We set out below a summary of key items of interest announced by the Chancellor in the UK Autumn Statement yesterday:
Corporate tax rates
- The Government remains committed to reducing the main UK corporation tax rate (currently 23) to 21% from April 2014 and 20% from April 2015. The small profits rate remains at 20%.
- From April 2014 stamp duty and stamp duty reserve tax (SDRT) on purchases of shares in exchange traded funds will be abolished. This measure follows announcements in this year's Budget that stamp duty and SDRT will be abolished (also from April 2014) on purchases of AIM and ISDX quoted shares and on UK mutual funds. Taken together, such measures could stimulate investment into UK equities at a time when bank lending remains constrained.
- Companies which change ownership can be prevented from carrying forward losses from periods before the change in ownership to periods after the change where certain conditions apply. With effect from 2014, the Government is to relax these rules in two key respects:
- the first change should allow a new holding company to be inserted at the top of a group of companies without triggering a carry forward loss restriction; and
- the second change applies to companies with investment business which are currently prevented from carrying forward losses beyond a change of ownership if there has been a 'significant' (essentially at least £1 million) increase in the company's share capital. The change will see a significant increase only arise where capital is increased by both £1m and at least 25%.
Real estate matters
- The tax rules relating to non-UK residents holding UK residential property will continue to 'tighten'. Currently, UK capital gains tax is only payable on UK property held as an investment if the owner is UK resident. However, from April 2015, UK capital gains tax will be payable on future gains made by non-residents from the sale of UK residential property. A consultation will be carried out, during 2014, to establish how this new tax charge will operate.
- An individual does not pay UK capital gains tax on the sale of a dwelling-house provided that it is their main residence. The rules allow a house to continue to be treated as a main residence during the 36 month period following the individual ceasing to live at that house - i.e. more than one house can potentially qualify at the same time. This 36 month period will be reduced to 18 months.
- A real estate purchase by a charity is generally exempt from SDLT if the real estate is to be used for charitable purposes or is let for income that is applied for charitable purposes. HMRC's view has been that the relief is not available where the charity purchases jointly with a non-charity but this view was defeated in two recent cases. The Autumn Statement has confirmed that the legislation will be 'clarified' to ensure that a charity can claim relief on its proportion of the property purchased.
Bank levy and banking code of practice
- From 1 January 2014 the full rate of the bank levy will be increased to 0.156%, an increase of 10%. A proportionate increase will also be made to the half rate. This is the sixth successive increase in the bank levy, the rate of which has now more than doubled since it was first introduced. As banks continue to deleverage, we expect the rate of the levy to continue to rise to meet the Government's fiscal targets.
- Following a recent review, changes will also be made to the operation of the bank levy generally from 2015. However, two changes are to take effect from January 2014, namely to align the bank levy definition of Tier One capital with the new Capital Requirements Directive and to exclude liabilities in respect of collateral that has been passed on to a central counterparty.
- From 31 March 2015, HMRC will publish an annual report on the Code of Practice on Taxation for Banks. The report will list all banks, building societies and investment firms which have unconditionally adopted the Code as well as those that have not. In addition HMRC may 'name and shame' any bank, building society or investment firm which it considers has not complied with the Code.
Employee share ownership
- The £250 per month saving limit under sharesave plans (SAYE) will be increased to £500 from 2014. The limit on free shares (currently £3,000 per annum) and partnership shares (currently £1,500 per annum) under approved SIPs will be increased to £3,600 and £1,800, respectively, from 2014. Unfortunately, the Chancellor did not announce any increase in the £30,000 limit for approved CSOPs.
- The Chancellor confirmed this year's earlier announcement that disposals of controlling interests in companies to employee ownership trusts will be exempt from CGT. There will also be an associated exemption from inheritance tax. From October 2014, 'indirectly employee owned' companies controlled by an employee ownership trust will be able to pay annual bonuses of up to £3,600 (presumably per employee) free of income tax and NICs. However, it remains to be seen how much interest there will be in these measures given the need for a company to be controlled by an employee ownership trust.
- The Government will introduce a package of simplification measures proposed by the Office of Tax Simplification. Though the Autumn Statement does not provide details of the precise measures, it is assumed that they relate to certain matters that were the subject of consultation earlier this year. These included:
- extending income tax roll-over relief to exchanges of restricted securities and partly paid / nil paid shares (income tax relief is currently only available on share option exchanges);
- relaxing the rule which imposes an additional employment tax charge if an employee does not reimburse his employer company within 90 days for employment taxes arising on the exercise or vesting of share awards; and
- extending corporation tax relief for companies in respect of share acquisitions on takeovers of unlisted companies to share acquisitions occurring within 90 days of the takeover.
Shale gas and other onshore oil extraction
- The Government has announced the introduction of a new onshore allowance with effect for 'qualifying sites' whose development for onshore oil or gas related activities is authorised on or after 5 December 2013. This allowance will remove from the scope of the supplementary charge on ring fence profits an amount of income equal to 75% of the capital expenditure in relation to that site. This will reduce the effective rate on an equivalent amount of profit from 62% to 30%. Certain further conditions apply, including a requirement that production from the site is not expected to exceed 7,000,000 tonnes
- The worldwide debt cap (WWDC) limits corporation tax relief for interest and other finance expenses of UK companies that are members of large groups of companies to the finance costs of the worldwide group. Effective 5 December 2013, the WWDC rules will ensure that companies without a share capital (eg companies limited by guarantee) can be a relevant 'group company' that is subject to the WWDC. The rules will also ensure that group ownership can be traced through companies that do not have a share capital.
- The controlled foreign company (CFC) rules contain full and partial financing exemptions for interest receipts on intra-group lending activities of CFCs of a UK parent. Effective 5 December 2013, a new anti-avoidance provision will deny the benefit of these financing exemptions where they arise from arrangements involving the transfer of existing intra-group lending arrangements out of the UK. The Government will also close a loophole (again with effect from 5 December) in an existing anti-avoidance rule which denies the benefit of the financing exemptions to certain arrangements that increase debt in the UK.
- Following consultation earlier this year, the government will enact (with effect from 5 December 2013) rules to prevent the tax-motivated allocation of partnership profits in such a way that corporate members of partnerships (which are taxed at lower rates) receive a proportionately greater allocation of profits than individual members (who are taxed at higher rates) in circumstances where those individual members continue to benefit from the relevant profits.
- The Government states that it will amend existing legislation to prevent employment intermediaries facilitating false employment. This is different to the proposals put forward in Budget 2013 in relation to offshore employment intermediaries, and seems likely to involve a tightening of the infamous 'IR35', 'managed service company' and related legislation.
- UK resident but non-domiciled employees who work both in the UK and overseas can in some cases avoid UK tax on their overseas earnings if those earnings arise in relation to a separate employment with an overseas employer. HMRC has for some years scrutinised such arrangements carefully, and requires that there are genuinely two different employments, rather than a single employment with just a geographical split of duties. The Government now intends to legislate to prevent this practice. The Autumn Statement refers to preventing 'artificial' use of dual contracts unless a 'comparable' level of tax is paid on the overseas contracts. It will be interesting to see how the legislation will be framed and whether it will indeed be limited to 'artificial' arrangements.
For further information or advice, please speak to one of the members of the UK tax team below:
T +44 (0)121 262 5972
Legal Director, Leeds
T +44 (0) 113 369 2439
T +44 (0)20 7796 6956
T +44 (0)20 7796 6300
T +44 (0)161 235 4182
T +44 (0)20 7153 7336