The Chancellor of the Exchequer, Phillip Hammond, delivered the 2017 Budget on Wednesday, bringing little news of any major tax reform but still declaring some key changes to existing policies. Experts in property and tax at Irwin Mitchell Private Wealth look into the announcements and give some initial comment on how these reforms may affect you or your clients. As always we can comment more when we see the draft legislation for the devilish detail.
New SDLT relief for First time Buyers
One of the most widely reported Autumn Budget announcements was the new relief from stamp duty land tax (“SDLT”) for first time buyers. Reaction to the move has been mixed. Whilst welcomed by many, concern has been expressed, even by the government, that the relief could lead to an increase in house prices, whilst buyers in more expensive parts of the UK have commented that the relief does not go far enough to help them.
The relief operates so that no SDLT is paid on the first £300,000 of the purchase price for a residential property (not commercial property). Where the purchase price is over £300,000 but does not exceed £500,000, SDLT is paid at 5% on the amount of the purchase price above £300,000. The government estimates that 80% of first time buyers will pay no SDLT at all.
The relief applies from 22 November 2017 and applies from the “effective date” of the contract. There are a lot of technical details here and legal advice should be sought.
Who is a first time buyer? There is no age limit on claiming this relief. However, if there are two buyers, both must be first time buyers. So, for example, if a spouse owned a property before marriage, the relief will not be available. Also simply owning a share in another property, such as a family holiday home or an inherited property, will lead to the loss of this relief. We await the legislation to see exactly how some of this will work, for example with beneficiaries of estates that include a residential property, but it appears that the relief will not be available to many who feel they are first time buyers.
See a more detailed comment from Sarah Cardew.
Capital Gains Tax:
The budget included various changes to capital gains tax:
The proposal for payment of capital gains tax on the disposal of residential property within 30 days has been deferred to April 2020.
Non-residents are of course already subject to a 30 days notification, and in many cases payment, deadline on disposals of UK residential property. The Government have published a consultation to extend this so that all gains on non-resident disposals of UK property will be brought within the scope of UK tax. These changes are to be effective on and after 1 April 2019 for companies and on and after 6 April 2019 for those subject to capital gains tax and will bring the UK in line with many other countries. An anti-forestalling measure will be effective from Budget day so the detail of that will be key for any non-resident looking to dispose of a UK commercial property where the sale may not take place before April 2019.
It has also been announced that the indexation allowance that companies can claim when calculating capital gains is to be frozen for disposals after 1 January 2018 increasing the fiscal drag on future disposals.
Finally, in line with the increase in the Consumer Prices Index, the Annual Tax on Enveloped Dwellings (ATED) annual charges will rise by 3% from 1 April 2018. The ATED applies where a non-natural person such as a company owns an interest in UK residential property valued at more than £500,000 and where a relief cannot be claimed. For 2018/19 the ATED charge will range from £3,600 to ££226,950 depending on the value of the property. That value will be rebased to the value as at 31 March 2017 with effect from 2018/19 which is likely to bring more properties into the ATED charge.
Following the release of the Paradise Papers the Chancellor was keen to be seen to tackle tax avoidance – again. Last week the second Finance Act of the year received Royal Assent, bringing legislation on the Corporate Criminal Offences of failure to prevent the criminal facilitation of tax evasion, and the new rules on the Requirement to Correct into force.
The Government will now consult on how to legislate for an extension to the assessment time limits for non-deliberate offshore tax non-compliance from 4 or 6 years to 12 years. The time limits for deliberate non-compliance will remain at 20 years. This will give HMRC time to make full use of the information on income and gains that it is starting to receive from overseas countries under the Common Reporting Standard where a UK resident may have made an innocent or careless mistake rather than a deliberate one.
Anyone concerned that they may not be reporting their overseas income or gains properly now only has until September 2018 in which to regularise their affairs before things get a whole lot more difficult and expensive to fix.
Certificates of Tax Deposit abolished:
The Government has announced that it is summarily closing the Certificate of Tax Deposit Scheme on 23rd November 2017. The scheme allowed taxpayers to deposit funds with HMRC to mitigate the cost of interest due to HMRC until the exact value of the liability could be ascertained.
The Government claimed in its Budget Notes that the abolition of the scheme will make the tax system simpler and fairer”, although it isn’t clear why the scheme is unfair. No new Certificates of Tax Deposit will be issued after 23rd November 2017, but existing certificates will be honoured for six years. Penalties for late submission of tax returns and interest for late payment of tax are also to be reformed using a points-based approach.
Consultation on making trusts simpler, fairer and more transparent.
Hidden among 75 or more publications on Gov.UK on budget day was the announcement:
Taxation of trusts: “… the government will publish a consultation in 2018 on how to make the taxation of trusts simpler, fairer and more transparent.”
This follows a consultation from 2004 to 2006, which was supposed to result in the “modernisation of the taxation of trusts”, although it achieved little and left a number of anomalies.
From 2012 to 2014 we had three successive consultations about IHT on trusts, the first two speaking of “simplifying” and the third of “a fairer way of calculating trust charges”, abandoning the pretence of simplification! This is resulted in only four real changes. One, genuinely, made the IHT rules both simpler and fairer; one, (for no obvious reason) changed the dates for making IHT returns on trust charges; and the other two, made the rules significantly more complex.
It will be important to engage with this further consultation, as it is too important to leave just to HMRC, but trust taxation has proved notoriously difficult to simplify or make fairer!
Trust register: a significant change from HMRC on 23 Nov
In another part of HM Revenue and Customs, the day after the Budget, a major change for practitioners was announced. It amounts to two climb-downs by HMRC in response to huge pressure from professional bodies (to which we have been contributing) as to both the substance and form of the Trust Register. This new means of establishing a connection with HMRC to pay trust tax liabilities, which was only opened to professional agents in mid-October, has been a nightmare for practitioners at the most busy time of year.
The first change concerns the beneficiaries whose details need to be shown on the Register. On 9 October 2017, HMRC issued guidance (in FAQs) on the use of a “class” to describe the beneficiaries of a trust. This guidance went beyond the scope of the regulations, requiring trustees to produce details of many members of a class of beneficiary who might never in practice benefit.
HMRC have listened to stakeholder feedback about their interpretation of the legislation and revised their position so that in many cases trustees can refer to a “class” of beneficiaries, such as “grandchildren”. Where a beneficiary is individually named on a trust instrument, and thus can be clearly determined, details must be shown on the Register –that is unchanged. However, where a beneficiary is un-named, being only part of a class of beneficiaries, identities only need to be disclosed when they receive a benefit from the trust. This is really helpful to the running of ordinary trusts, most of which have nothing to do with money laundering etc.
HMRC are updating their guidance on GOV.UK to reflect their revised position. We can share more on this when the revised picture is fully clear. In the meantime, we would be pleased to advise if any trustees are uncertain how they stand.
Secondly, as part of HMRC’s major drive at present to “improve the customer journey” they have simplified part of the process for registering a trust. Agents can now access the TRS directly without having to first gain access to Agent Services, with a special new account, saving time and trouble. It’s good to see that they have listened to feedback, at least in part, from those dealing with trusts in practice.
Published: 22 November 2017
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