.

The law degree itself is a four year course and on successful completion the students will have acquired an Honours Degree in Law otherwise known as the LL.B.  This is followed by the DPLP, The Diploma in Professional Legal Practice.  In total when the two year Traineeship period is completed a young lawyer will qualify after having completed 7 years in total of study and practical experience.

Three of our partners are proud to be part of the DPLP.  Gregor Sim and Anne-Maryse Churchill have been teaching on the Diploma for many years.  Their area of expertise is Domestic Conveyancing.  Duncan Love, a Court Partner, now teaches Contract Law.

The benefit of having such close links with the University is that emerging talent in young lawyers can be spotted early on and encouraged.  Being at the heart of the academic profession means that our own knowledge as practising lawyers is able to be expanded readily.

Regular CPD (Continuing Professional Development) Seminars within the office keep partners and lawyers abreast of current developments in the law.  Indeed it is a requirement of maintaining our Practising Certificates to complete CPD annually.  The in-house seminars are usually a lively affair over a sandwich lunch.  Not only does it give us the opportunity to discuss different areas of law and update our knowledge but to mix with each other.  Our main office is large and it is sometimes possible not to meet with some of your colleagues for days at a time.  The motto therefore is “Play Together, Stay Together”. Let it not be said that we do not take our continuing professional education seriously but debate is to be encouraged.

At James and George Collie we believe that keeping up and encouraging the green shoots of young people entering the profession is what keeps us viable and vibrant.

Construction Act: importance of payment notices

Thursday, May 1st, 2014

constructionAmendments to The Housing Grants, Construction and Regeneration Act 1996 (“the Construction Act”) came into force in respect of building contracts set up on or after 1st November 2011.  The pre-existing “withholding notice” was replaced by what is now known as the “pay less notice”.    What is to happen is that the payer (usually the client – or potentially the architect if so authorised) can serve on the contractor a notice of his or her intention to pay less than the “notified sum”.   A notified sum is an amount due in terms of the construction contract set out in an earlier payment notice issued by the payee.

To be effective a pay less notice must set out in detail the amount the client considers to be due and also why that sum has been fixed upon.  That has to happen with a supporting calculation even where it is proposed that nothing is to be paid.    The importance of these notices cannot be overstated.   If the Act is not followed in terms of its detailed procedure then the client will find he has to pay the sum the contractor has intimated in the earlier payment notice – even if the amount has no legitimacy whatsoever – or indeed has been overtaken by some serious breach of contract that would otherwise allow the client to argue no sums ought to be paid to the contractor.

The pay less notice has to contain the requisite information but it must also be served within whatever time limits are prescribed in the contract.   If the building contract is silent on the period of notice, the Act imposes a time limit within its scheme.

The importance of this amended legislation is clear – if you overlook the payment notice and do not serve a pay less notice timeously, the building contractor will, in 99% of cases, get paid everything they ask for regardless of whether or not any sums were properly due at that time.

Please contact Duncan Love by email (d.love@jgcollie.co.uk) if you require any further information or advice in relation to construction law disputes and in particular payment notices.

A New Dawn for Stamp Duty in Scotland

Thursday, May 1st, 2014

stampdutyStamp Duty Land Tax (SDLT) will cease to apply in Scotland from April 2015, writes Raymond McCombie, Senior Solicitor, based at Kinnear & Falconer, Stonehaven, and will be replaced by a new Land and Buildings Transaction Tax (LBTT).  Resulting from powers available to the Scottish Government under the Scotland Act 2012, SDLT will end in Scotland and the Scottish Government has power to design and manage their own replacement taxes and to retain the revenue raised.

The Land and Buildings Transaction Tax (Scotland) Bill was introduced on 29th November 2012.   It was the first use of the Scottish Government’s powers under the Scotland Act 2012.   Following introduction of the Bill there was an extensive consultation with stakeholders with a commitment to set a simpler, fairer tax more aligned to Scottish property law than SDLT and which is less open to abuse.  The new Land and Buildings Transaction Tax was broadly welcomed by those involved in the consultation but there will inevitably be winners and losers in areas where the new system departs from the existing SDLT regime.   The Bill was subsequently passed and is in fact the first tax bill to be passed in Scotland since 1705.   The Land and Buildings Transaction (Scotland) Act 2013 (The Act) received Royal Assent on 31st July 2013.  It was Scotland’s Finance Secretary, John Swinney, who introduced the Bill into Parliament and described the move to the new Land and Buildings Transaction Tax as an “innovative approach to taxation which is much better aligned with the Scottish market, with Scots law and practices, and the principle of progressive taxation.”  Mr Swinney claims that the legislation will be more efficient and less costly than the UK Government’s SDLT approach.  Time will tell…

Practitioners will be relieved to learn that The Act borrows heavily from the current SDLT legislation contained within the Finance Act 2003.   However, there are a number of notable differences some of which are noted below:-

A Progressive Tax

The current SDLT “slab” based system has been criticised for creating a distorted market around the present thresholds.  The Act introduces a progressive tax with a nil rate band and at least two other band thresholds.   Where the chargeable consideration exceeds a threshold the rate is increased only in respect of the excess.  The purpose is to avoid the present bunching of prices around the thresholds and it is hoped that it will discourage the use of schemes aimed at avoiding certain rates.   However, concerns have been raised from those involved with commercial property that the progressive nature of the tax will inevitably lead to increased tax for those operating at the upper end of the market.  As a result, commentators fear that Scotland could become a less attractive location for property investment and development.  It is therefore imperative that the Scottish Government take these factors into account when setting the rates, but it is difficult to see how an increased overall tax liability for those at higher levels can be avoided.  It is noted with interest that the thresholds and rates will not be decided until the end of September 2014 and the reader may draw their own conclusion for the timing of the announcement!

What is covered by LBTT

LBTT will apply to land transactions where the land or property is located within Scotland.  The definition of a land transaction is similar to that under SDLT and like SDLT there are to be certain exceptions.  One notable difference is that licences will not be excluded from the scope of the tax.

Leases

The tax charges will be based on the net present value of lease rentals but will use the actual rents rather than the highest rent for the first five years.  Three yearly reviews will be required in order to assess whether further tax is payable or a repayment due.   The tax position will also need to be revisited on termination or assignation of the lease.   Residential leases will be exempt other than qualifying leases under the Long Leases (Scotland) Act 2012.

Reliefs and Exemptions

In order to reduce the scope for avoidance and better tailor the system to Scottish requirements, some of the existing reliefs under SDLT will be removed.   The most contentious is likely to be the withdrawal of sub sale relief.   This relief is perceived to be a significant form of avoidance but its removal will cause disappointment for many property developers operating in Scotland in an already difficult market.

Anti Avoidance

SDLT has proven to be a tax commonplace for avoidance activity ranging from simple allocations of consideration to more complex schemes involving off-shore entities and trust arrangements.   The Scottish Government aim to learn from the problems which have arisen under SDLT and propose that avoidance be dealt with by a move away from the slab tax system, modification and/or removal of certain reliefs and exemptions, providing clear guidance as to the policy intention of reliefs, and the inclusion of both targeted anti avoidance rules and a general anti avoidance rule.

Revenue Scotland and Collection of LBTT

LBTT will be administered by a new tax authority, Revenue Scotland.  Revenue Scotland will not deal with the day to day collection of LBTT.  This will be delegated to the Registers of Scotland which will collect the tax when dealing with registration of title to property or land.  Tax payers will be required to pay LBTT within 30 calendar days of the effective date of the transaction.  Land and property will not be able to be registered in the Land Register or Books of Council and Session until arrangements “satisfactory to the tax authority” have been made for payment of LBTT.

Transitional Rules

LBTT will apply from April 2015 subject to transitional rules.   A transaction pursuant to a contract entered into on or before 1st May 2012 will remain subject to SDLT, unless the contract is varied, the transaction is an exercise of an option or similar right or there is an assignation or sub sale.    A transaction pursuant to a contract entered into and substantially performed on or before 1st May 2012 will also remain subject to SDLT.

Conclusion

As the thresholds and rates of tax are yet to be decided, it is not clear what overall impact LBTT will have on the Scottish property market.   LBTT does provide an opportunity for the Scottish Government to create a system which is more fit for purpose in Scotland than SDLT although it will be imperative that LBTT is implemented in a way which doesn’t result in Scotland becoming a less attractive place to do business.  Those advising on transactions involving land and buildings in Scotland should keep a close eye on developments and ensure that their clients are aware of the change in regime, particularly where it could apply to completion of contractual arrangements which are entered into at the present time.

Should you require further information please get in touch with your usual contact at James and George Collie.

Liability for Rent in Company Insolvencies

Thursday, May 1st, 2014

streetA recent case from the Court of Appeal in England and Wales has been hailed as a landmark case and is welcome news to landlords.

The case of Pillar Denton Ltd & Others v Jervis & Others, 25 February 2014 considers whether part of an instalment of rent payable in advance under a lease should be treated as (a) a provable unsecured debt in an administration or (b) an expense of the administration (and therefore being paid in priority to unsecured debts).

Background

The case relates to the entertainment technology, Game group of companies who were tenants under hundreds of leases with some of the biggest landlords in the UK.  The rent for most of their properties was payable quarterly in advance on the English Quarter days.  Game went into administration on 26 March 2012, the day after the English Quarter day (25 March). Game had not paid any rent due. The Administrators also did not pay any rent, but they continued to trade from some of the stores throughout the remaining rent quarter.

Position prior to this case

Prior to the decision in this case, the position was based on the cases of Goldacre (Offices) Ltd –v- Nortel Networks UK Ltd (2011) and Leisure (Norwich) II ltd –v-Luminar Lava Ignite Ltd (2013) in that where a quarter’s rent was due in advance, the whole quarter’s rent could not be apportioned.  This meant that where a company went into administration after the rent quarter had fallen due, the rent for the period of occupation from the administrator’s appointment up to the next quarter day was not recoverable as an expense of the administration but only as an unsecured debt in the administration.  With landlords having to prove alongside other unsecured creditors, they were unlikely to recover very much rent even though the premises were in occupation and use because the administrators were in effect able to trade from the property for 3 months, rent free.

Decision

The Court of Appeal in the Pillar Denton case overruled the decisions in Goldacre and Luminar, allowing the Landlords appeal on the basis of applying the “salvage” principle and thereby now having a “pay as you go” rent for companies in administration, meaning:

“that the office holder must make payments at the rate of the rent for the duration of any period during which he retains possession of the demised property for the benefit of the winding up or administration (as the case may be). The rent will be treated as accruing from day to day. Those payments are payable as expenses of the winding up or administration. The duration of the period is a question of fact and is not determined merely by reference to which rent days occur before, during or after that period”.

Consequences of the Decision

For Landlords, this means that regardless of the day the tenant enters into Administration, rent should be paid in full by the Administrators for the entire period of their use/occupation of the property for the benefit of the administration.

For Administrators, this means that where rent solely relates to that period during which the Administrator retains possession of the property for the benefit of the Administration, that rent will be payable as an expense of the Administration.  Therefore careful planning will be required by Administrators considering any administration with lease obligations.

Whilst the Pillar Denton case was decided under English Law, the general principles should apply to Scots Law as well and also to other forms of insolvency such as liquidations and receiverships.

For further information on this topic, please contact Commercial Property Solicitor, Caren McNeil, by email at c.mcneil@jgcollie.co.uk