Was it the 7 Deadly Sins?
George Osborne's 7th Budget
Was George Osborne a sinner or a saint? Well as one would expect a bit of both. After years of having little to write I am in the position of deciding what to leave out. George spoke for more than an hour and it would seem that the frustrations of not having a Conservative only Budget for nearly 20 years spilled out as change after change was announced.
Against a backdrop of good economic figures, the Chancellor continually repeated his desire for "Low Welfare and a Low Tax Society" rather than the previous "High Welfare - High Tax Society" that has crept into existence. The measures announced were certainly in keeping with his message, welfare reforms; more government cost savings (whilst protecting the vulnerable) and less than inflation pay rises. Local politicians please take careful note.
The headlines on Twitter will concentrate on the introduction of a national minimum wage of £9 an hour by 2020; substantial changes to the welfare system; increases to personal allowances; changes to student grants; and the reduction in corporation tax. Reference will be made to the 2 child limit for benefit payments; the legislation to be introduced to prohibit budget deficits; continued flexibility in the pension space; the protection of defence and health spending; the reform of dividend taxation; and the creation of new apprenticeship schemes.
Many column inches will be written about the freezing of fuel duty; changes to VED duty on new cars; the increase in IPT; and the changes to the employment and annual investment allowances. The FT will no doubt concentrate on the changes to the taxation of banks; the increased investment in the North, the possibility of greater control by some councils; and especially the stopping of the tax loophole around carried interest.
But after the attention grabbing headlines what else do we have and more importantly what will affect us in the Channel Islands? Well quite a lot really but where there is a threat there is usually an opportunity.
The government will continue to clamp down on tax avoidance, planning and evasion, as well as increasing resources for HM Revenue and Customs (HMRC) so they can make sure people pay the tax that's due. This includes:
- extra investment between now and 2020 for HMRC's work on evasion and non-compliance;
- tripling the number of criminal investigations HMRC can undertake into complex tax crime, concentrating on wealthy individuals and companies;
- allowing HMRC to access more data to identify businesses that aren't declaring or paying tax;
- clamping down on the organised crime gangs behind the illicit trade in tobacco and alcohol;
- stopping investment fund managers from using tax loopholes to avoid paying the correct amount of Capital Gains Tax on their profits from the fund (this is known as carried interest);
- making sure international companies pay tax on profits diverted from the UK; and
- introducing a 'general anti-abuse rule' penalty and tough new measures for serial avoiders, including publishing the names of people who repeatedly use failed tax avoidance schemes;
So we will continue to have to take extreme care where looking at the affairs of our clients.
However the rhetoric around tax avoidance is always expected and although possible domicile changes were well trailed the two new proposals seem to go much further than anticipated. Whilst one must wait for the detail to ensure that everything is covered and a consultation exercise will occur on both, George has made some dramatic changes clear. It would appear at first sight that this is both a threat and an opportunity. Locate Jersey and Guernsey order more brochures! And the Trust providers maybe you need to sharpen your pencils.
George has signalled the end to permanent non-domiciled status. Permanent non-domiciled status (Non-domiciled individuals who live in the UK but had retained the advantage by birth as being non-domiciled) will be abolished from April 2017. From that date, anyone who's been resident in the UK for 15 of the past 20 years will be deemed UK-domiciled for all UK tax purposes.
Furthermore, it will no longer be possible for somebody who is born in the UK to parents who are UK domiciled to claim non-domicile status if they leave, establish non domiciled status, as then returning to take up residency in the UK will automatically invoke a return to UK domiciled status.
Although full details have yet to be published it should be noted that the Government will bring forward the point at which an individual who is classed as a non-domicile is deemed domiciled for inheritance tax purposes to 15 out of 20 years. This aligns inheritance with the changes to the income tax and capital gains tax regime. This will take effect from April 2017.
The Government also re-iterated its intention to introduce new rules to target the avoidance of IHT through the use of multiple trusts as well as simplify the calculation of trust rules.
Watch this space as many UK resident non-doms could be faced with much larger tax bills and may look to re-organise either their affairs or their lifestyle.
The second change also from April 2017 applies not just to UK resident non-domiciled but to us all living abroad. The UK Government will also introduce new rules so that everybody who owns residential property in the UK and would otherwise pay inheritance tax on that property cannot avoid paying it by holding it in anoffshore structure.
These changes will limit the planning opportunities by individuals with non-domicile status who use structures to make their UK homes an offshore asset. Again the devil will be in the detail but watch this space. Again a detailed note setting out the scope of this proposals is published and a full detailed consultation will follow later this year.
For many islanders the proposed changes to Inheritance Tax ("IHT") may have a bearing on their family wealth. IHT is charged at 40% on estates over the tax-free allowance of £325,000 per person. Married couples and civil partners can pass any unused allowance on to one another. From April 2017, each individual will be offered a family home allowance so they can pass their home on to their children or grandchildren tax-free after their death.
This will be phased in from 2017-18. The family home allowance will be added to the existing £325,000 Inheritance Tax threshold, meaning the total tax-free allowance for a surviving spouse or civil partner will be up to £1 million in 2020-21. It should be noted however that this allowance will be gradually withdrawn for estates worth more than £2 million.
An "interesting" change to those who prepare UK tax returns for UK property owners. Currently, individual landlords can deduct their costs - including mortgage interest - from their profits before they pay tax, giving them an advantage over other home buyers. Wealthier landlords receive tax relief at 40% and 45%.
This tax relief will be restricted to 20% for all individuals by April 2020. In addition, from April 2016, the 'wear and tear allowance', which allows landlords to reduce the tax they pay (regardless of whether they replace furnishings in their property) will also be replaced by a new system that only allows them to get tax relief when they replace furnishings.
On the lighter side the amount that can be charged by claims management companies, such as those that encourage claims for payment protection insurance (PPI) or personal injury insurance, will be capped, hopefully reducing those nuisance calls.
The devil is as always in the detail - the Finance Act is due next Wednesday so expect an update. We will also be issuing a detailed note on the non-domiciled changes.
So what do we actually have? George certainly displayed pride and threw in some wrath for those displaying slothfulness. Some would say he has an intense greed, almost gluttony for power. He suggested that many would envy the economic position. As for lust... not sure that was mentioned and I am not sure that any Budget Announcement should generate those feelings no matter how interested one may be...