The UK Chancellor, George Osborne, delivered his fifth budget on 19 March.
The Budget is noteworthy for a number of reasons, including wide-ranging changes to the way in which individuals can access funds in their pensions, and ancillary measures to promote personal investment and savings. At the other end of the scale, a number of relatively trivial but doubtless popular measures were announced, including (for example) a reduction in the taxation of bingo and beer.
From the point of view of domestic and international private client advisers, the most significant change is the proposed increase in the property taxes that were introduced last year to cover lower-value properties. This was unexpected, and was presumably prompted in large part by the unexpectedly high yield generated by the annual tax on enveloped dwellings. Download a full briefing note of the proposed changes to the property tax rules below.
Aside from these major changes, there was little drama – or at least, little that was unexpected – in other areas relating to direct taxation.
A summary of the main points of interest is set out below.
• Inheritance Tax
No significant changes of general application were announced in relation to inheritance tax. The consultation on the simplification of the inheritance tax treatment of trusts is to continue, as previously anticipated; and a technical tweak to the rules will be introduced to counter perceived abuse surrounding the use of UK foreign currency bank accounts.
The draft Finance Bill 2014 already includes a wide range of measures that will have an impact on the way that members of LLPs and partners of mixed partnerships will be taxed. The 2014 Budget does not contain any substantive changes, and it has now been confirmed that there will be no delay to the implementation of the changes to the taxation of LLP members, which will take effect on 6 April 2014.
• Dual Contracts
As announced in the 2013 Autumn Statement, 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. Following technical consultation, a number of changes will be made to the draft legislation to reflect concerns that as originally drafted, the legislation caught arrangements that were not set up for tax avoidance purposes. The legislation will also take into account employments held for legal/regulatory reasons. If you have a dual contract, it would be prudent to take this opportunity to review it.
• Charity and Social Investment
The Government is currently consulting on measures to prevent charities established for tax avoidance purposes from claiming tax reliefs. The aim is to find an effective mechanism to prevent extreme cases of abuse without risking concern to genuine charities. The deadline for comments on the Government’s proposals is 11April.
The Government has also said that it will look at the current rules regarding benefits to donors to charities, with a view to simplifying these where possible. The Government is pressing ahead with the proposals announced last year to provide tax incentives for investment in qualifying social enterprises. Under the proposals, in certain circumstances capital gains can be deferred by investing in qualifying investments, capital gains arising on disposals of qualifying investments will be tax free, and income tax relief will be available at 30% of the amount invested. The new rules will be effective from 6 April, 2014 and draft guidance will be published on 27 March.
• Tax Avoidance Schemes (GAAR and DOTAS)
By way of background, the Budget 2013 announced the Government’s intention to give HMRC the power to issue a notice to a taxpayer to the effect that a previously decided case also determines their dispute, and that they should therefore settle their own dispute. A consultation was held last summer and in the 2013 Autumn Statement, the Government announced that accelerated (upfront) payments would apply to those taxpayers who did not settle in response to the notice. Further consultation on how accelerated payments measures could be applied more widely to tax payers who have used avoidance schemes followed.
This has resulted in additional measures (to be introduced in the Finance Bill 2014) which will extend the requirement for taxpayers to pay any disputed tax associated with schemes covered by the Disclosure of Tax Avoidance Schemes (DOTAS) rules and/or schemes subject to counteraction under the General Anti-Abuse Rule (GAAR). The measures will widen the circumstances where disputed tax sits with the Exchequer during a dispute and are designed to remove the cash flow advantage to a taxpayer of holding on to disputed tax during an avoidance dispute. The amount of tax owed will be unaffected by the measures but the new rules and the material extension of HMRC’s powers could have a significant impact for anyone who has entered into an existing tax scheme which is being challenged by HMRC which will potential give the taxpayer a relatively brief window of time (i.e. 90 days) within which to raise the necessary funds and make a payment on account of the tax in dispute, even though the scheme is still under enquiry or being litigated.
In addition, the Government will consult on improving the current DOTAS regime and strengthening the penalties for non-disclosure with measures to be introduced in Finance Bill 2015.
We hope that the above summary is of interest. If you have any questions, please do not hesitate to contact one of the team.
Budget 2014; Changes to the property tax rules - 105.0 KB
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