Today [13 March 2019], Chancellor Philip Hammond delivered his “Spring Statement”. This is the second Spring Statement since he promised to return to the old system of there being only one “real” Budget each year (in the Autumn), with the Spring Statement then just being an opportunity to deal with anything perceived as being more of an emergency.
One must imagine that at the current time Parliament has other things to worry about, rather than the Spring Statement […. The matter of the UK’s relationship with the EU going forward, for example]. However, while Spreadsheet Phil hasn’t made any great changes to tax rates, etc, he has still managed to find the time to engage in a number of tweaks to the tax system, most of which have already been either announced or at least alluded to previously.
Below is a summary of the announcements made today and as ever please do not hesitate to contact us if you wish to discuss how any of these changes may affect you/ your business.
- CGT - Only or Main Residence
- CGT – Non-residents owning UK commercial property
- SDLT - Non-residents purchasing UK residential property
- EIS- Knowledge-intensive fund structures
- Structures and Buildings Allowance
- Corporate Tax Losses
- Making Tax Digital
- Avoidance, evasion and non-compliance
- Digital Services Tax
CGT - Only or Main Residence
The Chancellor’s Spring Statement 2018 announced a number of areas of tax where consultations would be released in the coming months.
One such consultation which was first hinted at in Budget 2018 will be in respect of the CGT reliefs available when individuals sell their only or main residence.
Up until 5 April 2014, where a property had been an individual’s only or main residence at some point during their ownership, the last 36 months’ ownership were always exempt from CGT. However, from 6 April 2014, that exempt period reduced to the last 18 months, unless the individual was disabled or a long-term resident of a care home who did not own another qualifying residence at the time of the disposal.
HMRC will now be consulting on whether, from 6 April 2020, that final exempt period should be reduced further to 9 months (though disabled individuals or long-term residents of care homes will continue to get the 36 months relief).
At the same time, HMRC will also be consulting on whether the lettings relief currently available where an only or main residence has been let out at some point during the period of ownership, should be restricted from 6 April 2020 so that it only applies where the owner of the property is in shared occupancy of the property with the tenant. This effectively means that the lettings relief will be unavailable except in a very small number of cases as the reality is that in most situations the entire property is let whilst the owners live elsewhere.
We await the release of the consultation document to see the finer detail of HMRC’s proposals.
CGT – Non-residents owning UK commercial property
From April 2019, non-UK residents (including individuals, companies, trusts and partnerships) who own UK commercial property will be subject to UK CGT. Our recent article provides more information on the changes and can be found here https://www.charter-tax.com/finance-act-2019-changes-to-taxation-of-uk-property-owned-by-non-uk-residents/
SDLT - Non-residents purchasing UK residential property
As if non-resident owners of UK property had not had enough tax changes in recent years, last month HMRC released a consultation document proposing the introduction of a 1% Stamp Duty Land Tax (“SDLT”) surcharge for any non-UK residents, including individuals, companies, trusts and partnerships,
urchasing residential property in England or Northern Ireland. Note that Scotland and Wales have their own property taxes regimes, although it is possible that if the surcharge does become law, they may follow suit.
One of the issues with the proposal is that by “non-UK resident”, HMRC mean an individual who is present in the UK for 183 days or more in the 12 months up to the date of purchase. They do not, therefore, propose to use the same tests as the Statutory Residence Test (“SRT”) applied to individuals for income tax, CGT or Inheritance Tax, so the situation could arise where an individual is resident in the UK under
the “sufficient ties” test of the SRT (i.e. present in the UK for less than 183 days but with enough ties to make them resident here), but not considered so under the SDLT surcharge test.
This will impact not only individuals making a direct purchase of UK residential property, but also UK resident close companies where the participators are not considered resident under the SDLT test, even though they are considered UK resident for other taxes.
Conversely, for a trust where the beneficiary does not have a right to occupy the property or receive rental income from it, HMRC will look at the trustees’ residence position for the 12 months up to the date of purchase based on the SRT.
HMRC claim this non-residence test keeps the application of SDLT simple; however, it is unlikely that an individual being subject to income tax and CGT as a UK resident will be happy to discover that, for SDLT purposes, they are not resident here and must pay at a higher rate!
The consultation ends on 6 May 2019 and we intend to make representations to HMRC ahead of that date.
EIS- Knowledge-intensive fund structures
The Spring Statement also advised that HMRC will shortly be releasing draft legislation and guidelines on their proposed policy and practice for approving EIS funds, with the legislation including powers for HMRC to set conditions and approve funds.
This followed information provided in Budget 2018 that the current EIS rules would be amended from April 2020 to require approved funds to focus on investments in knowledge-intensive companies, give funds a longer period over which to invest fund capital and to allow investors in approved funds to set their income tax relief against tax liabilities arising in a tax year before the fund closes.
More detail will be known once the draft legislation and guidelines have been published.
Structures and Buildings Allowance (SBA)
As reported in our Budget statement in October 2018, since the abolishment of Industrial Buildings Allowances and Agricultural Buildings Allowances, there has been a gap in the Capital Allowances system for the cost of buildings and structures, with tax relief only being given on plant and machinery that forms part of the integral feature of a building, and no relief for the cost of acquiring or constructing a building. The Chancellor announced in the October 2018 Budget that he will be addressing this gap by introducing the Structures and Buildings Allowance, which will be available for all contracts to build commercial buildings, entered into from 29 October 2018, and will be available for businesses chargeable to Income Tax and Corporation Tax.
The government has today issued a draft secondary consultation, for comment. The consultation closes on 24 April 2019 with a response to the consultation comments to be published in May 2019.
To recap, the relief will be available if a business has constructed the asset itself, or if it has purchased it ready built from a developer. The value of any land acquired will not be eligible for the relief, and special provisions will apply to lease transactions.
The relief will see a flat 2% of the cost of construction or renovation as a deduction against trading profits over a 50-year period. The relief is also transferrable to future owners of structures that qualified at the time of construction, and no “balancing charge” will apply on a future sale of the asset. Further provisions would apply, though, in relation to the demolition rather than the sale of a building.
Charter Tax will be happy to work with you to review proposed acquisitions, constructions, or leases of commercial buildings or structures to see if your transactions will qualify for the relief.
Corporate Tax Losses
As we reported in Autumn 2018, from 1 April 2020, corporate capital losses will be restricted in broadly the same way as trading losses. Capital or income losses of up to £5m will remain unrestricted but above that amount, companies will only be able to use 50% relief for brought forward losses in a given year. The majority of small and medium business are unlikely to be affected by this change, but larger companies may see their tax bills rise as a result. The government will now launch a consultation on the impact of this change and consider if the rules need to be revised as a result.
A “call for evidence” has been made on how to improve the VAT Partial Exemption regime and the Capital Goods Scheme, with the aim of reducing the complexities in the schemes that business can experience.
Making Tax Digital
The government has reconfirmed its commitment to the “MTD” legislation that comes into force on 1 April 2019. Under MTD, all VAT registered businesses (with turnover over £85,000) will need to keep their accounting records digitally and file their VAT returns through their software. HMRC have stated that they will take a light touch approach when raising penalties for non-compliance in the first year. It has however, confirmed that the government will not roll this scheme out to any other taxes until after 31 December 2020.
Avoidance, evasion and non-compliance
No Chancellor’s statement would be complete without some mention of non-compliance and how the Government are continually tackling this in all its forms, and the Spring Statement was no exception. Also some limited targeted anti-avoidance legislation has been proposed.
Two documents were published as part of the Spring Statement documents, the Treasury’s strategy towards offshore non-compliance “No Safe Havens 2019”, and the joint report from HMRC and HM Treasury on tackling non-compliance.
The second of these reports includes a report required by Finance Act 2019. The requirement was for a report to be produced within six months of Finance Act 2019 to assess the effectiveness of tax avoidance provisions introduced by FA 2019. The perhaps unsurprising conclusion of this part of the report is that no one knows whether the measures have been effective because, for the most part, they only take effect from 6 April 2019!
Taken together, the reports reinforce HMRC’s and the Treasury’s commitment to tackling non-compliance in all its forms, and has numerous statements indicating all of the ways that HMRC will help its “customers” pay the right tax and penalise those who are determined to pay less than what they owe.
While helpful in understanding HMRC’s strategy, the reports do not ultimately highlight any significant change in strategy for HMRC or powers available to HMRC in tackling non-compliance. Rather the reports seem to be more like a performance review, with examples of excellent work over the past 19 years, and commitments to strive ever harder in the coming years.
What is clear is that this focus on non-compliance (and in particular offshore non-compliance) will continue, and HMRC now feel that they are on the front foot because of the level of information now being supplied to them through the Common Reporting Standard.
And the message, as ever, is the same – that it is best for taxpayers to come to HMRC voluntarily, before they come to the taxpayer.
Digital Services Tax
The consultation to ensure that large, established, digital services companies are taxed on an equal footing ended on 28 February 2019. The Chancellor confirms that this will be reviewed and changes will be proposed as a result but at present, the government are planning to introduce legislation for a 2% tax for search engines, social media platforms and online marketplaces, based on their turnover derived from users in the UK from April 2020.
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 and we will be happy to assist in providing such advice.
Tax legislation changes regularly and the information contained herein is provided based on legislation as at 13 March 2019.
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.