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
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