The impending tax changes for non-doms is a top topic for private clients and their advisers, but those hoping for chapter and verse on post 6 April 2017 rules will have to wait another week or so. However, the Autumn Statement documents did reconfirm that non-doms who establish a non-UK resident trust before becoming deemed domiciled in the UK under the new rules will not be taxed on foreign income and gains retained in the trust.
The government also confirmed that it will legislate to charge inheritance tax on all UK residential property indirectly held through an offshore structure from 6 April 2017. On the plus side, the ability for non-doms to invest their foreign source income and gains into UK businesses using business investment relief will be widened.
Although there was a general consensus by practitioners that these reforms should be delayed, it was confirmed that the rules are coming in from 6 April 2017 and non-doms have a limited opportunity to get ready for them. It remains to be seen whether the inheritance tax proposals will have a retrospective effect: under the previous proposals, certain prior events (such as giving away company shares) may still give rise to a tax charge upon an individual’s death after 5 April 2017 – a harsh outcome.
Closer to home, a widely predicted range of measures to help the ‘just about managing’ families was announced. Alongside a rise in the living and minimum wage from April 2017 and universal credit changes, the personal allowances and the basic rate band were increased. It should be noted that changes to the NICs thresholds will mostly wipe out the tax benefit of the personal allowance increase for those higher rate taxpayers who receive it.
Following the case of Lobler v HMRC [2015] UKUT 152, the government agreed to consult on the taxation of life insurance policies to deal with the disproportionate charges that can arise from a part-surrender or part-assignment of a policy. Despite consulting on a range of options, one of which would have simplified the taxation of insurance policies considerably, it has chosen to take forward new rules from 6 April 2017 that will allow individuals who fall into this trap to apply to HMRC to have the tax charge recalculated on a ‘just and reasonable basis’.
To prevent the personal portfolio bond anti-avoidance rules applying unnecessarily, there is a list of permitted assets into which a policy (otherwise caught by the rules) can invest. The list of permitted investments has not materially changed since 1999, so it is a welcome change for policyholders that from royal assent to Finance Bill 2017 the government will have the power to update it by regulation as the investment landscape evolves.
There were some helpful announcements on investments. Social investment tax relief (SITR) is intended to encourage investment in ‘social enterprises’ (charities, community benefit societies and community interest companies) by offering a tax reducer to individual investors of 30% of their investment. However, the current ceiling of funding that a qualifying enterprise can obtain under SITR, is broadly £250,000 over three years, has been a significant block to widespread use. From 6 April 2017, the amount of investment that enterprises up to seven years old can raise through SITR will increase to £1.5m and I hope that this will help boost the social investment sector.
It is also good news that HMRC will consult on ways to ‘streamline’ its advance assurance service for venture capital investments.
In the world of pensions, there several anti-avoidance measures were announced. The reduction in the money purchase annual allowance to £4,000 to limit recycling of pension tax relief is relatively minor move. However, the proposals relating to overseas pensions will be more significant and bring the taxation of foreign pensions held by UK residents into line with the taxation of UK pensions. In addition, the government will tighten the criteria under which offshore pensions can be qualifying registered overseas pensions schemes (QROPS) and close ‘section 615’ schemes to new members.
One significant change is to the temporary non-resident rules. Individuals who draw down on certain pension funds whilst resident overseas will be taxable in the UK on the drawn down funds if they resume residence within ten years.
The government will push ahead with legislation to clarify and improve aspects of partnership taxation to ensure profit allocations to partners are fairly calculated for tax purposes. The original consultation proposed:
clarifying who is the partner chargeable to tax;
rules to prevent the use of nominee arrangements;
reporting requirements for business structures that include partnerships as partners;
tax administration for investment partnerships; and
new rules on the allocation and calculation of partnership profit.
Again we will have to wait for the draft Finance Bill 2017 to see if HMRC has listened to representations. Businesses using complex partnership structures could be adversely affected so should follow developments closely over the next few months.
Also on an overseas theme, the proposed new requirement for intermediaries to register offshore structures that they help to set up for UK clients adds to the government’s swathe of tax transparency measures and creates another administrative task for advisers.
While the new chancellor made his intention to calm the nerves of businesses very clear, his attitude to individual taxpayers was dominated by the political need to help the population at large. Budget 2017 may tell us more about his tax agenda for private clients.
Home >Articles > Autumn Statement 2016: A private client perspective
Autumn Statement 2016: A private client perspective
The impending tax changes for non-doms is a top topic for private clients and their advisers, but those hoping for chapter and verse on post 6 April 2017 rules will have to wait another week or so. However, the Autumn Statement documents did reconfirm that non-doms who establish a non-UK resident trust before becoming deemed domiciled in the UK under the new rules will not be taxed on foreign income and gains retained in the trust.
The government also confirmed that it will legislate to charge inheritance tax on all UK residential property indirectly held through an offshore structure from 6 April 2017. On the plus side, the ability for non-doms to invest their foreign source income and gains into UK businesses using business investment relief will be widened.
Although there was a general consensus by practitioners that these reforms should be delayed, it was confirmed that the rules are coming in from 6 April 2017 and non-doms have a limited opportunity to get ready for them. It remains to be seen whether the inheritance tax proposals will have a retrospective effect: under the previous proposals, certain prior events (such as giving away company shares) may still give rise to a tax charge upon an individual’s death after 5 April 2017 – a harsh outcome.
Closer to home, a widely predicted range of measures to help the ‘just about managing’ families was announced. Alongside a rise in the living and minimum wage from April 2017 and universal credit changes, the personal allowances and the basic rate band were increased. It should be noted that changes to the NICs thresholds will mostly wipe out the tax benefit of the personal allowance increase for those higher rate taxpayers who receive it.
Following the case of Lobler v HMRC [2015] UKUT 152, the government agreed to consult on the taxation of life insurance policies to deal with the disproportionate charges that can arise from a part-surrender or part-assignment of a policy. Despite consulting on a range of options, one of which would have simplified the taxation of insurance policies considerably, it has chosen to take forward new rules from 6 April 2017 that will allow individuals who fall into this trap to apply to HMRC to have the tax charge recalculated on a ‘just and reasonable basis’.
To prevent the personal portfolio bond anti-avoidance rules applying unnecessarily, there is a list of permitted assets into which a policy (otherwise caught by the rules) can invest. The list of permitted investments has not materially changed since 1999, so it is a welcome change for policyholders that from royal assent to Finance Bill 2017 the government will have the power to update it by regulation as the investment landscape evolves.
There were some helpful announcements on investments. Social investment tax relief (SITR) is intended to encourage investment in ‘social enterprises’ (charities, community benefit societies and community interest companies) by offering a tax reducer to individual investors of 30% of their investment. However, the current ceiling of funding that a qualifying enterprise can obtain under SITR, is broadly £250,000 over three years, has been a significant block to widespread use. From 6 April 2017, the amount of investment that enterprises up to seven years old can raise through SITR will increase to £1.5m and I hope that this will help boost the social investment sector.
It is also good news that HMRC will consult on ways to ‘streamline’ its advance assurance service for venture capital investments.
In the world of pensions, there several anti-avoidance measures were announced. The reduction in the money purchase annual allowance to £4,000 to limit recycling of pension tax relief is relatively minor move. However, the proposals relating to overseas pensions will be more significant and bring the taxation of foreign pensions held by UK residents into line with the taxation of UK pensions. In addition, the government will tighten the criteria under which offshore pensions can be qualifying registered overseas pensions schemes (QROPS) and close ‘section 615’ schemes to new members.
One significant change is to the temporary non-resident rules. Individuals who draw down on certain pension funds whilst resident overseas will be taxable in the UK on the drawn down funds if they resume residence within ten years.
The government will push ahead with legislation to clarify and improve aspects of partnership taxation to ensure profit allocations to partners are fairly calculated for tax purposes. The original consultation proposed:
clarifying who is the partner chargeable to tax;
rules to prevent the use of nominee arrangements;
reporting requirements for business structures that include partnerships as partners;
tax administration for investment partnerships; and
new rules on the allocation and calculation of partnership profit.
Again we will have to wait for the draft Finance Bill 2017 to see if HMRC has listened to representations. Businesses using complex partnership structures could be adversely affected so should follow developments closely over the next few months.
Also on an overseas theme, the proposed new requirement for intermediaries to register offshore structures that they help to set up for UK clients adds to the government’s swathe of tax transparency measures and creates another administrative task for advisers.
While the new chancellor made his intention to calm the nerves of businesses very clear, his attitude to individual taxpayers was dominated by the political need to help the population at large. Budget 2017 may tell us more about his tax agenda for private clients.
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