A Sign of Things to Come – Draft Finance Bill 2018-19
The government has recently published a draft of the Finance Bill 2018-19, containing measures that will form a part of the next Finance Bill. Consultation of the draft legislation will run until 31 August 2018, following which the final contents of the Finance Bill 2018/19 will be confirmed in the Autumn Budget 2018. A round-up of some of the key measures is provided below.
Increase in Time Limits for Offshore Non-Compliance
The current periods that HMRC are able to assess for both on and offshore non-compliance are 4, 6, and 20 years depending upon behaviour – 4 years where the taxpayer took reasonable care, 6 years where a loss of tax has arisen through careless behaviour, and 20 years where a tax loss has arisen through deliberate behaviour.
Under the new draft legislation, the 4 and 6 year time limits will be extended such that HMRC will be able to assess at least 12 years of back taxes where a loss of tax involves an offshore matter. The proposed measure will cover Income Tax, Capital Gains Tax (“CGT”) and Inheritance Tax (“IHT”).
The new rules are set to apply from as early as 2013/14, where the loss of tax is a result of careless behaviour (2015/16 onwards for other cases)
Changes to Taxation of Gains on Disposals of UK Property by Non-Residents
Under current legislation, non-UK resident individuals, trustees, personal representatives of deceased persons, and closely-held companies (5 or fewer participators), are chargeable to CGT on disposals of residential UK property. Non-UK resident companies are subject to Corporation Tax on disposals of residential UK property.
Under the new legislation, all non- UK resident persons, whether liable to CGT or Corporation Tax, will be taxable on gains on disposals of interests in any type of UK land, whether residential or non-residential (e.g. commercial property). In addition, where non-UK residents dispose of an asset that derives 75% or more of it’s gross value from UK land, such disposals will be subject to UK CGT/Corporation Tax.
The new rules are set to apply from April 2019.
CGT – Payments on Account
From April 2020, where CGT arises on the disposal of residential property, the taxpayer will have 30 days from the completion date to submit a CGT return and pay any tax due. Under current rules, the gain is reported (and paid) through the self-assessment tax return following the end of the tax year.
Note: the gain will still need to be reported on the annual self-assessment tax return under the new rules, in addition to being reported on the CGT return within 30 days.
SDLT – Payment Deadlines
From 1 March 2019, the deadline for submitting an SDLT return and paying any subsequent tax due will be reduced from 30 days to 14 days (applying to property purchases in England and Wales).
Changes for Taxation of Income for Non-UK resident Corporate Landlords
Currently, where non-UK resident companies are carrying on a UK property business, they are chargeable to Income tax in the UK. From April 2020, such income will instead be chargeable to Corporation Tax.
New Anti-Avoidance: UK Profits Accruing to Non-UK Resident Entities (Profit Fragmentation)
The new measure aims to counteract instances where UK businesses avoid UK tax by arranging for the UK profits to accrue to entities in non-UK territories (where profits are taxed at lower rates). The effect of the measure will be that the profits are added to the profits of the UK trade, and therefore taxed in the UK.
The new measures are targeted and apply only in the relevant circumstances where broadly, a UK trader has arranged for a transfer of value to an offshore entity (where significantly less tax is due), but is still able to enjoy the diverted profits, and the diversion of profits is not commensurate with any work undertaken by the offshore entity.
These rules are set to apply from April 2019, and will apply to individuals and companies carrying on business in the UK, including partnerships.
Rent a Room Relief
An additional condition is to be added to Rent-a-Room Relief that, from April 2019, the taxpayer must be present in the property for all or part of the period that the property is let out. The level of the relief will remain unchanged at £7,500 per annum.
The rules for this relief are to be amended slightly to allow taxpayers who are eligible for the relief to preserve it where their shareholding is diluted below the required 5% as a result of raising additional equity for the company.
If you have any queries regarding the effect of the proposed measures, please contact a member of our team for a no-obligation chat.