UK and International Tax news
Draft Finance Bill 2018-19 Published
Tuesday 31st July 2018
HM Treasury has recently published the draft Finance Bill 2018-19 for consultation, containing 40 clauses and 16 schedules over 225 pages together with 143 pages of explanatory notes.
Consultation on the draft proposals is open until Friday 31 August. The draft provisions could be subject to changes announced in the November 2018 Budget or as a result of representations made during the consultation period. The Bill will become FA 2019 when it is passed in March 2019 with the new law taking effect from 1 April 2019 or later.
The draft clauses include, in particular, the following:
From 6 April 2019, gains on disposals of interests in UK land by non UK residents will be brought into charge to CGT and non UK resident companies will be charged to CT on their gains from disposals of interests in UK land. The charge to tax on ATED related gains will be abolished.
Existing reliefs and exemptions available for capital gains will be available to non UK residents, with modifications where necessary. Those who are exempt from capital gains for reasons other than being non-UK resident will continue to be exempt.
Only post March 2019 gains will be caught and there will be options to calculate the gain or loss on a disposal using the original acquisition cost of the asset or using the value of the asset at commencement of the rules in April 2019. Both options will be available for both direct and indirect disposals. Where the original cost basis is used to calculate an indirect disposal and this results in a loss, it will not be an allowable loss.
Special rules will apply to collective investment vehicles investing in UK real estate who agree to certain conditions including reporting to HMRC. These rules will look to address concerns raised over the taxation of exempt and similar investors and multiple tax charges on funds. These rules are being explored in consultation with relevant stakeholder groups.
From 6 April 2020, profits of a UK property business and other UK property income of non UK resident companies will be charged to CT rather than to income tax as at present. The intention is to put resident and non-resident companies on a more equal footing.
For accounting periods beginning on or after 1 April 2019 (except where otherwise stated), changes will be made to the loss reform legislation in CTA 2010 to ensure that it meets the policy objectives of restricting relief for certain carried forward losses but allowing these to be used more flexibly.
Changes will be made to the way in which restricted losses are calculated by all companies and how the regime applies to insurers within the Basic Life Assurance and General Annuity Business so as to prevent companies accessing an excessive amount of the deductions allowance. This change commences with immediate effect from the date of announcement.
For accounting periods beginning on or after 1 January 2019, technical amendments will be made to the corporate interest restriction rules (under TIOPA 2010, Part 10 and Sch 7A) to ensure that the regime works as intended. Certain amendments will be deemed to have always had effect and amendments relating to the contents on an interest restriction return will take effect from 1 April 2019.
From April 2019, a new anti avoidance rule will be introduced to ensure that business profits cannot be taken out of the charge to UK tax by arranging for them to be attributed to offshore entities. Targeted arrangements are those which involve the UK business purporting that business receipts have been earned by the offshore entity, when that entity does not have the substance to earn those profits, or where the payment of fees and expenses to the offshore entity are much higher than is justified by the work done by that entity. The legislation counteracts the arrangements by bringing the relevant amounts back into charge to UK tax, either by disallowing the expenses or by reattributing receipts to the UK business.
For accounting periods commencing on or after 1 January 2019, a number of legislative changes are being made to ensure that certain rules which relied upon the distinction between finance and operating leases will continue to operate as intended. The amendments follow changes to the accounting treatment of leases under IFRS 16 which removes the distinction between finance leases and operating leases for a lessee. The main areas of change include amending current legislation that relies on lease accounting definitions, minor amendments to the rules for long funding leases, repealing legislation that stopped entities giving effect to IFRS 16 and introducing rules for the spreading of any transitional adjustment recognised upon adoption of IFRS 16.
From 6 April 2019, individuals whose shareholding is ‘diluted’ below the 5% qualifying threshold for entrepreneurs’ relief as a result of a new share issue will be able to obtain relief for chargeable gains on the shares up to that time.
The draft legislation has addressed concerns that were expressed by the professional bodies that by deeming a market value disposal immediately before the dilution on which gain entrepreneurs’ relief would be available would mean discounts had to be applied for minority holdings thereby limiting the benefit of the relief. The draft legislation provides that no discounts need be applied.
The concerns raised that the provisions would apply only to dilutions from raising further share capital and not, e.g. from the exercise of EMI options, have not been addressed.
From 6 April 2019, provisions will be introduced to allow payment plans for CGT exit charges on trusts ceasing to be UK resident or where individuals cease trading in the UK and move trading assets outside the UK. The new provisions will allow deferral of CGT in certain cases, with the deferred tax being subject to interest.
The changes are to ensure that UK rules taxing such gains are compatible with EU law following recent decisions of the ECJ where the compatibility of member state exit charges with TFEU, art. 49 (Freedom of Establishment of EU nationals) has been considered and where the ECJ has held that imposing a charge was justifiable to protect UK revenues but the method was disproportionate because there was an immediate CGT charge on an unrealised asset, i.e. by the deemed disposal at market value of assets held at date of emigration.
The changes apply only to individuals who are nationals of the EU/EEA who trade through a branch or agency in the UK and to trustees of UK resident trusts both of whom are seeking to exercise their rights of establishment within the EU/EEA.
If you would like further details on the draft Finance Bill, please contact Keith Rushen on 0207 486 2378.