The Chancellor delivered his Autumn Statement on 3 December, announcing substantial reforms in areas of personal and corporate taxation, and measures to combat tax avoidance.
Among the changes is arguably the most significant amendment of the remittance basis charge since its introduction in 2008. Resident non-domiciled (RND) taxpayers who have spent 12 of the last 14 years in the UK will in future need to pay a remittance basis charge (RBC) of £60,000 (up from £50,000) for the privilege and a new charge of £90,000 will be imposed on those resident for 17 of the last 20 years. Coupled with the loss of personal allowances, the cost of the remittance basis of taxation is rising rapidly and with the legislative framework for the RBC firmly in place, there is little to stop future increases in the charge.
HMRC will also consult on whether RNDs should be required to elect the remittance basis for a minimum of 3 years so as to discourage annual opt ins and opt outs as a means of sheltering the proceeds of larger offshore transactions from tax.
For RND clients who have no, or de minimis, foreign income and gains, a Lombard International Assurance compliant life policy continues to be a valuable means of avoiding the need to elect the remittance basis or pay the associated charges. Income and gains within the policy arise to the insurer rather than to the policyholder and tax is deferred until sums, in excess of 5% p.a. of the premium, are withdrawn or the policy comes to an end.
UK-webThe Autumn Statement also brings comprehensive changes to Stamp Duty Land Tax (SDLT) on residential property, effective immediately. Subject to transitional provisions, the existing rates are replaced from 4 December by 0%, 2%, 5%, 10% and a top rate of 12% (up from 7% previously). The top rate applies to transactions above £1,500,000. Importantly, however, the new rates take hold progressively (in a similar manner to income tax) rather than applying to the entire transaction value once a relevant threshold is reached. The effect of course is relief for low value transactions while those at the higher end of the spectrum will suffer the brunt of the tax.
Also affected is the Annual Tax on Enveloped Dwellings (ATED) which, for the chargeable period 1 April 2015 to 31 March 2016, will be increased by 50% above inflation for properties valued at more than £2,000,000. This is in addition to the ATED threshold changes announced in this year’s budget.
Combatting tax avoidance remains high on the agenda and the Disclosure of Tax Avoidance Schemes (DOTAS) regime is set to be further strengthened by the addition of new hallmarks, the publication of certain information on promoters and the registered schemes that they offer, and, significantly, the possible application of DOTAS to existing schemes via the removal of the current grandfathering rules. A ‘DOTAS task force’ is also due to be established, the precise role of which is as yet unknown.
In addition to upcoming G20 and OECD measures, a UK-specific Diverted Profits Tax, dubbed the ‘Google tax’ comes into play under which a 25% rate will apply from 1 April 2015 to multinationals seeking to divert profits outside the UK in an effort to avoid taxation.
However, not all measures on which the tax authority has consulted will see the light of day. There will, for example, be no removal of personal allowances for non-residents (at least until April 2017) and there will be no single settlement nil-rate band although alternative measures will apparently be put in place to prevent avoidance via the use of multiple trusts.
While the precise scope and detail of the rules has yet to be defined and some of the reforms are subject to the result of the next election, the Autumn Statement caught many by surprise. The changes to the RBC, when considered together with the recent removal of ‘concessions’ by HMRC (as on 4 August in relation to loans secured on mixed funds) reflect continued pressure on RNDs. They also serve to highlight structures such as life assurance which, when correctly structured, can relieve the cost of RND status and mitigate the associated administrative complexity.
Please contact Chris Edward or Simon Gorbutt for more details.