The Budget was a low-key affair for private clients, perhaps the quietest for over a decade.
Few tax measures were mentioned in the speech itself and only a random selection of items of interest to private clients appeared in the supporting documents.
Are we becoming even more xenophobic?
We have already had two Finance Acts this year, following a hiatus after the unexpected June election result. The Finance (No. 2) Act became law last week, introducing a sea change to the taxation of non-doms, ‘backdated’ to 6 April 2017. In summary:
The Budget confirmed that further anti-avoidance measures aimed at offshore trusts will be introduced from April 2018. These measures had already been announced and, in essence, provide that:
Compliance and transparency reign supreme
The net continues to tighten for non-compliance, particularly in relation to offshore avoidance and evasion. In conjunction with the OECD and EU, the government plans to require designers of offshore structures which could be misused to evade taxes to notify HMRC of both the structures and the clients using them. The PSC (persons with significant control) register for companies was introduced in June 2016; legislation was recently put in place for the new trusts register (requiring HMRC to be notified of the ‘beneficial owners’ of UK express trusts and non-UK trusts that incur UK tax liabilities); and the Stock Exchange is busily attributing legal entity identifiers (LEIs) to all trusts in order to facilitate a global reference system for parties to financial transactions. There really is ‘no place to hide’ now, which perhaps reflects some of the fallout from the Panama and Paradise papers.
HMRC will also consult in the spring on extending assessment time limits for non-deliberate offshore tax non-compliance, enabling it to assess at least 12 years of back taxes without needing to establish deliberate non-compliance.
UK trusts are destined to be in the limelight again
There is a huge wave of ‘populism’ and trusts have been an easy target for journalists. Perhaps we should not therefore be surprised by an intriguing Budget announcement, in just two lines of text in the overview document: ‘The government will publish a consultation in 2018 on how to make the taxation of trusts simpler, fairer and more transparent.’ Until we see the consultation, we can only speculate on what more is in store for trusts and it is not even clear which taxes might be in point, although IHT may well be a candidate. Indeed, this might explain the House of Commons briefing paper on IHT issued to MPs in July 2017, which covered the structure, history, rationale and proposals to reform IHT over the last 20 years. That said, the government had a look at IHT trust simplification only a few years ago by launching two back-to-back consultations, which eventually led to only minor changes.
Any proposals for making tax on trusts fairer would of course be welcome. For example, there is no rationale for subjecting trusts to an income tax rate of 45% above the first £1,000 when individuals only pay the additional rate on income exceeding £150,000. But the reference to transparency again sounds ominous.
Real property is immoveable and so an easy target
One radical development was the launch of a consultation on proposals to tax gains realised by non-residents (individual owners, trusts and companies, including those widely held) from disposals of all UK property, bringing commercial property owned by non-residents into the CGT net from April 2019. Maybe this should not have been surprising because, in the last few years, the tax treatment of UK residential property owned by non-residents has been increasingly aligned to that of UK residents. However, the government is also now planning a tax charge if non-residents sell property-rich vehicles, so tax will bite if the vehicle (often a non-resident company) sells the land or if a shareholder sells his shares. This is a big change and will have a wide impact. The new tax (whether on disposals of non-residential land or disposals of shares in property-rich vehicles) will apply to gains arising on or after April 2019, effectively a rebasing of commercial property to that date so historic gains will not be caught.
A crumb of comfort perhaps?
Some hope on the horizon is that IHT reliefs for agricultural and business property might be left alone. An independent research paper, published alongside the Budget, looked at the influence of these reliefs on estate planning. It concluded that the reliefs are not being abused, the public’s understanding of them is quite limited and they are not generally used for IHT avoidance. Instead, they prevent the break-up of family farms and businesses, which is, of course, exactly what they are intended to do.
But HMRC wants its money upfront
Finally came a surprise announcement that certificates of tax deposit (CTDs) will be abolished with almost immediate effect. No new CTDs can be purchased on and after 23 November but existing certificates will continue to be honoured until 23 November 2023. Any then remaining should be submitted promptly to HMRC for a refund. So it will no longer be possible to hedge one’s bets and buy a certificate to cover a possible tax liability without any risk of an interest charge.
The Budget was a low-key affair for private clients, perhaps the quietest for over a decade.
Few tax measures were mentioned in the speech itself and only a random selection of items of interest to private clients appeared in the supporting documents.
Are we becoming even more xenophobic?
We have already had two Finance Acts this year, following a hiatus after the unexpected June election result. The Finance (No. 2) Act became law last week, introducing a sea change to the taxation of non-doms, ‘backdated’ to 6 April 2017. In summary:
The Budget confirmed that further anti-avoidance measures aimed at offshore trusts will be introduced from April 2018. These measures had already been announced and, in essence, provide that:
Compliance and transparency reign supreme
The net continues to tighten for non-compliance, particularly in relation to offshore avoidance and evasion. In conjunction with the OECD and EU, the government plans to require designers of offshore structures which could be misused to evade taxes to notify HMRC of both the structures and the clients using them. The PSC (persons with significant control) register for companies was introduced in June 2016; legislation was recently put in place for the new trusts register (requiring HMRC to be notified of the ‘beneficial owners’ of UK express trusts and non-UK trusts that incur UK tax liabilities); and the Stock Exchange is busily attributing legal entity identifiers (LEIs) to all trusts in order to facilitate a global reference system for parties to financial transactions. There really is ‘no place to hide’ now, which perhaps reflects some of the fallout from the Panama and Paradise papers.
HMRC will also consult in the spring on extending assessment time limits for non-deliberate offshore tax non-compliance, enabling it to assess at least 12 years of back taxes without needing to establish deliberate non-compliance.
UK trusts are destined to be in the limelight again
There is a huge wave of ‘populism’ and trusts have been an easy target for journalists. Perhaps we should not therefore be surprised by an intriguing Budget announcement, in just two lines of text in the overview document: ‘The government will publish a consultation in 2018 on how to make the taxation of trusts simpler, fairer and more transparent.’ Until we see the consultation, we can only speculate on what more is in store for trusts and it is not even clear which taxes might be in point, although IHT may well be a candidate. Indeed, this might explain the House of Commons briefing paper on IHT issued to MPs in July 2017, which covered the structure, history, rationale and proposals to reform IHT over the last 20 years. That said, the government had a look at IHT trust simplification only a few years ago by launching two back-to-back consultations, which eventually led to only minor changes.
Any proposals for making tax on trusts fairer would of course be welcome. For example, there is no rationale for subjecting trusts to an income tax rate of 45% above the first £1,000 when individuals only pay the additional rate on income exceeding £150,000. But the reference to transparency again sounds ominous.
Real property is immoveable and so an easy target
One radical development was the launch of a consultation on proposals to tax gains realised by non-residents (individual owners, trusts and companies, including those widely held) from disposals of all UK property, bringing commercial property owned by non-residents into the CGT net from April 2019. Maybe this should not have been surprising because, in the last few years, the tax treatment of UK residential property owned by non-residents has been increasingly aligned to that of UK residents. However, the government is also now planning a tax charge if non-residents sell property-rich vehicles, so tax will bite if the vehicle (often a non-resident company) sells the land or if a shareholder sells his shares. This is a big change and will have a wide impact. The new tax (whether on disposals of non-residential land or disposals of shares in property-rich vehicles) will apply to gains arising on or after April 2019, effectively a rebasing of commercial property to that date so historic gains will not be caught.
A crumb of comfort perhaps?
Some hope on the horizon is that IHT reliefs for agricultural and business property might be left alone. An independent research paper, published alongside the Budget, looked at the influence of these reliefs on estate planning. It concluded that the reliefs are not being abused, the public’s understanding of them is quite limited and they are not generally used for IHT avoidance. Instead, they prevent the break-up of family farms and businesses, which is, of course, exactly what they are intended to do.
But HMRC wants its money upfront
Finally came a surprise announcement that certificates of tax deposit (CTDs) will be abolished with almost immediate effect. No new CTDs can be purchased on and after 23 November but existing certificates will continue to be honoured until 23 November 2023. Any then remaining should be submitted promptly to HMRC for a refund. So it will no longer be possible to hedge one’s bets and buy a certificate to cover a possible tax liability without any risk of an interest charge.
