The Chancellor of the exchequer presented his Budget to Parliament on Monday 29 October 2018, avoiding the need to trick or treat on Halloween. Despite the lack of immediate scary surprises, this was a Budget of substance, that will take some time to analyse when the Finance Bill is published on 7 November.
The Chancellor of the Exchequer presented his Budget to Parliament on Monday 29 October 2018, avoiding the need to trick or treat on Halloween. Despite the lack of immediate scary surprises, this was a Budget of substance, that will take some time to analyse when the Finance Bill is published on 7 November. However, some points of immediate relevance to Jersey and Guernsey are summarised below.
UK property income of non-residents
Draft legislation was published in relation to the already announced move to Corporation Tax for non UK resident property holding companies currently within the scope of Income Tax from 6 April 2020. As part of the expected changes, a non-UK resident company:
HMRC have previously confirmed in relation to non-UK resident company landlords that they will be “writing to these customers during summer 2019 to tell them about the change of tax regime and to let them know their new reference number for Corporation Tax. These customers will be regarded as having notified HMRC of their chargeability to Corporation Tax.“
There are also a number of transitional provisions so that non-UK resident companies with losses will be able to carry forward those losses against future UK property business profits chargeable to Corporation Tax.
Capital Gains Tax and Corporation Tax - taxing gains made by non-residents on UK immovable property
As announced at Autumn Budget 2017, the Government will legislate in Finance Bill 2018-19 to broaden the tax base to include disposals of all forms of UK land made by non-residents (i.e. to include commercial property as well as residential property). This will include both direct disposals of UK land and indirect disposals of entities that predominantly derive their value from UK land. Non-resident companies will be chargeable to Corporation Tax on their gains. The changes will take effect for disposals made on or after 6 April 2019 although there are anti-forestalling rules for arrangements entered into before that date. The provisions relating to ATED-related Capital Gains Tax will be abolished.
Existing reliefs and exemptions available for Capital Gains Tax will be available to non-UK residents, with modifications where necessary. Those who are currently exempt from Capital Gains Tax for reasons other than being non-UK resident will continue to be exempt.
There will be options to calculate the gain or loss on a disposal using the original acquisition cost of the asset or using the value of the asset at commencement of the rules in April 2019. Both options will be available for both direct and indirect disposals. Where the original cost basis is used to calculate an indirect disposal and this results in a loss it will not be an allowable loss.
The legislation will provide that certain UK funds, other than REITs and partnerships, will be treated as if they were companies and so chargeable to Corporation Tax. An investment in such a fund will be treated as if the interests of the investors were shares in a company, so that where the fund predominately holds UK property, a disposal of an interest in it by a non-UK resident investor will be chargeable to UK tax.
Details on how the rules will apply to offshore funds are expected to be published on 7 November 2018.
Capital Gains Tax payment window
The Government will legislate in Finance Bill 2018-19 to replace and extend the existing reporting and payment on account rules for non-UK residents.
Stamp Duty Land Tax (“SDLT”) charge for non-residents
The Government will publish a consultation in January 2019 on a SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland.
Offshore tax compliance strategy
The Government will publish an updated offshore tax compliance strategy.
As announced at Autumn Budget 2017, the Government will publish a consultation on the taxation of trusts, to make the taxation of trusts simpler, fairer and more transparent.
Extension of offshore time limits
As announced at Autumn Budget 2017 the Government will legislate in Finance Bill 2018-19 to increase the assessment time limit for offshore tax non-compliance to 12 years for Income Tax, Capital Gains Tax and Inheritance Tax, except where there is deliberate behaviour where the time limits remain longer. Following consultation in summer 2018, the legislation clarifies that the extended time limits will apply unless international agreements mean HMRC already has the information needed to assess the tax due.
International tax enforcement disclosable arrangements
The Government is enacting new legislation to allow the introduction of international disclosure rules about offshore structures that could avoid tax, or could be misused to evade tax.
Digital Services Tax
From April 2020, the Government will introduce a new 2% tax on the revenues of certain digital businesses to ensure that the amount of tax paid in the UK is reflective of the value they derive from their UK users. The tax will:
As announced at Autumn Budget 2017, the Government will legislate in Finance Bill 2018-19 to introduce targeted legislation that aims to prevent UK businesses from avoiding UK tax by arranging for their UK-taxable business profits to accrue to entities resident in territories where significantly lower tax is paid than in the UK. The taxable UK profits will be increased to the actual, commercial level.
Offshore receipts in respect of intangible property
As announced at Autumn Budget 2017, the Government is introducing legislation in Finance Bill 2018-19 to tax income from intangible property held in low-tax jurisdictions to the extent that it is referable to UK sales. This measure will come into effect from April 2019. Following consultation, the Government is making changes to ensure that the measure is effective, appropriately targeted and robust against abuse.
Inheritance Tax settlements definition
The Government will introduce legislation in Finance Bill 2019-20 to reflect HMRC’s established legal position in relation to the Inheritance Tax (IHT) treatment of additions to existing trusts. The legislation will confirm that additions of assets by UK-domiciled (or deemed domiciled) individuals to trusts made when they were non-domiciled are not excluded property. The legislation will apply to IHT charges arising on or after the date on which Finance Bill 2019-20 receives Royal Assent, whether or not the additions were made prior to this date. Legislative amendments will also be made to ensure that transfers between trusts made after the date on which Finance Bill 2019- 20 receives Royal Assent will be subject to additional excluded property tests.
Short Term Business Visitors (STBVs)
Following a consultation on the tax and administrative treatment of STBVs from overseas branches of UK headquartered companies, the Government will widen eligibility for the STBV Pay As You Earn (PAYE) special arrangement and extend its deadlines for reporting and paying tax. This will reduce administrative burdens on UK employers with effect from April 2020.
Capital Gains Tax Private Residence Relief
To better target private residence relief at owner occupiers, from April 2020 the Government will reform lettings relief so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant. The final period exemption will also be reduced from 18 months to 9 months. The Government will consult on these changes.
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