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Or, perhaps, that the chancellor cancelled a planned rise in the duty on alcohol, and cut the duty on beer by a penny, as if these might help ease the pain of the year ahead for the average, ever-more beleaguered British taxpayer.
International Adviser’s panel of experts was, of course, more attuned to what really mattered, particularly in terms of how the Budget is likely to affect IA readers and their clients.
Skandia International’s Rachel Griffin, for example, believes the really interesting stuff is yet to come, in the Finance Bill and supporting documents, due to be published on 28 March. For Friends Provident International’s Brendan Harper, the formal confirmation of two previously-announced changes – to spousal asset transfers, and Time Apportionment Relief –was of particular interest.
Sophie Dwortzsky of Withers, meanwhile, saw the Chancellor’s speech as a "declaration of war on tax avoidance".
Rachel Griffin, head of technical marketing at Skandia International – Is the “devil” in the Finance Bill 2013 & Supporting Documents – 28 March 2013?
For the offshore market, the Finance Bill and supporting documents due to be published on 28th March 2013 are likely to be more eventful than yesterday’s Budget statement.
To summarise:
- QROPS – The Finance Bill 2013 will confirm measures announced in the 2012 Budget 2012, which stipulate that QROP scheme providers will need to re-notify HMRC every five years that they continue to be QROPS.
In addition, there is a line which states “…and there will be additional reasons for excluding a pension scheme from being a QROPS”. We await the detail on this. - IHT – periodic charges on trusts – There will be further consultation on simplifying the calculation of IHT charges, periodic and exit charge. Changes are not expected to be introduced until the Finance Bill in 2014.
- IHT: nil rate band – The Government will freeze the IHT nil rate band at £325,000 until 2017-18, for those who are UK domiciled.
- Non-domicile taxation – The rules applying to taxation of non-domiciled individuals living in the UK are expected to be simplified in the Finance Bill.
- Statutory residence test, and reform of ordinary residence – Full details are expected to be revealed in the Finance Bill; but for most taxes, statutory definition of tax resident will apply, while for most taxes, the notion of ordinary residency will be abolished from 6 April 2013.
- IHT – non-domicile spouses/civil partners – Finance Bill 2013 will include the increase of IHT-exempt amount to £325,000 from £55,000 between domiciled/non- domicile spouses/civil partners. It will also allow non- domiciles to elect to be treated as UK domiciled for IHT purposes.
- Life assurance – time apportionment relief – We expect to see legislation in the Finance Bill that will align the onshore/offshore tax treatment of time apportionment. We expect a new formula/ calculation basis to apportion relief, which will be based on period of ownership.
- Tax Avoidance measures – Confirmation that the GAAR will be introduced in Finance Bill 2013
- DOTAS (disclosure of tax avoidance schemes regime) – Regulations will be introduced in 2013 to improve information collected under DOTAS.
- High-risk promoters of tax avoidance – Further consultation will take place on new powers to take tougher action against “high risk promoters of tax avoidance”. Proposals include new information disclosure, penalty powers and the possibility of being “named and shamed”.
Yesterday’s Budget may have had minimal significance for the offshore market, but it may be a different story next week, when the the Finance Bill 2013 is introduced.
We expect it to include important clarification about which pension schemes do not meet the criteria to be considered qualifying recognised overseas pension schemes (QROPS); simplification of tax rules for non-domiciled individuals; and to introduce simplified rules around time apportionment relief, to ensure a more representative application methodology in relation to an individual’s period of non-residence.
Perhaps most importantly, the Finance Bill is expected to confirm the introduction of the new General Anti-Abuse Rules – the catch-all rule aimed at tackling tax abuse, which will give HMRC more powers to target the abusive tax avoidance schemes it says it intends to go after.
Tax mitigation will remain an important and very valid reason for individuals to save into offshore vehicles. However, what is becoming very clear is that the Government is starting to take strong measures to ensure tax mitigation is limited to mainstream arrangements.
Brendan Harper, technical services manager at Friends Provident International – The Chancellor has formally confirmed two key, previously-announced changes
- Transfers from a UK domiciled individual to a non – UK domiciled spouse – The proposals to increase the non-domiciled spouse exemption from £55,000 to £325,000, and the introduction of an option to elect to be treated as UK domiciled for IHT purposes, have now been confirmed, and will be welcome news to mixed-domicile spouses.
Two important amendments to the original proposals were announced. Firstly, the proposals now include the ability to make the election effective from any point up to seven years prior to the election. This is welcome news, as it will mean that an “failed” potentially exempt transfers from the UK domiciled individual to the non-domiciled spouse could be exempt from IHT, leaving a greater proportion of the estate intact.
Secondly, the period of time that an electing individual must be non resident before the election falls away has been increased from to four years from three.
Overall, however, this still represents a very positive development, and it produces some very interesting planning opportunities for mixed domiciled couples who live outside the UK.
- Time Apportionment Relief (TAR) – The proposed amendments to TAR were also confirmed.
It appears, though, that the proposal to restrict TAR in respect of additional premiums has not materialised in the Budget documentation.
If this is the case, then it is very welcome news, as the formula to adjust relief in such circumstances would have been disproportionately complex in light of the negligible amount of tax that would have been raised.
This is a very favourable result, arising from ongoing, constructive dialogue that has been taking place between the Association of International Life Offices and HMRC.
Andrew Penman, director, private client tax services, PKF (UK) LLP – A few deck chairs re-arranged, not much substantive
What we heard from the Chancellor was mainly confirmation of various issues that had already been announced or consulted on. These included:
- SP1/09 – This is a technical measure having to do with the treatment of funds in an account containing a mixture of UK and foreign earnings. What has been done in the Budget is to put into law what has been a long-standing practice. Old news.
- Inheritance tax changes on transfers of assets from UK-domiciled to non-UK-domiciled spouses – this is to be introduced as announced previously, ie, the historic £55,000 exemption increases to £325,000, with an option for the non-UK domiciled spouse to elect to be treated as UK-domiciled for IHT purposes. This election is irrevocable until the individual departs the UK, and has ceased to be UK resident for four complete tax years (that is, breaking the 17/20 deemed domicile rule).
- Transfer of assets abroad legislation – We see this having a wider commercial motive test, where EU treaty terms may otherwise be breached.
- Property holding regime for ‘non-natural persons’ – There are a few minor changes to the property holding regime for non natural persons, but they are of limited interest (for example, one of the categories affected is properties which are open to the public).
John Cassidy, tax investigations and disputes resolution partner, PKF (UK) LLP – Government steps up measures to tackle tax evasion and avoidance
The announcement that the Government has signed disclosure facilities with both Guernsey and Jersey as part of a widespread crackdown on tax evasion and avoidance comes as little surprise. However, the revelation that there are likely to be yet more agreements with other British dependent territories, as set out in HMRC’s new, 22-page strategy document, "No Safe Havens: Our Offshore Evasion Strategy 2013 and beyond", is significant, and may lead to more corporate tax avoidance being uncovered.
The Isle of Man, Guernsey and Jersey deals are all based on the Foreign Account Tax Compliance Act (FATCA) implementation agreements the UK has signed with the USA. FATCA requires financial institutions outside the USA to supply data on American taxpayers to the Internal Revenue Service.
Given the Government’s current stance on tax avoidance, it would be unthinkable for it not to seek – or force – similar agreements with the likes of Bermuda, the British Virgin Islands, Cayman Islands and Gibraltar. As for the proposed "naming and shaming" of promoters of abusive schemes – which will be subject to a Treasury consultation later in the year – this is new. Until now HMRC has typically focused its attention on the individuals using the avoidance and evasion schemes, so targeting promoters represents a major shift in its strategy.
Whether some promoters end up benefitting from the free publicity they get from being "named and shamed" remains to be seen, but the message from the Chancellor is clear: "you are now very much in our sights."
Sophie Dworetzsky, partner in the wealth planning team at international law firm Withers – “Chancellor declares war on tax avoidance”
Against a tough economic background and a reduced credit rating, the Chancellor sought to deliver tax breaks and reduce government spending. How well he succeeded will become clearer in due course, but one thing that is very apparent is that he has decided to focus his attentions, pretty uncompromisingly, on a war on tax avoidance.
This includes not only the GAAR, but the agreements with Jersey, Guernsey and IoM to battle tax avoidance, and the announcement of a plan to name and shame scheme promoters.
While no doubt a popular measure at large, one huge issue is whether these measures really will raise the estimated billions of revenue.
It is impossible to really gauge how much revenue is lost through evasion, but the expectations may turn out to be optimistic.
Also, while of course aggressive and illegal evasion should be countered, let’s hope this doesn’t mean normal tax planning gets tarred with the same brush.
Stimulus measures jeopardised?
One crucial issue will be to ensure that the stimulus measures already introduced are not outweighed, if the crackdown on avoidance actually and accidentally catches innocent tax planning.
This is especially important given the focus on attracting external investment, for example by making AIM more attractive, and by the already-introduced measures allowing non domiciled individuals to use their offshore monies to invest in UK businesses tax efficiently.
The Chancellor’s challenge is getting the balance right, and much will rest on the way the avoidance campaign is implemented. A huge amount depends on GAAR, and we will all be interested to see how that is deployed by HMRC.
Mark Giddens, Partner, UHY Hacker Young – Conventional IHT planning and investment to be hit by anti-avoidance measures
The announcement that the UK government is finalising information exchange agreements with Guernsey and Jersey is no surprise – it was known.
Nevertheless, these agreements are an interesting development in a process of shutting down tax havens – or at least restricting their ability to operate – that now seems to have a momentum of its own, albeit one driven to a large extent by the US’s FATCA provisions.
For UK taxpayers with undisclosed assets in these jurisdictions, decision time is fast approaching – whether to come clean to HMRC now, or to risk an investigation and possible criminal charges, not to mention “naming and shaming”, as well as significant penalties as and when information is passed to HMRC.
For the Revenue (and the Government) this is a win-win policy – great PR, as they are seen to be taking action against offshore evasion, and the extended use of an established disclosure process that enables them to bring in significant additional tax at minimal cost.
As and when the new agreements are finally signed, it will be necessary to look at the terms very carefully. While the disclosure facilities bear quite a resemblance to the well-established relationship with Liechtenstein, it is already clear that the terms are not as generous.
