UK Budget 2017 announcements
Thursday 14 December 2017
The Chancellor of the Exchequer delivered his UK budget on 22 November 2017 which included announcements that may affect non-UK persons. Monica Dixie, Senior Tax Consultant with Equiom Solutions, outlines some of the budget announcements along with how they affect non-UK persons below.
- Taxing non-residents’ gains on UK real estate
This measure will broaden the UK’s tax base to include disposals of UK commercial property by non-residents. It will also bring all companies into charge on disposals of residential property (including widely held companies) – previously it was only ‘closely’ held companies that were affected.
In addition, capital gains tax (CGT) will apply where there is a ‘disposal of an entity that substantially derives its value from UK immovable property’, subject to certain threshold tests being met – this will apply where, for example, the shares in a company owning UK property are disposed of.
Legislation giving effect to the above proposals is likely to have effect from 1 April 2019 for companies, and from 6 April 2019 for other persons. There are also proposed rebasing points resulting in only gains attributable to changes in value since these dates being chargeable.
- Non-UK resident companies’ UK property income and certain gains
The UK Government will legislate so that non-UK resident companies which carry on a UK property business or have other UK property income will be charged to corporation tax, rather than being charged to income tax as at present. The change will have effect from 6 April 2020.
- Extending time limits for offshore non-compliance
The UK Government will extend the time limits for assessing all offshore cases to at least 12 years where non-compliant behaviour is involved. The current time limits are usually four, six or 20 years depending on the behaviour that led to the non-compliance.
HMRC’s rationale for the extension is that it can take longer to establish the facts where offshore non-compliance is involved but, at the moment, time limits for onshore and offshore cases are the same. Where there is deliberate behaviour, the time limit for both onshore and offshore cases remains 20 years.
- Royalties withholding tax
The UK Government published a consultation on 1 December 2017 on the design of rules expanding the circumstances in which a royalty payment from persons not resident in the UK has a liability to income tax. This will deem a royalty paid by a non-UK resident who makes sales to UK persons to be UK source, and so subject to UK withholding tax. Historically, the non-UK entity needed to be making sales through a UK taxable presence (a ‘permanent establishment’ or ‘PE’) in order for a royalty to be treated as UK source. However, it is proposed that a PE in the UK is no longer required for the royalty to be treated as UK source. The changes will have effect from April 2019.
- Offshore trusts: anti-avoidance rules
While not a ‘new’ announcement, the UK Budget confirmed that it will no longer be possible for trustees of offshore trusts to ‘wash out’ stockpiled gains by making capital payments to non-UK resident beneficiaries.
UK tax legislation currently provides for gains made by the trustees of an offshore trust to be stockpiled and matched to capital payments to the beneficiaries of the trust. While capital payments made to UK resident beneficiaries and matched to stockpiled capital gains may result in a CGT liability, stockpiled gains fall outside the charge to CGT if they are matched to payments to non-UK resident beneficiaries (thereby reducing or eliminating the gains attributable to UK resident beneficiaries).
This will no longer be possible once new legislation is enacted. The changes will have effect from 6 April 2018.
These measures build further on some of HMRC’s initiatives to implement its ‘No Safe Havens’ policy. Read more about these UK tax initiatives here.
For more information about this topic, please contact Monica Dixie.