Budget briefing

2018 Budget

Budget briefing for UK clients

The Chancellor presented his 2017 Spring Budget on March 8th. This will be the last ever Spring Budget as he announced last November. From Autumn 2017, there will only be one budget a year - here’s hoping that our lives are made less complicated by this.

As you may be aware, there were significant changes made to the taxation of Individuals and Corporations. I recap for you the changes and the day these come into force.

INCOME TAX

  1. Increase in Class 4 NIC for the self-employed. From 6th April 2018 - 10% and 6th April 2019 - 11%. This was reversed by the Chancellor but we expect something similar for this 2018 budget.
  2. Dividend Allowance - drop from £5,000 (2016/2017) to £2,000 (2017/2018). Dividends over and above this limit will be taxed at 7.5%/32.5%/38.1%. Overseas investors will receive a tax credit equal to the tax charged on dividend income.
  3. To complicate matters, there are 3 more tax free allowances - Personal savings allowance (£1,000/£500), Trading income (£1,000) and Property income (£1,000).
  4. The government continues to ‘punish’ landlords: Cancellation of the 10% Wear & Tear Allowance - with effect from (w.e.f.) 6th April, 2016 Replacement Allowance - this replaces the W&T Allowance, w.e.f. 6th April, 2016. The initial ‘Furniture Package’ cost is still not a deductible expense. Restriction of loan/mortgage interest - will begin from 2017/2018 tax year. Under this tax rule, interest is not totally disallowed but will be gradually replaced by a tax credit. This tax credit is equal to 20% of the interest paid. In 2017/2018, the restriction is 25%, 2018/2019 - 50%, 2019/2020 - 75% and then 100%. If your net income before interest expense is not more than £33,500 per owner, this change will not affect you.
  5. Quarterly reporting - this is part of HMRC’s attempt to make tax reporting digital and more timely. This will start in April 2019 with businesses who are VAT registered. Landlords will probably be the next group to start reporting every quarter. Other businesses with turnover of less than £10,000 is exempt from this. For businesses with turnover between £10,000 and £85,000, the first filing under this scheme will commence in 2020. Incorporated businesses will start to file quarterly from 2021. Businesses registered for VAT are already filing quarterly so HMRC does not anticipate too much hardship.
  6. Personal Allowance rises to £11,850 per person from 6th April, 2018 and basic rate band is at £34,500.
  7. Deemed domicile UK - anyone living in the UK for the last 15 out of 20 years will be automatically deemed domicile in the UK. This will bring the income from all their worldwide assets into the UK tax system - much like the US tax system. This ‘term’ can be broken if the taxpayer stays out of the UK for 6 full tax years.

CAPITAL GAINS TAX

  1. New Capital Gains tax rate reduced to 8% and 10% - for assets that are not residential properties. For residential properties, it remains at 18% or 28%.
  2. Deemed domicile UK - anyone living in the UK for the last 15 out of 20 years will be automatically deemed domicile in the UK. The gains made from sale of non UK assets will become subject to UK Capital Gains Tax.
  3. Annual exemption goes up by £200 to £11,300 per person. This is given every year but if not used, it is lost.

INHERITANCE TAX

  1. The increased Nil Rate for family homes comes in from April 2017. This is only applicable where the property is passed down within the family - from parent to child or grandchildren and if the total estate is less than £2MM.
  2. For Non Resident companies, the biggest change w.e.f. 1st April 2017, is the charge to Inheritance Tax on all residential properties in the UK. They have not announced how this will be ‘policed’ but this is definitely passing into law from April 2017.
  3. The Nil Rate Band is kept at £325,000 per person. Spouses can transfer their unused bands to each other - therefore, for purposes of calculating what IHT may be payable on your UK assets, you can deduct £650,000.
  4. Deemed domicile UK - anyone living in the UK for the last 15 out of 20 years will be automatically deemed domicile in the UK. This means that all the non UK assets will be brought into UK tax on death. For those that become deemed domicile after April 2017, they can treat the cost base of their Non UK assets as the market value on 5th April, 2017.
  5. On death, the executors have to apply for probate in UK for UK assets. The charge for probate used to be a flat fee of £215. From May 2017, it will be charged according to the value of the estate. The fee will range from £0 (for assets up to £50,000) to £20,000 (for assets above £2MM).

CORPORATION TAX

  1. Public Sector Bodies (PSB) have to determine the status of their contractors - please be aware that this rather complicated rule comes into force from 1st April, 2017. At present, contractors working under an umbrella company are still able to claim non-employment status.
  2. Corporation tax rate will drop from 1st April 2017 to 19% and drop further from 1st April 2020 to 17%.
  3. Easing of Losses brought forward rules have been announced. From April 2017, losses can be used to offset profits of other trades within the company and to offset profits from other companies within a group.

VALUE ADDED TAX (VAT)

  1. The Flat Rate Scheme was introduced to help small businesses with the burden of full-blown filing of VAT returns. Different types of trades use a different rate that takes into account the Input VAT not claimed.
  2. From 1st April 2017, the Flat Rate for some businesses will go up to 16.5%. This means that for every £20 of VAT collected, the business pays over £19.80 to HMRC.
  3. This new rate affects businesses that do not purchase of lot of ‘GOODS’ - if you are currently registered to use Flat Rate Scheme, and I have not already been in touch, please contact me so we can work out if you should use the new, higher flat rate from 1st April 2017.
  4. The above is a general overview of some changes brought in or changes being considered. It is by no means exhaustive. If you have a particular question, please do email me with your queries.

Budget briefing for non UK clients

The UK Chancellor presented his 2017 Spring Budget on March 8th. This will be the last ever Spring Budget as he announced last November. From Autumn 2017, there will only be one budget a year - here’s hoping that our lives are made complicated by this.

As you may be aware, there were significant changes made to the taxation of Overseas/Non Resident Investors like yourselves. I recap for you the changes and the day these come into force.

INCOME TAX

  1. Cancellation of the 10% Wear & Tear Allowance - with effect from (w.e.f.) 6th April, 2016
  2. Replacement Allowance - this replaces the W&T Allowance, w.e.f. 6th April, 2016. The initial ‘Furniture Package’ cost is still not a deductible expense.
  3. Restriction of loan/mortgage interest - will begin from 2017/2018 tax year. Under this tax rule, interest is not totally disallowed but will be gradually replaced by a tax credit. This tax credit is equal to 20% of the interest paid. In 2017/2018, the restriction is 25%, 2018/2019 - 50%, 2019/2020 - 75% and then 100%. If your net profits before interest expense is not more than £33,500 per owner, this change will not affect you.
  4. Deemed domicile UK - anyone living in the UK for the last 15 out of 20 years will be automatically deemed domicile in the UK. This will bring the income from all their world wide assets into the UK tax system - much like the US tax system.
  5. Quarterly reporting - this is part of the UK tax authority’s attempt to make tax reporting digital. Landlords will be one of the first groups to start reporting every quarter - their income and expenses. Be advised that this will probably commence in the year beginning 6th April 2018.
  6. For those that can claim the annual tax free allowance (Personal Allowance) this rises to £11,500 per person from 6th April, 2017.

CAPITAL GAINS TAX

  1. Whether you are selling a property or an assignment of an offplan purchase, you have to report the sale within 30 days of completion. The penalties and fines are very high for non-compliance: £100 for 1st 90 days and then £10 per day. There is a cap at £900.
  2. For properties and offplan properties purchased before 6th April, 2015, you should ask your selling agent or a recognised surveyor to give you a value as ast April 2015. This can save you a lot of tax if the property has increased in value from the time you exchanged on the initial contract.
  3. When you sell, some expenses can be deducted before arriving at the Gain/Loss figure. If a Loss is suffered, this loss can be carried forward to reduce future Gains. This is very important for investors who have more than one property in their UK portfolio.
  4. Deemed domicile UK - anyone living in the UK for the last 15 out of 20 years will be automatically deemed domicile in the UK. The gains made from sale of non UK assets will become subject to UK Capital Gains Tax.
  5. New Capital Gains tax rate reduced to 8% and 10% - for assets that are not residential properties. For residential properties, it remains at 18% or 28%.
  6. Annual exemption goes up by £200 to £11,300 per person. This is given every year but if not used, it is lost.

INHERITANCE TAX

  1. The biggest change w.e.f. 1st April 2017, is the charge to Inheritance Tax on all residential properties in the UK. They have not announced how this will be ‘policed’ but this is definitely passing into law from April 2017.
  2. The Nil Rate Band is kept at £325,000 per person. Spouses can transfer their unused bands to each other therefore, for purposes of calculating what IHT may be payable on your UK assets, you can deduct £650,000.
  3. Transfer of shares in a non UK company, prior to April 2017, will potentially, help with IHT planning.
  4. Deemed domicile UK - anyone living in the UK for the last 15 out of 20 years will be automatically deemed domicile in the UK. This means that all the non UK assets will be brought into UK tax on death. For those that become deemed domicile after April 2017, they can treat the cost base of their Non UK assets as the market value on 5th April, 2017.
  5. On death, the executors have to apply for probate in UK for UK assets. The charge for probate used to be a flat fee of £215. From May 2017, it will be charged according to the value of the estate. The fee will range from £0 (for assets up to £50,000) to £20,000 (for assets above £2MM).

Annual Tax on Enveloped Dwellings - only applicable to Companies that own residential properties that are not income generating

  1. New rates for 2017/2018 announced early March. As expected, the rates have gone up:
  2. Property value between:
    £500,000 - £1MM £3,500
    £1MM - £2MM £7,050
    £2MM - £5MM £23,550
    £5MM - £10MM £54,950
    £10MM - £20MM £110,100
  3. Properties under ATED have to be revalued this year - April 2017. The new values will be used in the 2018/2019 tax year to determine how much ATED to pay.
  4. ATED annual filing and payment must be made during April. Late filing will attract fines and penalties.

CORPORATION TAX

  1. Non resident companies are currently assessed on their UK income and Capital Gains at 20% (except those that are chargeable to ATED rules). At present, although the company is charged at 20%, it is partly treated as an ‘Individual’ for income tax and a ‘company’ for capital gains.
  2. Consultation will take place shortly to bring these companies within the UK Corporation Tax Structure. What does this mean for Non Resident Companies? (a) Lower tax rates - dropping from 20% to 17% (2020). (b) Subject to restriction on Group interest. This only applies to Comapnies that belong to a world-wide group and where the net interest expense of the Group is more than £2MM. I don’t anticipate that this will affect many non resident investors of residential properties. (b) Subject to restriction on non-arms lengtrules - this dictates how losses in a company is treated. Again, this should not affect non resident investors.

The above is a general overview of changes brought in or changes being considered. It is by no means exhaustive. If you have a particular question, please do email me with your queries.