UK: Budget 2013

Business Taxes

  • The Chancellor confirmed that the main rate of corporation tax will reduce to 21% from 1 April 2014 and announced a further reduction to 20% from 1 April 2015.  The reductions will be funded in part by a further increase in the bank levy rate from 1 January 2014.  
  • The 'above the line' tax credit for Research and Development which takes effect from 1 April 2013 will be paid at a pre-tax rate of 10% of qualifying expenditure (increased from the previously announced minimum pre-tax rate of 9.1%).  
  • The Government has asked the Office for Tax Simplification (OTS) to carry out a review of ways to simplify the taxation of partnerships.
  • The Government will consult on modernising the loan relationship and derivative contract rules.  Legislation will be included in Finance Bill 2014 and Finance Bill 2015.  
  • The Government will consult on tax measures to encourage the exploration and production of shale gas. Legislation will be included in Finance Bill 2014.  
  • The Government will also consult on options to provide further support to the visual effects industry through the tax system (likely to take a similar form to the existing enhanced tax relief for film, TV and game production).  
  • The Government intends, following consultation, to abolish stamp duty on transfers of shares quoted on growth markets such as AIM and the ISDX Growth Market.

Personal Taxes

  • The personal income tax allowance will increase to £10,000 from 6 April 2014.  
  • It was confirmed that the previously announced statutory residence test will be included in Finance Bill 2013 and will take effect from 6 April 2013.

Venture Capital

  • The capital gains tax relief for reinvesting in shares which qualify for Seed Enterprise Investment Relief will be extended to cover gains accruing in 2013-14 where those gains are reinvested during 2013-14 or 2014-15. The relief will apply to half of the qualifying reinvested amount.  
  • Finance Bill 2013 will include legislation to ensure that shelf-companies are not disqualified from qualifying for the Seed Enterprise Investment Scheme. This change will apply to shares issued on or after 6 April 2013.

Employee Incentives

  • A new £2,000 'employment allowance' will be introduced, which will be available to all businesses and charities to reduce their National Insurance contributions bill from April 2014.  
  • It was confirmed that legislation will be introduced in Finance Bill 2013 to exempt gains on disposals of up to £50,000 worth of employee shareholder shares from capital gains tax. Legislation will also be introduced to ensure that income tax and National Insurance contributions are not charged on the first £2,000 of share value received by eligible employee shareholders. Although these measures were originally expected to take effect from 1 April 2013, it is now expected that they will take effect from 1 September 2013.  
  • It was also confirmed that Finance Bill 2013 will remove the requirement for a person to hold 5% or more of the ordinary share capital in a company in order to qualify for entrepreneurs' relief, where shares are acquired through the exercise of a qualifying EMI scheme option. As previously announced, changes will be made to the draft legislation published in December 2012 to allow the period between grant of the option and exercise to count towards the qualifying 12 month holding period requirement. Relief will also be available on disposals of shares that replace EMI shares following a reorganisation of a company and on disposals of certain shares following an exchange for shares in another company.  
  • Finance Bill 2013 will also implement a number of the recommendations made by the OTS in its review of tax advantaged employee share schemes. The Government will consult on a number of the recommendations made by the OTS in relation to unapproved share schemes, and legislation will be included in future finance bills.  
  • A new capital gains tax relief will be introduced in Finance Bill 2014 which will apply on the sale of a controlling interest in a business into an employee ownership structure. Other incentives in this area will also be considered, including measures targeted at employees through indirect ownership models.  
  • Finance Bill 2014 will increase the exempt threshold for employment-related loans from £5,000 to £10,000 with effect from 6 April 2014.

Funds

  • The Government will consult on expanding the 'White List' of transactions which are not treated as trading activities for authorised investment funds, investment trusts and offshore reporting funds. The list also determines the types of investment transactions which may qualify for the investment manager exemption.  
  • The Government will also consult on removing the requirement to withhold tax on interest distributions by UK domiciled bond funds when they are sold via reputable intermediaries and marketed only to non-UK investors.  
  • The Government confirmed that it remains committed to the early introduction of authorised contractual funds (tax transparent funds).

Residential Property

  • As announced at Budget 2012, an annual charge on residential properties valued at more than £2 million held by certain non-natural persons will be introduced from 1 April 2013. This tax is now expected to be known as the annual tax on enveloped dwellings (ATED).  
  • As previously announced, Finance Bill 2013 will include a number of additional reliefs from the 15% rate of SDLT which applies to acquisitions by certain non-natural persons of dwellings costing more than £2 million.  These reliefs, which broadly apply to purchases for commercial reasons (e.g. property rental or development) will be available from Royal Assent to Finance Bill 2013 (expected to be in July 2013) and will be subject to clawback if the qualifying conditions are not met throughout the following three years.  
  • Again as previously announced, Finance Bill 2013 will introduce a capital gains tax charge on disposals of interests in high value residential property by certain non-natural persons on or after 6 April 2013. The CGT charge will be payable regardless of where the non-natural person is resident, if they were liable for the new annual tax on enveloped dwellings on the property in question. The tax will be charged at 28% and will normally only apply to gains attributable to periods of ownership after 5 April 2013.  
  • As announced in Autumn Statement 2012, Finance Bill 2013 will also include changes to reform the SDLT 'sub-sale' rules and to put beyond doubt that certain SDLT avoidance schemes based on the 'sub-sale' rules do not work. The anti-avoidance measures will have retrospective effect from 21 March 2012.

Anti-Avoidance

  • The Chancellor confirmed that a new general anti-abuse rule (GAAR) will be introduced in Finance Bill 2013. The GAAR will apply to abusive tax arrangements undertaken on or after the date of Royal Assent to Finance Bill 2013.  
  • The Government will consult on measures to:
    • remove the presumption of self-employment for limited liability partnership (LLP) partners, to tackle the disguising of employment relationships through LLPs; and
    • counter the manipulation of profit / loss allocations by partnerships in order to secure tax advantages.

Legislation is expected to be included in Finance Bill 2014.  

  • Finance Bill 2013 will include legislation to prevent 'loss buying', where companies transfer the potential to use losses, including unrealised losses, (to reduce the amount of corporation tax due) to unconnected third parties. The changes will have effect from 20 March 2013.  
  • As announced at Budget 2012, Finance Bill 2013 will introduce legislation in relation to two anti-avoidance rules: the transfer of assets abroad rules and the rules relating to gains on assets held by foreign companies which are closely controlled by UK resident individual participators. Changes will be made to the draft legislation published in December 2012 as a result of consultation.  
  • Following consultation, the Government announced in October 2012 that legislation would be introduced in Finance Bill 2013 on disguised interest and on deduction of income tax from interest on compensation payments, specialty debt and interest in kind. A number of other proposals were abandoned following consultation ( click here for further information).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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