The Autumn Statement for 2013 was delivered on Thursday 5 December 2013. You can find the relevant details on the UK Gov website here, and the relevant documents – including the Autumn Statement itself, at this page.
For an overview of the main tax changes, please read here:
The most important page however, is the HMRC page. This is the page that will contain the draft legislation and other technical documents that tax practitioners will need – in short, this is the page where the fine print is to be found.
Most of the draft legislation is expected to come out on Tuesday 10 December 2013 (Happy Christmas to fellow tax experts!)
UPDATE TUESDAY 10 DECEMBER 11 AM – here is another page on the UK Gov site, which says that it is a signpost to all the other documents. As yet nothing has appeared, but I expect the page will start filling in fairly soon.
FURTHER UPDATE 10 DECEMBER 11.15 AM – here are the documents relating to the Finance Bill 2014
The following measures are to appear in Finance Act 2014 but will take place with immediate effect from 5 December 2013. These are:
Debt cap rules – These rules are aimed at corporate groups – typically multinationals – where the debt financing of the UK members is considered to be excessive. In tax terms, this means that these companies obtain too much tax relief.
The question whether the debt funding is excessive is determined by comparing the aggregate of the UK funding costs against the funding costs of the worldwide group. However, until now, it was still possible to satisfy these rules by structuring certain group members as partnerships or companies limited by guarantee. Because these entities don’t have ordinary share capital, technically they aren’t group members at all, and their finance costs aren’t included in the debt cap calculation.
This will no longer be possible – from now on, these types of entities will be given a notional ordinary share capital to ascertain whether they are in substance group members. If they are, then they will be included in the relevant debt cap calculation.
CFC rules – These rules are aimed at corporates that effectively shift their profits to an offshore group member, where they escape the UK tax net. If the CFC conditions apply, UK members are taxed on a part of the CFC’s profits.
There is a partial exemption for profits that are effectively finance income arising from intra-group funding arrangements. This can be a very tempting opportunity to shift all of the group’s financing profits offshore. The rules have been amended to ensure that the partial exemption won’t apply to artificial arrangements where the main purpose is to transfer UK profits to a CFC connected with the company in question.
Partnerships – one half of the anti-avoidance measures that were mentioned in the recent consultation has now materialised. This was the measure aimed at arrangements that re-allocate profits from higher rate individual partners to corporate members that pay tax at a lower rate, but where the individual hasn’t completely alienated those profits because he has some connection with the company.
This has now been stopped, together with arrangements for losses to be shifted to those partners who can claim tax relief at higher rates.
There will be further rules on partners to follow, these being the proposed changes to tax certain partners as employees.
Total Return Swaps – new anti-avoidance measures where an intra-group payment is made in connection with a derivative, where the payment is linked to the profits of a group company. The rules will be amended to prevent any tax relief for the payment. This makes sense if one considers that tax relief isn’t available on dividend payments, which, after all, reflect the paying company’s underlying profits.
Avoidance rules for Double Taxation Relief for foreign tax – these rules allow relief where income is taxed twice, once in the UK and once in the foreign territory. Amendments are being made to ensure that this is the case for non-trading credits in respect of loan relationships and intangibles.
Shale gas – a new onshore allowance is to be introduced in order that shale gas prospectors and the like will benefit from a reduced supplementary charge. I’m sure the environmentalists will be happy!
New code of taxation for banks – this isn’t a set of new tax rules, but rather a code that various banks, building societies and other financial institutions have signed up to, to say that they are observing both the spirit as well as the letter of the tax legislation.
It is now proposed that HMRC will produce an Annual Report on which banks have or haven’t signed up, and which banks have been behaving badly. The first Annual Report will cover the period 5 December 2013 to 31 March 2015.
These measures can all be found on this page.
Capital Gains Tax
Two of the most important announcements concern capital gains tax (“CGT”).
Private Residence Relief – the “empty period” is to be reduced from 3 years to 18 months
Principal Private Residence is an exemption that applies when an individual sells his own home (or the home that he has elected to call his main residence). It is possible to claim the relief even if the property has stopped being your own home, provided that the “empty period” is no more than three years dating back from the time of the sale.
This is a useful provision where a person has moved house – perhaps he has found a job in a different area – but has been unable to sell the old one. The availability of the empty period means that he has up to three years to sell.
From 6 April 2014 the “empty period” will be reduced to 18 months – so if you are moving house, you need to try and sell your old one a lot quicker.
Foreigners to be subject to CGT UK residential property
At present, non-UK residents don’t pay CGT, except in the case of “non-natural persons” involved in envelope schemes, where residential property is typically held in a corporate vehicle controlled by the individual who actually lives there.
From April 2015 CGT is to be charged on all non-residents selling UK residential property. A consultation will be published in early 2014.
There are two points of interest:
- How will the tax be enforced if the non-resident is outside the jurisdiction? Will the buyer have an obligation to withhold the correct amount of tax, and if so, how will he know how much to withhold, when he doesn’t know what the seller’s base cost is? What if the buyer is also non-resident? Will the property be subject to a HMRC “charge” so that it cannot be transferred until the tax is paid?
- How will this affect offshore investors such as property funds and non-resident landlords, who are not aiming to live in the property themselves, but are investing for a rental income? Recall that for funds such as VCTs and REITs, the capital gains exemption is crucial to ensure that tax considerations don’t distort the investment case. Will offshore funds now be caught by the new tax?
Hopefully these questions will be discussed in the Consultation Paper when it comes out next year.
Other items to note:
Personal allowance transfers and married couples
From April 2015, a spouse or civil partner who doesn’t pay income tax or isn’t liable above the basic rate, will be able to transfer £1,000 of his/her personal allowance to their “other half”. However, this will only benefit the other half is his/her income already falls below the basic rate – so it isn’t for everyone.
Social Investment Tax Relief
There will be new tax breaks for investment in social enterprise starting from April 2014. This will include investment in Social Impact Bonds.
ISA, CTF, SIP and SAYE Annual Subscription Limits for 2014/15
Share Incentive Plans (SIPs)
- Limit on ‘free’ shares to be increased from £3,000 to £3,600 per year;
- Limit on ‘partnership’ shares to be increased from £1,500 to £1,800 per year (or 10% of the employee’s annual salary).
Save as You Earn (SAYE) – limit to be increased from £250 to £500 per month.
Individual Savings Account (ISA) – limit will be £11,880, of which £5,940 can be invested in cash.
Junior ISAs and Child Trust Fund (CTF) – limit to be increased from £3,720 to £3,840.
Abolition of NICs for under 21s
This is the abolition of employers Class 1 secondary National Insurance Contributions on earnings up to the Upper Earnings Limit – to take effect from 6 April 2015.
There will no doubt, be many more new measures tucked away in the small print. I shall try to keep you updated so that you know everything there is to know before your Christmas holidays begin!
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