As with so many previous announcements, our commentary is more about what the Chancellor did not say rather than what he did say…
Taxation of High Value Residential Properties (£2m+)
Although no detail was released today, rather confusingly the Chancellor seemed to think that the legislation being published next week would relate to Stamp Duty rather than Stamp Duty Land Tax.
At the risk of adding semantics to our array of professional services on offer, we do wonder if the reference to Stamp Duty (albeit incorrectly) rather than the more general ‘tax’ (which would encompass capital gains tax (CGT)) suggests that the extension of CGT to non-resident non-natural persons will be either deferred or scrapped.
However, it seems likely that the proposed annual charge will go ahead from 1st April 2013 as originally planned, but again we await the draft legislation next week to see if any of the suggestions contained in the responses to the consultation document (including our own) have been taken on board.
Properties held in offshore structures should be valued to establish if they fall within this possible charge, trustees and directors should complete their information gathering exercise, and beneficial owners should be thinking about their long terms plans so that any decision to retain or unwind structures is informed and practical.
Tax Evasion & Tax Avoidance
The statement predictably announced a clampdown on tax evasion and tax avoidance, with illegal tax evasion and legal tax avoidance being lumped together with the implication that there is a moral obligation to pay tax in addition to a legal obligation.
HMRC have also indicated the areas in which they plan to focus attention and resources; including using the Land Registry to ensure compliance with the new property charges as well as identifying and investigating offshore property ownership, and homing in on offshore trusts which “hide income and wealth”.
Therefore, fully compliant offshore service providers could find themselves on the receiving end of fishing expeditions from HMRC.
Employee Benefit Trusts (EBTs)
Given the myriad legislation on disguised remuneration plus HMRC’s stated intention to appeal against their defeat in the recent Rangers case, it was not surprising that there was little mention of EBTs today.
However the Government did acknowledge that “a range of employee ownership models may be legitimately applied including employee share schemes and Employee Benefit Trusts that are not aimed at avoiding tax.” Does this signal the direction of things (read ‘General Anti-Avoidance Rule’ (GAAR) to come?
The Personal Allowance will increase by £235 to £9,440 from 6 April 2013. Unlike in previous years, higher rate (i.e. 40%) taxpayers will receive the full benefit of this increase. The higher rate threshold and CGT annual exemption are set to increase by 1% in 2014-15 and 2015-16. However, most nondoms taxable on the remittance basis will not benefit from these increases, the ‘price’ of the remittance
basis being the loss of such allowances.
The Inheritance Tax nil rate band will also increase by 1% in 2015-16, to £329,000, but again this will make little difference to those whose exposure (e.g. by virtue of owning UK property) is significantly above this level. It is however still possible to undertake estate planning to mitigate this charge. Aggressive IHT avoidance is however likely to be targeted by HMRC in the future.
As widely predicted, the Government have announced that they intend to reduce the tax relief available on pension contributions. From the 6 April 2014 the lifetime allowance will fall from £1.5 million to £1.25 million and the annual allowance will be reduced from £50,000 to £40,000. There are also plans to introduce protection to prevent any retrospective tax charges on individuals as a result of the reduction in the lifetime allowance.
However, the carry forward rules are unchanged. This means annual allowances available to carry forward in respect of the 2011/12, 2012/13 and 2013/14 tax years will continue to be based on the existing £50,000 allowance.
For our internationally mobile clients, UK pensions are easy, legitimate tax planning, but are less and less likely to be of interest. However there are more flexible products available such as Qualifying Non UK Pensions (QNUPs) to suit the itinerant individual which are not subject to these restrictions.
The Government reaffirmed its desire to make the UK more tax-competitive with a further cut in the main rate of Corporation Tax to 21% from April 2014, beneficial tax credits for the creative sector and a tenfold increase in the Annual Investment Allowance for plant and machinery purchases to £250,000.
What’s expected from Finance Bill 2013 – due 11th December 2012
In addition to the legislation on high value residential property, we’re also expecting to see updated clauses on the legislative framework for the new GAAR, changes to the taxation of gains on assets held by foreign companies closely controlled by UK participators, and transfer of assets abroad, details on the proposed cap on loss reliefs for individuals and of course the long awaited Statutory Residence Test.
Should you have any queries concerning the points mentioned above or would like to discuss any other aspect of the Autumn Statement, please do not hesitate to contact us for specific advice.
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This bulletin is intended to provide general information only and is not intended to constitute legal, accounting, tax, investment, consulting, or other professional advice or services. Before making any decision or taking any action which may affect your tax or financial position, you should consult a qualified professional adviser.