The Autumn Statement on November 25 provided few shocks for private clients who nonetheless still face a busy period liaising with their advisors on how best to adhere to new legislations. Despite the wealth of changes, the government will release further updates and consultation through the end of 2015 and into 2016.
Stamp duty land tax
Higher rates of stamp duty land tax (SDLT) will be charged on purchases of additional residential properties (above £40,000), such as buy-to-let properties and second homes, at 3% above current SDLT rates from April 1 2016. A second home purchased for £1 million would increase the SDLT liability by £26,250 from £43,750 to £70,000. Exceptions apply to corporates and funds making significant investments in residential property, though the government intends to consult on the policy detail, including whether exemptions for corporates and funds owning more than 15 residential properties is appropriate.
Capital gains tax
From April 6 2019, a payment on account of capital gains tax will be due to Her Majesty’s Revenue and Customs (HMRC) within 30 days of the sale of any UK residential property, 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 April 6 2015. Draft legislation will be published for consultation in 2016.
Inheritance tax
There were no further announcements on the proposal to charge inheritance tax on the value of UK residential properties owned by offshore companies. Following a consultation paper, expected in December 2015, any changes will only take effect from April 6 2017.
Non-domiciliaries
Consultation closed on November 11 relating to 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. Detailed proposals are expected at the end of January 2016.
Business investment relief
The government will consult on changing rules to encourage greater use of Business Investment Relief (BIR) to increase investment in UK businesses (see page 60). BIR is a useful tool for non-domiciliaries, who could be further encouraged by proposed rules being broadened to allow more individuals to bring funds into the UK to invest.
Entrepreneurs’ relief
The government had earlier introduced rules withdrawing entrepreneurs’ relief in respect of shares in a company which itself holds shares in a trading joint venture company or carries on a trading business in partnership with others. Now, the new rules will be amended to ensure that the restriction will be targeted mainly at contrived structures rather than on genuine commercial transactions.
Eligible investments
From November 30 2015, the provision of reserve energy generating capacity and the generation of renewable energy benefiting from other government support by community energy organisations will no longer be qualifying activities for Enterprise Investment Scheme, Venture Capital Trusts, Seed Enterprise Investment Scheme and Social Investment Tax Relief.
Carried interest
There are plans to introduce rules to determine when performance-based rewards received by asset managers, principally carried interests, will be taxed as income or capital gains. The government proposes to tax rewards generated by long-term investment activities as capital gains, with all other rewards being taxed as income. Draft legislation was published on December 9 as part of the Finance Bill 2016.
Deeds of variation
A deed of variation allows a beneficiary under a will or an intestacy to re-direct part or all of the estate they have received to another person. Subject to meeting certain conditions, the parties to a deed can choose that the terms of the deed will be treated for inheritance tax and/or capital gains tax purposes as if they been part of the deceased’s will.
Deeds of variation are often used for sensible planning reasons and to avoid potential double tax charges, however the government was concerned about their use as a tax avoidance scheme. No changes to the tax effect of deeds of variation have been outlined but the government will continue to monitor them.
Pensions and annuities
There was confirmation that inheritance tax will not arise when a pension scheme member designates funds for drawdown but does not draw all funds before death. Further details on how the government might change the current system on pensions tax relief will likely follow in the Budget in 2016.
The government will remove the barriers to creating a secondary market for annuities, allowing individuals to sell their annuity income stream, with legislation expected in the Finance Act 2017.
Company distributions
A company’s value can be taxed as income or capital depending on how it is extracted and draft clauses related to changing rules governing company distributions were published in December. The government also intends to introduce a Targeted Anti-Avoidance Rule 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.
Tax avoidance and evasion
Two new criminal offences in the Finance Bill 2016 are aimed at offshore tax evasion and avoidance. A strict liability offence will penalise anyone failing to declare offshore income and gains, while there is a new offence for corporates that fail to prevent agents from facilitating tax evasion, which could apply, for example, to banks, lawyers, accountants, tax advisers, trustees and other service providers. There will also be an additional requirement to correct past offshore tax non-compliance.
Users of tax avoidance arrangements which are successfully challenged using the general anti-abuse rule will have to pay a penalty of 60% of the tax due. 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.
To fight against offshore tax evasion, there 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. Those who have interests in offshore trusts and companies will need to be particularly vigilant to ensure that they are complying with their responsibilities.
Also introduced is a penalty linked to the value of the assets involved and not just the tax evaded, with a 10% penalty being proposed.
Tax on sport
The taxation of sporting testimonials is to be simplified for events awarded from November 24 2015 but taking place after April 2017. These will be fully taxable but with a £50,000 exemption for employed sportspersons with income from a sporting testimonial that is neither contractual nor customary.
Also, there is to be a specific exemption from tax for non UK resident participants in certain designated major sporting events, such as the 2016 London Anniversary Games and the 2017 World Athletics and Paralympics championships.
