UK: Asia Autumn Statement 2013

Last Updated: 10 December 2013
Article by Katie Graves and Philip Munro

We set out below the personal tax highlights from today's Autumn Statement. Unsurprisingly the main focus of the statement was the UK's economic progress, and many of the measures announced are UK focussed.

Many are of much wider and greater impact however. You will see we lead with the changes announced to the taxation of non resident investors in UK real estate. This was one of the most leaked announcements, and as expected George Osborne confirmed that UK capital gains tax will apply to gains on sales of property by non residents. This will only apply from April 2015, so there is a good 15 month window to explore restructuring opportunities if credible. Much detail remains to be explored, including whether the measure will apply only to gains accruing after April 2015, and whether direct real estate holdings or real estate funds and property companies will also be caught.

Again firmly within the international sphere, the focus on offshore evasion continues apace, with the announcement that HMRC will focus on extracting as much as possible from information gained from the tax information exchange agreements it has entered into. The message of the paramount importance of compliance really just keeps getting louder.

Equally, the changes to partnership taxation may have an impact on international fund managers and partnerships, and not exclusively UK ones, and will have to be closely taken into account by anyone conducting any UK business via a partnership structure.

Fairness for all?

Today's Autumn Statement must have been a rather more enjoyable one for George Osborne to deliver than many would have expected twelve months ago. With economic indicators looking rather perky, he was able to deliver a fairly upbeat message. In the midst of that were some recurring themes, not least the idea of fairness. A much repeated sentence in the Autumn Statement document is the idea that 'those with the most in society make a fair contribution'. This raises a host of economic, political and philosophical questions, which we don't even try to answer here. The key question for today is what does that mean for our clients in real terms.

Well, not surprisingly, there is a continued focus on tax avoidance, including through the use of partnerships, and the extension of capital gains tax to non resident investors in UK residential property. The latter seems relatively sensible given that the UK has been one of the very few countries which hasn't imposed tax on property gains derived by non residents, and given the apparent robustness of the prime London residential market it is to be hoped this proposal will have little economic impact. Overall, there weren't many surprises, and, as ever, the devil will be in the detail which will be available with the publication of the Finance Bill.

Capital gains tax and residential property

The unknown unknown

The major unexpected announcement today is that the principal private residence relief from capital gains tax is to be curtailed so that the current provision which automatically exempts a proportion of the gain on the disposal of a property equivalent to the last three years of ownership which has at any time been the vendor's main residence has been restricted to 18 months. This will reduce the extent to which individuals will be able to claim an exemption from tax where they own more than one residence.

The more known unknown

Less surprisingly, as it had been widely leaked beforehand, the Chancellor today announced that capital gains tax would be extended to the sale of residential properties owned by non-residents. This builds on the measures that took effect from April this year that already impose capital gains tax on some residential properties sold for more than £2m by companies (including non-resident). However, there appears to be no threshold to this tax, so all properties will be included whether they are owned by oligarchs or hard working families. Perhaps the only surprise is that the tax will not take effect until April 2015 after a period of consultation, rather than with immediate effect.

One interesting question this raises is whether there will be a flurry of property sales between now and April 2015, or whether as many suspect most non resident property owners are longer term investors who are therefore less focussed on capital gains tax applying to gains raised. Let's hope it doesn't trigger an unexpected sell off of UK property.

The Chancellor's Statement confirmed that non-residents will benefit from the same exemption from tax on their primary residence as residents do currently, but it is not clear whether they will have the same flexibility to determine which property is to be treated as their main residence.

There is also no reference in the documents released today to a rebasing of the values of the properties caught by this new tax. Such a rebasing was provided for on the extension of capital gains tax to companies earlier this year, so is to be hoped that it will apply in this case as well.

New enforcement mechanisms are likely to be proposed in the consultation, which could result in purchasers or solicitors being obliged to withhold part of the purchase price paid to a non-resident to ensure that HMRC can collect the new tax.

It also remains to be seen whether this tax will be extended to the sale of shares in foreign companies that own UK property.

Partnerships

Mixed use partnerships

As part of a wider review of certain parts of the partnership rules announced in the Budget earlier this year, the Chancellor confirmed today that measures would be introduced to counter the manipulation of profit and loss allocations by partnerships to achieve a tax advantage. Some partnerships allocate excess profits to corporate partners, subject to lower rates of tax, in circumstances where an individual partner may later benefit from those profits, or arrange for partnership losses to be allocated to individual partners, rather than corporate partners, to enable the individual to access certain loss reliefs.

The aim of the new rules is to reallocate the excess profits of a corporate partner to individual partners where the corporate partner's share is excessive and either the individual has the power to enjoy the corporate partner's share or there are deferred profit arrangements in place such that the individual will at some point benefit from the corporate partner's share. The new rules will extend to individuals who are not partners. Certain loss reliefs will also be denied to individual partners.

Following the recent trend for imprecise legislation, seen recently in the disguised remuneration rules introduced to target employee benefit trusts, the draft legislation published today requires profit shares to be varied between partners on a 'just and reasonable basis', 'notional profit' to be calculated by reference to the 'time value of an amount of money' equal to a partner's contribution to the business, and relies on the notion that it is 'reasonable to suppose' that the profit allocated to a corporate partner is intended to indirectly benefit an individual partner. This will no doubt create a myriad of uncertainly, potentially requiring partners to undertake some sort of transfer pricing exercise between themselves. It is therefore likely that many mixed use partnerships will abandon the use of corporate partners for deferred compensation. In this respect perhaps the legislation will achieve what it is intended to. Although this is completely at odds with the objectives of the FSA Remuneration Code which are to encourage rather than penalise deferred remuneration.

There is a requirement for the profit allocated to a corporate partner to constitute the 'deferred profit' of an individual member. It is therefore hoped that the innocent warehousing of surplus profits, where the intention is for those funds to be reinvested directly back into the business, will not be caught.

Dual contracts and non-domiciliaries

HMRC has long had a focus on the use of dual contracts whereby non-domiciled taxpayers have employment contracts with different duties in different locations for different employers. If appropriately structured and implemented, to date no UK income tax has been due on the income from a foreign employer for foreign duties.

This measure will prevent non-domiciled UK resident taxpayers from using dual contract arrangements to artificially assign part of their employment income to an overseas employment contract to avoid tax liabilities in the UK. This is interesting in so far as at the moment the arrangements only works if the income genuinely reflects the value of the duties performed overseas, but HMRC has sought to investigate a very significant number of such arrangements and has looked very closely indeed at whether too much income has been assigned to the overseas contract. It seems likely that this measure will seek to put beyond doubt what constitutes an artificial assignment, although we will have to wait for the Finance Bill to see the real detail.

Employment intermediaries facilitating false self-employment

Continuing along a well-worn path, and still focussing on employment income, the Chancellor announced further measures to counter the avoidance of employment taxes and national insurance contributions by using employment intermediaries facilitating false self-employment. This builds on the rules that came into force earlier this year to restrict the use of personal service companies.

Tax avoidance more generally

As part of the wider fight against tax avoidance, it was announced that users of schemes which have been shown not to work will be obliged to settle their dispute with HMRC, and penalties will be attached for non compliance. In addition, taxpayers who are using schemes which have already been defeated in court will have to pay the tax at issue upfront. This places the cashflow benefit squarely with HMRC, and must be an incentive to make taxpayers settle even where they consider their facts merit a different treatment.

Offshore evasion strategy

We already know that HMRC has more information than the British Library, and through the use of the CONNECT computer system it is able to use that information highly efficiently. It was announced today that a project will be launched in early 2014 to ensure it is ready to exploit data generated by the new automatic tax information exchange agreements (TIEAs) into which it has entered with the Isle of Man, Guernsey, Jersey, the Cayman Islands, Gibraltar, Bermuda, Montserrat, the Turks and Caicos Islands and the BVI. This only serves to confirm the ever increasing importance of effective compliance.

Tax compliance targets

A slightly curious announcement is the fact that HMRC's compliance yield targets are being increased by the Government so that is has to secure a further £3.7billion by the end of 2015-16. This must mean there will be an ever greater focus on investigations and compliance.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Withers LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Withers LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions