On 23 November 2016 the new Chancellor, Philip Hammond, delivered his first (and what he announced would be his last) Autumn Statement. As from 2017, the Autumn Statement will be abolished and the Budget will be held in the autumn rather than the spring. There will be a Spring Statement but this is not intended to be a major fiscal event.
The Statement did not include any major surprises for Private Clients with changes to tax rates and allowances being in-line with those already announced by Hammond's predecessor, George Osborne. However, there were announcements that will affect non-domiciled clients and those with offshore interests.
Income Tax allowances
The government's commitment to increasing the income tax personal allowance to £12,500 and the higher rate threshold (the sum of the personal allowance and the basic rate limit) to £50,000 by 2020/21 was confirmed. For tax year 2017/18, the personal allowance will rise to £11,500 and the higher rate threshold to £45,000.
Reforms to the taxation of non-domiciled individuals
The government has consulted twice now on introducing major reforms to the taxation of non-domiciliaries, and the changes are due to come into effect from 6 April 2017. The reforms will broadly end the permanency of non-domiciled status for UK tax purposes and bring UK residential property held indirectly by a non-domiciled individual through an offshore structure, within the scope of inheritance tax. More information can be found in our client leaflet on the reforms.
However, we do not yet have a full set of draft legislation, and it had been hoped that the government would delay the introduction of the reforms beyond April next year so as to give sufficient time for affected individuals to carry out any necessary planning.
Any hopes in this regard were thwarted by the Autumn Statement with confirmation that the reforms will go ahead in April 2017 as planned. However, on a more positive note, also confirmed was the government's plans to change the rules for Business Investment Relief from April 2017 to make it easier for non-domiciled individuals (who are taxed on the remittance basis) to bring offshore money into the UK for the purpose of investing in UK businesses. This will make it easier for such individuals to inwardly invest in UK businesses.
Tax avoidance and evasion
Countering tax evasion and avoidance has been a consistent theme in past Budgets and Autumn Statements, and this Autumn Statement was no different; only, it was noticeable that "aggressive tax planning" is also starting to be treated as under the same umbrella.
Philip Hammond confirmed that the government will introduce a new penalty for anyone who has "enabled" another person or business to use a tax avoidance arrangement that is later defeated by HMRC. The new regime will affect accountants, financial advisers and tax specialists who advise on such schemes. Further details will be published in draft legislation shortly, but the proposals have been met with opposition from professional bodies, concerned that the penalty will deter advisers from providing complex tax advice. Emma Loveday, partner in the Private Client team and an offshore specialist, had these comments published in The Times' Brief on the proposals:
"The Chancellor continued in the same vein as his predecessors in targeting tax evasion, tax avoidance and aggressive tax planning. Tax advisers will be concerned at the apparent equation of tax planning with tax evasion and will want there to be a clear line within the proposed legislation so that advisers can be sure that standard and legitimate planning is not affected, and neither are individuals deterred from fairly organising their tax affairs to preserve wealth for their families."
There will also be a new legal requirement to correct a past failure to pay UK tax on offshore financial interests within a defined period of time, with new sanctions for those who fail to do so. This had been publicised by HMRC prior to the Statement and will have effect from Royal Assent of Finance Bill 2017; however, more notable was the announcement of a new legal requirement for intermediaries arranging complex offshore structures to notify HMRC of the structures and the related client lists. The government will consult on the details and at present there is no timetable, but this proposal is likely to prove controversial for similar reasons to the "enablers" legislation.
Continuing in the theme of counteracting tax evasion and avoidance, it was announced that the government will provide HMRC with further funds to allow them to bring more challenges under the "General Anti-Abuse Rule" (which seeks to penalise tax arrangements that are deemed to be abusive), together with funding for further follower and accelerated payment notices.
It is clear that tax planning remains under the spotlight, but it would have been helpful if the government had made clear in the Autumn Statement that it recognises that the majority of people carry out tax planning for legitimate reasons, within the boundaries of the existing legislation, and are entitled to arrange their affairs so as to mitigate tax for themselves and the next generations of their family. Without such assurance, the implication is that all forms of "tax planning" are immoral and improper, and this is the wrong message. We hope that the resulting legislation fairly reflects the right for individuals to carry out legitimate tax planning without fear that they are engaging in criminal activity.
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.