The 2017 Autumn Budget provided a few surprises, not least the continued onslaught against anything to do with offshore assets and investors from overseas.
Please find below some of the key themes announced by the Chancellor.
UK Real Estate
The Chancellor has announced the Government’s intention to tax gains made by all non-UK residents from April 2019 on the disposal of all UK real estate. This is an extension to the April 2015 rules which taxed non-residents on the sale of residential real estate to now include the sale of commercial property within the charge to tax.
The announcement also introduced the concept of an “indirect” disposal. In essence, this is where the shares in a company, or interest in a partnership, holding UK land are disposed of and where 75% or more of the value of the entity is attributable to UK land (so called “property rich”). The indirect rules will cover both commercial and residential interests in land.
The new rules will only apply to gains arising and accruing on or after 1 April 2019 (for companies) or 6 April 2019 (for other persons). There will be rebasing to April 2019 for non-residents however those subject to the new rules can elect to use the original acquisition price if this results in a lower charge to tax.
The rules include a targeted anti-avoidance rule (TAAR) which will apply to all arrangements entered into after the 22 November 2017, with the main purpose (or one of the main purposes) of insuring that gains are not subject to the new rules, including under the terms of a double taxation treaty.
Taxpayers who make a chargeable disposal, be it direct or indirect, will have 30 days in which to report the disposal to HMRC. This is with the exception of corporation taxpayers, who must register for corporation tax and make returns in line with the corporation tax regime.
Finally, the concept of third party reporting is being introduced in relation to indirect disposals to ensure that indirect disposals are reported to HMRC. This puts the onus on UK based advisers who are aware that a transaction is taking place.
From April 2020, taxable profits of non-resident corporate landlords will be subject to corporation tax rather than income tax. On initial reflection, one would consider this to be a lower level of taxation however corporation tax has a number of measures which restrict reliefs. As a result, profits potentially could be taxed at a higher rate than the current income tax rates.
Taxation of Trusts
The Government will publish a consultation in 2018 on how it intends to “make the taxation of trusts simpler, fairer, and more transparent”. Just when you think the Government’s attack on offshore had plateaued, we have to wait until 2018 for a consultation providing at least another 18 months of uncertainty ahead.
Employee Benefit Trusts (EBTs) and similar schemes remain very much in the Government’s line of fire. The Government announced what it intends as the final measures towards ending such arrangements.
This Budget announced the addition of a “close company gateway” into the legislation, aimed at preventing small companies setting up arrangements to benefit their shareholders and key employees.
In addition it was also announced the requirement for all outstanding arrangements post 5 April 2019 to be notified to HMRC to ensure compliance. The final measure will see the implementation of new rules allowing the collection of tax charges from UK employees where the employer is located offshore.
With these additions to the already robust legislation on disguised remuneration, it is even more important for clients with outstanding EBT arrangements to take advice and seek to resolve any outstanding issues before 5 April 2019.
The Government has announced a number of changes to the current SDLT rules. Amongst these changes are certain amendments in the application of the additional (or “supplementary”) rate of SDLT applicable to persons acquiring a second home.
These amendments include legislative changes that aim to prevent the ability of taxpayers to claw back additional rate SDLT suffered where a replacement main residence is subsequently acquired by reason of certain arrangements. Specifically, a claw back will be prevented where a taxpayer only disposes of part of their only or main residence, or where it is sold to their spouse. Moving forward, the claw back will only be available if the taxpayer disposes of the whole of the interests in their previous main residence, to someone who is not their spouse.
Additional changes to the SDLT rules will dis-apply a charge to the additional rate where an individual buys a property from their spouse or civil partner. They will also disregard the interests of a former spouse or former civil partner upon divorce, specifically when the property is held under certain ‘property adjustment orders’ in the case of a divorce.
In addition, the Government has introduced, with effect from 22 November 2017, SDLT reliefs for first time buyers (being individuals who have never owned an interest in residential property anywhere in the world) who acquire properties for less than £500,000. Those paying up to £300,000 for their first residential property will no longer pay SDLT at the prevailing rates, whilst those paying up to £500,000 will only pay SDLT at 5% on the purchase price exceeding £300,000.
First time buyers purchasing property for more than £500,000 will not be entitled to any relief and will pay SDLT at the normal rates.
Time limits for discovery of offshore non-compliance
In line with recent moves towards hardening the Government’s stance on the use of offshore jurisdictions to avoid UK tax, HMRC will consult (in Spring 2018) on extending the minimum time limit in which they are able to assess underpaid tax from offshore arrangements. The Government’s stated intention in this regard is to extend the time limit for assessment of tax liabilities arising from offshore non-compliance from 4 years to 12 years, even in cases of genuine error.
If you would like to learn more or should have any questions please do not hesitate to contact any of the Tax team.
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