The Chancellor, Philip Hammond, delivered his first Autumn Budget on 22 November 2017. The main headline was the abolition of stamp duty land tax (SDLT) for first-time buyers for properties up to £300,000, and this will be welcome news for many young people trying to get on the housing ladder; however it remains to be seen whether increasing demand without an adequate housing supply, will in reality provide the help needed.
Other than the SDLT announcement, there were no headline-grabbing personal tax announcements, but there was still plenty for Private Clients to keep an eye on, the proposed consultation in 2018 on the taxation of trusts, and the possible reform of inheritance tax (“IHT“) business and agricultural property relief, in particular.
This article summarises the most important announcements for our Private Clients.
Trusts
The government has announced that it will publish a consultation in 2018 on how to make the taxation of trusts “simpler, fairer and more transparent“. No further information is available at this stage, and without this it is difficult to know whether the consultation is aimed at making positive changes for trusts, or simply to raise more tax. Major changes were made to the taxation of trusts in 2006, so it is hopefully unlikely that a major tax overhaul will be proposed. However, the IHT regime for trusts is particularly complex and reforms are arguably long over-due.
Trusts have faced a barrage of additional compliance in the last few years with the introduction of FATCA, the Common Reporting Standard and the Trusts Register, which have led to additional trust administration work across the board; so any changes that can be made to simplify trust taxation will be very welcomed by trustees, but we will need to await the consultation document to know more.
IHT for business and agricultural assets
Published among the Budget documents was a research paper on the influence of IHT reliefs and exemptions on estate planning and inheritances. The research was aimed at understanding the estate planning decisions that testators make in relation to their agricultural or business assets and whether and how IHT drives these. The exact agenda of this research is not clear, and no follow-up has been proposed at this stage; however, the very fact that the government commissioned it suggests that it is an area that they may be looking to reform. IHT relief for business and agricultural assets is generous – 100% relief applies if certain conditions are satisfied – so there have long been fears that the relief could be scaled back to raise much needed revenue elsewhere. This is something that affected individuals will need to bear in mind with their estate planning; there could be merit in “banking” that relief, if the circumstances are right, while they can.
Supplemental 3% SDLT charge
As from 1 April 2016, there has been a supplemental 3% SDLT charge on acquisitions of additional properties, such as holiday homes and buy-to-lets, that do not replace a main residence. Budget 2017 included an announcement that there will be some minor amendments to these rules with effect from 22 November 2017, aimed at closing loopholes within the legislation but also granting relief in special circumstances.
Relief from the supplemental 3% charge will apply where a divorce court order prevents a buyer from disposing of their interest in a main residence, meaning the buyer will own two properties. Relief will also apply if the buyer and seller are married or in a civil partnership and living together on the effective date of the transaction; and in cases where properties are held in trust for children who are subject to Court of Protection orders. Those increasing their share of their home will also be outside the scope of the 3% charge in certain circumstances, closing an unfair loophole in the legislation.
In a related announcement, the government has confirmed that the deadline for filing and paying SDLT will be reduced from 30 days to 14 days for transactions with an effective date on or after 1 March 2019. This was first announced in Budget 2015 but implementation has since been delayed.
Gains made by non-residents on UK property
Budget 2017 saw the publication of a consultation on bringing gains realised by non-UK residents on the disposal of UK real property within the scope of UK tax (corporation tax and CGT), and this will include gains on the disposal of commercial property. Softening the blow of the proposal is that affected commercial property could be rebased to its value at 6 April 2019.
This proposal is not surprising; similar gains on residential property are already subject to UK tax. However the proposal will have a particular impact on international high-net worth individuals and family offices who are still investing in commercial property and who are in part motivated by the, to date, quite generous tax breaks when structured correctly.
The consultation also proposes that gains realised by “widely held” non-resident companies on disposals of residential property will come within the scope of UK tax, albeit with the same rebasing concession of 6 April 2019. Currently, only “closely-held” companies are caught. Further, that gains realised by non-residents on disposals of shares or partnership interests in a business that derives a significant amount of its value from UK real property should be subject to UK tax; again, subject to rebasing.
The consultation closes on 16 February 2018 with measures to be included in the Finance Bill 2019 to take effect from April 2019. We will be responding to the consultation.
Taxation of offshore trusts
Minor amendments were announced to the draft legislation published on 13 September 2017 introducing anti-avoidance rules for offshore trusts. The original proposals are covered in detail in our bulletin but are generally aimed at preventing funds from offshore trusts being paid out to UK resident beneficiaries without UK tax consequences. Included is the proposal that funds received by a non-UK resident beneficiary and passed on to a UK resident individual will trigger a UK tax charge (currently not necessarily the case). We will need to see the amendments when they are published, probably within Finance Bill 2018 on 1 December 2017, but generally, the measures will mean that offshore trusts and their UK resident beneficiaries will pay more UK tax if those beneficiaries are to keep benefitting from the trust. However, the expected delay in the introduction of the measures until 6 April 2018 will mean that there is a chance to make use of the more favourable tax treatment currently available, and offshore trustees would be wise to take advantage of this.
Offshore assets and UK tax
Continuing with its focus on the avoidance and evasion of UK tax on offshore assets, the government will publish a response on 1 December 2017 to its recent consultation on whether intermediaries who create or promote complex offshore structures should be required to notify HMRC of both the structures and the clients.
Further, to increase the ability of HMRC to capture unpaid or under-paid tax on offshore assets, the government is to consult in 2018 on extending the time limit for assessing offshore non-compliance to twelve years (for all non-deliberate behaviour). It is clear that UK tax liabilities on offshore assets remains firmly under the spotlight.
Partnership taxation
As first announced at Budget 2016, the government confirmed in Budget 2017 that Finance Bill 2018 will contain measures to clarify the taxation rules for partnerships, reducing the scope for avoidance or delayed payment of tax. We will need to see what is included in the draft legislation to be published on 1 December, but there will be a short window of opportunity for partnerships to digest the proposed changes as they will come into effect from 6 April 2018.
Income tax rates and allowances
The income tax personal allowance will rise to £11,850 and the higher rate threshold of 40% to £46,350 for tax year 2018/19.
Amendments will also be made to Marriage Allowance, which allows individuals to transfer 10% of their personal allowance to their spouse or civil partner where the recipient is not a higher or additional rate tax payer. The changes will allow transfers of the personal allowance to be made in respect of deceased spouses and civil partners, and for claims to be backdated for up to four years.
Capital Gains Tax annual exempt amount
The CGT annual exempt amount will rise from £11,300 to £11,700, for individuals and personal representatives, and from £5,650 to £5,850, for most trustees.
Entrepreneurs’ Relief
Entrepreneurs’ Relief applies to disposals of certain business assets to reduce the rate of CGT to 10% for qualifying gains up to a lifetime limit (currently £10 million). Without the relief, gains are taxed at 20% (28% for 2015/16) for higher and additional rate tax-payers. The 2017 Budget included the announcement that the government will consult in Spring 2018 on how access to Entrepreneurs’ Relief might be extended so that entrepreneurs can benefit when their holding in their company is reduced below the normal qualifying levels (5%) as a result of raising funds by the issue of new shares. The aim is to help entrepreneurs to remain involved in their businesses after receiving external investment.
Carried interest
The Finance Bill 2018 will include provisions amending the “carried interest” rules so that asset managers are subject to CGT on the full economic gain for carried interest arising on or after 22 November 2017. This is intended to counteract perceived avoidance under the current rules.
Pensions lifetime allowance
The lifetime allowance for pension saving in a registered pension scheme will be increased in line with the increase in the Consumer Prices Index (CPI) from April 2018. For tax year 2018/19, the lifetime allowance will be £1,030,000 (from £1,000,000).
ATED annual chargeable amount for 2018-19
The government has announced that the annual chargeable amount for the annual tax on enveloped dwellings (ATED) will rise in line with the September 2017 CPI for the chargeable period beginning on 1 April 2018. The table below sets out the applicable annual chargeable amounts.
| Taxable value of the interest on the relevant day | Annual chargeable amount for the chargeable period beginning 1 April 2017 | Annual chargeable amount for the chargeable period beginning 1 April 2018 |
| Over £500,000 up to £1 million | £3,500 | £3,600 |
| Over £1 million up to £2 million | £7,050 | £7,250 |
| Over £2 million up to £5 million | £23,550 | £24,250 |
| Over £5 million up to £10 million | £54,950 | £56,550 |
| Over £10 million up to £20 million | £110,100 | £113,400 |
| Over £20 million | £220,350 | £226,950 |
Late submission penalties and late payment interest
The government has been consulting for some time on a new penalties model for failures to submit tax returns and it was confirmed in Budget 2017 that penalties will be reformed so as to be applied on a new points-based basis. This would broadly mean a taxpayer receives a “point” each time they fail to file their tax return on time, and when the points reach a certain level, a penalty will be charged. Further details will be published on 1 December 2017.
As ever, if you would like to discuss any of these Budget announcements or your tax and estate planning generally, please contact Camilla Wallace or your usual Wedlake Bell adviser.