Autumn Budget 2017 - Private Client highlights

Last week, the Chancellor delivered the Autumn Budget. The new timetable, which has seen the Budget move from the spring to the autumn, means that proposed changes will be legislated before the start of the tax year, giving more certainty to taxpayers and enabling them to plan accordingly.

From a private client perspective there was not much news in the speech itself but, as is often the case, there were further announcements in the raft of Budget Day papers released by the Treasury and HMRC after the Chancellor had sat down. This briefing summarises the main announcements of interest to private clients.

Property tax changes

Extension of capital gains tax for non-residents in relation to UK land and buildings

As recently as 2013, gains realised by non-resident individuals, companies and trustees on UK land and buildings were completely exempt from UK capital gains tax.  Over the past few years, the government has removed the tax advantages for non-residents who own UK residential properties. It has now decided that, with effect from April 2019:

• disposals of all types of UK land and buildings will be taxable regardless of the residence status of the person making the disposal; and
• disposals of interests in entities that are "property-rich" will also be within the scope of capital gains tax.  An entity is property-rich if more than 75% of its value derives from UK land and buildings.  

The rules will, however, include rebasing provisions for non-residential property so that only gains that relate to the period from April 2019 will be subject to the new charge.

Anti-forestalling provisions have been introduced with immediate effect to prevent non-residents making arrangements to avoid the new charge using a double taxation treaty.

We will shortly be publishing a separate briefing on the detail of the consultation.

SDLT

The Chancellor announced some good news for first-time buyers of residential properties worth up to £500,000.  For such buyers the first £300,000 will be exempt from SDLT and any amount between £300,000 and £500,000 will be subject to SDLT at 5%.  The exemption does not apply to properties purchased for more than £500,000; in these cases the whole of the consideration will be subject to SDLT at the normal rates.

In addition, minor changes have been introduced to ensure that the relief from the additional 3% SDLT charge (which applies where following the purchase the owner holds more than one residential property) is available in certain cases where there is an increase of an individual’s interest in his or her main residence; certain purchases or transfers made in the context of a divorce; and purchases by trustees for children whose affairs are subject to the Court of Protection.

Offshore trust anti-avoidance provisions

The Finance (No.2) Act 2017 received Royal Assent on 16 November.  This enacted most of the major changes to the taxation of non-UK domiciliaries that we have discussed in previous briefings, the most recent of which can be found here.

There remain some provisions relating to non-UK trust structures that will not come into force until 6 April 2018.  The consultation for these provisions closed on 25 October and the government confirmed in the Budget papers that, subject to minor drafting changes, these provisions will be included in the Finance Bill when it is published on 1 December. 

Consultation on taxation of trusts

The government will launch a consultation on the taxation of trusts in Spring 2018. We do not yet know the details of what is proposed – the announcement merely states that it will consider "how to make the taxation of trusts simpler, fairer and more transparent". However, given that there has been a substantial review of the taxation of non-UK trusts over the past couple of years, it seems likely that the consultation will focus on UK resident trusts.

Time limit for assessment of offshore tax liabilities

The government has announced that the time limit for assessing “offshore” tax liabilities will be extended to at least 12 years in all cases, following a consultation in spring 2018.  This is a significant extension to the current time limit of six years for non-deliberate behaviour (or four years where the behaviour was neither deliberate nor careless). 

Research report into the use of inheritance tax reliefs

Finally, alongside the Budget papers, HMRC published a research report by an independent body on the use of inheritance tax exemptions and reliefs which focusses on business property relief (BPR) and agricultural property relief (APR). 

The researchers interviewed a small sample of taxpayers and agents (80 in total). The conclusions are generally very encouraging, finding that "most instances of APR/BPR being applied to assets appeared to be genuine and in keeping with policy objectives". There have been concerns in recent years that these two reliefs would be a target for reform and so, while HMRC did not comment on the findings, this appears to be a positive development.