THE 'MANSION TAX' – AN UPDATE
By Robert King
The Budget announced the immediate imposition of a 15% stamp duty land tax (SDLT) charge where a single dwelling costing more than £2m is acquired by certain 'non-natural persons'. In addition, it was announced that there would be consultation on:
- introducing an annual charge on such properties so held
- extending the capital gains charge to cover gains arising on such properties where the non-natural person is non-UK resident.
We now know a little more about the Government's proposals for these two new charges, with the publication of a consultative document, Ensuring the fair taxation of residential property transactions. Whether the proposals are 'fair' is a moot point.
With regard to the annual charge, the proposals are as follows.
- The properties and entities affected will be the same as for the 15% charge.
- The rates will be as below with the bands to be indexed
according to the consumer price index each year:
Value Charge £2m to £5m £15,000 £5m to £10m £35,000 £10m to £20m £70,000 £20m+ £140,000
- It will take effect from 1 April 2013.
- The valuation will be self assessed with the value at 1 April 2012 forming the start point for existing structures in the same ownership, with five-yearly revaluations thereafter; a pre-return valuation checking service will be offered.
The capital gains charge will target a wider range of owners as, unlike the 15% and annual charges, it will also apply to trustees, among others. There will be no rebasing as at 6 April 2013 when the charge will commence, hence all accrued gains will be caught. This makes it retroactive in effect, even if not strictly retrospective. It will apply both to direct disposals of relevant UK properties and to the disposal of shares in companies where more than 50% of the value of the company derives from UK residential property.
The advent of these charges will focus minds on whether existing structures should be collapsed. The tax consequences of any such action are likely to be complex and will need careful advice.
GAAR–TIME FOR CLARITY
By Colin Aylott
On 12 June 2012 the Government launched a formal consultation on a new general anti-abuse rule (GAAR) to tackle 'artificial and abusive tax avoidance schemes'.This followed the announcement at Budget 2012 that such a rule will be introduced in 2013.The proposed GAAR illustrates the ever-closing gap between tax evasion and what the Government regards as unacceptable tax avoidance.
The consultation proposes the establishment of an advisory panel (as recommended in the November 2011 report by Graham Aaronson QC), members of which will come from both HMRC and business, to give opinions on cases where HMRC believes the GAAR should apply.
The advisory panel is intended to help identify the boundaries of the GAAR application; its opinions, however, will not be binding. Many are unhappy with the panel's lack of authority over HMRC, believing that the panel will simply act as additional administration. The consultation document does, however, state that it is the courts' responsibility to deliver binding decisions and it would be inappropriate for the panel to have such power.
The main criticism of the GAAR and the consultation document has been the lack of clarity on the boundary between abusive and non-abusive arrangements that is ultimately essential for its success. In particular, the inclusion of subjective language, such as the overuse of the word 'reasonable' when defining whether tax arrangements are abusive, has been highlighted as a possible point of contention. The definition of 'reasonable' will undoubtedly vary from one person to another.
The Government states that the purpose of the GAAR is to counteract tax advantages arising from abusive arrangements and has introduced three concepts that are key to its operation: 'tax arrangements', 'abusive' and 'tax advantage'. 'Tax arrangements' and 'abusive' have been defined as follows:
Tax arrangements – if "it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements".
Abusive – if it is an arrangement "the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action".
The consultation document clarifies that in court proceedings or tribunals the burden of proof to show that the GAAR applies will fall on HMRC. It will have to show that there are tax arrangements that are abusive, and that it is just and reasonable to disallow the tax advantages arising from them.
The Government has further work to do to convince us that this draft GAAR legislation is workable in practice. Considering the GAARs in operation around the world (for example Australia and Ireland), there have been issues with the clarity and complexity of their implementation. The UK consultation period is due to close 14 September 2012.
REMITTING FUNDS TO THE UK FOR BUSINESS INVESTMENT
By Mark Wingate
The Finance Bill 2012 included the proposed legislation on business investment relief for remitted foreign income and gains. Under pre-6 April 2012 rules, remittance basis taxpayers are liable to UK tax on any foreign income or capital gains which they remit to the UK, irrespective of the purpose for which the income and gains are used.
The relief is a welcome initiative under which UK resident non-domiciled persons will be able to remit overseas income and gains to the UK tax-free in respect of certain qualifying business investments in the UK, including in companies in which they or their associates are involved.
In order to qualify for the business investment relief the following main conditions must be met:
- the investment must be in a qualifying company (the 'target company') which meets the eligibility conditions
- the investment may be in the form of shares or loans
- the investment must be made within 45 days of the foreign income or gains being brought to the UK
- no benefit can be received by a relevant person, attributable to the investment
- a claim is made on the self-assessment tax return for the year in which the investment is made
- on disposal of the investment the proceeds of sale up to the amount of the investment must be taken offshore or reinvested in another qualifying investment within 45 days.
There is no constraint on the amount that can be brought to the UK and on which business investment relief is claimed.
Business investment will also potentially attract other existing tax reliefs, provided the qualifying conditions for these reliefs are met, such as:
- Enterprise Investment Scheme (EIS) relief
- Venture Capital Trust relief
- entrepreneurs' relief
- business property relief
- the new Seed EIS relief.
The business investment relief is potentially very valuable commercially in allowing people to utilise offshore resources which have previously been ring-fenced from remittance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.