Measures will be included in Finance Bill 2017-18 to counteract perceived avoidance surrounding payments from offshore trusts to UK resident individuals that are made via non-resident or non-domiciled beneficiaries
Where a payment is made from an offshore trust to a non-UK resident beneficiary or to a non-domiciled individual claiming the remittance basis and then passed on to a UK resident beneficiary, the UK resident beneficiary is not believed to be subject to tax on trust income and gains matched with the payment.
From 6 April 2018, the UK resident beneficiary will be subject to tax in these circumstances where there is an expectation that an onward payment will be made.
Changes are also being brought in to deem payments made to close family members (broadly the spouse or minor children) of a UK resident settlor as having been received by the settlor. The rule applies both for income and capital gains but, with income tax, only to the extent that the close family member has not already been subject to income tax on the distribution.
"The new rules do not take effect until 6 April 2018, which gives a window of opportunity to take any necessary action to be ready for the change.
"These rules are part of a wider package of measures introduced within the past year affecting non-UK domiciled individuals and non-resident trustees and, given the complications of this area of taxation, we recommend that you speak with one of our specialists before taking any action."
The capital gains tax annual exempt amount for the 2017/18 tax year will be £11,700 for individuals and personal representatives and £5,850 for most trustees of a settlement.
The capital gains tax annual exempt amount will increase in line with the Consumer Prices Index from £11,300 for individuals and personal representatives and £5,650 for most trustees of a settlement, to £11,700 and £5,850 respectively.
"This measure is as expected and will be welcome news for many taxpayers."
There is to be consultation in spring 2018 on the proposed continuing availability of entrepreneurs’ relief where the entrepreneur's qualifying 5% holding is diluted following commercial fund raising.
Entrepreneurs’ relief reduces the CGT rate on a qualifying gain from 20% to 10%. It is available where certain conditions are met, one of which is the need to hold 5% of the share capital in a company at sale.
Concerns have been raised that entrepreneurs, whose holdings are reduced below the 5% qualifying level because of issuing new shares as part of a commercial fund raising, lose the benefit of entrepreneurs’ relief on their remaining shares. This risks entrepreneurs choosing either to cease their involvement in the business or to avoid dilution by not undertaking the necessary fund raising.
"Any method of ensuring the entrepreneur community remains involved with businesses as they look to scale up is vital, particularly, given one of the main elements of the Chancellor’s Budget speech was improving productivity in the UK economy. We await the consultation in spring 2018, at which time we can review the specifics to ensure that they do provide sufficient assistance in this area."
The proposed introduction of a 30-day payment window between a capital gain arising on a residential property and payment of tax is to be deferred until April 2020.
Autumn Statement 2015 announced that from April 2019 a payment on account of any CGT due on the disposal of a residential property will be required to be made within 30 days of the completion of the disposal.
CGT is currently payable on the 31 January following the end of the tax year in which the disposal takes place. This results in tax being payable between 10 and 22 months after the actual disposal.
The introduction of this payment window is now to be postponed until April 2020.
"After the original announcement in 2015, concerns were raised around the workability of these rules and the need to ensure fairness. Specifically, rates of tax to be paid, the interaction of capital losses and the annual exemption and circumstances where valuations were required would all need clarification.
A consultation was expected on this in 2016. As this has not yet arrived, it is perhaps not surprising that the introduction of this payment window has been pushed back; particularly given the concerns that do need to be addressed."
The Government will legislate to ensure any capital gains on immovable UK property will be subject to UK tax from April 2019.
Non-residents have been subject to tax on capital gains on UK residential property since 2015.
This measure aims to broaden the UK’s tax base to include any gains on the disposal of UK commercial property and also indirect sales such as some holdings in companies where more than 75% of the value is attributable to UK property. It will seek to bring all individuals, companies, various funds and collectives including life assurance property portfolios into charge, subject to reliefs and exemptions yet to be determined.
This will apply to any gain which accrues on or after 1 April 2019 for companies and 6 April 2019 for individuals but with the possibility of rebasing to eliminate any gain accrued earlier. An anti-forestalling measure will take effect from 22 November 2017 and there will be a targeted anti-avoidance rule.
"The consultation document contains some welcome statements about the potential simplification of complications where existing taxes overlap.
"Lobbying can be anticipated from those representing widely-held property funds given the wide scope of the initial proposals.
We will have to wait and see what targeted exemptions are included within the legislation to understand the full impact of this proposal."
Transitional provisions that were introduced as part of the July 2015 changes to the taxation of carried interest are to be removed with immediate effect.
In July 2015, changes to the taxation of carried interest were introduced. Although complex, broadly these changes resulted in carried interest paid to investment managers being taxed in full at 28% on those investment managers.
Transitional provisions excluded sums of carried interest from these rules where the sums arose after 8 July 2015 but in connection with the disposal of an asset before that date.
The Government is concerned about manipulation of these provisions and so has taken the decision to remove them.
"As carried interest tends to be paid by funds shortly after the gain is realised within that fund, the transitional provisions were always likely to have limited effect. Clearly however the Government is concerned around abuse of these rules and so has taken action accordingly."
The Government will consult in 2018 on the taxation of trusts
The Government will consult in 2018 on making the taxation of trusts, in its words, 'simpler, fairer and more transparent.'
"At this stage, the announcement provides little detail and so it remains to be seen whether the consultation will be targeted at specific areas or will ask for general comments on all areas of trust taxation. There is also a question mark over whether the consultation could result in further tax increases for trustees who have already seen significant changes in recent years.
"Given the increased administrative burden recently created for trustees by the difficulties in implementation of the Trust Register, it is hoped that the Government will listen closely to feedback provided as part of the consultation."
HMRC has further clarified how the trusts register will need to be completed for 2016/17 and is to revise its guidance to reflect some helpful changes.
Following further informal representations made by Smith & Williamson and some other representatives shortly before the Budget, HMRC has announced some helpful clarifications around the completion of the trusts register and access to the trusts registration service (TRS). HMRC guidance is to be updated shortly.
The key change relates to reporting details of potential beneficiaries. It has been confirmed that where a beneficiary is named, the trustee, or their agent, will still need to provide the relevant details. Where a beneficiary is un-named, being part of a class of persons, a trustee will only need to identify them when they receive a financial or non-financial benefit from the trust AFTER 26 June 2017.
In addition, named beneficiaries whose benefit is contingent on an event occurring do not need to be reported until the contingent event occurs.
HMRC has also made some changes to the functionality of the TRS, including the ability to save the submission after sending, to provide proof of the data submitted, and the possibility of using dummy information where certain data could not be ascertained, such as the NI number of a deceased settlor.
The guidance is being updated to include some examples and to confirm when an offence will not be committed by a trustee. HMRC has also simplified the way agents can register a trust. The TRS can now be accessed directly without having to wait for HMRC approval by email to gain access to Agent Services in order to commence the trust registration process.
"Given the short timescale for completion, and some ambiguities in the original guidance which did not seem to tie in with the intention of the legislation, we felt that further changes might be feasible. We were pleased to find that HMRC was willing to work with those making representations to agree some pragmatic changes that should make the completion of the register possible for a much larger proportion of cases by the 31 January 2018 deadline. Other concerns remain, although we gather that HMRC is addressing these, with a view to improving the TRS for the next cycle."