2013 Autumn Statement: private client implications

Practical Law UK Legal Update 0-550-5288 (Approx. 20 pages)

2013 Autumn Statement: private client implications

by Practical Law Private Client

2013 Autumn Statement

On 5 December 2013 the Chancellor, George Osborne, delivered his Autumn Statement responding to economic forecasts published by the Office for Budget Responsibility.

This update summarises the most important announcements for private client practitioners. For business tax announcements, see Legal update, 2013 Autumn Statement: business tax implications. For all other announcements, see Other announcements.

Draft legislation for the Finance Bill 2014 is to be published on 10 December 2013. To follow progress of the Bill as a whole and specific measures of interest to private client practitioners, see Private client tax legislation tracker 2013-14.

For information about tax rates and limits of interest to private client practitioners, including information about future rates announced in the Autumn Statement and elsewhere, see Practice note, Tax data for individuals and trustees.

Lifetime planning

CGT principal private residence relief: change to final exempt period

The final period of exemption for principal private residence relief (PPR) for capital gains tax (CGT) will be reduced from three years to one and a half years from 6 April 2014. The change will be brought in by the Finance Act 2014.

Currently, a dwelling house always qualifies for PPR during the last three years of ownership if the individual owner has used it as is only or main residence at some point during his period of ownership. This is the case even if the dwelling is no longer the individual's only or main residence (for example, because it is let out to a third party, or where the owner has moved into a nursing home).

The government has announced that certain protected groups will continue to benefit from a full three year final exempt period. Recent tax tribunal cases suggest that HMRC is taking a tougher stance over PPR generally (see Legal update, PPR for CGT denied where house demolished and replaced (First-tier Tribunal) and Legal update, Principal private residence relief: commencement of works did not constitute a disposal of land for the purposes of the relief (First-tier Tribunal)). Although the Office for Budget Responsibility has identified the uncertainty about how much the relief currently costs the Exchequer, this measure is aimed at reducing the scope for abuse of the final period exemption.

For more information about PPR, see Practice note, Capital gains tax: principal private residence relief: overview.

(See HM Treasury: 2013 Autumn Statement, paragraph 2.58 and HM Treasury: Autumn Statement 2013: policy costings, pages 32 and 56.)

Income tax: marriage transferable tax allowance

From 2015-16, married couples and registered civil partners may transfer £1,000 of their income tax personal allowance to their spouse or civil partner, provided neither of them is a higher or additional rate tax payer. The transferable amount will be increased in proportion to the personal allowance.

Transferable tax allowance will benefit couples where one of the couple does not use his full personal allowance. The government announced its intention to introduce this measure earlier in the Autumn (see Legal update, Government announces transferable tax allowance for married couples). To follow the progress of the measure, see Private client tax legislation tracker 2013-14: Income tax: marriage transferable tax allowance.

(See HM Treasury: Autumn Statement 2013, paragraphs 1.239, 1.246 to 1.248, 2.47 and HM Treasury: Autumn Statement 2013: policy costings, page 14.)

Personal allowance increase to £10,000 from April 2014

The Chancellor confirmed that the personal allowance for those born after 5 April 1948 will increase (by £560) to £10,000 and the basic rate limit will be set at £31,865 for 2014-15.

This increase was announced in the 2013 Budget (see Legal update, 2013 Budget: key business tax announcements: Personal tax and investment: Personal income tax allowance reaches £10,000 in 2014-15). It reflects an increase of 1% in the higher rate threshold (tax-free amount plus basic rate band) that was announced in the 2012 Autumn Statement.

(See HM Treasury: Autumn Statement 2013, paragraphs 1.242 to 1.245, Tax and tax credit rates and thresholds for 2014-15 and Autumn Statement 2013: overview of tax announcements.)

CGT annual exempt amount for 2014-15

The capital gains tax (CGT) annual exempt amount for 2014-15 will be £11,000 and for 2015-16 will be £11,100. The rates for trustees will be £5,500 and £5,550 respectively. (The documents initially published on the HM Treasury website stated that the annual exempt amounts for trustees would be £5,000 and £5,500. However, HMRC confirmed that this was an error that would be corrected in due course.)

These increases are in accordance with the announcement in the 2013 Budget that the annual exempt amount would be increased by 1% in both 2014-15 and 2015-16 (see Legal update, 2013 Budget: key business tax announcements: Personal tax and investment: CGT annual exempt amount for 2013-14).

For CGT rates and limits, see Practice note, Tax rates and limits: Capital gains tax and for information on the taxation of chargeable gains in general, see Practice note, Tax on chargeable gains: general principles.

(See Autumn Statement 2013: overview of tax announcements.)

Cultural gifts scheme and estate duty

The government has announced that it will introduce amendments to the legislation relating to the cultural gifts scheme (CGS) to ensure that donors of objects, on which there is potentially a charge to estate duty, are not financially better off by donating the object under the CGS, than selling the object on the open market. The changes will take effect on and after the Finance Bill 2014 comes into force on Royal Assent.

The CGS was introduced in Finance Act 2012 to encourage lifetime giving of culturally significant objects to the nation in exchange for a reduction in the donor's income tax and capital gains tax liability. Objects that are already subject to a deferred estate duty charge avoid the punitive effect of estate duty clawback provisions that would otherwise apply when objects are given away. Under the CGS legislation the clawback is limited to any estate duty liability above the highest current rate of inheritance tax (40%) (paragraph 33, Schedule 14, Finance Act 2012). There are no provisions to ensure that gifts that would otherwise suffer much higher rates of estate duty cannot also benefit from the income and capital gains tax reduction. It is, therefore, more attractive for such donors to make gifts under the CGS than selling on the open market (where the clawback would be more severe and there would be no income tax and capital gains tax advantage). For more information on the CGS and how it works, see Practice note, Tax reduction for gifts of art to the nation.

There are no details of the shape the proposed changes might take but they could involve reintroducing the full effect of estate duty clawback or denying donors subject to estate duty the opportunity to also reduce their income tax and capital gains tax liabilities. It is not known whether the proposed change has been triggered by experience of gifts already made under the CGS.

(See HM Treasury: 2013 Autumn Statement, paragraph 2.66.)

IHT nil rate band

In the 2013 Budget, the government announced that legislation would be introduced in the Finance Bill 2014 to extend the freeze on the inheritance tax nil rate band of £325,000 for a further three years from 2015-16 up to and including 2017-18 (see 2013 Budget: key private client tax announcements: IHT nil rate band frozen until 2018). At the time of writing, the Autumn Statement and other documents published on 5 December 2013 do not have any further information on this proposal.

ISA subscription limit for 2014-15

The annual subscription limit for individual savings accounts (ISAs) for 2014-15 will be £11,880 (half of which can be saved in a cash ISA). The Junior ISA will be £3,840. For information about current limits, see Practical Law Private Client, Tax data: individual savings accounts: Annual subscription limits

(See HM Treasury: Autumn Statement 2013, paragraph 2.55.)

Partnerships and avoidance

HMRC has published draft legislation for inclusion in the Finance Bill 2014 to counter the allocation of excess partnership profits to non-individual members (treated as taking effect from 5 December 2013) and to counter the allocation of excess partnership losses to individual members (to apply to losses made in the tax year 2014-15 and subsequent tax years).

Following announcements in the 2012 Autumn Statement (see Legal update, 2012 Autumn Statement: business tax implications: Anti-avoidance: Partnerships and avoidance) and the 2013 Budget (see Legal update, 2013 Budget: key business tax announcements: Anti-avoidance: Avoidance involving partnerships), the government launched a consultation on proposals to combat tax avoidance involving partnerships (see Legal update, Consultation on avoidance involving partnerships). The consultation highlighted concerns that profits or losses were being artificially allocated to certain partners to secure a tax advantage.

The legislation to be included in the Finance Bill 2014 amends Part 9 of the Income Tax (Trading and Other Income) Act 2005 and Part 17 of the Corporation Tax Act 2009 that set out the rules governing the allocation of a partnership's profits and losses for income tax and corporation tax purposes. (For further information, see Practice note, Partnerships: tax: Self-assessment and allocation of profits or losses.)

Profits that are allocated to a non-individual partner (B) in a partnership consisting of individual partners and non-individual partners (that is, a mixed member partnership) will be reallocated to an individual partner (A) if the following conditions are satisfied:

B has an excessive share of the partnership's profit (either because that share includes an amount representing a deferred profit of A or it exceeds the appropriate notional profit).
Where B's share of the partnership profit exceeds the appropriate notional profit, A has the power to enjoy B's profit share (for example, because A is a controlling shareholder in B) and it is reasonable to assume that B's profit share (or part of it) is attributable to A's power to enjoy.
A's profit share, and the total amount of tax for which A and B are liable, are lower than they would have been absent the deferred profit arrangements or A's power to enjoy in B's profit share.

Similar provisions are to be included to reallocate partnership profits from a non-individual partner to an individual who is not a partner but it is reasonable to assume that they would have been but for the new legislation.

The new legislation will also introduce provisions to deny income tax relief or capital gains relief for partnership losses allocated to an individual partner in consequence of, or in connection with, arrangements the main purpose (or one of the main purposes) of which is to obtain loss relief.

The Chancellor announced that the legislation will cover the alternative investment fund management sector. This was not anticipated in the consultation.

(See HM Treasury: Autumn Statement 2013, paragraphs 1.303, 1.304 and 2.124, Partnerships review: partnerships with mixed membership and HM Treasury: Autumn Statement 2013: policy costings, page 28.)

High risk promoters of tax avoidance schemes

The government will introduce a new information disclosure and penalty regime for high risk promoters of tax avoidance schemes.

The disclosure of tax avoidance schemes (DOTAS) rules were introduced in 2004 to require persons that promote, and in certain cases persons that use, certain tax avoidance schemes, to disclose their use to HMRC. For more details on the DOTAS rules, see Practice note, Disclosure of tax avoidance schemes under DOTAS: direct tax. Since 2011, the DOTAS rules have been the subject of several government consultations; the most recent consultation, which launched in August 2013 and closed in October 2013, included the prospect of increased disclosure and penalty requirements on promoters that are determined to be "high risk". For more detail on the consultation, see Legal update, Consultation on tax avoidance schemes.

In the Autumn Statement, the government has confirmed that it will now introduce new rules for high risk promoters. The rules will cover objective criteria for identifying promoters that are high risk and will introduce higher standards of reasonable excuse and reasonable care, as well as higher penalties, to apply to them. The rules will also introduce new obligations for clients of these promoters, including that they will need to identify themselves to HMRC.

The consultation document outlined various detailed proposals on how the rules may work (for example, two possible approaches for identifying high risk promoters), but no further detail on how they will actually work is yet available. The legislation is expected to be introduced in Finance Bill 2014.

(See HM Treasury: Autumn Statement 2013, paragraphs 1.308 and 2.137.)

Users of failed tax avoidance schemes

The government will introduce new requirements for users of tax avoidance schemes that HMRC has defeated in a tribunal or court.

The disclosure of tax avoidance schemes (DOTAS) rules were introduced in 2004 to require persons that promote, and in some cases use, certain tax avoidance schemes to disclose their use to HMRC. For more details on the DOTAS rules, see Practice note, Disclosure of tax avoidance schemes under DOTAS: direct tax. Since 2011, the DOTAS rules have been the subject of several government consultations; the most recent consultation, which launched in August 2013 and closed in October 2013, included discussion on the use by many users at once of schemes that avoid tax using the same (or very similar) legislation or points of law. For more detail on the consultation, see Legal update, Consultation on tax avoidance schemes.

In the Autumn Statement, the government has confirmed that it will now introduce new rules for users of avoidance schemes that are defeated in a court or tribunal in another party's litigation, to concede their position to HMRC. Where there has been a relevant decision, HMRC will issue a notice to all users of the scheme in question, requiring them to amend their tax returns accordingly, or advise HMRC as to why they believe they should not. If a user fails to amend a return and the user's avoidance scheme subsequently fails on the same point of law, a tax-geared penalty will be charged.

Draft legislation is expected to be introduced in Finance Bill 2014.

(See HM Treasury: Autumn Statement 2013, paragraphs 1.308 and 2.138.)

Accelerated tax payment in tax avoidance cases

The government will require users of tax avoidance schemes that have been defeated in the courts to pay the tax in dispute to HMRC up front.

As part of its measures against users of the same (or very similar) tax avoidance schemes, the government will introduce new rules that allow HMRC to issue "pay now" notices to require users of schemes that have been defeated in the courts in another party's litigation, to pay the disputed amount up front to HMRC or face penalties for non-compliance. If the user subsequently succeeds with any litigation in the courts, HMRC will repay the tax with interest.

The measure is designed to prevent users of tax avoidance schemes from benefitting even from the cash-flow advantage of holding onto an amount of tax while the relevant tax avoidance scheme is being disputed in the courts. Draft legislation is expected to be introduced in Finance Bill 2014. The government will also consult on widening the criteria under which users will be required to pay tax up front.

(See HM Treasury: Autumn Statement 2013, paragraphs 1.309 and 2.139 and HM Treasury: Autumn Statement 2013: policy costings, page 22.)

Close company loans to participators rules unchanged

The government has announced that the rules for close company loans to participators will remain unchanged.

The rules impose a tax charge on a close company that makes a loan to a participator (for more details on the rules, see Practice note, Corporation tax: general principles: Close companies). Perceived abuse led to a consultation on their reform in July 2013 (on which, see Legal update, Close company loans to participators reform consultation) but the government has decided to leave the rules unchanged.

(See HM Treasury: Autumn Statement 2013, paragraph 2.128.)

Measures to encourage employee ownership

The Chancellor announced a number of tax measures aimed at encouraging employee ownership, following Graeme Nuttall's review of employee ownership. The measures are:

A capital gains tax (CGT) relief when shares are disposed to an employee benefit trust (EBT) that is used as an indirect employee ownership structure, if that disposal results in the EBT owning a controlling interest in the company. This relief will apply from April 2014.
From October 2014, bonuses (or "equivalent payments") of up to £3,600 paid to employees of companies that are indirectly employee-owned will be exempt from income tax. (The Autumn Statement does not specify if this is a total limit or a per employee limit, but it seems likely that the limit will be per employee, as £3,600 is the same as the proposed revised limit for free shares awarded under a SIP.)
An inheritance tax exemption will apply to shares and other assets transferred to employee ownership trusts, provided certain conditions are met.

HM treasury consulted on the CGT and income tax reliefs in July 2014 (see Legal update, HM Treasury consults on tax reliefs to promote indirect employee ownership).

For more information about other measures implemented following the Nuttall review, see Legal update, Share Schemes & Incentives: summary of current and upcoming developments: Nuttall review of employee ownership.

(See HM Treasury: Autumn Statement 2013, paragraphs 1.191 and 2.60 and HM Treasury: Autumn Statement 2013: policy costings, page 20.)

Pensions tax relief: lifetime allowance: individual protection 2014

As expected, the government confirmed that individual protection 2014 (IP 2014) will be introduced in the Finance Bill 2014, offering an additional form of transitional protection for those adversely affected by the reduction in the lifetime allowance to £1.25 million from 2014/15 (paragraph 2.53).

Draft clauses for the Bill were published in June 2013 by HM Treasury and HMRC. They provide that individuals with IP 2014 will have a personalised lifetime allowance equal to the value of their pension savings on 5 April 2014, subject to an overall maximum lifetime allowance of £1.5 million. This personalised allowance will remain at the same level unless the standard allowance rises above it, in which case the personalised allowance would revert to the standard lifetime allowance. If the value of benefits crystallised exceeds the individual's personalised allowance, the excess will be subject to the lifetime allowance charge.

A claim for IP 2014 must be made by 5 April 2017, and an individual who has claimed IP 2014 will not be subject to restrictions on further contributions or accruals. IP 2014 can be claimed in addition to either fixed protection or fixed protection 2014.

For more about the consultation paper and draft clauses, see Legal update, Pensions tax: government publishes details of individual protection regime.

For a comparison between the various forms of protection from a lifetime allowance charge currently available, see Practice note, Protection from the lifetime allowance charge: a comparison.

(See HM Treasury: 2013 Autumn Statement, paragraph 2.53.)

Income tax relief on loans to purchase life annuities

The government has decided not to withdraw income tax relief on the interest paid on loans taken out by individuals aged 65 or over to purchase life annuities.

The tax relief is a relic of the mortgage interest relief at source (MIRAS) scheme which was abolished in 1999. Grandfathering provisions currently allow relief on loans to purchase life annuities taken out before 9 March 1999 (sections 353 and 365, Income and Corporation Taxes Act 1988). The relief may apply to individuals who took out home income plans (a form of equity release) before that date.

In January 2013, the Office of Tax Simplification recommended abolishing the relief as part of its review of pensioner taxation.

A consultation on the impact of withdrawal of the relief was announced in Budget 2013, launched on 8 July 2013 and closed on 30 September 2013. The government originally estimated that the relief was claimed by fewer than 1,000 individuals but wanted to find out whether its withdrawal was likely to have consequences beyond those identified.

For more background information, see Private client tax legislation tracker 2013-14: Income tax: interest relief on loans to purchase life annuities.

(See HM Treasury: 2013 Autumn Statement, paragraph 2.54.)

Abolition of stamp duty on exchange traded funds

Although the Chancellor said in his Autumn Statement speech "Today, we also abolish stamp duty for shares purchased in exchange traded funds (ETFs) to encourage those funds to locate in the UK", the Autumn Statement 2013 document makes it clear that the abolition of stamp duty and stamp duty reserve tax (SDRT) on the purchase of ETF shares for UK domiciled ETFs will take effect from April 2014.

This is a welcome development and may encourage investment in the UK.

For more information on ETFs generally, see Overview, Hot topics: Exchange traded funds (ETFs).

(See Chancellor George Osborne's Autumn Statement 2013 speech (see under Business Tax) and HM Treasury: Autumn Statement 2013, paragraph 2.150.)

Trusts

Inheritance tax: simplification of trusts

The government will introduce legislation to:

Simplify filing and payment dates in the inheritance tax (IHT) charging regime for relevant property trusts.
Treat income arising in relevant property trusts as trust capital where the income remains undistributed for more than five years. The original proposal having been to treat income as capital where it remained undistributed from the start of the second tax year after the end of the tax year of receipt (see Legal update, IHT: Second consultation on simplifying charges in relevant property trusts: Statutory provision for accumulated income.)

The government will consult further on proposals to split the IHT nil rate band available to relevant property trusts. The government aims to have this change in place in 2015.

These developments follow the government's consultation on simplifying charges in relevant property trusts (as to which see Legal update, IHT: Second consultation on simplifying charges in relevant property trusts).

To follow the progress of these developments, see Private client tax legislation tracker 2013-14: IHT: simplifying calculations for relevant property trusts.

(See HM Treasury: Autumn Statement 2013, paragraph 2.62.)

Taxation of vulnerable beneficiary trusts

The government has announced that it will extend the capital gains tax (CGT) uplift provisions so that they will apply to a vulnerable beneficiary's trust interest where they die on or after 5 December 2013.

Provisions will be included in Finance Bill 2014 to extend the range of trusts that qualify for special tax treatment as vulnerable beneficiary trusts.

The government also intends to consult further on the tax treatment of vulnerable beneficiary trusts generally although no time frame for the consultation has been given.

HMRC launched a consultation on 17 August 2012 on the taxation of vulnerable beneficiary trusts. Responses indicated that the lack of a CGT uplift on the death of a vulnerable beneficiary in certain types of trust was discouraging people from setting them up and that vulnerable beneficiaries were taxed less favourably than if assets were held by them directly. Currently, a CGT uplift is unavailable for disabled trusts containing an interest that is treated as an interest in possession under sections 89B(1)(a) and (b) of the Inheritance Tax Act 1984. For more information on the tax treatment of vulnerable beneficiary trusts, see Practice note, Taxation of UK trusts: overview: Trusts for vulnerable beneficiaries.

Those responding to the 2012 consultation suggested that wider reform of the taxation of vulnerable beneficiary trusts was urgently needed as the rules were seen as complex, overlapping and, in some cases, discriminatory. The announcement of a further consultation and the extension of special tax treatment to more types of trust will, therefore, be welcome.

(See HM Treasury: 2013 Autumn Statement, paragraph 2.63.)

Venture capital trusts: no relief for investments linked to buy-backs

Following a consultation over the summer identifying the practice of some venture capital trusts (VCTs) operating share buy-back schemes under which investors reinvest proceeds received on a buy-back within a short period of time (see Legal update, Consultation on share buy-backs by venture capital trusts), the government will include measures in the Finance Bill 2014 to ensure relief is not available in those circumstances. In particular, from April 2014, new tax relief will not be available for investments that are conditionally linked in any way to a VCT share buy-back, or that have been made within 6 months of a disposal of shares in the same VCT.

The government will also consult on introducing rules to counter the use of converted share premium accounts to return capital to investors that does not reflect profits on the VCT’s investments.

In addition, the government will introduce a facilitative measure to allow investors to subscribe for VCT shares through nominees.

(See HM Treasury: Autumn Statement 2013, paragraph 2.52 and HM Treasury: Autumn Statement 2013: policy costings, page 25.)

International individuals

CGT on disposal of UK residential property by non-UK residents

Capital gains tax (CGT) on future gains made by non-UK resident individuals (and certain non-UK resident corporate entities) disposing of UK residential property is to be introduced with effect from April 2015. The government will publish a consultation in early 2014 on how best to introduce the charge, with legislation likely to be included in the Finance Bill 2015.

At present, CGT is charged on individuals who are UK resident in the tax year in which they realise gains on UK residential property, although there is a relief for gains on property occupied as an individual's only or main residence (see Practice notes, Tax on chargeable gains: general principles and Capital gains tax: principal private residence relief: overview). Subject to certain anti-avoidance rules, non-resident individuals do not pay CGT on a disposal of UK residential property, regardless of whether it is their principal residence or not. Non-resident corporate entities disposing of UK residential property worth £2 million or more were the subject of a new CGT charge introduced in the Finance Act 2013 (see Practice note, Capital gains tax charge relating to annual tax on enveloped dwellings (ATED)). However, non-resident corporate entities disposing of UK residential property below this value do not pay CGT at present.

The measure was widely rumoured and relatively uncontentious given that it is a feature of the tax code in many other jurisdictions. As with the recently introduced ATED-related CGT charge, it seems that the government intends to allow rebasing so that the new charge will only bite on post-5 April 2015 gains. To the extent that a non-resident is already liable to tax on the gains in their own country, double tax treaty relief may available. It remains to be seen how the proposed new charge will interact with other aspects of the tax code, including the ATED-related CGT charge and principal private residence relief.

(See HM Treasury: Autumn Statement 2013, paragraphs 1.295 and 2.59 and HM Treasury: Autumn Statement 2013: policy costings, page 33.)

Avoidance involving dual employment contracts

Legislation will be introduced in the Finance Bill 2014, effective from April 2014, to prevent the artificial use by non-domiciled individuals of dual employment contracts. The legislation will ensure that UK tax is levied on the full amount of employment income where a comparable level of tax is not payable overseas on the overseas contract.

Dual contract arrangements are advantageous where a UK resident employee (who has a foreign domicile for UK tax purposes) works partly in and partly outside the UK. The arrangement is structured so the employee has two employment contracts: one with the UK employer for UK duties and one with the foreign employer for non-UK duties. The structure is intended to take advantage of the fact that overseas earnings of a non-domiciled employee may be taxable on the remittance basis (see Practice note, Taxation of employees: Residence, ordinary residence and domicile).

HMRC has long been concerned about the artificial use of dual contracts. In particular, the artificial splitting of a single contract or the disproportionate allocation of earnings paid under two contracts. It issued guidance in April 2005 and March 2012 (see Legal updates, Revenue issues guidance on dual contract arrangements and HMRC publishes guidance on dual contract arrangements).

(See HM Treasury: Autumn Statement 2013: paragraphs 1.303 and 2.126 and HM Treasury: Autumn Statement 2013: policy costings, page 29.)

Offshore tax evasion strategy

During the last year, the government has signed an impressive number of automatic tax information exchange agreements with the Crown dependencies and overseas territories that have traditionally served as tax havens for UK resident individuals and companies. It has also worked with other countries in Europe, the G8, G20 and OECD to set up a new standard in automatic tax information exchange. The Autumn Statement confirms that HMRC will take action to exploit the data it receives under those agreements and also announces that the government will consult on enhanced sanctions to penalise those who hide their money offshore. It is unclear how such enhanced sanctions will fit with the existing penalty regime for offshore non-compliance (see Practice note, Tax penalties: consolidated regime for culpable penalties: Offshore non-compliance).

The Chancellor also reiterated the Prime Minister's announcement of 31 October 2013 that the UK will create a publicly accessible central registry of company beneficial ownership to help prevent tax evasion, money laundering and other crimes.

For details of the information exchange agreements, see Private client tax legislation tracker 2013-14: FATCA-style agreements with other jurisdictions and for the measures agreed by EU countries for combating tax evasion, see Private client legislation tracker: Tax fraud and tax evasion.

(See HM Treasury: Autumn Statement 2013, paragraphs 1.310 to 1.314 and 2.132 to 2.134 and HM Treasury: Autumn Statement 2013: policy costings, pages 31 and 56.)

Clampdown on employment intermediaries

The Chancellor has confirmed (not that there was any doubt) that legislation will be introduced to ensure that workers whose services are supplied in the UK to a UK resident end client will no longer be able to escape UK tax and NICs through the use of offshore employment intermediaries if the nature of their relationship to the end client has the characteristics of employment. The government will strengthen existing legislation to ensure that employment intermediaries cannot be used to disguise employment as self-employment.

Provisions concerning liability for secondary national insurance contributions and for accounting for payroll deductions using real time information, which differ significantly from the original proposals released following the 2013 Budget (see Legal update, Offshore employment intermediaries: back to the drawing board are contained in the National Insurance Bill 2013-14, which is currently progressing through parliament (see Tax legislation tracker: employment: Review of offshore intermediaries). The corresponding draft provisions for income tax are likely to be published for consultation on 10 December 2013 and the measures will come into force with effect from 6 April 2014. It is unclear, at this stage, whether the government proposes measures that will significantly affect the existing personal services company regime (see IR35).

(See HM Treasury: Autumn Statement 2013, paragraphs 1.306 and 2.129 and HM Treasury: Autumn Statement 2013: policy costings, page 23.)

Compensating adjustments

As previously announced, the government is going to introduce legislation, effective from 25 October 2013, to prevent abuse of the rules relating to compensating adjustments in the transfer pricing code.

The draft legislation, which was released for consultation on 25 October 2013, introduces amendments that will prevent an individual from claiming a compensating adjustment in respect of a transaction carried out with a company otherwise than an arm's length (see Legal update, Draft legislation combating transfer pricing compensating adjustment schemes with immediate effect). For more information on transfer pricing, see Practice note, Transfer pricing.

(See HM Treasury: Autumn Statement 2013, paragraph 2.127 and HM Treasury: Autumn Statement 2013: policy costings, page 27.)

Charities

HMRC and Charity Commission: joint charity registration portal

HMRC will develop a new single online portal to apply to both register as a charity with the Charity Commission and to claim charity tax reliefs from HMRC.

This confirms an announcement made by the Commission earlier this year, see Legal update, Charity Commission to have joint registration portal with HMRC.

(See HM Treasury: Autumn Statement 2013, paragraph 2.68 and HM Treasury: Autumn Statement 2013: policy costings, page 38.)

Outlawing charity avoidance vehicles

The Finance Bill 2014 (FB 2014) will amend the definition of charity for tax purposes to put beyond doubt that entities established for the purpose of tax avoidance are not entitled to claim charity tax reliefs.

This is part of the government's efforts to outlaw schemes that seek to exploit charity tax reliefs following the recent Cup Trust debacle (see also Legal update, Charity tax avoidance scheme users and promoters not fit and proper persons). For details of the current definition of charity for tax purposes, see Legal update, What is a charity?: Definition of charity for tax legislation.

(See HM Treasury: Autumn Statement 2013, paragraph 2.130.)

Gift Aid: revising the model declaration

The government will establish a new working party to revise the model Gift Aid declaration to make it easier to understand and to develop new promotional material to increase take-up. It will also allow intermediaries to take a greater role in operating Gift Aid to reduce the number of times a new declaration is given. The government will consult further before changing the law.

For details of the current rules on Gift Aid declarations, see Practice note, Gift Aid for individuals, sole traders and partnerships: overview: Donor must make a valid Gift Aid declaration. No specific announcements have been made following the government's consultation on making it easier to claim Gift Aid on donations made using digital channels (see Private client tax legislation tracker 2013-14: Gift Aid: new ways of giving).

(See HM Treasury: Autumn Statement 2013, paragraph 2.65.)

Stamp duty land tax (SDLT): charities relief on joint purchases with non-charities

FB 2014 will include a provision to make it clear that, when a property is purchased jointly by a charity and a non-charity, the charity can claim relief from SDLT on the proportion of the purchase attributable to it. It will take effect from the date FB 2014 receives Royal Assent.

This codifies the Court of Appeal's decision in The Pollen Estate Trustee Company Ltd (1) King's College London (2) v HMRC [2013] EWCA Civ 753, see Legal update, SDLT charities relief available "to the extent that" purchaser is charity (Court of Appeal). In the meantime, HMRC has invited charities affected by this decision to claim back any overpaid SDLT, see Legal update, HMRC invites SDLT charity relief claims following Court of Appeal defeat.

(See HM Treasury: Autumn Statement 2013, paragraph 2.69.)

Extension of corporate Gift Aid to Community Amateur Sports Clubs (CASCs)

FB 2014 will include provisions to extend corporate Gift Aid to donations of money made by companies to CASCs. This will enable companies to claim tax relief on qualifying donations they make to a CASC on or after 1 April 2014.

This was previously announced by the government on 25 November 2013 as part of a package of tax reforms for CASCs, see Legal update, Community Amateur Sports Clubs: new qualifying conditions rules proposed.

(See HM Treasury: Autumn Statement 2013, paragraph 2.67.)

Social investment tax relief

The Finance Bill 2014 will introduce a tax relief for equity and certain debt investments in charities, community interest companies (CICs) or community benefit societies from April 2014.

Investing in social impact bonds issued by companies limited by shares has been brought within the scope of the relief as a result of government's consultation on the scope of the new relief earlier this year (see Legal update, Social investment tax relief: consultation launched). To review and track the development of the relief, see Private client tax legislation tracker 2013-14: Social investment tax relief. For guidance on social impact bonds, see Practice note, Social impact bonds.

(See HM Treasury: Autumn Statement 2013, paragraphs 1.173, 1.174 and 2.51.)

Social investment road map

In January 2014, the government will publish a "road map" setting out further proposals to improve the tax and legislative climate for social investment. These will include seeking state aid clearance for a larger tax relief scheme, options for supporting indirect investment and changing regulations to make community interest companies (CICs) more attractive to investors and social organisations.

For information about CICs and other legal forms for social enterprise, see Practice notes, Community interest companies: CICs and Social enterprises: legal structures.

(See HM Treasury: Autumn Statement 2013, paragraph 1.175.)

HMRC

Inheritance tax online

HMRC will provide an online service for inheritance tax (IHT) during 2015-16 to reduce administrative burdens for customers and agents. This will also allow HMRC to more effectively link an individual's tax record with the IHT account of his estate on death. To follow the development of HMRC's online services, see Private client tax legislation tracker 2013-14: HMRC online services.

(See HM Treasury: Autumn Statement 2013, paragraph 2.64 and HM Treasury: Autumn Statement 2013: policy costings, page 38.)

HMRC data sharing

The government will proceed with its plans for making aggregated and anonymised HMRC data available for wider public benefit.

In July 2013, HMRC published a consultation paper seeking views on proposals to extend the scope for HMRC to share certain taxpayer data. For more detail on the consultation, see Legal update, HMRC consults on sharing taxpayer data.

The government will now proceed with its plans to make the data available to the wider public and will publish draft legislation for further consultation in early 2014. The government will also continue to work on proposals to release VAT registration data and will make further announcements in early 2014.

(See HM Treasury: Autumn Statement 2013, paragraph 2.147.)

Other announcements

For other announcements, see Legal updates:

For details of all Practical Law’s coverage, see 2013 Autumn Statement.

2013 Autumn Statement: private client implications | Practical Law