• Budget 2018 | The Offshore Perspective

Budget 2018 | The Offshore Perspective

Rob Brown , Director & Head of Tax Services |

05 November 2018

Unlike with recent Budgets, the Chancellor has not dropped any new bombs on the offshore finance industry. A review of the detailed announcements reveals mostly a mix of tweaking around the edges in relation to offshore-related measures previously announced. Overall, Philip Hammond has concentrated on trying to inject some optimism into the UK economy especially with Brexit just around the corner. Therefore, his message is very much that the years of austerity are coming to an end.

Budget 2018 | Austerity coming to an end…

Therefore, his message is very much that the years of austerity are coming to an end. And as we know well, anything that improves the prospects of the UK economy is generally good news for the Jersey economy. The Chancellor’s headline-grabbing tax announcement was his intention to introduce a new tax on the internet giants such as Facebook.  Whilst it is an interesting move, Digital Jersey should not expect a call from Mr Zuckerberg wanting to close his London office and move to St Helier.

Below is a summary of the key announcements from an offshore perspective.

Capital Allowances

The budget makes provision for the introduction of a new tax relief for capital expenditure on new non-residential structures and buildings where all the contracts for the physical construction works are entered into on or after 29 October 2018. This relief will be available at a rate of 2%. We expect that there will be many structures managed in Jersey able to enjoy this relief.

From April 2019, the capital allowances special rate for qualifying plant and machinery assets will be reduced from 8% to 6%.

The government will increase the Annual Investment Allowance to £1 million for all qualifying investment in plant and machinery made on or after 1 January 2019 until 31 December 2020.

There have been other minor adjustments to the Enhanced Capital Allowances (ECA) scheme which are effective from April 2020.

International tax enforcement: disclosable arrangements

The budget significantly makes provision for the enactment of new legislation which will allow for the introduction of international disclosure rules about offshore structures that could either be used to avoid tax, or misused to evade tax.

VAT

It has also been announced that there will be no change to the current £85,000 VAT registration threshold for a period of 2 years i.e. until April 2022. This is a welcome announcement for those businesses currently below the threshold especially in light of the impending introduction of Making Tax Digital which comes into force in April 2019.

Consultation on Stamp Duty Land Tax (“SDLT”) charge for non-residents

The government has undertaken to publish a consultation in January 2019 on the potential introduction of a SDLT surcharge at a rate of 1% where non-residents buy residential property in England and Northern Ireland.

Offshore tax compliance strategy

It has further been announced that the government will publish an updated offshore tax compliance strategy. It is envisaged that this document will build on the government’s previous strategy which was published in 2014, that the  government believes resulted in substantial progress being made in tackling offshore tax evasion and non-compliance.

Trusts consultation

In line with the announcement included within the Autumn Budget 2017, the government has proposed that they will publish a consultation on the taxation of trusts, to make the taxation of trusts simpler, fairer and more transparent. While we do not yet have details on the parameters of this consultation it is likely that it will cover both the taxation of UK and non-UK trusts.

Capital Gains Tax (“CGT”)

The extension of Non-Resident CGT to non-resident owners of non-residential land is unsurprisingly going ahead and draft legislation has already been published on this. There is a bit more detail on how funds will be treated with non-partnership funds being treated as companies but further detail is still awaited with a Technical Note due next week on 7th November.

Corporation Tax

As anticipated, non-UK resident companies that carry on a UK property business or have other UK property income will be charged to Corporation Tax rather than Income Tax from 6 April 2020. While companies currently chargeable under the non-resident landlord scheme can expect a reduction in the rates of tax payable, it will however result in these companies being subject to the wider corporation tax rules. In particular, it is worth noting that any such companies will now fall within the ambits of the corporate interest restriction rules and loss relief rules. We understand however, that the new legislation should include provisions to smooth out any anomalies that could arise on the transition from one regime to another.

Please note that the above update is designed as a summary of measures which are of particular interest to us and our clients and is not designed to be a comprehensive list of all the measures to be introduced.

This bulletin is intended to provide a first point of reference for current developments in aspects of the law. It should not be relied on as a substitute for professional advice.

Should you have any questions, please do not hesitate to get in touch with your usual BDO contact.