06 April 2012
The latest UK Budget announcements made on 21 March 2012 included proposals that will have an impact on the tax position of certain arrangements which Minerva currently administers. The major proposals which will affect our clients are detailed below:
General Anti-Abuse Rule (GAAR)
With effect from 6 April 2013 there is a proposal to enact a GAAR. This proposal is subject to consultation. It is stated that this will be used to target contrived and artificial schemes but will be designed to provide safeguards for legitimate tax planning. Further information will become available following the consultation process.
Anti-Avoidance Provisions for Offshore Structures
Following pressure from the EU, the UK government will begin a consultation process to review the current anti-avoidance provisions relating to the transfer of assets abroad and attribution of gains to members of non-resident companies. This will bring the UK into line with regards to the freedoms of movement and trade afforded to EU members as set out in the Treaty of the Functioning of the EU (‘TFEU’). Any changes to the current anti-avoidance rules and legislation would likely favour the taxpayer.
UK Residential Property
- A specific crackdown on schemes which previously mitigated Stamp Duty Land Tax (‘SDLT’) on property purchases will become effective on 21 March 2012. It has not been clarified whether this will be by way of specific legislation or an extension to the suggested GAAR due to be enacted in 2013.
- The immediate introduction of a 7 percent rate of SDLT on UK residential property purchases of more than £2million. This rate will increase to 15% for residential property purchases made by ‘non-natural persons such as companies’. A specific definition of this terminology is awaited.
- The introduction of an annual charge on holdings of residential property worth in excess of £2million held by ‘non-natural persons such as companies’ from April 2013. This proposal is subject to a consultation process. The rate of this charge has been suggested to be between 0.3 and 0.7 percent of the value of the property.
- The extension of Capital Gains Tax to gains on the disposal of residential property held by ‘non-resident non-natural persons such as companies’ from April 2013, which will be subject to a consultation process. It is mooted that there will be exemptions for Property Developers and certain trustees.
- There have been no changes to the rules relating to the Inheritance Tax (IHT) treatment of UK residential property held via a corporate structure. As such ownership in this way will continue to provide protection from UK IHT.
The above changes relate solely to UK Residential Property. The proposals announced do not affect UK Commercial Property. Those clients who benefit from the remittance basis of taxation will now be able to benefit from the recently announced changes to those rules whereby a greater level of Investment Relief is available. This applies to investments into unlisted trading companies or companies that undertake the development or letting of Commercial Property.
Residence and Domicile
- The UK government confirmed that it is looking to enact a statutory residence test from April 2013 with draft legislation due shortly following the usual consultation process. It was confirmed that the concept of being ‘ordinarily resident’ in the UK will be abolished.
- The remittance charge payable by persons non-domiciled but resident in the UK for 12 years or more will rise to £50,000 per annum from 6 April 2012, with persons non-domiciled but resident between 7 and 12 years remaining at £30,000 per annum.
- An increase in the amount of funds a UK domiciled person may pass to their non-domiciled spouse will rise to a figure equal to the nil-rate band of Inheritance Tax (currently £325,000) from April 2013 and be pegged to the nil-rate band in the future, subject to consultation.
- A consultation process will also begin to consider whether a UK non-domiciled person may opt to be considered UK domiciled for IHT purposes to enable them to claim a full spouse exemption as defined under current IHT legislation, with the effect that their own assets would be subsequently subject to UK IHT.
These proposals will be contained within the relevant Finance Bill to be debated by parliament and will thereafter become law subject to any amendments enacted at the time of debate and consultation process.
Please contact your normal Minerva contact if you wish to discuss any points mentioned above.
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