Before Thursday 7 May 2015, the date of the next general election, the Conservative Liberal Alliance will make a number of changes to the UK tax regime as it applies to international investors. The changes will be introduced by the Finance Act 2015 which seems likely to pass into law before Budget Day, Wednesday, 18 March. The Finance Bill must in any event have passed all its stages before Parliament dissolves on Monday, 30 March 2015.
The measures that are to be enacted were announced by George Osborne, the Chancellor of the Exchequer, in his Autumn Statement of 3 December 2014 or earlier in his March 2014 Budget. The draft clauses for the Finance Bill were published for consultation on 10 December 2014 with a closing date for comments on Wednesday, 4 February 2015.
The following measures will (unless otherwise stated) take effect from 1 April 2015 for companies and from 6 April 2015 for individuals:
- Non-domiciled individuals resident in the UK (Non doms) can elect to pay tax on foreign income or gains when they are brought to the UK. The Finance Act 2015 will increase the annual charge paid by Non doms who wish to retain access to this basis of taxation. The charge for Non doms who have been resident in the UK for at least 12 of the last 14 years will be increased from £50,000 to £60,000 and a new charge of £90,000 will be payable by Non doms who have been resident in the UK for at least 17 of the last 20 tax years. The charge for Non doms who have been UK resident for at least 7 of the last 9 years will continue to be £30,000.
- There have been complaints in Parliament over the erosion of the UK’s tax base through the use of non UK entities. The Finance Act 2015 will introduce a new diverted profits tax to counter the avoidance of using a UK permanent establishment, or by the transfer of profits to entities that pay low amounts of tax in situations where there is a lack of economic substance. The tax will apply at a rate of 25% on the diverted profits of companies and will be payable within 30 days after the issue of a charging notice by a designated HMRC officer.
- Annual tax on enveloped dwellings (ATED) is a tax which has been in effect since 1 April 2013. Broadly it applies to UK homes held in corporate envelopes otherwise than by genuine property businesses. The Finance Act 2014 reduced the ATED threshold and introduced an annual charge of:
- £7,000 for properties valued at more than £1 million but not more than £2 million for the period 1 April 2015 to 31 March 2016 and
- £3,500 for properties valued at more than £0.5 million but no more than £1million for the period 1 April 2016 to 31 March 2017.
- The Finance Act 2015 will increase the annual charge for properties in the higher value thresholds for the chargeable period 1 April 2015 to 31 March 2016. The new charges will be:
- £23,350 for properties valued at more than £2 million but not more than £5 million
- £54,450 for properties valued at more than £5 million but not more than £10 million
- £109,050 for properties valued at more than £10 million but not more than £20 million, and
- £218,200 for properties valued at more than £20 million.
- A charge to Capital gains tax (CGT) on ATED-related gains realised by both resident and non-resident corporate entities has been in effect since 6 April 2013. The Finance Act 2015 will introduce changes to ensure the threshold amount above which disposals of properties held in corporate envelopes are subject to ATED-related CGT is aligned and consistent with the changes to the ATED charging bands. Companies pay tax at a flat rate of 28% on the increased value of the UK home following the introduction of this regime.
- Non-residents generally pay no CGT on disposals of UK property unless they are ATED related gains. The Finance Act 2015 will extend CGT to gains accruing to non-resident persons on the disposal of UK residential property. The charge will apply to individuals and their closely held companies, irrespective of whether the property is used as a home or a genuine property business. Companies will pay tax at 20% and individuals at their marginal rate, 18% or 28% on the increased value of the residential property following the introduction of this new regime, except in so far the gain is an ATED related gain.
- Principal private residence relief (PPR) from CGT is available on the disposal of a principle or main residence. If a Non Dom has more than one home (for example in the UK and abroad) it is possible for them to avoid tax by electing for the relief to apply to the UK residence. The Finance Act 2015 will introduce new rules making a home ineligible for selection for a tax year unless the individual making the disposal was tax resident in the same sovereign state or spent at least 90 midnights in that property in that year.
The Labour party used a popular dance-pop song by D:Ream "Things Can Only Get Better" as a theme during the party's 1997 election campaign. If these changes had a campaign song then we suggest it would be The Rolling Stones “I got the Blues”: