Less than a month ago Mr Sunak was the Chief Secretary to the Treasury, but following Sajid Javid’s surprise resignation on 13th February, Mr Sunak was appointed Chancellor of the Exchequer on the same day.
I’m sure Mr Sunak had not expected the sudden promotion, and I am pretty sure he had not anticipated the Covid-19 emergency, so to prepare a comprehensive budget within 4 weeks is good going.
Mr Sunak declared the Conservative party the “real workers’ party” and many of the Budget’s giveaways were aimed at the ordinary person in the street. Duty on wines, spirits and beer were frozen, fuel duty was frozen, and the infamous EU tampon tax gleefully abolished. There were reductions in business rates for retail and hospitality businesses, which will be affected by people staying indoors. Which together with undertaking to refund statutory sick pay in full and access to business loans are all intended to support British businesses through the emergency. However, there was little to reward the business owners, and they suffered a spectacular tax rise with the curtailment of Entrepreneurs’ Relief.
As usual, we have focused our review on measures that will particularly impact foreign domiciliaries (“non-doms”) and their advisers.
Prior to today’s Budget, Entrepreneurs’ Relief limited the capital gains tax paid to 10% on the gains on disposal of businesses and shares in personal trading companies. There was a lifetime limit of £10 million of qualifying gains. Any gains in excess of £10 million were taxable at the normal rates up to 20%.
From today the lifetime limit will decrease to £1 million. Therefore, the tax on the next £9 million will effectively double.
In our view this step is very short sighted. Tony Blair’s Labour government reformed capital gains tax and changed how the gains on disposal of businesses were taxed. Instead of paying capital gains tax at the top rate of income tax entrepreneurs could sell long term business assets and pay tax on the gains at 10%. Overnight this killed the common tax planning technique of moving abroad and realising the gains tax-free. This new measure is likely to revive the practice and there are now plenty of jurisdictions which have non-dom tax regimes similar (and in places even better) than the UK.
UK Property owned by Non-UK Companies
The tax rules for UK property owned by non-UK resident companies have changed almost annually over the past few years and this Budget saw further amendments to the rules. However, the changes were mere tweaks rather than the more substantial changes seen in previous years.
The specific changes contained in Budget 2020 include the introduction of relief for “pre-trading loan relationship losses” incurred in the 7 years before a non-resident company starts to carry on its UK property business. There were also amendments to the exception for companies notifying their chargeability, and the time limits for electing into the “disregard Regulations”.
Whilst these may not be on the same scale of changes seen previously, it remains important for the directors of non-resident companies owning UK properties to understand the effect of these changes on their UK tax obligations, as well as the opportunities they may create.
As has become the norm over the last few years, the 2020 Budget delivered further measures with the expressed intention of aiming to support UK residents “get onto and move up the housing ladder”. The most recent attempt to “aid UK residents” sees the introduction of an additional 2% surcharge for non-residents purchasing residential property from 1 April 2021.
We will have to wait to see the detail of the proposal, but we assume that the proposed 2% surcharge will be in additional to the current 3% surcharge applied where an individual acquires a UK property in addition to a property already owned (anywhere in the world). With the basic SDLT rate for a property valued at £1.5 million or more being 12%, this could increase to as much as 17% for a non-resident purchaser.
It remains to be seen whether this measure will enable UK residents to climb the housing ladder, but it may well have a much greater effect higher up the ladder!
It was widely publicised that the cap on the tax relief on pension contributions disincentivised some doctors and surgeons from working in the NHS. The good news, which the Chancellor aimed at NHS workers (although the relief is available to all), was a £90,000 increase in the “tapered annual allowance”. This means an individual can earn up to £200,000 a year (or £240,000 using the adjusted income calculation) before the tax relief on the maximum allowable pension contributions starts to be reduced from £40,000 per annum.
The Budget was not so kind for those earning over £200,000 per annum. These higher earners will see the tax relief on the minimum annual allowance decrease from £10,000 to just £4,000 per annum from April 2021.
This is certainly bad news for UK resident high earners looking to boost their pension pot, but perhaps good news for pension providers offering offshore pension alternatives!
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.
Mark Davies, Director
Telephone: + 44 (0) 203 770 5601
Jon Elphick, Director
Telephone: + 44 (0) 203 770 5602
Alternatively contact us here and one of our specialist tax advisers will get back to you.