The Government committed to publish the majority of Finance Bill measures at least three months prior to introduction, including the publication of draft legislation where possible. The consultations commencing today fulfill this commitment in advance of Finance Bill 2012.
There are five main areas which have a relevance to the finance industry in the Isle of Man.
1) The introduction of the proposed statutory residence test has been postponed. According to the Government “The consultation on tax residence raised a number of detailed issues which will require careful consideration to ensure the legislation achieves its important aim of providing certainty for individuals and businesses. The Government will therefore legislate the statutory residence test in Finance Bill 2013 to take effect from April 2013 rather than April 2012. It will introduce any reforms to ordinary residence at the same time. This will give time to consult thoroughly on the detail of these changes well in advance of implementation. The Government is committed to the form of the statutory residence test outlined in consultation. It will make a further announcement around Budget 2012 when it will publish its response to the recent consultation together with a further consultation on policy detail and draft legislation.” Whilst this is disappointing it is encouraging that it would now appear to be a question of “when” rather than “if” we will see the test introduced.
2) Reform of the tax treatment of UK resident non-domiciled individuals. There are three areas to be aware of, two of which look every bit as encouraging as the original consultation document:
- From 6 April 2012 non-domiciliaries will be able to remit their overseas income or capital gains to the UK tax-free, where they do so for the purposes of making a ‘qualifying investment’. A ‘qualifying investment’ is an investment in unlisted companies, or those listed on exchange regulated markets, which carry out trading activities on a commercial basis or undertake the development or letting of property. It is not currently clear whether or not letting residential property will qualify. The original consultation document specifically excluded it because the Government were concerned of the risk of an individual using a business to acquire a property in which they live. The consultation document and draft legislation issued today take a different approach and instead exclude investments in businesses where a personal benefit is provided. It would therefore seem that the letting of residential property on a commercial basis should qualify . However we have sought clarification on this matter as the revised consultation document issued today states that it will not because it is not a trade.
- Making various technical simplifications to some aspects of the current remittance basis rules to remove undue administrative burdens. In particular, the nominated income rules will be amended to allow individuals to remit up to £10 of overseas income or capital gains which they have nominated for the purposes of the annual remittance basis charge, without being taxed on that remittance and without triggering the mixed fund rules. Interestingly the Government is to “give further consideration” to the certain other issues with a view to possible legislation in Finance Bill 2013, one of which is “removing the charge to tax on inadvertent remittances”.
- Increasing the existing £30,000 annual remittance basis charge to £50,000 for non-domiciled individuals who claim the remittance basis in a tax year and who have been UK resident in 12 or more of the 14 years prior to the year of claim.
3) The capital gains tax (“CGT”) exemption proposed for foreign currency bank accounts will apply to offshore trusts. Therefore, with effect from 6 April 2012, capital gains arising on withdrawals of money in foreign currency bank accounts held by individuals, trustees and personal representatives of deceased persons will not be liable to CGT and capital losses will not be allowable losses.
4) As expected, the detail of the wholesale change of the regime for taxing the profits of UK owned foreign companies have been published. The changes are intended to enhance the competitiveness of the UK’ s corporate tax regime and its attraction for international business. Many businesses that were previously caught by the old regime are likely to be exempt and therefore the UK parent company will pay less (and in many cases, no) UK tax on the overseas profits. There are provisions to prevent arrangements that are viewed as wholly tax avoidance. Not unexpectedly, captive insurance companies seem to have been specifically identified in this category. There are also some restrictions for UK-owned banks. It seems unlikely that UK businesses using Isle of Man companies will be in any worse position but some may well benefit.
5) The Government will propose amendments in Finance Bill 2013 to two pieces of legislation designed to protect the UK tax base. These relate to the transfer of assets abroad provisions and the taxation of capital gains on assets held by foreign companies closely controlled by UK participators. A further announcement will be made around Budget 2012 and the Government intends to publish a consultation including draft legislation at that time. These proposals may well be in response to the recent European Commission announcements that they had issued a formal request to the UK government to amend these provisions, on the grounds that they were discriminatory and therefore contrary to EU law. For obvious reasons, it is interesting to note that it is not only our own domestic tax system which comes under scrutiny from Brussels!