Although this year's budget has been said by some to have been relatively quiet on the tax front, there are a number of proposals which certain individuals and businesses will need to give proper consideration to once the Finance Bill is published on 27 March 2014, even if immediate action is not necessarily required.
The budget reflects the Government's approach to do "everything we can to help companies compete in the world” while “clamp[ing] down on tax avoidance".
Some of the issues we believe are relevant for our clients are as follows:
Stamp Duty Land Tax (SDLT)
The Finance Act 2012 introduced a 15 per cent rate of SDLT on the acquisition of dwellings costing more than £2 million by non-natural persons (corporates). Legislation will be introduced in the Finance Bill to reduce this threshold to £500,000, so that any purchase of a dwelling by a non-natural person for more than £500,000 will trigger a charge to SDLT at a rate of 15%. The effective date for the change means that any exchange of contracts on or after 20 March 2014 is caught. The existing £2 million threshold will continue to apply, subject to exceptions, where contracts were entered into before that date.
Annual Tax on Enveloped Dwellings (ATED)
The Finance Act 2012 also introduced an annual charge, known as the ATED charge, on non-natural person owners of dwellings in the UK. The ATED charge when introduced only applied to dwellings worth more than £2m with a base level charge of £15,000 per annum for properties valued at more than £2m.
Legislation will be introduced to reduce that £2m threshold to £500,000 over a period of time, so that from 1 April 2015 an annual charge of £7,000 will apply to properties valued at between £1 and £2 million and from 1 April 2016 an annual charge of £3,500 will apply to properties valued at between £500,000 and £1 million.
Capital Gains Tax (CGT): Non-UK Resident owners of UK Residential Property
Legislation will be introduced to charge CGT on gains made by non-UK residents disposing of UK residential property. A consultation on how best to apply the charge will be published shortly. These proposed changes are likely to have effect from April 2015.
Capital Gains Tax (CGT): Principal Private Residences
Continuing on the theme of taxes affecting the ownership of real estate in the UK, legislation will be introduced to provide for the final period of exemption from a charge to capital gains tax in respect of an individual’s principal home to be reduced from 36 months to 18 months from 6 April 2014.
Capital Gains Tax (CGT): Remittance Basis Users & the Split Year Concession
The Finance Bill will provide that capital gains made by a remittance basis user in the overseas part of a split year of residence (i.e. gains realised prior to becoming resident in the UK) are not charged to tax.
Inheritance Tax (IHT): Simplification of the Taxation of Trusts
As announced at the Autumn Statement 2013, the Government will simplify the filing requirements and payment dates for trusts subject to periodic charges to IHT.
An additional proposed change means that income arising in trusts subject to those IHT charges which remains undistributed for more than five years will be treated as part of the trust capital when calculating the 10-year anniversary charge.
The Budget also states that the Government will consult further on the proposal to split the IHT nil-rate band available to trusts.
Inheritance Tax (IHT): Foreign Currency Accounts
Provisions to be introduced in the Finance Bill will treat funds held in foreign currency accounts in UK banks in a similar way to excluded property, for the purposes of restricting the value of an estate for inheritance tax.
Income Tax: The Personal Allowance & Non Residents
The Government intends to consult on whether and how UK personal allowances in respect of income and capital gains taxes could be restricted for non-UK resident individuals.
Individuals electing to be taxed in the UK on the remittance basis already forgo their respective personal allowances.
Income Tax: Non-Domiciliaries & Dual Contracts
Legislation will be introduced to prevent high earning non-UK domiciled individuals from avoiding tax by artificially dividing the duties of a single employment between a UK and an overseas contract.
Overseas employment income will be taxed on the arising basis where tax is not payable on the overseas contract at a rate broadly comparable to UK tax rates.
Income Tax: Offshore Intermediaries
In addition to the focus on dual contracts, legislation will also be introduced to strengthen obligations to ensure the correct Income Tax and National Insurance contributions are paid by offshore employment intermediaries, as from 6 April 2014.
Income Tax: Onshore Intermediaries
Legislation will be introduced in the Finance Bill to prevent employment intermediaries being used to avoid employment taxes and obligations by disguising employment as self-employment. These changes will have effect from 6 April 2014.
Following a period of consultation, the legislation has been revised to incorporate a number of small changes to address some of the concerns raised. A Targeted Anti-Avoidance Rule has also been introduced.
Corporation Tax: Controlled Foreign Companies (CFC)
The Government will reinforce the CFC regime to prevent UK base erosion caused by the transfer of intra-group interest income offshore or by moving a foreign affiliate’s bank debt into a UK company.
Stamp Duty Reserve Tax (SDRT)
The Government will abolish the SDRT charge on UK unit trusts and UK open-ended investment companies.
Legislation will be introduced to allow those with defined contribution pension savings to draw down from their pension pot from the age 55 from April 2015. There will no longer be required to buy an annuity. Any draw down will be subject to tax at the individual’s marginal rate of income tax. Prior to its introduction, the Government will consult on how best to implement this. The ability to withdrawn up to 25% of the pension pot tax free remains unaffected.
Legislation will be introduced to require accelerated payment of tax to arrangements disclosed under the DOTAS rules, as well as to arrangements which have been judicially defeated or are subject to the GAAR.