Today the Chancellor, Philip Hammond, delivered a budget to provide a ‘fair, stable and competitive’ tax system. But there were more jokes delivered at the expense of the Labour party than actual substantial changes to the tax regime.
The changes which will affect the most people are in consequence of the recognition that the amount of tax you pay depends on whether you are self-employed or whether you are employed. Consequentially, self-employed persons will pay 1% more Class 4 national insurance charge (‘NIC’) to bring them closer to the NIC that employees pay. Shareholder/employees will also be hit by a reduction in the tax free dividend allowance from £5,000 to £2,000 from April 2018.
Reform to the taxation of foreign domiciliaries who are long term residents
As expected, there has been no further announcements on the taxation of foreign domiciliaries who are long term residents i.e. non-doms who have been UK resident in 15 of the last 20 tax years.
Well advised non-doms ought to be reviewing their situation to determine which assets should be held personally to take advantage of the rebasing election and cleansing relief and which assets should be held in trust.
The rebasing election uplifts the base cost of their assets to the value at 5th April 2017 (only available to persons who have paid the remittance basis charge and who become UK deemed domiciled on 6 April 2017).
The cleansing relief enables non-dom taxpayers to “un-mix” mixed funds (accounts holding a mixture of clean capital, income etc.) in a two tax year window from 6 April 2017.
Taxpayers who are not yet deemed domiciled for inheritance tax purposes may be able to establish offshore trusts and thereby benefit from the protections offered to such vehicles. In short there is no UK tax on foreign income and gains retained within a protected trust. UK tax becomes payable only when distributions or benefits are enjoyed anywhere in the world.
Prior to 5th April 2017, taxpayers should consider
* which assets should be held personally and which held in trust;
* making trust or dividend distributions which can be sheltered by claiming the remittance basis prior to becoming deemed domiciled;
* restructuring offshore corporate vehicles holding UK residential property;
* making trust distributions to non-UK resident beneficiaries to wash out gains.
We expect the Finance Bill 2017 to be released on 20 March 2017.
Qualifying recognised overseas pension schemes hit by 25% exit charge
Qualifying recognised overseas pension schemes or ‘QROPS’ are a form of pension established outside of the UK which are ‘recognised’ by HM Revenue and Customs to accept the receipt of a transfer of an approved UK pension scheme.
Transfers to QROPS are typically made where the taxpayer has left or is planning to leave the UK. Such vehicles are common among non-doms who return to their home countries and UK expats who leave the UK to retire abroad.
The tax benefits of such an arrangement is that the taxpayer enjoys the benefits of tax relief on pension contributions, tax free growth of the pension fund and then after the transfer of the UK pension to a QROPS in a low tax jurisdiction the pension could be received free from UK withholding taxes.
However, from 9 March 2017 the government will introduce a 25% charge on transfers of all UK pensions to QROPS. The charge will not apply where one of two exemptions apply. These are where the taxpayer and the QROPS are resident in the same country or where the taxpayer and the QROPS are in different countries but both are in the European Economic Area.
The government also intends to extend UK taxing rights and apply the charge to payments out of QROPS in the 5 tax years following the date of transfer with effect from 6 April 2017.
Qualifying Non-UK Pension Schemes, or QNUPS, which are overseas pensions funded by income net of UK tax (where there was no tax relief on the pension contribution), appear to be unaffected.
Within the budget press release was a statement identifying the government’s awareness of UK employers making image rights payments under separate contractual arrangements to employment income. This practice is most heavily associated with football, but is also prevalent in other professional sports such as rugby and cricket.
The statement confirms that HMRC are to publish guidelines for employers who make image rights payments, with the intention of improving the clarity of the existing rules.
There is no mention of what we can expect in the guidance, or when we should expect it. However, we feel that it is likely that this guidance will incorporate the current practices developed by HMRC with leading premier league football clubs, such that image rights payments should be linked (and restricted to) to both the commercial revenues of the club and the commercial value of the employee.
In our opinion this a welcome step from HMRC and will enable athletes and sports clubs alike to plan their affairs with a bit more certainty. At this stage, it does not appear that such guidance would affect athletes operating on a self-employed basis.
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
Alternatively contact us here (https://mdaviesassociates.com/contact/) and one of our specialist tax advisers will get back to you.
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.