The Autumn Statement contained mainly political and economic measures. There were a number of tax and other announcements relevant to private individuals, but the forthcoming publication of draft legislation (expected on 9 December) to be included in the Finance Bill 2016 will be more significant, particularly for resident but non-domiciled individuals. The measures for individuals to note are as follows:
Stamp Duty Land Tax (SDLT)
From 1 April 2016, an additional 3% SDLT above the rates that would be paid under the existing rules will be introduced on purchases of residential properties (above £40,000) that are used as a buy-to-let or as a second home. The Government has indicated that the higher rates of tax will not apply to corporates or funds owning more than 15 residential properties. Whether companies that do not fall within this proposed exemption and are currently taxable at a 15% rate of SDLT (if they do not qualify as a property rental business) on residential purchases will be subject to a punitive 18% rate on new purchases from 1 April 2016 should be clarified with the publication of the consultation document, which may also shed light on how the proposed rules will determine what is, and is not, a “second home”, and deal with situations where a purchaser is non-UK resident.
New CGT payment deadline
Under new proposals the date upon which any Capital Gains Tax (CGT) arising following the disposal of a residential property must be paid will be brought forward significantly. Currently any CGT which arises is declared by the individual in his tax return and payable to HMRC by 31 January of the following year (this means that currently, at its maximum, CGT does not need to be paid for some 21 months). Accordingly the Government has proposed that any CGT due on residential property gains realised from April 2019 will need to be paid to HMRC within 30 days of completion of the sale.
The disposal of an individual’s main residence will still qualify for principal private residence relief resulting in no gains/CGT in any event. Accordingly these measures will primarily affect those with second homes and/or buy-to-let properties. The Government argues that this change will bring the CGT regime in line with the PAYE system of taxation of employees (i.e. the immediate payment of tax). It also brings it into line with the recently announced extension of the CGT regime to non-residents, but the main advantage to HMRC is clearly cash flow. The drawback is that it will not be possible to quantify precisely the CGT liability in the middle of a tax year (because availability of allowances, amount of losses and so on will not be known).
Business investment relief
Business investment relief was introduced in April 2012 to encourage resident but non-domiciled individuals to bring foreign income and gains to the UK to invest in unlisted companies carrying out trading, developing or letting property or R&D without triggering tax on the remittance. However, the relief is not straightforward, requiring detailed conditions to be met, either within a relatively tight timescale or during the life of the investment, and the relief to be claimed on a UK tax return. Its uptake to date has been disappointing.
Accordingly it is encouraging that, in the Autumn Statement 2015, the Government announced a consultation on altering the relief to increase its use, with the aim of increasing investment into UK businesses.
However, this announcement sits somewhat uneasily with the tightening up of the remittance basis of taxation ushered in by July’s Summer Budget, in relation to which we await more details, now the Government’s consultation has closed.
General Anti-Avoidance Rules (GAAR)
The Government also confirmed new legislation to amend the penalties for non-compliance with the GAAR, a general prohibition on tax advantages which arise from arrangements which are considered ‘abusive’ (for example, because they deliberately exploit loopholes in the law or produce tax results which are inconsistent or contrived). If a taxpayer’s scheme is found by the GAAR’s advisory panel to be abusive and there is no successful appeal by the taxpayer, a penalty rate of 60% of the tax due will be levied on top of the actual tax bill. This follows the recent pattern of considerable hardening of HMRC’s approach to any perceived loss of tax but again may raise questions as to whether HMRC is becoming both judge and jury in tax cases.
Offshore tax evasion and non-compliance
The Government will also introduce legislation in the Finance Bill 2016 which includes the following provisions:
- a new criminal offence for the most serious cases of tax evasion involving a failure to declare offshore income and gains;
- new civil penalties for offshore tax evaders – in particular, this will include increased penalties where there has been deliberate offshore tax evasion and a new penalty to be based on the value of the asset (rather than the value of the tax) which is the subject of the tax evasion; and
- new civil penalties for individuals who enable offshore tax evasion to take place.
In addition, there will be increased public naming and shaming of offshore tax evaders and enablers of offshore tax evasion.
Further detail is expected with the draft Finance Bill legislation.
Pension tax relief
The Government launched a consultation following the July 2015 Budget on whether to make fundamental reforms to the current system of pension tax relief. The Government has now confirmed that it will publish its response at the 2016 Budget. Possible alternatives include a flat rate of tax relief at perhaps 30% or 33% for all taxpayers, whether paying 20%, 40% or 45%. More radically, the current system whereby tax relief is granted on payments going into the pension fund with tax free investment growth and then the eventual pension being subject to tax could be changed to a system whereby there is no tax relief on contribution, but the fund grows tax free and pension payments are then tax free.
Following HMRC’s review of the use of deeds of variation launched in July 2015, it has been announced that there will be no changes to the legislation. This seems to suggest that the review may well have been partly to embarrass the then Labour Leader, Ed Miliband, whose family had previously made use of a deed of variation. Deeds of variation are very standard tax planning tools, and it would have been very surprising if HMRC had altered the rules. One other announcement was that greater freedom will be given to executors to allow the ISA savings of a deceased person to continue to benefit from tax advantages during the period of the administration of the estate. This supplements the previously announced measure to allow funds held in ISA accounts to retain that status when passed to a spouse on death.