Philip Hammond today delivered his first and last Autumn Statement.
Philip Hammond today delivered his first and last Autumn Statement, declaring that from Autumn 2017 onwards, the Government intends to make the main budget announcement in Autumn and then deliver a Spring statement, instead of the traditional budget announcement, in March.
A number of the proposals will have an impact on the finance industries in the Channel Islands, including the following:
Inheritance tax on UK residential property and other changes impacting non-domiciled individuals
No further detail has been released other than to once again confirm that the following will apply from April 2017:
The Government will change the rules for the Business Investment Relief (BIR) scheme 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.
The draft Finance Bill 2017 clauses will be published on 5 December 2016 and we hope that further details will be published at that time.
Annual tax on enveloped dwellings (“ATED”)
ATED annual charges will rise in line with inflation for the 2017 to 2018 chargeable period.
There was no announcement on whether properties would need to be revalued from their 1 April 2012 valuations.
Bringing non-resident companies into the corporation tax regime
The Government is considering bringing all non-resident companies receiving taxable income from the UK into the corporate tax regime. At Budget 2017, the Government will consult on the options and implications associated with this. The Government wants to deliver equal tax treatment to ensure that all companies are subject to the rules which apply generally for the purposes of corporation tax, including the limitation of corporate interest expense deductibility and loss relief rules.
This could potentially have a significant impact on the filing requirements for non-resident landlord companies generating UK rental income, including potentially XBRL tagging.
Insurance Linked Securities (“ILS”)
To date, vehicles that issue insurance-linked securities (ILS) have been based outside the UK, notably in Guernsey and Bermuda, which provide tax neutrality for products of this nature together with legal and regulatory flexibility. Earlier in the year, the UK indicated its intention to develop a domestic regime that would replicate what can be achieved offshore. Draft regulations released today seek to make into law achieving tax neutrality for UK-based ILS vehicles.
It would seem that the UK views ILS as a growing sector, probably because it brings together London’s expertise in insurance, reinsurance and the capital markets. It is important to note that tax neutrality applies only at the level of the vehicle, and has no bearing on the tax positions of the investors.
Certain legal and regulatory changes will need to be made concurrently with the changes in the tax treatment to bring the overall attractiveness of a UK-based ILS vehicle to match what currently exists in a Guernsey-based ILS vehicle.
Offshore funds – performance fees
UK taxpayers invested in offshore reporting funds pay tax on their share of a fund’s reportable income, and Capital Gains Tax (CGT) on any gain on disposal of their shares or units. The Government will legislate to ensure that performance fees incurred by such funds, and which are calculated by reference to any increase in the fund’s value, are not deductible against reportable income from April 2017 and instead reduce any tax payable on gains on disposal of shares/units.
This equalises the tax treatment between onshore and offshore funds.
These changes form part of the Government’s overall strategy to reduce tax avoidance and are not unexpected, but financial services businesses in the Channel Islands should pay close attention to the development of the last point to ensure that they comply with any notification requirements.
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