Following this week’s Autumn Budget, we have set out below a summary of some of the main announcements. Further details on various measures are expected to be available on 1 December 2017, when the Finance Bill that will become the Finance Act 2018 (the “December Finance Bill“) and various consultation and supplementary documents are scheduled to be published.

Real estate and construction

  • The Government published a consultation at Autumn Budget 2017 on bringing gains made by non-residents on disposals of non-residential property within the UK tax net. Non-resident companies (and others who would be subject to corporation tax if UK resident) will be subject to UK corporation tax on chargeable gains; other non-residents will be subject to capital gains tax. Both direct and indirect disposals (e.g. sales of shares or interests in property owning entities) are intended to be caught. The scope of the charge on non-residents in respect of residential property will also be expanded to ensure that all disposals of residential property by non-UK resident companies and all indirect disposals of residential property are caught (including disposals by widely-held non-resident vehicles). We expect draft legislation to be published in July 2018, with the changes taking effect from April 2019. An anti-forestalling measure has been introduced with immediate effect, aimed at structuring designed to benefit from double taxation treaty shelters (which we anticipate will be a key area). We are examining the proposals in detail and will provide further information in due course. We will also be covering the changes at our International Real Estate Tax seminar on 29 November 2017.
  • Following consultation earlier this year, the Government confirmed at Autumn Budget 2017 that it will go ahead with proposals to bring non-UK resident companies that carry on a UK property business, or have other UK property income, within the charge to corporation tax (instead of income tax). This will have the effect of applying certain corporation tax specific rules (such as the new corporate interest restriction) to such non-resident companies. A non-UK resident company with chargeable gains arising on the disposal of UK residential property will also be subject to corporation tax, rather than capital gains tax as at present. Draft legislation is expected to be published in July 2018, with the changes taking effect from 6 April 2020.
  • The Chancellor announced a new exemption from SDLT for first time buyers paying up to £300,000 for a residential property on or after 22 November 2017. Where first time buyers pay between £300,000 and £500,000 for a property, they will pay 5% on the excess over £300,000 (reducing their SDLT liability by £5,000). First time buyers paying over £500,000 for a residential property will not benefit from the exemption.
  • In addition, new reliefs from the 3% SDLT surcharge on purchases of additional properties apply from 22 November 2017:
    • where a divorce-related court order prevents someone from disposing of their interest in a main residence;
    • on transfers between spouses or civil partners;
    • where a person buys a property in a child’s name or on a child’s behalf, where they are doing so as the deputy of that child; and
    • where a purchaser adds to their existing interest in their current main residence.
    The rules will also be amended to prevent abuse of relief from the surcharge where a purchaser who changes main residence also retains an interest in their former main residence.
  • The proposed introduction of a 30-day payment window for capital gains tax on residential property has been deferred until April 2020. The reduction in the SDLT filing and payment window from 30 days to 14 days has been further deferred and will now take effect from 1 March 2019.
  • Following consultation earlier this year, the Government will issue a further consultation in spring 2018 on draft legislation to introduce a VAT reverse charge mechanism for the construction sector. These changes will move responsibility for paying VAT in order to deal with VAT fraud in labour provision in the sector. The changes will take effect from 1 October 2019.

Business taxes

  • The Government will consult (in spring 2018) on amending the conditions for entrepreneurs’ relief to allow entrepreneurs to continue to qualify after their holding has been diluted below 5% as a result of external investment via a new share issue.
  • The amount of indexation allowance available to a company disposing of a capital asset on or after 1 January 2018 will be frozen at the amount of indexation allowance available at the end of December 2017, regardless of the date of disposal.
  • Following the publication of the Office of Tax Simplification’s report on simplifying VAT, the Chancellor announced that the current VAT registration and deregistration thresholds will be frozen until 1 April 2020 to allow consultation on the design of the thresholds.
  • On 1 December 2017, the Government will publish a consultation on expanding the circumstances in which royalty payments (and payments for certain other rights) made to persons in low or no tax jurisdictions, in connection with sales to UK customers, will be subject to withholding tax. The changes will take effect from April 2019 and will apply regardless of where the payer is located.

  • The Chancellor announced that the rate of Research and Development Expenditure Credit will increase from 11% to 12% for expenditure incurred on or after 1 January 2018.
  • With effect from Royal Assent to the December Finance Bill, HMRC’s powers to target online marketplaces where UK businesses using that marketplace fail to account for VAT will be extended. HMRC will also be able to hold the online marketplace liable where a non-UK business fails to account for VAT, if the online marketplace knew (or should have known) that the non-UK business should be registered for VAT in the UK. Online marketplaces will need to display VAT numbers for their sellers (when provided with one) and they will need to ensure that the VAT numbers displayed are valid.
  • It was announced at Autumn Budget 2017 that changes will be introduced with immediate effect to restrict the credit allowed or deduction given for foreign tax suffered by a company where losses of its overseas permanent establishment (“PE“) have been offset against non-PE profits in the overseas jurisdiction. The relief available will be determined by deducting the amount of tax saved (by offsetting the PE losses against non-PE profits) from the amount of overseas tax suffered by the PE.

Venture capital 

  • The Chancellor announced that the annual limit for individuals investing in knowledge-intensive companies (“KICs“) under EIS will be increased from £1 million to £2 million, provided that anything above £1 million must be invested in KICs. The annual EIS and VCT limit on the amount of tax-advantaged investments a KIC may receive will be increased from £5 million to £10 million. Greater flexibility will also be introduced for determining whether a KIC meets the permitted maximum age requirement, allowing the KIC to use the date from which its annual turnover exceeded £200,000 (instead of the date of its first commercial sale), when determining the date from which the end of the initial investing period is calculated. These changes will apply to shares issued (for EIS) and new qualifying investments made (for VCTs) on or after 6 April 2018.
  • It was announced at Autumn Budget 2017 that the existing anti-abuse rule that restricts income tax relief for investors who sell shares in a VCT and subscribe for new shares in another VCT within a six month period, where those VCTs merge, will be amended to ensure that income tax relief will no longer be withdrawn where either:

    The change will be backdated to apply to VCT subscriptions made on or after 6 April 2014. This removes the unintended application of the anti-abuse rule to investors who subscribe for shares in a VCT, and sell shares in a different VCT, before there is any arrangement in place for the VCTs to merge.

    • the relevant VCTs merge more than two years after the latest subscription for shares; or
    • do so where obtaining a tax advantage is not one of the main purposes of the merger.

The change will be backdated to apply to VCT subscriptions made on or after 6 April 2014.  This removes the unintended application of the anti-abuse rule to investors who subscribe for shares in a VCT, and sell shares in a different VCT, before there is any arrangement in place for the VCTs to merge.

  • The Government also announced that a new condition will be introduced into the EIS, SEIS and VCT rules to limit relief to genuine entrepreneurial companies. The condition will require that the company has objectives to grow and develop over the long-term and that there is a significant risk that there could be a loss of capital to the investor of an amount greater than the net return. It is currently unclear when the new condition will take effect, but we would expect this to become clear on 1 December 2017, when the December Finance Bill is published.
  • With effect from Royal Assent to the December Finance Bill (expected spring 2018), VCTs will no longer be able to offer secured loans to investee companies and returns on loan capital over 10% will be restricted to a commercial return on the principal.
  • It was announced at Autumn Budget 2017 that VCTs must invest 30% of funds raised in an accounting period beginning on or after 6 April 2018 in qualifying holdings within 12 months after the end of the accounting period.
  • From 6 April 2019, the period during which a VCT must reinvest its gains on disposal of qualifying holdings investments will increase from six to 12 months and the proportion of VCT funds that must be held in qualifying holdings will increase from 70% to 80%.
  • The EIS, VCT and social investment tax relief (“SITR“) will be amended to ensure that all risk finance investments will count towards the £12 million lifetime limit (£20 million for KICs), regardless of when the investment was made. This change is to ensure that the rules operate as intended by removing the current exclusion for certain pre-2012 investments.

Personal taxes

  • The Chancellor announced that (for England, Wales and Northern Ireland) the personal allowance will increase from £11,500 to £11,850 and the basic rate limit will increase from £33,500 to £34,500, with effect from 6 April 2018.
  • The annual exempt amount for capital gains tax purposes will increase from £11,300 to £11,700 for individuals and from £5,650 to £5,850 for most trustees of a settlement.

Employment taxes

  • It was announced at Autumn Budget 2017 that the Government will consult on options for reform to make the employment status tests clearer for both employment and tax purposes. This is part of the Government’s response to Matthew Taylor’s review of modern working practices.
  • As recently announced the National Insurance Contributions Bill will now be introduced in 2018 and, as a result of the delay, the measures it will implement will now take effect from April 2019. These measures include the abolition of Class 2 NICs and reforms to the NICs treatment of termination payments.  The reforms to the income tax treatment of termination payments will take effect as planned from April 2018.
  • As previously announced, foreign service relief on termination payments will be withdrawn for contracts terminated on or after 6 April 2018, where the relevant employee is UK tax resident in the tax year in which their employment is terminated.
  • As widely expected, the Government will consult on extending the off-payroll working rules that came into force for the public sector in April 2017 to apply to the private sector. The consultation is expected to be published in early 2018.
  • The period for which employees on maternity or parental leave can pause saving into a Save As You Earn scheme will be increased from six months to twelve months (with effect from 6 April 2018).
  • It was confirmed at Autumn Budget 2017 that various changes will be made to the disguised remuneration rules. The changes include the following:
    • amendments to ensure that (with effect from 6 April 2017) the rules apply to disguised remuneration schemes used by employees and directors with a material interest in a close company;
    • amendments to ensure that (with immediate effect) the disguised remuneration rules apply regardless of whether contributions to schemes should previously have been taxed as employment income;
    • the introduction of an obligation on employees and the self-employed to provide HMRC with information on their disguised remuneration loans by 1 October 2019, to ensure compliance with the new loan charge; and
    • the loan charge provisions will also be amended to make the employee liable for the relevant tax where the employer is located offshore. This change will take effect from Royal Assent to the December Finance Bill.

Banking and Finance

  • Following the announcement at Spring Budget 2017, an exemption from withholding tax will be introduced for debt traded on a multilateral trading facility (“MTF“) operated by an EEA-regulated recognised stock exchange. The existing Quoted Eurobond Exemption from withholding tax will also be widened to ensure that it covers alternative finance investment bonds that are admitted to trading on an MTF. The changes will apply from April 2018.

Pensions

  • It was confirmed at Autumn Budget 2017 that the lifetime allowance for pensions savings will increase in line with CPI.
  • The Government has said that it will support long term investment by “giving pension funds confidence that they can invest in assets supporting innovative firms as part of a diverse portfolio” and that the Pensions Regulator will clarify guidance on investments with long-term investment horizons.