SEE ALL TODAY'S STORIES »

Second Finance Bill of 2017 brings 'welcome certainty', especially to non-doms

11/09/2017 News Team

The second Finance Bill of 2017, published on Friday (8 September 2017), has abolished permanent non-dom status to ensure those who have lived in the UK for years pay tax in the same way as UK residents.

In addition, the Finance Bill sets out to ensure that everyone pays their fair share of tax by reducing the dividend allowance from £5,000 to £2,000 from April 2018, limiting the difference in tax treatment between those who work through their own company and those who work as employees or self-employed, while ensuring that support for investors is more effectively targeted.

According to HM Treasury, the Finance Bill also intends to ensure fair payment of tax by reducing the Money Purchase Annual Allowance from £10,000 to £4,000, limiting the extent to which people can recycle their pension savings to get extra tax relief.

The second Bill “does at long last bring much needed clarity to what was fast-becoming a tax vacuum”, commented head of private wealth at Saffery Champness, James Hender. “More than half of the new provisions will be backdated, and this will bring welcome certainty to many – particularly non-domiciled individuals who had the rug pulled out from under them when the first Bill was drastically shortened. Many taxpayers will end up paying more tax under the new rules, but at least they now have a clear blueprint of the new tax architecture.”

Partner and head of private wealth at law firm Pemberton Greenish, John Goodchild, commented that the Finance Bill “will legislate for the changes in the taxation of non-domiciled individuals and their structures and the imposition of inheritance tax on foreign structures holding UK residential property”.

He added: “Following a brief delay to this legislation coming into force due to a number of clauses being dropped in the run-up the General Election, it now seems certain that these changes will take effect on 5 April 2018. The changes create a tougher tax environment for non-doms but the legislation specifically preserves some tax planning opportunities using offshore trusts.”

Partner and chartered tax adviser at law firm Harbottle & Lewis, Gary Ashford, said the government’s approach to mixed funds is amongst the most ‘significant’ reforms to the non-dom regime in the Finance Bill. He continued: “Non-domiciled tax payers with mixed funds and non-segregated bank accounts, that is, accounts fed by multiple sources – such as income and capital gains – have to-date had their savings and investment options impacted by complex remittance rules.

“The Finance Bill opens a two year window for non-doms to cleanse these accounts and un-mix them, providing greater clarity over taxes, and potentially opening up investment options for new clean capital. This is an unsurprising move by the Government, perhaps still fearful of post-Brexit capital flight and looking to stimulate inward UK investment.”

Measures included in the Finance Bill comprise new penalties for those who enable the use of tax avoidance schemes that are later defeated by HMRC; an update on the rules around company interest expenses, to ensure big businesses cannot use excessive interest payments to reduce the amount of tax they pay; and changes to prevent individuals from using artificial schemes to avoid paying the tax they owe on their earnings.

HMRC’s ‘Requirement to Correct’ measure “will oblige those who have previously been afforded the use of voluntary disclosure facilities to amend their tax arrangements by 30 September 2018 or face penalties”, Mr Ashford said.

He continued: “This dovetails with the broader global tax transparency agenda, including the OECD’s Common Reporting Standard, and the UK’s continued efforts to tackle offshore tax evasion and avoidance – including new penalties for those who enable the use of tax avoidance schemes that are found to be in breach.

“However, accidental avoidance is a real risk. We know that tax is complicated and there is often confusion and misunderstanding as to what tax is liable – particularly with the affairs of multi-jurisdictional entities. In particular, many Trusts, often with complex histories and established in what is now an alien tax landscape, may need to review their structures in light of the new rules.”

Saffery Champness’s Mr Hender concluded that while the Bill confirms the delayed timetable for Making Tax Digital (MTD), “taxpayers should be under no illusions about tax’s digital future. The MTD iceberg may still be a way off but it has huge potential to sink unprepared taxpayers when it finally hits”.

Financial Secretary to the Treasury and Paymaster General, Mel Stride, commented: “A fair tax system is a key part of our plan to build a fairer society.

“The UK is a world leader in tackling tax avoidance and evasion, but we must continue to take action to ensure everyone pays their fair share. The Finance Bill will allow us to do just that by preventing companies and individuals from using complicated tax structures to avoid paying the tax they owe, and penalising people that help them to do it.”

Share with Linkedin Share with Twitter
SEE ALL TODAY'S STORIES »

 RATE THIS ARTICLE
Poor   Average   Good   Excellent