The UK Autumn Statement 2015-25 November 2015

This is the first time since 2013 that the Autumn Statement has been combined with a Spending Review. Yesterday’s speech was light on detail when it came to changes in the tax regime while concentrating on borrowing, debt, funding and cuts. Given this was the fourth opportunity in 12 months for the Government to officially tinker with the tax system the relatively uneventful statement from a tax perspective was welcome. However, we are left waiting for the Finance Bill 2016 to be published on 9 December 2015 to confirm that there are no surprises in the detail.

Summarised below are the highlights relevant to the asset management community:

Company distributions
A consultation on the company distribution rules will be published later this year and the Transactions in Securities rules will be amended in light of perceived opportunities to convert income into capital to gain a tax advantage.

Disguised remuneration
The government have said they intend to take action against those that have used or continue to use ‘disguised remuneration schemes’. They commented that they will consider legislating in future Finance Bills to close down further new schemes intended to avoid tax on earned income with effect from 25 November 2015. Although a direct link was not drawn it would appear possible that this may stem from HMRC’s recent successful appeal in the Rangers’ Case which decided that payments to an EBT were redirected earnings and subject to PAYE and NIC. However with no detail as to the scope of the proposed measure taxpayers are left unable to judge whether action taken from today would fall foul of the legislation.

There was also comment that HMRC will continue to examine salary sacrifice arrangements. Again the Rangers case may have emboldened HMRC in this area.

Taxation of asset manager’s performance based rewards
Taxation of asset manager’s performance based rewards was mentioned although only to note that legislation will soon be introduced to determine whether such rewards will be taxed as income or capital gains. The consultation closed on 30 September and we are yet to receive feedback. Further details and draft legislation should be forthcoming on 9 December 2015.

Entrepreneurs’ relief and Business Investment Relief
Business owners can breathe a sigh of relief as entrepreneurs’ relief has remained despite predictions of change in the media. The only mention that entrepreneurs’ relief received was that the government will consider bringing forward legislation to amend the changes made by Finance Act 2015 to entrepreneurs’ relief, in order to support businesses by ensuring that the relief is available on certain genuine commercial transactions. This is a welcome change as the actions earlier in the year inadvertently disadvantaged businesses undertaking activity through a LLP which was clearly not the policy intention although we will need to see the detail to see how the ‘fix’ will operate in practice.

Also welcome is the comment that business investment relief which was introduced to encourage remittances for business investment is to be reviewed. There is a perception that the take up has not been as expected due to the restrictions and complexity in the rules.

LLPs and Intangible Assets
It was announced that the government will amend the intangible fixed asset rules to clarify the treatment on transfers of assets to partnerships and the amendments will have immediate effect. This piece of targeted anti-avoidance legislation will ensure that partnerships cannot be used in arrangements that obtain tax relief for their corporate members.

GAAR and Offshore Tax Evasion
A new penalty of 60% of the tax due where GAAR is successfully applied will be legislated for and changes made to improve the ability of GAAR to tackle marketed schemes. To date HMRC have been silent about whether any cases have actually fallen within the GAAR ambit relying largely on its power as a deterrent, however this announcement may now signal a change in strategy.

There is to be a new criminal offence in relation to offshore tax evasion which will not require HMRC proving the taxpayer intended to evade tax. In addition there will be criminal offence for corporates who fail to prevent tax evasion. New larger civil penalties will also apply for offshore tax evasion including those who enable offshore evasion.

Stamp Duty Land Tax
With effect from 1 April 2016, SDLT charged on the purchase of ‘additional’ residential properties will be 3% higher than the current SDLT rates. Those purchasing their first property will pay the standard SDLT but holiday homes, second homes, buy to lets will suffer the additional tax. This is consistent with the government’s housing policy however will disproportionality impact future landlords rather than existing owners, stemming rather than reversing the perceived problem. While the policy objectives are undoubted, equally true is that this is a tax increase that escaped the chancellors tax lock.

CGT
Currently CGT is due on the 31 January following the year of disposal of residential property which is not your principal place of residence. This can push the date of payment out as far as 22 months after a disposal is made. From April 2019 the payment date will be bought forward to be 30 days after the disposal of residential property is made.

Perhaps it’s no surprise that we were not subject to significant changes given the Finance Act 2015 only received Royal Assent a week ago and we are already facing the next one. We await further detail on these measures in the Finance Bill 2016 which is due to be published on 9 December 2015.

This is the first time since 2013 that the Autumn Statement has been combined with a Spending Review. Yesterday’s speech was light on detail when it came to changes in the tax regime while concentrating on borrowing, debt, funding and cuts. Given this was the fourth opportunity in 12 months for the Government to officially tinker with the tax system the relatively uneventful statement from a tax perspective was welcome. However, we are left waiting for the Finance Bill 2016 to be published on 9 December 2015 to confirm that there are no surprises in the detail.

Summarised below are the highlights relevant to the asset management community:

Company distributions
A consultation on the company distribution rules will be published later this year and the Transactions in Securities rules will be amended in light of perceived opportunities to convert income into capital to gain a tax advantage.

Disguised remuneration
The government have said they intend to take action against those that have used or continue to use ‘disguised remuneration schemes’. They commented that they will consider legislating in future Finance Bills to close down further new schemes intended to avoid tax on earned income with effect from 25 November 2015. Although a direct link was not drawn it would appear possible that this may stem from HMRC’s recent successful appeal in the Rangers’ Case which decided that payments to an EBT were redirected earnings and subject to PAYE and NIC. However with no detail as to the scope of the proposed measure taxpayers are left unable to judge whether action taken from today would fall foul of the legislation.

There was also comment that HMRC will continue to examine salary sacrifice arrangements. Again the Rangers case may have emboldened HMRC in this area.

Taxation of asset manager’s performance based rewards
Taxation of asset manager’s performance based rewards was mentioned although only to note that legislation will soon be introduced to determine whether such rewards will be taxed as income or capital gains. The consultation closed on 30 September and we are yet to receive feedback. Further details and draft legislation should be forthcoming on 9 December 2015.

Entrepreneurs’ relief and Business Investment Relief
Business owners can breathe a sigh of relief as entrepreneurs’ relief has remained despite predictions of change in the media. The only mention that entrepreneurs’ relief received was that the government will consider bringing forward legislation to amend the changes made by Finance Act 2015 to entrepreneurs’ relief, in order to support businesses by ensuring that the relief is available on certain genuine commercial transactions. This is a welcome change as the actions earlier in the year inadvertently disadvantaged businesses undertaking activity through a LLP which was clearly not the policy intention although we will need to see the detail to see how the ‘fix’ will operate in practice.

Also welcome is the comment that business investment relief which was introduced to encourage remittances for business investment is to be reviewed. There is a perception that the take up has not been as expected due to the restrictions and complexity in the rules.

LLPs and Intangible Assets
It was announced that the government will amend the intangible fixed asset rules to clarify the treatment on transfers of assets to partnerships and the amendments will have immediate effect. This piece of targeted anti-avoidance legislation will ensure that partnerships cannot be used in arrangements that obtain tax relief for their corporate members.

GAAR and Offshore Tax Evasion
A new penalty of 60% of the tax due where GAAR is successfully applied will be legislated for and changes made to improve the ability of GAAR to tackle marketed schemes. To date HMRC have been silent about whether any cases have actually fallen within the GAAR ambit relying largely on its power as a deterrent, however this announcement may now signal a change in strategy.

There is to be a new criminal offence in relation to offshore tax evasion which will not require HMRC proving the taxpayer intended to evade tax. In addition there will be criminal offence for corporates who fail to prevent tax evasion. New larger civil penalties will also apply for offshore tax evasion including those who enable offshore evasion.

Stamp Duty Land Tax
With effect from 1 April 2016, SDLT charged on the purchase of ‘additional’ residential properties will be 3% higher than the current SDLT rates. Those purchasing their first property will pay the standard SDLT but holiday homes, second homes, buy to lets will suffer the additional tax. This is consistent with the government’s housing policy however will disproportionality impact future landlords rather than existing owners, stemming rather than reversing the perceived problem. While the policy objectives are undoubted, equally true is that this is a tax increase that escaped the chancellors tax lock.

CGT
Currently CGT is due on the 31 January following the year of disposal of residential property which is not your principal place of residence. This can push the date of payment out as far as 22 months after a disposal is made. From April 2019 the payment date will be bought forward to be 30 days after the disposal of residential property is made.

Perhaps it’s no surprise that we were not subject to significant changes given the Finance Act 2015 only received Royal Assent a week ago and we are already facing the next one. We await further detail on these measures in the Finance Bill 2016 which is due to be published on 9 December 2015.