The Chancellors Budget Report 2012 - A Budget to support Growth?
The 2012 UK Budget was, as anticipated, broadly neutral. Click here for a comprehensive analysis of the measures announced
In a speech lasting around an hour, George Osborne delivered his third Budget which was, fiscally neutral, however focussed on innovation and growth.
The main headline points from the UK Budget 2012 as they impact on the Channel Islands are as follows:
Stamp Duty Land Tax ("SDLT")
- A rate of 15% will be introduced for residential properties** over £2 million , purchased by non-natural* persons such as companies. This takes effect immediately.
- The UK government is also going to consult on an annual stamp duty charge on residential properties** valued at over £2 million held by non-resident, non-natural* persons. The intention is to introduce this charge following consultation from April 2013.
- A scheme to avoid SDLT using the sub-sales rules has been closed.
Capital Gains Tax
- Mr Osborne announced plans to extend capital gains tax to the disposal of UK residential property by non-resident, non-natural* persons. The intention is to introduce this measure, following consultation, with effect from April 2013.
- As widely predicted and trailed, the end of the 50% personal tax rate has been confirmed. With effect from 6 April 2013 the rate will be 45%.
- The annual charge for non-domiciled individuals who have been resident in the UK for 12 years or more has increased to £50,000 (from £30,000). Further changes include rules to allow the remittance of foreign income and gains for the purposes of commercial investment into the UK and reducing some of the complexity of the remittance rules.
- As previously announced, the statutory residence test will be introduced for individuals with effect from 6 April 2013. Draft legislation and the responses to the consultation will be published shortly. The concept of ordinary residence will be abolished from 6 April 2013.
- The inheritance tax inter-spouse exempt amount will increase from £50,000. The government plans to allow non domiciled spouses or partners to elect to be treated as domiciled for inheritance tax.
- The intention is to strengthen primary legislation relating to reporting requirements and powers of exclusion for QROPs. They will exclude territories or schemes from QROPs where unintended benefits are available.
- It was announced that a loophole relating to the acquisition of interests excluded property trusts will be closed. It was also announced that a scheme using corporate settlors of trust will be closed. Both are closed with immediate effect.
- A consultation on simplifying the inheritance tax regime relating to 10 year charges and exit charges will be launched.
Transfer of Assets Abroad and Gains on Assets held by Foreign Companies
- A consultation on changing this legislation with effect from April 2013 will be undertaken. Interestingly they say that the changes are unlikely to be a disadvantage to tax payers. The rules will have retrospective effect and will apply from 6 April 2012. Tax payers will be able to elect for the changes to have effect from 6 April 2013.
- As expected the UK is looking to change the taxation of remote gambling to a basis whereby UK customers will pay duty on all bets no matter where the gambling company is based. Similar consumption based duties already exist in some European countries. The Alderney licensing regime is well placed to deal with this change as it already allows B2B licensing, and we would not expect a significant impact on Alderney's gambling business as a result of this announcement.
General Anti-Abuse Rule
- Following the Aaronson Report a consultation will be launched over the summer of 2012, and are looking to introduce draft legislation and full explanatory guidance on the introduction of a new general anti-abuse rule. The aim of this was to tackle abusive transactions. This will also be extended to cover Stamp Duty Land Tax.
- From April 2012, the UK corporation tax rate will be reduced by 2% (not 1% as was originally provided in the previous Budget) with further incremental decreases of 1% per year for the subsequent two years. This will ultimately bring the headline corporate tax rate to 22% by 2014.
- Corporation tax reliefs will be provided for the video gaming, animation and high end television market.
- There was a focus on reducing the tax administration burden for business, with the introduction of a cash basis of taxation for small incorporated businesses.
Focus on innovation
- The previously announced 10% rate for profits attributed to patents and similar IP will be phased in over 5 years from 1 April 2013.
- As announced in Budget 2011 the R&D credits for SMEs will increase to 225% from 200%.
- From April 2012, R&D credits will be available "above the line" thus allowing loss making companies to claim a payable credit.
US Foreign Account Tax Compliance Act (FATCA)
- The UK Government will publish a discussion document in the Summer on the information powers to facilitate cooperation with the US on preventing tax evasion. As the Channel Islands consider their response to FATCA, this consultation could provide further insight into the challenges of complying with FATCA country to country reporting.
- A number of loopholes have been closed in the UK VAT legislation, with effect from 1 October 2012, such that VAT will apply to items such as hot and cold food consumed on the supplier's premises, sports drinks, holiday caravans, and the rental of hairdressers chairs.
*Non-natural persons include companies, collective investments schemes including unit trusts, partnerships where a non-natural person is a partner, and there are exclusions from the charge for property developers and corporate trustees.
**Residential property is property which is suitable for use of a dwelling, but will not include accommodation for school pupils and the armed forces. Certain other types of property already excluded include halls of residence and homes for providing personal care for a person in need of such care, as a result of old age, and hospitals or hospices.
If you would like any further information or clarification on any of the measures announced, please do not hesitate to contact a member of our Budget working party who details appear alongside.