There are at least three major tax changes that will come into effect during the 2013/14 tax year:-
- the General Anti-Abuse Rule (GAAR)
- the statutory residence test; and
- new taxes on high value residential properties.
The General Anti-Abuse Rule (GAAR)
Recent years have seen both the Government and the media conflate various terms regarding tax evasion and avoidance, but each of the following represent very different categories of behaviour:-
- At one end of the spectrum is tax evasion, which is a criminal offence and involves deliberately not disclosing income or gains that ought to be taxable.
- Next comes"abusive" or"aggressive" tax avoidance which is legal, but generally involves artificial and convoluted transactions to take advantage of loopholes in tax legislation.
- Finally, tax mitigation or"non-aggressive" tax avoidance is again legal and, unlike abusive or aggressive avoidance, it is seen as acceptable planning by making use of reliefs and organising transactions in a tax efficient way.
The GAAR is part of the Government's strategic approach to tackle the second category of"abusive" or"aggressive" tax schemes, which is to be welcomed since such schemes tend to be wholly artificial and contrived and deprive the Treasury of tax revenues. The draft GAAR legislation allows HMRC to make"reasonable adjustments" to the tax outcome of arrangements that are shown to be"abusive". A concern of many is that HMRC may seek to stretch the GAAR to counter the third category of straightforward tax planning. The GAAR will come into effect for arrangements entered into after summer this year.
Statutory Residence Test
An individual's"residence" status determines whether he or she pays income tax and capital gains tax in the UK or abroad. A new statutory residence test will replace the current confusing mix of (old) case law, patchy statutory provisions and HMRC guidelines. The new test will provide welcome clarity in determining whether a person is UK resident or not based on a variety of factors including days spent in the UK, where full-time work is carried out and where an individual has a home. The certainty introduced by the test is a positive step. However, the test itself is very complex and fairly innocuous changes to an individual's circumstances can affect his or her residence status. Proper record keeping will be particularly important. These changes will come into effect from 6th April 2013.
High Value Residential Properties – the new taxes
The Government has introduced several measures designed to discourage tax avoidance by owning high value residential properties through a company. The rate of stamp duty land tax (SDLT) on the purchase of residential property for more than £2m already increased from 21st March 2012 to 15% if the purchaser is a company and that rate of SDLT will have discouraged virtually all purchases carried out in this way. Further, from 6th April 2013 where UK residential properties of more than £2m are owned through a company, an annual tax charge will apply and capital gains tax will apply on a sale. These provisions are complex and advice on existing structures will be required in the very near future.