Key points
- SDLT & ATED rates increase – what now for non-doms?
- Principal Private Residence Relief rules tightened for non-residents
- Remittance Basis Charge – charges increase and a minimum period may be introduced
- The Google Tax – is it really just for multinationals?
It was difficult to find any pre-Christmas cheer in the Chancellor’s statement and the draft Finance Bill, but we’ve become accustomed to that by now. The common thread, unsurprisingly, is that tax charges in niche areas are increasing and the rules to qualify for reliefs and exemptions are being tightened. Here are our summaries of some of the tax changes we think will be relevant for you.
SDLT and ATED
The headline that SDLT has been reduced for 98% of people is probably a bit misleading if you’re buying property in Central London. The SDLT charged on a £3m home has risen from £210,000 to £273,750.
For non-doms the interesting aspect is the narrowing of the gap between the rate of 15% for enveloped properties and the highest alternative rate of 12%. This might tend to encourage a return to corporate wrappers for IHT protection but the massive increase in ATED charges is presumably intended to discourage this. The lowest rate is now £23,350 and the highest is an eye-watering £218,200. Decisions on how non-doms should hold UK residential property have become even more difficult, with the matrix of CGT, ATED, SDLT, IHT and income tax to be applied to each client’s particular situation and objectives.
Principal Private Residence Relief
Firstly, the good news; HMRC has dropped plans to withdraw the main residence election for all taxpayers. Non-resident individuals will also be able to elect for a main residence, and will do so only at the time they dispose of the property in question.
The key change however is that from April 2015 a home will only be eligible as a main residence for CGT purposes for any tax year if during that year:
- It is located in the same country in which the taxpayer was resident, or
- The taxpayer spent 90 days (at midnight) in that property
Adhering to the new requirement for non-residents to spend 90 nights in the UK in their quest to claim PPR could lead to inadvertent UK residence for the unwary; this will depend on the number of other ties they have under the Statutory Residence Test. Expats hoping to obtain main residence relief on a property they have maintained in the UK will have to take particular care with this new rule.
UK residents with property abroad, that they have elected as their main residence, will need to spend at least 90 nights in the property in question if it is to qualify for relief in future tax years. Failure to qualify for relief in any tax year will result in a larger proportion of any gain becoming chargeable.
Remittance Basis Charge: 30 60 90
The cost of the RBC after 12 years of UK residence will rise from £50,000 to £60,000 and a new rate of £90,000 will apply after 17 years of residence. The initial £30,000 charge after 7 years will remain but the Government is to consult on the idea of removing the annual election for the RBC and changing this to a minimum period of 3 years. These changes could make the RBC unaffordable in marginal cases and remove it completely as an option for those non-doms who have only occasional income or gains overseas.
Diverted Profits Tax – “The Google Tax”
Another new tax! The Diverted Profits Tax (DPT) arrives on 1 April 2015 to counter the use of complex and aggressive tax planning arrangements by multinationals to divert profits away from the UK tax base. This measure is part of the UK’s response to the G20- OECD project for countering Base Erosion and Profit Shifting.
The DPT of 25% will apply under two separate rules. The first rule will apply to foreign companies which have made arrangements for sales in the UK in such a way that they do not have a Permanent Establishment (PE) in the UK and whose profits are, therefore, not chargeable to corporation tax.
The second rule will apply to UK companies which have entered into transactions with other persons that lack economic substance or involve entities that themselves lack such substance.
There is a welcome exemption from the DPT for SMEs and, a specific exemption from the avoided PE charge for UK sales of foreign companies not exceeding £10m; but the new tax seems destined to catch a lot more than what we might think of as genuine multinationals. Will it affect large property transactions by overseas companies, for example?
At face value, the new tax seems to conflict with most of the UK’s double tax treaties that include articles that prevent taxation of foreign companies that don’t have a PE in the UK. This may be explained by a wider OECD review on the concept of permanent establishments and we will monitor developments with interest.
And finally…
Having thoroughly depressed you with lots of tax issues it only remains for us to thank you for your support over the last year and to wish you happiness for the festive season and every success for 2015!
If you would like to discuss any of the tax issues highlighted above in more detail please contact us.