Fiscal Phil delivered his third budget speech on Monday 29th October promising that, “the era of austerity is finally coming to an end”.
A ‘safe’ budget that would not disappoint many taxpayers. The headlines, more spending on the National Health Service, the military, road improvement etc. will generally find approval. More money will be in the pockets of the average taxpayer because personal allowances and the higher rate threshold will increase next year; fuel duty and the duty on beer, cider and spirits are all frozen; and pension relief is unchanged.
However, it would not be a good day if you are a multinational corporate business trading in the UK.
From April 2019 taxpayers will pay no tax on the first £12,500 of income and the 40% higher rate income tax will apply only after the first £50,000 of taxable income.
The gain on the sale of a taxpayer’s home is often largely exempt from capital gains tax due to various reliefs. Some of these reliefs will be curtailed from April 2020, so where residential property is bought as a home and then later let out, there will be no relief for that proportion of the period of ownership where the property is let out (unless the owner is in a shared occupancy with the tenant). In addition the period of deemed occupancy before the sale will be restricted to the last 9 months. These changes to the relief will have particular impact on international workers who may let out their property during periods working abroad.
UK resident non-dom taxpayers have a short opportunity to use cleansing relief to “un-mix” cash balances of foreign income, gains and pre-arrival clean capital before the window closes on 5th April 2019. There is an opportunity use the rebasing election and cleansing relief together, by selling assets to realise cash, which can be cleansed into its component parts.
Corporation tax, currently at 19%, will fall to 17% by 2020.
The government will introduce a new Digital Services Tax from April 2020. This will apply a 2% tax on the UK generated revenues of large digital businesses.
There are restrictions on how both capital and revenue losses are relieved.
There will be new rules on the taxation of certain corporate debt instruments, known as hybrid capital instruments, to reflect the economic substance of the transaction.
The government will introduce targeted legislation in Finance Bill 2018-19 to prevent UK businesses avoid UK tax by arranging for their UK taxable profits to accrue in offshore jurisdictions where less tax is paid than in the UK.
The taxation of intangible property (including royalties and income from the indirect exploitation of intangible property in the UK) will change in April 2019 to collect tax directly from the owners of intangible property, who are in receipt of intangible income relating to UK sales. The tax will apply to certain offshore entities that own intangible property located in low-tax jurisdictions. The tax will apply to owners with UK sales in excess of £10 million, and there will be an exemption where the income is taxed locally at “appropriate rates” and where there is “sufficient” local substance.
Announced in the Autumn Budget 2017, the government has confirmed that from April 2019 capital gains tax will apply to all non-resident gains on the disposal of residential and commercial UK property. In addition, non-resident property income will become subject to corporation tax instead of income tax. This will mean that all the corporate anti-avoidance provisions, such as the restrictions on the deductibility of interest, will apply.
The government will consult on levying a further 1% SDLT surcharge on non-residents buying residential property. This will discourage non-residents buying residential property for investment purposes even further.
As always, if have any questions on how these measures will affect your tax affairs, or the affairs of your clients, then please do not hesitate to contact us.