UK Budget 2015 - tax issues
Wednesday 01 April 2015
Director - Tax, Phillip Dearden looks at some of the tax issues affecting offshore jurisdictions resulting from the 2015 UK Budget.
This was George Osborne’s sixth Budget and, being delivered just 50 days before a General Election, was always going to be quite political. The last Budget before an election is typically more about theatre and spin than serious long-term reforms.
Much was made of economic success; that house and share prices are performing very well, that there are record levels of employment, that strong growth was realised during 2014 and is also forecast for this year and that the deficit has been 'halved'. This last statement really should be taken with a pinch of salt, since the actual level of Government debt is still growing and is forecast to continue to increase throughout the next Parliament. Nevertheless, the overall message was that the current Government was economically capable and it would be a risk to change course now. The message was delivered with energy and enthusiasm and it appeared that MrOsborne was confident this message would win over voters.
There was little in the way of new reforms, plenty of tidying up and a few giveaways.
Implications for offshore jurisdictions
As far as the Isle of Man and Channel Islands were concerned, there wasn’t a great deal that will directly affect the Islands or the activities carried out there. As usual, there are further initiatives to combat tax evasion and tax avoidance – both will have some effect - even if it means more administrative burdens for businesses. FATCA is morphing into The Common Reporting Standard (CRS), which is an OECD version of FATCA. At the time of the Budget, 92 jurisdictions were signed up to the CRS, which means that many offshore financial institutions will soon be reporting financial information about their clients to 91 other countries.
The Manx and Channel Islands Disclosure Facilities, which are Isle of Man and Channel Islands focused tax-amnesties, are to end prematurely, but there will be a new CRS Disclosure Facility. This will give-taxpayers with an undeclared tax problem, a chance to bring their affairs into line before information regarding any overseas assets is reported to HMRC via FATCA or the CRS.
The anti-avoidance measures include specific penalties for Offshore Tax Evasion, new penalties for users of schemes which are within the new anti-abuse regime, denials of reliefs for 'serial avoiders' and the new 'Google Tax' which came into effect from 1 April 2015.
CGT for non-residents
One matter that will affect non-UK residents and their clients is the introduction of a CGT charge for non-residents who own UK residential property. This had been trailed in the Autumn Statement and has now been introduced, with effect from 6 April 2015. After this date, any owner of UK residential property will be subject to tax on sale. In the early years, the charge should be minimal, as all properties may be rebased to Market Value as at April 2015. Over time, the charge is expected to raise nearly £200m per annum.
At the end of the day, the key targets by which the Government will be measured are economic growth and Government finances. Growth does appear to have been reignited,
the deficit is moving in the right direction, but there is still a long way to go.
As the election campaign moves into full swing, the party-leaders are searching for vote-winners. Several business leaders have written an open letter to suggest that Mr Cameron is the safe pair of hands the economy needs and that a vote for Mr Milliband would “put the recovery at risk”. Tony Blair, the former Prime Minister, has surfaced to suggest that Mr Cameron’s pledge to allow a vote on EU membership is, in itself, a significant risk to the economy. Mr Milliband has just suggested that he would, if elected, further reduce the tax advantages available to non-domiciliaries. The proposals, which are very tentative at this stage, seem to suggest that individuals who come to the UK would be regarded as domiciled in the UK, for all tax purposes, after five years of residence. This would be quite significant because not only would it affect the use of the remittance basis, it would also impact upon the tax advantages relating to Inheritance Tax and Capital Gains Tax via the use of nonresident settlements.
The Chancellor’s message was that you can trust the Government to continue the recovery and put Government finances back into a healthy state. The Budget itself was more performance than substance. We now enter a period of claim and counterclaim as to who is best placed to manage the national coffers. This is, of course, not the only issue on which the voters will base their decision, but it will undoubtedly have a major say in what happens at the ballot box on 7 May.