Harbour Key’s summer update
Finance Act (No2) 2017
The Government announced last week that a Finance Bill will now be introduced as soon as possible after the summer recess. This will legislate for all policies that were to be included in the pre-election Finance Bill but removed due to the calling of a snap election.
This includes all the provisions effecting changes to the taxation of non-UK domiciled individuals and non-UK resident trusts. The government has also confirmed that all policies originally announced to start from April 2017 will be effective from that date. Summary of key non-domicile provisions:
- UK inheritance tax will apply to UK residential property irrespective of how it is held. Non-UK domiciles will no longer be able to mitigate inheritance tax on UK residential property through the use of an offshore company or a trust.
- The number of years it takes to become UK deemed domiciled for inheritance tax purposes is reducing. Currently you become deemed domiciled after being UK resident for 17 out of the past 20 tax years. That’s now reducing to 15 out of 20 meaning it will be quicker to acquire and longer to lose your deemed domicile status.
- The concept of deemed domicile is extending to UK income tax and capital gains tax. This means permanent non-domicile status is no longer possible.
- Individuals with a UK domicile of origin will automatically re-acquire their UK domicile when returning to the UK, regardless of the length of time previously spent in the UK.
Making Tax Digital
Doing away with the self-assessment return and replacing it with quarterly reporting for the self-employed and landlords was high on the political agenda and then disappeared just before the snap election. Again last week, making tax digital came back on the agenda, HMRC announcing the plan of going live from April 2018 to be delayed. The scope and timetable have now been pared back as follows:
- Only businesses with a turnover above the VAT threshold will have to keep digital records and only for VAT purposes from April 2019.
- Businesses will not be asked to keep digital records or update HMRC quarterly for other taxes until at least 2020, instead of 2018 as originally proposed.
- Small businesses will be able to file digitally on a voluntary basis for other taxes.
Landlord’s restriction of mortgage interest
There have been no changes to higher rate tax relief being restricted for buy-to-let landlords on the costs of finance, such as mortgage interest, which took effect from 6 April 2017 onwards. A summary of the changes can be found HERE. The current tax year is the first year of the phased in change and therefore landlords paying higher rate tax will incur a 25% restriction in the current year.
Scottish Tax Rates
Scotland now has powers to raise its own tax rates and although it has not used its power to raise taxes, it has frozen the threshold at which an individual pays higher rate tax. For the 2017/18 tax year a Scottish taxpayer will pay higher rate tax on earnings over £43,000 (only earnings). This compares to the rest of the UK where the higher rate threshold will increase to £45,000 from 6 April 2018, which is also the threshold that will apply to Scottish taxpayers in respect of their savings and dividend income. Complicated!
Increased requests to foreign governments for assistance to counter tax evasion assistance increase
According to research by Pinsent Masons solicitors, HMRC has almost doubled its number of requests to foreign governments for assistance in cases of suspected tax evasion over a five-year period. HMRC made 1,096 information requests to overseas tax authorities in 2016, compared to only 591 made in 2012. The requests are being made under tax information exchange agreements and OECD information exchange agreements, a significant number of which were entered into in the last two years.
All Harbour Key personal clients received an email notice from us earlier in the year, attaching a notice from HMRCwarning that the exchange of information with overseas tax authorities would increase next year. This warning from HMRC is to provide taxpayers a final opportunity to correct any returns that fail to properly report offshore matters that would give rise to a UK tax liability.
Tough new penalties are being introduced from 30 September 2018 for those that have made errors in their UK tax returns relating to ‘offshore tax matters’. Ahead of this, a new legal obligation will give taxpayers a final opportunity to correct any returns that fail to properly report offshore matters that would give rise to a UK tax liability.
The new penalty will start at 200% of the tax liability. It can be reduced to 100% of the tax liability, but no lower. In addition, in the most serious cases a further penalty of up to 10% of the value of the relevant asset can also be imposed and HMRC will be able to ‘name and shame’ on their website.
The Supreme Court’s decision in the long running saga of the Rangers case was released a couple of weeks ago. The case is viewed as the defining case for those taxpayers who implemented employee benefit trust planning for remuneration purposes. The Court found in favour of HMRC that the payments made to players’ and executives’ employee benefit trusts were earnings, and therefore subject to income tax and National Insurance contributions.
The court took a purposive view of the relevant legislation rather than the narrower interpretation taken by the taxpayers and their advisers, which HMRC will use to close down all outstanding employee benefit trust cases.
Pension auto enrolment scam
Pension automatic enrolment makes it compulsory for employers to provide their eligible workers with a pension scheme. It has been gradually phased in, starting with the largest UK employers and if you haven’t set up a scheme yet, you should have by 1 February 2018, at the latest.
The Pensions Regulator has warned employers not to fall for a scam involving the sale of fake certificates that suggest they do not have workplace auto-enrolment obligations. Employers are charged £58 for the certificates which are worthless, as no such documents are accepted by the regulator. Every individual or organisation in the UK that employs at least one person has auto-enrolment obligations. For some employers it may be the case that auto-enrolment is not applicable, but this just involves simply informing the regulator that they do not have any staff that qualify for automatic enrolment. In all other cases, employers will have to enrol some or all of their staff in a workplace pension and make regular contributions.
Persons with significant control
You should already be aware that as of last April, Companies House introduced a register of the people with significant control (PSC) of a company. It is now a legal requirement for a company to maintain a PSC register. There is also the requirement to submit the company’s annual confirmation statement (which replaced the annual return in June 2016) to notify PSCs.
Companies House have now introduced a requirement to update the PSC register within 14 days of any change, rather than waiting until submission of the confirmation statement.