Budget & Finance Bill Update - 2013 Mike Hayes & Geraint - PowerPoint PPT Presentation

Budget & Finance Bill Update - 2013 Mike Hayes & Geraint Lewis

Main topics  Personal tax allowances & rates  Inheritance tax  New residence rules  Mansion tax  Anti-avoidance  VAT & other indirect taxes  Business & corporate tax

Income tax rates 2012/ 12/13 2013/1 3/14 2014/1 4/15 Personal allowance £8,105 £9,440 £10,000 Income limit £100,000 £100,000 £100,000 Basic rate – 20% £34,370 £32,010 £31,865 Higher rate – 40% £34,371 - £32,011 - £31,866 - £150,000 £150,000 £150,00 Additional rate – 50% 45% 45% 50% > £150K > £150K > £150K

National insurance rates 2013/1 3/14 Employer’s NIC 13.8% Employee’s NIC 2% Class 4 NIC 2% Note: highest rates only

Capital gains tax 2012/ 12/13 2013/1 3/14 Annual exemption £10,600 £10,900 Basic rate tax payers 18% 18% 40% & 45%/50% tax payers 28% 28% Entrepreneurs’ relief – 10% £10 £10 million million Trust capital gains tax rate 28% 28%

Inheritance tax 2013/1 3/14 Nil rate band £325,000 Life time gifts 20% On death 40% Rate on death where ≥ 10% of net estate 36% left to charity

Inheritance tax  Nil rate band was to go up  Now to be capped at £325,000 until April 2018  To fund cap on reasonable care costs of £72,000 from April 2016

Inter spouse exemption  Applies to transfers to spouses & civil partners  Lifetime or on death  Limit - ∞  But where donee is non-domiciled the limit is £55,000  From 6 April 2013 to be increased to £325,000

New election  New election - to be treated as UK domiciled for inheritance tax purposes only: – Benefit is that inter-spouse exemption is uncapped – Can be made at any time after marriage/registration of civil partnership – Can be effective for up to 7 years earlier - not before 6 April 2013 – Can be made within 2 years of death – Effective from immediately before death

Example  Arkwright (Yorkshire domicile!) married Mlle Geneviève (French domicile) in 2012  She retains her French domicile of origin  Arkwright dies suddenly in November 2013  He leaves his entire estate of £5M of freehold property to Geneviève  Inheritance tax on £5M less nil rate band & capped exemption (£650,000) = £1.74M

Example  If Geneviève elects to be treated as UK domiciled within 2 years of Arkwright’s death: – Effective from immediately before death – Unlimited inter-spouse exemption available – £1.74M inheritance tax saving  If Geneviève goes back to France & is NR for more than 4 years, the election will cease to have effect  She still owns UK assets, but can convert these

Inheritance tax - liabilities  Liabilities are deductible from an individual's estate for inheritance tax  The liability is deducted from the property on which the loan is secured  Important where reliefs available on some property: – Business property – Agricultural property – Woodlands

Example  X’s estate comprises a house worth £2.5M  Potential IHT liability - £1M  He buys a farm for £1.5M, funded with a loan  The loan is secured on his house

Example Bus usine iness ss proper perty House use X owns a house £2,500,000 Borrows to buy a £1,500,000 -£1,500,000 farm Net et esta tate £1,500,000 00 £1,000,000 00 APR -£1,500,000 Taxa xable ble estat tate £Ni Nil £1,000,000 00 Inheritanc eritance e tax £400,000 £400,000 Saving £600,000 £600,000

But from Royal Assent Bus usine iness ss proper perty House use X owns a house £2,500,000 Borrows to buy a £1,500,000 farm -£1,500,000 Net et esta tate £Nil £2,500,0 £2,500,000 00 APR Nil Taxa xable ble estat tate £Ni Nil £2,500,0 £2,500,000 00 Inheritanc eritance e tax £1,000,000 00

Debts & inheritance tax  Applies to deaths & chargeable transfers after Royal Assent  Therefore existing arrangements caught  Also – debt must be paid (eg after death) unless commercial reason for not doing so

Statutory residence test  New rules from 6 April 2013  Need to review cross border workers as residence may change under new rules  Need to keep very accurate records

Part A  Always non resident if either: – Visitor - not resident in any of the previous 3 tax years and < 46 days in the UK in the year – Hardly here at all – resident in one or more of previous 3 tax years and < 16 days in the UK in the year – Full time working abroad

Full time working abroad  At least a full UK tax year working outside of UK – Will allow up to 90 days in the UK pa – Including up to 30 working days (more than 3 hours per day) in the UK in any one tax year – No significant breaks from overseas work  Full time ≥ an average of 35 working hours pw

Part B  If Part A tests not satisfied - always UK resident if either: – In the UK for more than 182 days in the year – A home in the UK for more than 90 days:  Present at that home for at least 30 separate days; &  No overseas home in which you were present for more than 30 days in the tax year

Part B – Full time working in the UK for a period of 365 days:  All or part of period falls within tax year  No significant breaks  More than 75% of the work days in the tax year when more than 3 hours are worked are UK working days

Part C  Arrivers - anyone who has not been UK resident in any of the previous three tax years  Leavers – anyone else Days spent in UK Days spe pent in in UK Arriv iver ers Lea eaver ers 0 0 - 45 45 Not resident 46 46 -90 90 All 4 ties 0 0 – 15 15 91 – 120 91 Non resident 120 3 or more ties Non resident More than an 120 2 or more ties 16 - 45 45 Non resident 4 or more ties 46 -90 46 90 All 4 ties 3 or more ties 91 – 120 120 3 or more ties 2 or more ties More e than 120 20 2 or more ties 1 or more tie

UK ties  Family tie: – Spouse , civil partner, ‘significant other’ or minor children resident in UK – Some relaxation in the rules if:  Child here for full time education; or  Taxpayer sees them in the UK on 60 days or less

UK ties  Accommodation tie: – Available accommodation in the UK for at least 91 consecutive days; and – used in the year (only needs to be for 1 night a year) – If the home is of a close relative - up to 15 nights can be ignored  Work tie - works in the UK (employed or self employed) for 40 days (> 3 hours) or more in the tax year

UK ties  90 day tie - more than 90 days spent in the UK in either or both of the two previous tax years  Country tie – if the UK is the country in which you were present at midnight for the greatest number of days in the tax year – does not apply to arrivers

Other issues  UK day – here at the end of it: – In transit? – Exceptional circumstances  Deemed UK day: – P has at least 3 UK ties for a tax year, – The number of days in that tax year when P is present in the UK at some point in the day but not at the end of the day is more than 30, and – P was resident in the UK for at least one of the 3 tax years preceding that tax year

Other issues  What counts as work including travel  Split year basis  Ordinary residence abolished  Overseas work day relief put on statutory footing - 3 years only

Comment  Good to have some statutory rules  Mainly fair compared with previous position  Complicated  Need to review current arrangements  Need to keep records  But…..

Temporary non-residence  Capital gains realised whilst NR taxed on return to UK if not out of UK for 5 tax years  Now same rule to be applied to: – Certain lump sum pension benefits – Distributions from close companies – Release of a loan to a participator – Chargeable event gains

Mansion tax  Properties valued at over £2M held by non- natural persons: – SDLT from 21 March 2012 at 15% – Annual residential property tax from 1 April 2013 (now to be known as annual tax on en envel elope ped d dw dwel ellin ings gs – ATED) – Capital gains tax at 28% on any disposal from 6 April 2013

Spot the mansion? Which is worth more than £2 million?

Non-natural person  Examples given:  A company (could be a UK company)  A collective investment scheme (including a unit trust)  A partnership with corporate partners above

Exclusions from 15% charge  From Royal Assent 2013  Property developers – 2-year rule removed  Property rental businesses  Property traders  No relief where property occupied by a non- qualifying individual – Someone connected with beneficial ownership of the property

Exclusions from 15% charge  Dwellings open to the public for at least 28 days a year on a commercial basis  Occupation by certain employees or partners – < 5% interest in property or company owning it  Residential properties owned by charities & used for charitable purposes  Working farmhouses  Diplomatic properties  Other publicly owned residential properties

ATED Prope perty y £2m 2m-£5m £5m £5m 5m - £10m 0m - >£20m >£ 20m Val alue ue £10m 0m £20m 20m Annual £15,000 £35,000 £70,000 £140,000 Charge ge