For over 20 years, the Chancellor has delivered his plans for the UK's public finances in the Spring. Despite this, Philip Hammond announced earlier this year that he would instead deliver the Budget in the Autumn, giving MPs longer to scrutinise the Budget before the new tax year starts in April.
The Finance Bill 2017-18 will be published on 1 December 2017, although for certain tax changes, draft legislation and responses to consultation will be published in July 2018.
As ever, there are a number of areas that might be of particular interest to the financial services industries in the Channel Islands, and continuing the theme of the Chancellor’s “Hammond and May” joke, one particular bombshell - these are set out below.
Taxing non-residents’ gains on immovable property
The government has published a consultation on taxing non-residents’ gains on immovable property. This measure will broaden the UK’s tax base to include disposals of UK commercial property, both directly and indirectly (i.e. including offshore collective investment vehicles), bringing all companies into charge on disposals of residential property and all persons into charge on indirect disposals of residential property, thus removing the exemption for “widely-held” companies.
The taxation of gains can be deferred by reinvesting the sales proceeds into the new UK property. HMRC acknowledge certain treaties (e.g. Luxembourg) provide protection from the indirect interest charge so an anti-avoidance rule (starting today) will be introduced to prevent people seeking that protection as a main purpose. Sovereign investors, charities, pension funds, etc. will retain their current exemptions on disposal of indirect interests.
The intention is to introduce the legislation in Finance Bill 2018-19. It is intended that only the gain attributed to changes in value from 1 April 2019 for companies and 6 April 2019 for other persons will be chargeable to tax. For residential property held in “widely-held” companies, the rebasing point will be 1 April 2019.Corporation tax: non-UK resident companies’ UK property income and certain gainsThe government will legislate so that non-UK resident companies that carry on a UK property business or have other UK property income will be charged to corporation tax, rather than being charged to income tax as at present. A non-UK resident company that has chargeable gains on the disposal of UK residential property will also be charged to corporation tax, instead of capital gains tax as at present. The government plans to publish draft legislation for consultation in summer 2018. The change will have effect on and after 6 April 2020.
Requirement to notify HMRC of offshore structures
The government will publish a response to the consultation carried out between December 2016 and February 2017 on a proposal to require businesses or intermediaries creating or promoting certain types of complex offshore financial arrangements to notify HMRC of these structures and the details of their clients using these arrangements. The response document will be published on 1 December 2017. Since the consultation was undertaken, both the Organisation for Economic Co-operation and Development and the European Union have instigated work on similar measures and are considering whether multinational standards would be appropriate to tackle the use of offshore structures for tax evasion purposes.
Extending time limits for offshore non-compliance
The government will extend the time limits for assessing all offshore cases to at least 12 years where non-compliant behaviour is involved, with a consultation on this in spring 2018. The current time limits are usually 4, 6 or 20 years depending on the behaviour that led to the non-compliance. For offshore non-compliance, the time limit will be extended to at least 12 years, whatever the behaviour, to give more time to investigate offshore non-compliance. Where there is deliberate behaviour, the time limit for both onshore and offshore cases remains 20 years.
Taxation of trusts
The government will publish a consultation in 2018 on how to make the taxation of trusts “simpler, fairer and more transparent.” As previously announced new anti-avoidance rules will ensure that payments from an offshore trust intended for a UK resident individual do not escape tax when they are made via an overseas beneficiary or a remittance basis user. The changes will have effect on and after 6 April 2018.
Corporate interest restriction
The government will legislate in both Finance Bill 2017-18 and Finance Bill 2018-19 to make technical amendments to the corporate interest restriction rules. This will ensure the regime works as intended. Certain of these amendments are treated as having effect on and after 1 April 2017, when the corporate interest restriction rules commenced. This will be of particular interest to non-resident companies with UK property income given that such companies will be brought within the scope of corporation tax in 2020 (see above) and will thus need to consider the interest restriction rules.
Corporate capital gains indexation allowance
The government will legislate in Finance Bill 2017-18 to freeze indexation allowance on corporate Capital Gains for disposals on and after 1 January 2018.
Stopping digital multinationals who hold intellectual property in low-tax countries from avoiding tax
HMRC will start to charge more tax on royalties relating to UK sales when those royalties are paid to a low tax jurisdiction, raising about £200m a year. Legislation will be introduced in Finance Bill 2018-19, and the changes will have effect from April 2019.