UK: UK Budget 2016 - Swiss Highlights

The run-up to today's UK Budget was dominated by rumours of major changes to the taxation of pensions which did not materialise. Instead, there were announcements on CGT, SDLT, tax avoidance and evasion and the pending non-dom changes, not to mention the introduction of a sugar tax.

It may be that the Chancellor is fearful of too much criticism from his party, especially given the challenges it faces concerning the forthcoming EU referendum. Nevertheless, the Budget contained various announcements that, although not as headline-grabbing as in recent Budgets, will be of interest to clients of our Swiss offices and their advisers (and not just those with a sweet tooth).

Taxation of non-domiciliaries

As announced in the post-election Budget in July last year, there is to be a major reform to the taxation of non-UK domiciliaries ('non-doms') with effect from 6 April 2017. Today's Budget confirmed that individuals who have been UK resident for 15 out of 20 tax years will be deemed to be UK domiciled for all tax purposes - and will therefore be unable to claim the remittance basis. Individuals who were born in the UK and have a UK domicile of origin will also be deemed to be UK domiciled while they are resident in the UK, even if they have previously left the UK and managed to acquire a domicile of choice in another jurisdiction.

Although the broad scope of the changes was already clear, there are still a number of areas which remain to be clarified, particularly in relation to the treatment of non-UK resident trusts established by non-doms before becoming domiciled under the new rules. Unfortunately today's Budget announcement was also light on detail in this area. It confirmed that non-doms who have such a trust will not be taxed on income and gains retained in the trust, but did not give any clues as to how the proposed changes to the existing regime will work. Generally it appears that the government may have decided that it needs more time to consider the details of the changes, as it announced that all the non-dom reforms will be legislated in the Finance Bill 2017, rather than partly in 2016 and partly in 2017 as originally planned. At any rate, it is to be hoped that further details of the changes will be forthcoming soon, as we are finding that the lack of detail is making it difficult for clients to make plans.

In the meantime, there were a couple of helpful new announcements. Non-doms who become deemed domiciled in April 2017 will be able to treat the cost base of their non-UK assets as being the market value of the assets on 6 April 2017. Also, individuals who expect to become deemed domiciled under the 15 out of 20 year rule will be subject to transitional provisions relating to offshore funds, to provide certainty on how remittances to the UK from those funds will be taxed.

Tax avoidance and evasion

Not so very long ago it was accepted in the UK that there was a clear distinction between tax evasion (illegal) and tax avoidance (legal, albeit not popular with HMRC and open to challenge in the courts). It has been clear for a while that those days are gone. In addition to the now customary rhetoric about the government's crack-down on 'all forms of evasion and avoidance, and aggressive tax planning and compliance', Budget 2016 included a number of new measures which are expected to raise a total of £12 billion. Some of these are specifically targeted at multinational companies, but there are also several measures which are potentially relevant to international individuals.

As announced in the Autumn Statement in November 2015:

(i) there is to be a new criminal offence for tax evasion, which will remove the need to prove intent for the most serious cases of failing to declare offshore income and capital gains;
(ii) civil penalties for deliberate offshore tax evasion will increase, including the introduction of a new penalty linked to the value of the asset on which tax was evaded and increased public naming of tax evaders;
(iii) new civil penalties are to be introduced for those who enable offshore tax evasion, including public naming of those who have enabled the evasion;
(iv) there is to be a new penalty of 60% of the tax due in all cases which are successfully tackled by the UK General Anti-Avoidance Rule (GAAR). There will also be small changes to the GAAR procedure to improve its ability to tackle marketed avoidance schemes.

These measures will be included in the Finance Bill 2016.

New measures and sanctions:

A significant new measure is that the government will also be introducing a new legal requirement to correct past offshore non-compliance within a defined period of time, with new (as yet unspecified) sanctions for those who fail to do so. This measure will be included in the Finance Bill 2017.

Although the Budget did not contain any mention of the Common Reporting Standard (CRS), anyone who may be affected by these measures and is within the scope of CRS would be well advised to come forward before it is fully up and running.

UK real estate

Recent Budgets have contained unwelcome announcements for foreign owners of UK real estate, including the introduction of the Annual Tax on Enveloped Dwellings ('ATED') and the gradual increase in its scope; the introduction of Non-Resident CGT ('NRCGT'); increases in rates of stamp duty land tax ('SDLT'); and the introduction of rules removing the IHT benefits of holding UK residential property via a non-UK envelope.

This Budget continues the trend and contains the following provisions, which will affect clients wishing to invest in UK real estate.

Increase in rates of SDLT on acquisition of commercial property

The rates of SDLT payable on purchases of non-residential (or mixed) properties will change with effect from tomorrow.
For purchases of freehold properties, assignments of existing leases and upfront payments of premiums on new leases, a 'slice' system similar to that which was recently introduced for residential property, will apply. The top rate of tax has increased from 4% to 5%. The effect of the new charging provisions is that transactions worth less than £1.05m will pay the same SDLT or less compared to the current system, whilst those worth more than £1.05m will suffer an increased charge to SDLT.

Where SDLT is chargeable in relation to the rent on new leases, the top rate of tax has been increased from 1% to 2%. This change will affect transactions with a rent NPV of over £5m.

Where contracts have already been exchanged but transactions have not yet completed, purchasers can choose whether to apply the old or new rates.

Increase in rates of SDLT on acquisition of second residential property

From 1 April 2016, higher rates of SDLT will be charged on purchases of additional residential properties such as second homes and buy-to-let properties. The higher rates will be 3% above the current SDLT rates for residential properties.

The changes do not affect individuals replacing their main residence and there are provisions for claiming a refund where there is a period of overlap or a gap of ownership of a main residence. Small shares in recently inherited properties will also be disregarded and will not count as a second home.

Purchases of additional properties by the trustees of trusts will be liable at the higher rates. Bare trusts will be looked through so as to determine the number of homes owned by a beneficiary, and trusts with mandatory beneficiaries will be tested based on the circumstances.

The changes are expected to affect 10% of residential property transactions.

IHT and enveloped property

The Government confirmed that it will legislate to charge inheritance tax on all UK residential property indirectly held through an offshore structure from 6 April 2017.

This will remove the last remaining tax benefit of holding UK residential property through an offshore structure.

Offshore property developers

The UK government will introduce legislation in Finance Bill 2016 to ensure that offshore structures cannot be used to avoid UK tax on profits that are generated from developing UK property. This will take the form of specific legislation to tax trading profits derived from land in the UK. They will apply to both resident and non-resident business and will apply regardless of whether the developer has a 'permanent establishment' in the UK. Anti-avoidance rules will be put in place to counteract arrangements put in place between now and the date the legislation comes into force.

HMRC will also create a task force to focus on offshore property developers and will target offshore structures used to avoid tax on profits and rental income from property development in the UK.

Capital gains tax ('CGT')

Decrease in rates

A rare piece of genuinely good news for UK taxpayers came with the announcement that rates of CGT are to be cut. At present the rates are 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers. For gains accruing after 5 April 2016, the new rates will be 10% for basic rate payers and 20% for higher and additional rate taxpayers.

However, UK residential property owners need not get too excited since the new rates of tax will not apply on the disposal of residential property that does not qualify for principal private residence relief. Similarly, the rates chargeable in relation to NRCGT payable by companies (20%) and ATED related gains (28%) will not change.

Various changes to CGT Entrepreneurs' Relief ('ER')

ER is a potentially valuable CGT relief for individuals and (in certain cases) trustees. It operates by applying a rate of CGT of 10% on 'qualifying business disposals' up to a lifetime limit per individual (currently £10m). Examples of qualifying business disposals include the sale of shares in a personal trading company and the transfer of the whole or part of a business by an individual. The changes contained in today's Budget include:

(i) Extension to long-term investors

To provide a financial incentive for individuals to invest in unlisted trading companies over the long term, ER will be extended to external investors in unlisted trading companies providing certain conditions are met (including the conditions that the shares in the unlisted trading company must have been issued on or after 17 March 2016 and that the shares have been held for a minimum period of three years at the date of disposal).

Anti-abuse provisions will also be introduced to ensure that the relief is only available where subscription for shares is for genuine commercial reasons (and not for tax avoidance purposes).

(ii) Employee shareholder shares

There will be a lifetime limit of £100,000 on the CGT exempt gains a person can make on the disposal of shares acquired under Employee Shareholder Agreements entered into after 16 March 2016.

(iii) Abuse of ER

Changes have also been announced to strengthen anti-abuse rules introduced by Finance Act 2015. These will specifically be targeted at the treatment of joint ventures and partnerships and relief on associated disposals.

Life insurance policies

The UK has a special tax regime for certain life insurance products. In broad terms, this regime offers tax deferral on income and gains realised on the assets held through the insurance wrapper and allows tax-free withdrawals of the initial premium to be withdrawn over time under the '5% rule'. However, partial surrenders in excess of the permitted limit are chargeable and can be disproportionately harshly taxed. The government's announcement today that it will change the current tax rules for part surrenders and part assignments to prevent excessive tax charges arising on these products is therefore good news. The government will consult later this year on alternatives to the current rules with a view to legislating in Finance Bill 2017.

Another piece of good news is that the government intends to consult later this year on changes to the class of assets that policyholders can choose to invest in without giving rise to an annual tax charge under the penal 'personal portfolio bond' rules. This is likely to be beneficial to, inter alia, individuals who are considering moving to the UK and have already invested in life insurance products which could fall foul of the current rules.

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
Lindsay Brown
 
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.