Mortgage cash-backs will escape tax net
Saturday 23 March 1996
Any taxpayers who have been charged CGT on their cash-backs should contact their tax office to establish how the assessment and any appeal will be dealt with.
Tax accountants welcomed the change of heart, but Chris Williams, tax specialist at Pannell Kerr Forster complained yesterday that the timing of the announcement left investors very little time to make use of the concession by selling other assets to make full use of their annual allowance of pounds 6,000 worth of tax-free capital gains before the end of the current tax year.
The Revenue will shortly publish guidance on circumstances where cash- backs could be liable to income tax, but this is more likely to apply to cash-backs received by motor traders. It is unlikely to affect building society borrowers many thousands of whom have received cash-backs in the last 12-18 months.
The Inland Revenue has also clarified the tax treatment of windfall payments building society members receive for approving mergers, takeovers and conversions of their societies from mutual to banking status. Members who receive a cash bonus for approving the merger of two building societies which remain mutuals do have to pay income tax on the windfall.
The last such payment was to members of the North of England BS when it was merged with the Northern Rock 18 months ago. The Inland Revenue admitted however that there is no mechanism for requiring societies to deduct tax at source before making the payments, and investors are expected to declare the bonuses voluntarily.
If a society converts into a bank, or is taken over by a bank or some other non-mutual organisation however, the cash and/or shares members receive as a result will be regarded as capital gains not income.
Even cash payments will be regarded as a capital gain and will not be liable to income tax. Shares received as part of a conversion or takeover will become potentially liable to capital gains tax but only if the proceeds exceed the tax-exempt allowance if and when the shares are sold.
Pannell Kerr Forster believes the Inland Revenue can still be challenged on its ruling, however. Investors are advised to declare such payments on their tax forms, and then challenge any tax which is charged against them.
The Inland Revenue's latest ruling made no mention at all of the loyalty bonuses recently awarded to members by the Britannia Building Society for remaining loyal to a society which does not plan to merge or convert.
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