23 Nov 2016

CAPITAL letters - Issue 19 - AUTUMN STATEMENT SPECIAL EDITION

Linkedin

This is the first 'budget' under both a new Chancellor and a new Prime Minister and the first big fiscal event since Brexit - what's not to love? As it turns out, quite a lot….. The Chancellor has continued the tradition of 'cracking down' on tax avoidance and is clearly no friend of buy to let landlords, with new measures introduced on both fronts. It looks like we are full steam ahead on the non-dom and IHT reforms for April 2017, despite the lack of time, and there are some interesting noises being made about offshore pensions. Read on for the full picture.

 

Offshore pensions

You would have thought that Philip Hammond had better things to concentrate on but it seems that he has offshore pensions in his sights. The first piece of bad news is the abolition of Section 615 schemes, a little known or used arrangement (although very valuable to some). Secondly, he proposes to double the non-residency run-off period for QROPS from 5 to 10 years. The practical effect of this change is that people will have to wait much longer to transfer tax relieved funds from their QROPS to another scheme (such as a QNUPS or a transfer trust). The only silver lining is that this change is not immediate, which means that if you can still transfer out of your QROPS if you complete before 5th April. The other change to QROPS and QNUPS is that there will be (yet another) revision to the definition of an 'overseas pension scheme'. This can only be bad news….

Finally, there is the interesting threat to 'align' the treatment of UK and offshore pensions, with the promise that they should be taxed in the same way. No further information is provided but we are promised a consultation document and readers will know how much I love those. Anyway, this could be good and bad – expect the 10% rebate on foreign pension income to go (bad) but perhaps replaced with a tax free lump sum of 25% (super lovely).

 

Disguised remuneration (DR)

We already have a lengthy, highly complex and prescriptive body of legislation designed to prevent people from avoiding income tax on employment income. This will be tightened even further by the denial of a corporation tax deduction for employers that use DR arrangements, unless there is a corresponding income and NIC charge on the employee within a permitted (but as yet unspecified) time. However, more interestingly, the Chancellor intends to extend the DR regime to self-employed people. Quite what mischief he is trying to prevent is also unspecified, but I guess it will have something to do with the various IR 35 umbrella schemes on the market. For the vast majority of self-employed people this change will likely have little or no effect.

 

Offshore companies

Readers will recall my fascinating explanation of how offshore companies are charged to income tax rather than corporation tax in edition 17. It seems that Phil (we're on first name terms now) also reads Capital letters and has decided that this little anomaly should come to an end. This is potentially good news in an era of reducing rates of corporation tax (17% by 2020) but bad news in that it will bring offshore companies into the full CT regime, with all the limitations that apply (such as the new debt cap).

 

Penalties and compliance

There will be new penalties for enablers of tax avoidance/evasion and other measures to attack the supply chain of the so-called tax avoidance industry. One such development is the proposal to require intermediaries to register complex offshore structures with HMRC, together with lists of clients supplied. It will be interesting to see what HMRC sees as 'complex' and who this requirement will be applied to. Bearing in mind that many offshore structures are set up by lawyers, whose clients are protected by legal professional privilege, it may be hard for HMRC to enforce such a measure properly.

 

Non-doms

Nothing to see here - please move on.

As planned, the reforms will take effect from 6th April 2017 and from that date anyone who has been resident for 15/20 years will become UK domiciled.  There is confirmation that the concept of a 'protected' offshore trust will be introduced, which is a significant comfort.

 

IHT reforms

These are going ahead too, despite the lack of any joined-up thinking on the numerous tax problems associated with de-enveloping UK properties before April 2017. No reliefs are proposed either, meaning your de-enveloping will be both quick and painful, a bit like my last visit to the dentist.

 

Remittance rules

It would have been nice if Phil had announced an amnesty for all relevant foreign income and gains (RFIG) held offshore by people who become 'super deemed' on 6th April. This would have enabled a massive amount of capital to be brought into the UK for the purposes of investment and spending – just at the time when the UK needs it most. Well, he's not doing that, but he is expanding the Business Investment Relief (BIR) scheme to make it easier for non-doms to remit RFIG for the purposes of investing in qualifying activities. Previously, the BIR scheme was somewhat restrictive and clients found the whole concept a bit risky – it is hoped the new rules will be more, let us say, welcoming.

Linkedin

KEY CONTACT

James Quarmby

James Quarmby
Partner

T:  +44 20 7809 2364 M:  +44 7958 776 759 Email James | Vcard Office:  London

  • Related Sectors
  • Related Locations