EY has reviewed the Autumn Statement for 2014, which was delivered today by Chancellor George Osborne. There are certain areas that will have an impact on business and individuals in the Channel Islands.
The release, on 27 November, of the Government’s response to the consultation on the introduction of a capital gains tax (CGT) charge on non-UK residents is still very fresh in the mind. The new charge will be in force from 6 April 2015 and will have a major impact on Channel Island residents owning residential property in the UK, whether personally or through offshore structures. Somewhat surprisingly, the Chancellor made no reference to this today and the draft legislation will not be available until 10 December.
That said, there was plenty in the statement of interest.
Stamp Duty Land Tax (SDLT)
To start on a reasonably positive note, the UK Government appears to have taken a leaf out of Jersey’s book and has reformed the SDLT regime such that each rate of tax will apply to the element of the property price that falls within each of the bands, thus avoiding the 'cliff edge' increases of the previous system and the market distortions that this produced. From midnight tonight, the bands will be as follows:
0% up to £125,000
2% between £125,001 and £250,000
5% between £250,001 and £925,000
10% between £925,001 and £1.5 million
12% over £1.5 million
It has been suggested that these graduated rates will save £4,500 on the average priced home, and will benefit 98 per cent of homebuyers, with the new system only becoming more expensive for the purchaser when the acquisition price exceeds £937,000. This change is of course very different to the mansion tax proposals put forward by Labour, in that a sum will only be payable on the acquisition of a property.
This will not affect the 15 per cent rate of SDLT that already applies to the purchase of 'enveloped' residential property costing £500,000 or more. However it does present a further disincentive for those looking to acquire high value residential property in the UK in a personal capacity, with an increase of up to five per cent on current rates.
Annual Tax on Enveloped Dwellings (ATED)
On the topic of enveloped property, it is fairly common knowledge that the ATED charge has raised funds well in excess of what was originally expected by the Government. Perhaps as a consequence of this, it was today announced that the annual ATED charges will increase by 50 per cent above inflation for residential properties worth more than £2 million for the chargeable period 1 April 2015 to 31 March 2016. The new rates will be as follows:
Properties worth more than £2 million but less than £5 million - £23,350
Properties worth more than £5 million but less than £10 million - £54,450
Properties worth more than £10 million but less than £20 million - £109,050
Properties worth more than £20 million - £218,200
The Government has also reiterated that it will introduce changes to the filing obligations and information requirements with respect to properties within the ATED regime that are eligible for a relief in order to ease the administrative burden. These changes will take effect from 1 April 2015 but we are yet to see the details and expect these to be released next week in the draft legislation.
Changes to taxation of UK residents not domiciled in the UK (UK RNDs)
In line with the sentiment and actions of the Government in recent years, the remittance basis charge will increase for longer term UK residents who wish to claim the remittance basis of taxation. This is now the second and most punitive change to the regime introduced in 2008. The new charging structure, effective from 6 April 2015, will be as follows:
Resident in UK for 7 of past 9 years - £30,000 (unchanged)
Resident in UK for 12 of past 14 years - £60,000 (£10,000 increase)
Resident in UK for 17 of past 20 years - £90,000 (a new band)
In addition, there will be a consultation on whether an election for the remittance basis to apply should remain in force for a minimum of three years, as opposed to the present position where an election can be made annually. This is intended to stop UK RNDs from being able to arrange their tax affairs so they only need to pay the charge occasionally.
In context, this will be a significant change. Longer term UK RNDs, who not so long ago could claim the remittance basis of taxation for no fee, may now need to pay £270,000 over three years.
Inheritance tax and Trusts
Following the consultation issued after Budget 2014, it has now been announced that the proposals to introduce a single settlement nil rate band will not be pursued. However, tax avoidance through the use of multiple trusts will be targeted in a different manner in the Finance Bill 2015. There will also be a simplification of the calculation rules for trusts.
Avoidance and Evasion
The Autumn Statement has announced a number of measures aimed at tackling aggressive tax avoidance and evasion, with the aim of raising some £9bn. One such measure is the introduction of a Diverted Profits Tax from 1 April 2015. This tax will be applied at a rate of 25 per cent and it is aimed at multinational companies that are deemed to use artificial arrangements to divert profits overseas in order to avoid UK tax. There is a lack of any detail on this and we can expect to see draft legislation next week.
The Government also reconfirmed that it will introduce legislation giving the UK the power to implement the OECD model for country-by-country reporting. Under these rules, global organisations will be expected to provide information to HMRC on their allocation of profits, taxes paid and economic activity in a country. We have yet to hear anything from the governments in the Channel Islands on their position regarding the BEPS actions but it is possible that they will be encouraged by the UK to consider some of the actions.
Investment Managers – disguised income
Legislation will be introduced with effect from 6 April 2015, to charge Income Tax on any income arising to investment fund managers in respect of their services. Perhaps surprisingly, the Government has not yet gone as far as treating carried interest or returns which are exclusively from investment partners as income.
Loss relief for banks
Relief for carried forward trading losses will be restricted to 50 per cent of banks’ profits with effect from 1 April 2015, and in respect of losses that have accrued up to 1 April 2015. There is an exemption for losses incurred in the first five years from a bank’s authorisation.
Summary
This was an Autumn Statement designed to reinforce the UK’s economic success prior to the election, whilst making it clear that the economic strategy of reduced spending continues.
There are a number of areas which could affect the Channel Islands, as set out above.
But, to end as we began, on a positive note, it appears that the withdrawal (or restriction) of personal allowances for non-UK residents has received a reprieve today with the Government announcing that whilst the matter may continue to be discussed, no changes will come into effect before April 2017. This may be some consolation for those Channel Island residents owning UK rental properties.