On 18th March George Osborne revealed his 6th and final Budget before the General Election.
On the whole, there were few significant changes in personal taxation for the moderately well off. The Chancellor set the tone when he said that the top 1% of earners will now pay 27% of all income tax. This is the consequence of personal allowances increasing and the introduction of a new personal savings allowance which means that 4 million people are removed from the tax net.
However, there are a number of tax changes which will have an impact on foreign domiciliaries or “non-doms” which have already been announced.
Remittance Basis Charge increases from 6th April 2015
Once a non-dom has been resident in the UK for more than seven out of the previous nine tax years he or she is required to pay the ‘remittance basis charge’ in addition to tax on any UK income and gains and on any foreign income or gains remitted to the UK.
The remittance basis charge is initially £30,000 and is payable each year when the remittance basis is claimed.
For non-doms who have been resident in the UK in twelve out of the previous fourteen tax years the remittance basis charge is currently £50,000 p.a. With effect from 6th April 2015, this will increase further to £60,000 p.a. and a new charge of £90,000 p.a. will be introduced for those non-doms who have been resident in the UK in seventeen out of the previous twenty tax years.
Contact one of our specialist tax advisers for more details on the remittance basis charge.
Annual Tax on Enveloped Dwellings (ATED) extended from 1st April 2015
ATED is an annual tax payable by non-natural persons, such as an offshore company, holding high value residential property. In addition when ATED applies ATED related capital gains tax is payable (“ATED CGT”).
High value residential property is defined as property with a value in excess of £2 million on 1st April 2012 (or the date of acquisition if later). With effect from 1st April 2015 this definition is extended to include properties with a value in excess of £1 million.
This annual tax charge for properties with a value between £1 million and £2 million will be £7,000 for 2015/16.
In addition the ATED annual tax charges are being increased generally by more than 50%. This will make owning property through an offshore for occupation by the owner prohibitively expensive.
ATED returns must be submitted and ATED paid by 30th April each year.
However, those non-natural persons that have come under ATED in 2015/16 as a result of a property being valued between £1 million and £2 million have a concession for submitting their return by 1st October 2015 and making the payment by 30th October 2015. A simplified tax return will be available for those non-natural persons with no tax liability with the normal due date extended to 1st October 2015.
All non-natural persons are obliged to make an ATED return. However, there are various reliefs which may mean that ATED is not payable.
The legislation gives relief to non-natural persons engaged in the business (with a view to a profit) of letting, trading in, developing or redeveloping properties. However, this relief is not available if certain “non qualifying persons” occupy the property (broadly persons connected to the beneficial owner).
ATED CGT applies to disposals of high value UK residential property by “non natural persons” whether resident or non-resident in the UK, i.e. those falling within the ATED annual tax charge detailed above. But see below for details of the Non-Resident Capital Gains Tax (“NR CGT”).
The tax rate on ATED CGT is 28%, in line with the current standard rate.
There is an automatic rebasing of the cost of the property to the open market value at 6th April 2013, unless the taxpayer elects otherwise.
If you think you might be caught by the ATED or require assistance with the preparation of a return, please contact us for advice on your next steps.
Capital gains tax extended to non-residents selling UK residential property from 6th April 2015.
Draft legislation to introduce NR CGT was published on 10th December 2014 and it is expected to form part of Finance Act 2015 with effect from 6th April 2015. Regrettably, despite the Government’s claims to support tax simplification, further legislation has been added to the existing regime, which now means that residential property is potentially subject to capital gains tax under several headings.
The new NR CGT will apply to all disposals post 6th April 2015 of all UK property “used or suitable for use as a dwelling” held by certain non-residents. Unlike ATED CGT the NR CGT will apply to all dwellings regardless of their value and there will be no relief for lettings businesses. It will apply to most non-residents, including non-resident individuals, offshore corporate trustees and close non-resident companies. Non-resident companies and funds which are not close companies will not be caught by the new regime.
Where both ATED CGT and NR CGT apply, ATED CGT takes priority.
The rules on private residence relief to exempt the gains on the sale of your main residence are being amended to be available in appropriate circumstances. In short the UK dwelling has to be the non-resident’s only or main residence and there have to be 90 overnight stays in the property.
The capital gains tax rates will be either 18% or 28% according to the taxpayer’s marginal rate of tax. The rate for offshore trustees will be 28%. The rate for non-resident close companies will be 20%.
The tax will only apply to gains occurring and accruing after 6th April 2015. Taxpayers will have the option to pay tax on the whole gain, the gain time apportioned to that period post 6th April (unless ATED CGT applies), or the gain calculated by substituting the 6th April 2015 value for cost.
A non-UK resident disposing of UK residential property will be required to notify HM Revenue & Customs within 30 days of the property being conveyed that the disposal has occurred together with a calculation of the gain or loss or claim for private residence relief.
Tax Evasion and Tax Avoidance
That taxpayers should pay a “fair contribution” is a familiar theme to this year’s budget.
The Chancellor has estimated that a further £3.1 billion can be collected from tax evaders, tax avoiders and aggressive tax planning.
Tax evaders are now on notice that details of the financial accounts held offshore by UK resident taxpayers in over 90 countries will be shared with HM Revenue & Customs under the Common Reporting Standard (“CRS”). Over £4 million will be spent on technology so that the new data can be processed.
There will be a new Common Reporting Standard Disclosure Facility (“CRSDF”) from 2016 to mid 2017. The CRSDF will be on far less generous terms than previous disclosure facilities as penalties will start at 30% and it will offer no immunity from criminal prosecution.
In addition the Lichtenstein Disclosure Facility and the various Crown Dependencies Disclosure Facilities will be closed earlier than previously announced; by the end of 2015.
Finance Act 2015 will impose enhanced civil penalties for offshore tax evasion, for example by introducing a new aggravated penalty of moving hidden funds to avoid the CRS.
Measures will also be introduced that will allow HMRC to secure a payment of tax debts directly from debtors’ bank and building society accounts in credit.
Over 21,000 Accelerated Payment Notices are expected to be sent to tax avoiders, that is to say those who have invested in schemes that purport to give a tax advantage. This will remove any cash flow benefit of engaging in such schemes.
Those who persistently enter into tax avoidance schemes that fail, “serial avoiders”, can expect to have to comply with special reporting requirements and a surcharge. The Government also intends to develop measures to publically name those who continue to use schemes that fail.
In an attempt to bolster the deterrent effect of the General Anti-Abuse Rule tax geared penalties will also apply to cases that are caught.
Pensions and Savings
The rules on Individual Savings Accounts (“ISAs”) will be changed so that they can be more flexible. This will mean that taxpayers can access their ISA savings and make withdrawals providing the withdrawal is repaid within the same tax year.
A new Help to Buy ISA will be introduced where the Government will add £1 for every £4 saved to help taxpayers save for a deposit for a home.
It is less good news for pension savers as the Lifetime Allowance of £1.25 million is being reduced to £1 million but this will be indexed for inflation from 2018. It is welcome news that the Chancellor declined to reduce the relief on pension contributions. However, taxpayers should be aware that it is both Liberal and Labour party policy to restrict pension contributions so taxpayers could be well advised to make their planned pension contributions for 2015-16 in advance of the general election in case the rules subsequently change.
We wave a fond farewell to the Self Assessment Tax Return. Or do we? The Chancellor has announced that the annual tax return will be scrapped and replaced with a digital tax account on line.
This is a change of approach as the principle of self-assessment is that you declare your income and gains and HM Revenue & Customs checks it. Where there is a digital tax account HM Revenue & Customs will assess what you owe from data collected from various sources, e.g. your bank, your employer etc., and you will have to check it. Taxpayers with complex tax affairs, and we expect that this includes non-doms claiming the remittance basis, will still need to prepare tax returns.
If you would like to discuss any tax matter raised within the Budget please let us know.
Mark Davies, Director
Telephone + 44 (0) 203 008 8100
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.