Following yesterday's Autumn Statement, we have set out below a selection of some of the main announcements:
- a new stamp duty land tax system has been introduced for residential (but not commercial) property purchases;
- the late-paid interest rules governing tax relief for interest on loans from connected entities in certain offshore jurisdictions are being repealed;
- changes are being made to the remittance basis charge applicable to non-domiciliaries resident in the UK for certain periods;
- individuals will continue to benefit from entrepreneurs' relief from capital gains tax where the proceeds of a sale are reinvested in investments qualifying for EIS or Social Investment Tax Relief;
- a new 25% "diverted profits" tax will be introduced targeting multinationals; and
- measures will be introduced to prevent the use of cancellation schemes to mitigate stamp duty on corporate takeovers.
Further details on these and other key announcements are set out below.
If you would like to discuss the impact of any of the changes, please contact any member of the tax team.
- Real Estate
- Business Taxes
- Personal Taxes
- Venture Capital
- Media and Entertainment
- Anti-Avoidance and BEPS
- Employment / Employee
- Oil and Gas
One of the big announcements was that the current 'slab' system of stamp duty land tax ("SDLT") rates was abolished at midnight last night (3 December 2014) for residential property. From 4 December 2014, SDLT will be payable at each rate at the portion of the purchase price that falls within the relevant band, rather than being charged at a single rate on the whole purchase price. Transitional rules will allow buyers who exchange contracts on or before 3 December 2014 to choose whether to pay SDLT under the old or new rules. The new bands and rates are set out below:
Click here to view the table.
- The annual tax an enveloped dwellings ("ATED") charges will increase at 50% above inflation for residential properties worth more than £2 million for the chargeable period from 1 April 2015 to 31 March 2016.
- A seeding relief from SDLT will be introduced for property authorised investment funds and co-ownership authorised contractual schemes ("Co-ACSs"). Changes will also be introduced to the SDLT treatment of CoACSs investing in property so that transactions in units are not subject to SDLT, subject to resolving potential avoidance issues. These changes will be introduced in the Finance Bill 2016.
- The definition of a 'financial institution' for the purposes of SDLT alternative property finance reliefs will be changed to include all persons authorised to provide Home Purchase Plans, with effect from Royal Assent to the Finance Bill 2015.
- Multiple dwellings relief from SDLT will be extended so that lease and leaseback arrangements with housing associations on shared ownership properties qualify for relief from the date of Royal Assent to the Finance Bill 2015.
- The Chancellor announced that the rate of the above-the-line research and development ("R&D") credit will increase from 10% to 11% and the rate for the small and medium enterprises ("SME") scheme will increase from 225% to 230% from 1 April 2015.
- Legislation will be introduced to restrict qualifying expenditure for R&D tax credits with effect from 1 April 2015, so that the costs of materials that are incorporated into products that are sold are not eligible.
- An advance assurance scheme and new guidance will be introduced to assist small businesses making their first claim for R&D tax credits. In addition, a consultation will be launched in January 2015 to give Government a better understanding of the issues faced by smaller businesses claiming R&D tax credits.
- All requirements regarding the location of a link company for consortium relief purposes will be removed with effect from 10 December 2014.
- As part of the ongoing review of the corporate debt legislation, the Government will repeal the late-paid interest rules concerning loans made to UK companies by a connected company in a non-qualifying territory. Wide-ranging changes will also be introduced to update, simplify and rationalise the legislation on corporate debt and derivative contracts. This will include changes to clarify and strengthen the link between commercial accounting profits and taxation, as well as the introduction of a new relief for companies in financial distress and new anti-avoidance rules. These changes will be included in the Finance Bill 2015.
- Following consultation, the Government will introduce a package of measures to reduce the administrative burden that the construction industry scheme places on the construction industry.
- The Government will launch a consultation shortly on the introduction of a levy on tobacco manufacturers and importers.
- The Chancellor announced that devolution of corporation tax rate-setting powers to Northern Ireland will go ahead if satisfactory progress is made in current cross-party talks.
- Both the doubling of Small Business Rate Relief and the 2% cap on the RPI increase in the business rates multiplier will be extended to April 2016.
- The Government will carry out a review of the structure of business rates which will report by Budget 2016.
- The Government will legislate to make business contributions to flood defence schemes tax deductible for both corporation tax and income tax purposes.
- From 1 April 2015, the personal allowance will increase to £10,600, instead of the planned increase to £10,500. The benefit of the increase will be passed on in full to higher rate taxpayers, with the higher rate threshold increasing to £42,385.
- There will be some increases to the annual remittance basis charge, with the charge for those who have been UK resident for 12 out of the last 14 years increasing from £50,000 to £60,000 and a new £90,000 charge being introduced for those who have been UK resident for 17 out of the last 20 years. The charge for those who have been UK resident for 7 out of the last 9 years will remain at £30,000. The Government will also consult on making the election to pay the remittance basis charge apply for a minimum of 3 years.
- Following a review, the Government has decided not to make any changes to the tax charge on close company loans to participators.
- The Government will seek EU approval to increase the annual investment limit for Social Investment Tax Relief ("SITR") to £5 million per organisation, up to a maximum of £15 million per organisation, and to extend the relief to small‐scale community farms and horticultural activities. The changes will come into effect on or after 6 April 2015, subject to State aid clearance. The Government will also make special purpose vehicles for subcontracted and spot‐purchase social impact bonds eligible for SITR, through secondary legislation in autumn 2015. The Government will also consult early in 2015 on introducing a Social Venture Capital Trust in a future finance bill.
- The annual ISA limit will increase from £15,000 to £15,240 in April 2015.
- Legislation will be introduced to ensure that ISA savings retain their ISA wrapper if they are transferred to a spouse on a saver's death.
- A new bad debt relief will be introduced for individuals lending through peer-to-peer platforms for losses incurred from April 2015. Such losses will only be able to be offset against income from peer-to-peer lending.
- A consultation will also be held on the introduction of a withholding regime for income tax across all peer-to-peer lending platforms from April 2017.
- A consultation will be held on whether to extend ISA eligibility to lenders using crowd-funded, debt-based securities.
- The Government announced that, where a gain realised on or after 3 December 2014 would be eligible for Entrepreneurs' Relief but is instead deferred into investments which qualify for either EIS or Social Investment Tax Relief, the gain will remain eligible for Entrepreneurs' Relief when it is realised. The position for investments qualifying under SEIS is different, where a partial exemption from tax may apply for gains reinvested in SEIS qualifying companies.
- All community energy generation undertaken by qualifying organisations will be eligible for SITR from the date of expansion of the relief, at which point it will no longer be eligible for EIS, SEIS and VCT reliefs. All other companies which benefit substantially from subsidies for the generation of renewable energy will not be able to benefit from EIS, SEIS and VCT reliefs from April 2015.
- The Government announced that it will make tax-advantaged venture capital schemes easier to use by launching a new digital process in 2016 for EIS, SEIS and SITR and a new format of VCT return.
Media and Entertainment
- The Government will consult with industry on whether to reduce the minimum UK expenditure for high-end TV relief from 25% to 10% and modernise the cultural test to bring the relief into line with film tax relief.
- A new corporation tax relief for the production of children's television programmes will be introduced from 1 April 2015. The relief will be available at a rate of 25% of qualifying expenditure.
- The Government will consult early next year on extending Theatre Tax Relief to orchestras from 1 April 2016.
Anti-Avoidance and BEPS
- The Chancellor announced that a new 'diverted profits tax' will be introduced to counter the use of 'aggressive tax planning techniques' by multinational enterprises to divert profits from the UK. The diverted profits tax will be applied at a rate of 25% from 1 April 2015 to business activities between connnected entities that are set up in order to achieve an unfair tax advantage. The details of how this measure will operate are likely to be published with the draft Finance Bill 2015 legislation on 10 December 2014.
- The Chancellor also announced that measures will be introduced to prevent the use of cancellation schemes of arrangement for company takeovers to reduce stamp duty costs. Regulations are expected to be brought forward in early 2015 to effect these changes.
- The Government has launched a consultation on the UK's plans to implement agreed OECD rules for addressing hybrid mismatch arrangements.
- Legislation will be introduced to allow the implementation of the OECD model for country-by-country reporting. This will require multinationals to provide high level information to HMRC on their global allocation of profits and taxes paid, as well as indicators of economic activity in a country.
- The corporation tax relief that a company can obtain in respect of the goodwill of a business that it acquires from a related individual or partnership will be restricted if that acquisition takes place on or after 3 December 2014, unless the transfer is pursuant to an unconditional obligation entered into before that date. In addition, Individuals will be unable to claim Entrepreneurs' Relief on disposals of goodwill when they transfer a business to a related close company (i.e. incorporate their business) on or after 3 December 2014.
- The Government will introduce legislation to prevent the avoidance of income tax using losses from miscellaneous transactions, following a recent increase in the use of schemes using miscellaneous loss relief. The use of such losses will be blocked with immediate effect where the loss arises from relevant tax avoidance arrangements and legislation will be introduced to limit relief for miscellaneous losses to miscellaneous income of the same type with effect from April 2015.
- Legislation will be introduced to enhance civil penalties for offshore tax evasion from April 2016. A new aggravated penalty of up to a further 50% will apply for moving hidden funds to circumvent international tax transparency agreements from Royal Assent to the Finance Bill 2015.
- The existing disclosure of tax avoidance schemes ("DOTAS") legislation will also be strengthened and HMRC will be able to publish summary information about DOTAS-notified tax avoidance schemes and their promoters. These changes will be introduced in the Finance Bill 2015.
- The Government announced that it will consult in early 2015 on introducing further deterrents for serial tax avoiders and on penalties for tax avoidance cases to which the General Anti-Abuse Rule ("GAAR") applies.
- The Government also announced that it will stop investment managers disguising their guaranteed fee income as capital gains in order to avoid income tax with effect from 6 April 2015. Sums linked to performance such as (such as 'carried interest') will not be affected by these changes.
Employment / Employee Incentives
- From April 2015, employees under the age of 21 will no longer be subject to national insurance contributions on their earnings up to the upper earnings limit.
- From April 2016, national insurance contributions up to the upper earnings limit will be abolished for apprentices aged under 25.
- From April 2015, the £2,000 annual Employment Allowance will be extended to care and support workers.
- The Government is concerned by the use of 'special purpose share schemes' ('B share schemes') to allow shareholders to decide how to receive their dividend so that it is taxed at preferential rates. Legislation will be introduced to remove this tax advantage by treating the amount received in the same way as dividend income where an individual shareholder is offered this choice.
- Following consultation, the Government will adopt the recommendations of the Office for Tax Simplification ("OTS") in relation to employee benefits and expenses, with a view to making the taxation of employee benefits and expenses more straightforward and effective.
- Following consultations earlier in the year, the Government has decided not to take forward the OTS recommendations in relation to:
- changes to the taxation of employee shares involving the introduction of a 'marketable security'; and
- the introduction of a new employee shareholding vehicle.
- Tax relief will no longer be available in respect of reimbursed business expenses when they are paid in conjunction with a salary sacrifice scheme.
- The Government is reviewing the use of overarching employment contracts by employment intermediaries such as 'umbrella companies' to make tax relief for home-to-work travel expenses available. It will publish a discussion document on this shortly, with the aim of informing possible action at Budget 2015.
- The Chancellor announced that the amount of a bank's annual profits that can be offset by carried-forward losses will be restricted to 50% of annual profits for accounting periods beginning on or after 1 April 2015. The restriction will only apply to losses accruing up to 1 April 2015, but there will be an exemption for losses incurred in the first 5 years of a bank's authorisation. The measures will be subject to both anti-forestalling provisions, to prevent the accelerated use of losses before the measures take effect, and a targeted anti-avoidance rule, which will apply to arrangements entered into on or after 3 December 2014 with the aim of circumventing the restriction.
- The Government has announced a new targeted exemption from withholding tax for interest on private placements.
- As recently announced, from April 2015 individuals will be able to pass on their unused defined contribution pension savings on death to a nominated beneficiary tax-free if the individual dies before age 75 but will be subject to the beneficiary's marginal rate of income tax, or 45% if taken as a lump sum, if the individual dies after age 75 (rather than subject to 55% tax, as is currently the case). From April 2016, lump sum payments will also be taxed at the beneficiary's marginal rate of income tax.
- The Government also announced that, from April 2015, where an individual dies before age 75, the individual's beneficiaries will receive payments from the individual's joint life or guaranteed term annuity policy tax-free. The tax rules will also be changed to allow joint life annuities to be passed on to any beneficiary.
Oil and Gas
- The supplementary charge will be reduced from 32% to 30% from 1 January 2015 and the Government will look at further reductions.
- The ring fence expenditure supplement will be extended from 6 to 10 accounting periods for all ring fence oil and gas losses and qualifying pre-commencement expenditure incurred on or after 5 December 2013.
- Following consultation, the Chancellor confirmed that a new cluster area allowance will be introduced to support high pressure, high temperature projects. The allowance will exempt a part of the company's profits from the supplementary charge. The amount of profit exempt will equal 62.5% of the qualifying capital expenditure a company incurs in relation to a cluster from 3 December 2014 onwards.