The UK Budget 2016 offers up some attractive financial developments for shipping, but there’s still a sting in the tail with continued ‘non-dom’ confusion
This week’s UK Budget 2016 included a number of surprise developments in favour of the shipping sector, as well as a radical set of measures to assist the offshore maritime oil and gas sector.
As part of its new budget, the UK government announced further reductions in the rate of corporation tax, which will be 17% from 2020. It also promised significant reductions in the rates of capital gains tax, adding that the higher rate of capital gains tax for individuals will drop from 28% to 20% in April 2016. What’s more, the basic rate will plunge from 18% to 10%, although an additional 8% will apply for carried interest and gains on some residential property.
The popular Entrepreneurs’ Relief will be extended to apply to long-term investors in unlisted companies. Under these new rules, a 10% rate of capital gains tax will apply for gains on newly issued shares in unlisted companies acquired on or after March 17, 2016, so long as they are held for a minimum of three years from April 6, 2016. There is a separate lifetime limit of £10m of gains.
Other items in the budget of interest to the UK maritime sector, as noted by leading accountant and shipping adviser Moore Stephens, include a discussion document with options for changes to the tax treatment of leases of plant and machinery in response to new accounting standard IFRS16. Companies in tonnage tax, however, are unlikely to be affected by any such changes laid out in the document when it is issued in Spring 2016.
“For such a significant change to the taxation of long-term resident non-doms, the lack of detail since the original announcement has been concerning.”
There will be changes to corporation tax loss relief as well, aimed at achieving greater flexibility. For losses incurred on or after April 1, 2017, companies will be able to use carried-forward losses against profits from other income streams and companies within a group.
Currently, Moore Stephens explains that losses can only be offset against trading profits relating to the same trade arising in the same company. However, if profits are in excess of £5m, it will only be possible to offset 50% of the profits using tax trading losses brought forward.
The government is also expected to cap the amount of tax relief interest payable to 30% of taxable earnings in the UK, or based on the net interest earnings ratio for the worldwide group. There will be a threshold limit of £2m net UK interest expense, although further details are yet to be announced.
There were further announcements which related to the ongoing major reform of non-domicile taxation as well. From April 2017, ‘non-doms’ who have been resident in the UK for more than 15 of the previous 20 tax years will be taxed as if they are deemed UK domiciled. In addition, individuals with a UK domicile of origin will revert to that status for tax purposes when resident in the UK.
“Significant changes to the treatment of long-term resident non-doms were originally announced in the 2015 Budget. For such a significant change to the taxation of this group of taxpayers, the lack of detail since the original announcement has been concerning,” said Moore Stephens’ tax partner, Gill Smith. She added that the budget papers only make “very limited, but potentially important”, reference to the changes.
Non-doms who are deemed domiciled from April 2017 will benefit from uplift in the cost basis of their non-UK assets. It remains to be seen, however, whether this applies to assets held via offshore trusts and individuals who become domiciled at a later date.
Mrs Smith said that it was also unclear as to whether or not those domiciled at a later date would benefit from transitional provisions with regard to offshore funds to provide certainty on how amounts remitted to the UK will be taxed, although added that this may give a measure of relief from the famously complex mixed fund rules which determine the source of remittances made to the UK by non-doms.
Additionally, there is no reference to whether or not non-doms who establish offshore trusts before becoming deemed domiciled will be taxed on income or gains retained within the trust in the new budget papers, as there has been previously. “The measures announced are helpful at least to some extent, but the details are limited and there are many other areas that need considering prior to April 2017,” concluded Mrs Smith. “These delays cause uncertainty and may result in affected taxpayers choosing to leave the UK.
“There are no further announcements on the proposal of charge owners of UK residential properties held through non-UK structures inheritance tax with effect from April 6, 2017. Again, this lack of detail is unsettling for clients and more detail is urgently required.”
Loosening its grip
The UK also cut taxes on the North Sea oil and gas industry as it seeks to ease the strain on producers being squeezed by plunging oil prices. The Chancellor of the Exchequer George Osborne announced in his budget that the supplementary charge for the oil and gas industry fell from 20% to 10%, bringing the overall corporate tax rate to 40% for newer fields and 67.5% for older ones. The Petroleum Revenue Tax meanwhile, which stood at 35%, will be scrapped altogether in another change to be backdated from January 2016.
“We need to act now for the long term,” Mr Osborne said in his annual budget speech, adding that the oil and gas industry employs hundreds of thousands of people across the country.