These are our initial thoughts on the key announcements in the Autumn Statement affecting private clients. The most significant aspect is the focus on tax avoidance and tax evasion with increased penalties, new criminal offences and additional resources given to HMRC.
As expected, there were no further announcements in the Autumn Statement about the proposed changes to the taxation of those non-domiciliaries who were born in the UK with a UK domicile of origin and individuals who have been UK resident for more than 15 years. The consultation on these changes closed on 11 November 2015. We are expecting the government to publish its detailed proposals at the end of January 2016 and we should then be in a position to give clients firm advice as to the way forward.
Business investment relief
The good news is that the government is going to consult on changes to business investment relief to try to make it more attractive to non-domiciliaries wishing to invest in UK businesses. At present, the narrow scope of the relief and the wide anti-avoidance provisions mean that the relief is rarely relied on in order to avoid taxable remittances when investing into the UK.
Inheritance tax on UK residential properties owned through companies
As with the non-domicile changes, there were no further announcements in respect of the proposal to charge inheritance tax on the value of UK residential properties owned by offshore companies. A consultation paper which will give more details of the Government’s proposals is expected in December 2015. Any changes will only take effect from 6 April 2017.
Fund managers – carried interest
The Government has announced plans to introduce legislation to determine when performance-based rewards received by asset managers (principally carried interests) will be taxed as income or capital gains. The Government intends to tax rewards generated by long-term investment activities as capital gains, with all other rewards being taxed as income.
These proposals form part of the broader range of measures (which includes recently-introduced rules on carried interest and so-called disguised investment management fees) dealing with fees and rewards in the investment and asset management sector. Draft legislation is expected to be published on 9 December 2015 as part of the Finance Bill 2016.
Company distributions – income or capital?
The Government plans to publish a consultation on the rules concerning company distributions.
The likely scope of those rules and the timescale for publication of the consultation are currently unclear, although it may be that the purpose of the consultation is to consider issues arising out of the proposals concerning the increased tax rate for company distributions announced in the July 2015 Budget.
The Government also plans to tighten up the anti-avoidance rules to further limit opportunities for converting income into capital in order to obtain a tax advantage. This may have a significant impact on the way in which cash is taken out of companies in the future, including family investment companies. Draft clauses dealing with these changes are expected in the Finance Bill 2016, which the Government plans to publish on 9 December 2015.
Stamp duty land tax increase on second properties
The Chancellor announced additional penal stamp duty land tax charges on the purchase of additional residential properties from April 2016. Purchasers of buy to let properties and second homes after that date will pay an additional 3 per cent above the rates of SDLT that apply to properties being bought as a main home. This measure is expected to raise an additional £1bn in tax revenue between 2016 and 2021.
Deeds of variation
Following consultation, the government has accepted that the ability to vary an individual’s will after death has many (non-tax) benefits. For the time being, it will therefore be possible to continue to elect that any changes should be treated for tax purposes as if the changes had been contained in the original will.
Paying capital gains tax on the sale of residential properties
The Chancellor announced yet another (administrative) change to the taxation of residential property, which will be introduced alongside new digital tax accounts for all individuals and small businesses. From 6 April 2019 a payment on account of capital gains tax will be due to HMRC within 30 days of the sale of any residential property in the UK which does not qualify as the taxpayer's principal private residence. This ties in with the reporting deadline currently applicable to UK residential property sales by non-UK residents (introduced from 6 April 2015). No details have been given about the exact mechanism for these payments on account, but draft legislation will be published for consultation in 2016 which should give plenty of time for representations to be made on how this would work best in practice.
Further clamp down on avoidance and evasion
The Government continues its campaign to discourage the use of aggressive tax avoidance schemes and to clamp down on tax evasion, particularly offshore arrangements.
Users of tax avoidance arrangements which are successfully challenged using the general anti-abuse rule will have to pay a penalty of 60 per cent of the tax charged. In addition, serial tax avoiders (people who persistently enter into failed tax avoidance schemes) will be subject to a special reporting regime, a surcharge on additional tax payable, publication of their names and restrictions on using certain tax reliefs.
Following consultation over the summer, HMRC is to be given a number of new weapons in the fight against offshore tax evasion.
The most controversial is the introduction of criminal liability for serious cases of failing to declare offshore income and gains without HMRC having to prove any intent to evade tax. While there will be safeguards to protect taxpayers who have taken and followed appropriate advice, this is a worrying development given the complexity of the tax system, particularly in relation to offshore structures. Those who have interests in offshore trusts and companies will need to be particularly vigilant to ensure that they are complying with their responsibilities.
Side by side with this, penalties for offshore tax evasion will also increase with the introduction of a penalty which is linked to the value of the assets involved and not just the tax evaded. A penalty of 10 per cent of the asset value has been proposed.
The Government is targeting not only tax evaders but also those who help them. Penalties will be imposed on anybody who provides services which knowingly assist a UK taxpayer to evade UK taxes.
In a similar vein, a corporate criminal offence will be introduced where a business does not take reasonable steps to prevent its employees/agents from facilitating tax evasion. This could apply, for example, to banks, lawyers, accountants, tax advisers, trustees and other service providers.
The Government is committing an additional £800m to the fight against tax evasion. Coupled with the additional information which it will have available as a result of automatic exchange of tax information which will start taking place in 2017, we expect to see a significant increase in investigations, penalties and prosecutions over the coming years. There is little time left for those who need to regularise their affairs to make voluntary disclosures.
On top of all of this, the Government will be consulting on imposing a requirement on individuals to correct any past offshore non-compliance with new penalties for failure to do so. It is not yet clear exactly what the government has in mind but this could have extremely serious implications if it requires individuals to dig back into the past without any time limits.