Autumn statement 2016 | KPMG | QM

Autumn statement 2016

Autumn statement 2016

Philip Hammond today delivered his first and last Autumn Statement.

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Autumn

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:

  • UK resident non-domiciled individuals will be deemed UK-domiciled for tax purposes if they have been UK resident for 15 of the past 20 years, or if they were born in the UK with a UK domicile of origin;
  • Non-domiciled individuals who have a non-UK resident trust set up before they become deemed-domiciled in the UK will not be taxed on income and gains arising outside the UK and retained in the trust, unless they were born in the UK with a UK domicile of origin;
  • Inheritance tax will be charged on UK residential property when it is held indirectly by a non-domiciled individual through an offshore structure, such as a company or a trust; and

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.

KPMG Comment

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. 

KPMG Comment

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.

 KPMG Comment

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.

KPMG Comment

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.

KPMG Comment

This equalises the tax treatment between onshore and offshore funds.

 

Compliance measures

  • As previously announced, new legislation will be introduced requiring any person who has undeclared UK tax liabilities in respect of an offshore interest to correct that situation by disclosing the relevant information to HMRC by 30 September 2018. This measure includes new sanctions for those who ‘fail to correct’. These tax-geared penalties will apply where taxpayers fail to correct past tax affairs. This measure will have effect from Royal Assent of the Finance Bill.
  • The Government will introduce a new penalty for any person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC. There are no further details currently available on this.The Government will consult on a new legal requirement for intermediaries arranging complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists. There are no further details currently available on this.
  • The Government will consult on a new legal requirement for intermediaries arranging complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists. There are no further details currently available on this.

KPMG Comment

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.

© 2017 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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