Today’s Budget contained a large number of proposals to be considered in detail, particularly once the Finance Bill is published on 27 March 2014. To cut through the complexity of today’s announcements, and as a distraction from FATCA / IGA preparations, we have highlighted below those areas which we think may be of particular interest to the financial services industries in the Channel Islands. Whilst the “losers” from today’s Budget would appear to be those owning residential property in the UK, the general approach can be summed up by the Government’s foreword to its “Action Plan to counter Base Erosion and Profit Shifting” also published today.
“Our approach is simple – we are doing everything we can to help companies compete in the world but expect them all to pay the tax they owe. We have already passed 34 separate measures since 2010 to clamp down on tax avoidance and we know it is working. In total, HMRC recovered £23 billion in additional compliance revenues from large businesses between April 2010 and March 2013.”
These are the measures we think are of interest:
- Capital Gains Tax (CGT): non-residents and UK residential property – As announced in Autumn Statement 2013, legislation will be introduced to charge CGT on future gains made by non-residents disposing of UK residential property. A consultation on how best to apply the charge will be published shortly after Budget. These changes will have effect from April 2015.
- Stamp Duty Land Tax (SDLT): threshold for the 15 per cent higher rate for certain residential property transactions – Finance Act 2012 introduced a 15 per cent rate of SDLT on the acquisition by certain non-natural persons of dwellings costing more than £2 million. Legislation will be introduced in Finance Bill 2014 to reduce this threshold to £500,000. The new threshold will apply to land transactions where the effective date is on or after 20 March 2014. However 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) – Finance Act 2013 introduced the ATED on certain non-natural persons owning UK residential property valued at more than £2 million. Legislation will be introduced in Finance Bill 2014 to reduce this threshold to £500,000. From 1 April 2015 a new band will come into effect for properties with a value greater than £1 million but not more than £2 million with an annual charge of £7,000. From 1 April 2016 a further new band will come into effect for properties with a value greater than £500,000 but not more than £1 million with an annual charge of £3,500. There will be a transitional rule for the £1 million to £2 million band requiring returns to be filed on 1 October 2015 and payment by 31 October 2015.
- CGT: private residence relief – As announced at Autumn Statement 2013, the Government will legislate to reduce the final period exemption from 36 months to 18 months in most cases from 6 April 2014.
- Personal allowances for non-residents – The Government intends to consult on whether and how UK personal allowances could be restricted for non-UK resident individuals.
- Inheritance Tax (IHT): Simplification of trust charges and the division of the nil-rate band –As announced at Autumn Statement 2013, the Government will simplify filing and payment dates for Inheritance Tax (IHT) relevant property trust charges. It will also treat income arising in such trusts which remains undistributed for more than five years as part of the trust capital when calculating the 10-year anniversary charge. The Budget 2014 states that the Government will consult further on the proposal to split the IHT nil-rate band available to trusts and simplify the trust charges.
- IHT: liabilities and foreign currency accounts – Legislation will be introduced in Finance Bill 2014 to treat funds held in foreign currency accounts in UK banks in a similar way to excluded property, for the purposes of provisions which restrict how liabilities are deducted from the value of an estate for inheritance tax.
- Remittance basis – capital gains tax and split year treatment – Legislation will be introduced in Finance Bill 2014 to ensure that capital gains made by a remittance basis user in the overseas part of a split year of residence are not charged to tax.
- Artificial use of dual contracts by non-domiciles – As announced in Autumn Statement 2013, legislation will be introduced in Finance Bill 2014 to prevent high earning non-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. Following technical consultation, legislation has been revised to prevent charges arising on dual contracts which are not motivated by tax avoidance.
- 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) reform – As announced at Budget 2013, the government will abolish the SDRT charge on UK unit trusts and UK open-ended investment companies.
- Offshore employment intermediaries – As announced in Budget 2013 and following consultation, legislation will be introduced in Finance Bill 2014 to strengthen obligations to ensure the correct Income Tax and National Insurance contributions are paid by offshore employment intermediaries. These changes will have effect from 6 April 2014.
- High-risk promoters – As announced in Budget 2013, legislation will be introduced in Finance Bill 2014 to provide for further information requirements for the Disclosure of Tax Avoidance Scheme (DOTAS) rules, alongside new information powers and penalties for high-risk promoters. Following consultation, the definitions, appeal rights, and the threshold conditions in the high-risk promoter legislation have been revised. These changes will have effect from Royal Assent to Finance Bill 2014.
- Tackling aggressive tax planning in the global economy: The Government has published a paper setting out its priorities for the ongoing work with G20 and OECD partners in taking forward the 15 point Action Plan to counter Base Erosion and Profit Shifting (BEPS). It includes proposals for new international rules to address cross-border business structures or finance transactions, a disclosure scheme for international tax schemes, and the creation of a single Large Business Directorate within HMRC.
Please contact your usual KPMG adviser if you would like to discuss any of these measures.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
Category: Finance & Business