UK Budget Highlights March 2016 - "Doing the right thing for the next generation"
21 March 2016
Whitmill are pleased to detail a summary of some of the highlights from the UK Chancellors 2016 Budget statement delivered to the House of Commons on the 16th March 2016.
George Osborne's eighth Budget speech came at a time of growing economic uncertainty. The Office for Budget Responsibility has revised down its growth forecast for 2016 from 2.4 per cent to 2.2 per cent and the Chancellor warned that the global economic outlook is weak.
Despite these challenges the government is committed to achieving a budget surplus in 2019/20. Against this backdrop, the Chancellor promised a budget that "puts the next generation first".
As announced at Summer Budget 2015, from April 2017 non-UK domiciled individuals (non-doms) will be deemed UK domiciled for all tax purposes after they have been UK resident for 15 of the past 20 tax years. Additionally, individuals who were born in the UK and who have a UK domicile of origin will revert to their UK domiciled status for tax purposes whilst resident in the UK. The government will also legislate to charge inheritance tax on all UK residential property indirectly held through an offshore structure from 6 April 2017.
As set out at Summer Budget 2015, non-doms who have a non-UK resident trust set up before becoming deemed domiciled in the UK will not be taxed on income and gains retained in the trust. The government will legislate all non-dom reforms in Finance Bill 2017.
Budget 2016 confirms that non-doms who become deemed-domiciled in April 2017 can treat the cost base of their non-UK based assets as being the market value of that asset on 6 April 2017.
Individuals who expect to become deemed UK domicile under the 15 out of 20 year rule will be subject to transitional provision with regards to offshore funds to provide certainty on how amounts remitted to the UK will be taxed.
Capital gains tax
From 6 April 2016 the higher rate of capital gains tax will be reduced from 28% to 20% and the basic rate will be reduced from 18% to 10%. The reduced rates will not be available on disposals of carried interest and gains on residential properties. These will be subject to an 8% surcharge on the new rates.
Entrepreneurs’ relief (ER) - will be extended to include an investors’ relief. This will be available to investors (not employees) who subscribe for new shares in an unlisted trading company on or after 17 March 2016. The shares need to have been held continually for a period of three years before disposal.
ER and Goodwill U-turn - where an individual transferred a business to a limited company on or after 3 December 2014 FA 2015 denied ER. It seems that this is now reversed from 3 December 2014 where certain conditions are met.
ER and trading company - there are plans to review the definition of a trading company for ER purposes. This could result in a list of ‘excluded activities’.
From 6 April 2016 the rate of tax payable by UK close companies on loans to participators will increase from 25% to 32.5%. This applies to loans made on or after 6 April 2016.
The UK corporations tax rate will be cut to 17% in 2020 (originally planned to drop to 18%).
Offshore property developers - The government is targeting offshore structures used to avoid UK tax on trading profits from developing property in the UK. The government will introduce legislation in Finance Bill 2016 to ensure offshore structures cannot be used to avoid UK tax on profits that are generated from developing UK property. HMRC will also create a task force to focus on offshore property developers. This task force will target offshore structures used to avoid tax on profits and rental income from property development in the UK.
Changes to the disguised remuneration regime have been introduced with immediate effect, to restrict the effect of rules that allow employees to escape tax charges by paying for assets held in trusts by introducing a targeted anti-avoidance rule – if there is a tax avoidance motive underlying the transaction, it will be treated as giving rise to income tax and NIC charges immediately.
In addition, to give companies and EBT participants an additional impetus to settle their cases, the rules exempting capital growth in EBTs from employment taxes have been given a “sunset” provision – cases must be finalised and tax paid before 1 December 2016 to benefit from the relief.
Stamp Duty Land Tax
SDLT payable on non-residential properties has be replaced with a progressive rate system, rather than the current slab rate, so that SDLT is charged paid on the portion of the purchase price in each band. The bands will be £0-£150,000 – 0%, £150,001-£250,000 – 2% and above £250,000 5%. There will be transactional rules for those acquisitions where exchange has taken place before 17 March 2016. For larger commercial property acquisitions this change will represent a significant increase in the SDLT cost.
Following recent consultation, the additional 3% SDLT payable on the purchase of further residential properties will come into force from 1 April 2016. No portfolio exemption will be in place from this additional charge. In response to the consultation process, the Government have proposed that, to qualify for relief from the additional 3% charge, the time limit for an individual to replace their main residence will be extended to 36 months (rather than 18 months as outlined in the consultation). Married couples will no longer be treated as a single unit where the separation is likely to be permanent. Where a small interest in a property is inherited within the last 3 years, this will not be considered to be an additional property for the purposes of the test.
If you have any concerns that any of these changes might impact on you, then you should consider seeking professional tax advice. Whilst Whitmill are not tax advisors and do not profess to provide tax advice, we work with client’s own advisors; however should you not already have a tax advisor we would be happy to facilitate an introduction to a number of firms that we work closely with.