September is due to see two Finance Bills – the second 2017 Finance Bill has been announced today, and legislates for the areas dropped from the first 2017 Bill due to the snap general election. The 2018 Finance Bill is due to be released next week with provisions relating to the 2017 Autumn Budget. We await information on the 2018 changes, but for the time being we need to look (again) at the changes brought in by the second 2017 FB.
Assuming that the changes are (finally) legislated, the main areas that will change are as follows:
- Non-Doms;
- Inheritance Tax Application to all UK Residential Property
- Reform of the Substantial Shareholding Exemption
- Loss Relief
- Tax Deductibility of Corporate Interest Expense
- Employment taxes
Non-Doms
- It has now been confirmed that the changes for non-doms will come into effect from 6 April 2017. These changes can be summarised as follows (observant readers will note the similarity with our press release on 8 March on the Finance Bill announcement):
- Individuals will become deemed domiciled for all tax purposes when they have been UK resident for 15 out of the previous 20 years (a.k.a. “good non-doms”).
- Individuals born in the UK with a UK domicile of origin will not be able to claim non-dom status if they return to the UK (a.k.a. “bad non-doms”). There will be a limited grace period in certain circumstances for UK inheritance tax, but not for other taxes.
- There will be a rebasing of overseas assets for “good non-doms” becoming deemed domiciled as a result of the changes on 6 April 2017, although an election can be made to disapply the rebasing for certain assets. Rebasing applies only if the remittance basis charge has been paid, but individuals can pay the remittance basis charge in 2016/17 if they wish to benefit from this relief.
- There will be a two year window (starting 6 April 2017) for any “good non-dom” in the UK to clean up their overseas mixed accounts and separate them for ease of remittance. This is available to any “good non-dom”, not just those who become deemed domiciled from 6 April 2017 or those who have paid the remittance basis charge. In reality, individuals now only have 18 months to complete this exercise owing to the uncertainty of the legislation for the last six months.
- “Good non-doms” with offshore income and gains arising in certain trusts to be called “protected settlements” will be able to exclude such income and gains from charge to UK tax after they become deemed UK domiciled, if the relevant conditions are met.
- There is a widening of the scope of the Business Investment Relief rules whereby an investment in qualifying businesses is not considered a taxable remittance. Importantly, investors can purchase existing shares in qualifying companies, meaning that a much wider range of investments is now open to potential non-dom investors.
Inheritance Tax Application to all UK Residential Property
From 6 April 2017, shares in companies / partnership interests where the underlying value is attributable to UK residential property will become relevant property for the purposes of the application of UK inheritance tax. Likewise, debtor balances on loans for UK residential property will become chargeable assets. This means that non-UK domiciled individuals who own such shares or interests will be charged to UK inheritance tax even if the company / partnership is located outside the UK. If the individual died holding the asset, or died within seven years of gifting the asset, then there could be a charge to UK inheritance tax at 40%. There would also be a charge on transferring the interest to trust, and ten year / exit charges on trustees holding the asset.
Reform of the Substantial Shareholding Exemption
As previously announced, from 1 April 2017, the rules around the substantial shareholding exemption will be simplified and extended. In particular, the requirement that the investing company needs to be a trading company or part of a trading group is to be removed – this will help institutional investors by providing relief in these circumstances. The ownership condition for the shares is extended from 12 months in the last two years to 12 months in the last six years. The company being sold does not need to continue as a trading company after sale unless the sale is to a connected party.
Loss Relief
From 1 April 2017, the Budget 2016 announcement will come into force that makes loss relief in companies more flexible, but also restricts the use of losses such that a company’s profit cannot be reduced by more than 50% by carried forward losses.
Tax Deductibility of Corporate Interest Expense
Another rule announced at Budget 2016 but to be introduced from 1 April 2017 is the relief for interest deduction on large corporate groups. Where interest deduction for the group is over £2m, new rules will restrict each group’s net deductions for interest to 30% of the earnings before interest, tax, depreciation and amortisation. Minor changes will be made to the rule following consultation, but in broad terms this will be introduced from 1 April 2017.
Employment Taxes
Various changes previously announced will take effect from 2017/18, including where an employee makes a payment for a benefit in kind received from their employer, changes to the salary sacrifice regime, and a tightening of the rules in relation to termination payments. While some of these rules were introduced previously, the rest of the changes previously dropped ahead of the general election are now being legislated.
Anti-Avoidance
As will be expected by taxpayers following Budget changes over recent years, there are additional measures designed to counter tax avoidance and non-compliance. This trend is only set to continue as the Government receive more information from third parties under the new Common Reporting Standard regime.
Please let us know if you would like to understand how the changes will impact on your situation.
Contact Charter Tax to learn more
Charter Tax are here to help you as an individual, your family, and your business. So whatever your requirements Charter Tax can help. Contact us today at either our accountancy firm in Goudhurst on 01580 313108 or our London accounting branch on 020 7084 5771.
Disclaimer
The information provided by Charter Tax Consulting Limited is general in nature and does not constitute specific tax advice. Professional advice should be sought before deciding on a course of action, or refraining from a certain action, arising from the above information. Tax legislation changes regularly and information contained herein is provided based on legislation as at 10 September 2017.
Taxation planning concerns the application of complex statute and case law to future events. Accordingly, however expert the opinion given, it is always possible that the Courts will take a different view of the application of the law. We undertake to apply reasonable care and skill in the provision of advice. We do not guarantee that tax planning steps will in all circumstances achieve a certain legal effect.
