Spring has sprung for private client practitioners
Victoria Mahon de Palacios advises on the key provisions of the Spring Budget 2016, including a couple of welcome surprises as well as previously announced measures
The unexpected announcement in the 2015 Autumn Statement that an additional 3 per cent stamp duty land tax (SDLT) charge will apply to purchases of second homes and buy-to-let properties in England and Wales, where the consideration is £40,000 or more, has now been put into effect as from
1 April 2016.
The additional charge will be applicable even
if the purchaser owns their other property or properties overseas. Where the additional property is to replace the purchaser's main residence (main residence is to be determined on the facts), the purchaser can claim a refund of the additional SDLT charge provided their main residence is sold within 36 months.
This marks a significant change to the SDLT treatment of residential property, imposing a total SDLT charge starting at 3 per cent for properties worth less than £125,000 and increasing up to a staggering 15 per cent for properties worth £1.5m or more. Among those affected will be joint purchasers, trustees, and overseas purchasers, who should all seek advice before buying properties to understand the full extent of their SDLT liabilities.The government's previously announced plan to restrict tax relief for interest on loans on buy-to-let properties, for income tax purposes, will be introduced from 6 April 2017. This, together with the aforementioned additional SDLT charges and changes to the wear and tear allowance for income tax purposes, further reduces the attractiveness of buy-to-let properties, as part of the government's drive to support first time-buyers.
One of the welcome surprises of George Osborne's Spring Budget, which was delivered on 16 March 2016, was the reduction in the capital gains tax (CGT) rates of 28 per cent and 20 per cent to 20 per cent and 10 per cent respectively as from 6 April 2016. Owners of residential property will not benefit from the new rates, however, as the old higher rates will continue to apply to gains made on disposals (where CGT main residence relief does not apply). The higher rates will also continue to apply to carried interest. This, coupled with the government's increase of the effective rate of income tax on dividend income, due to the withdrawal of the deemed 10 per cent tax credit as from 6 April 2016, strengthens the tax benefit of achieving a return as a gain rather than income. The other welcome surprise was for non-UK domiciled individuals, who are to be treated as UK deemed domiciled when they have been UK resident for 15 out of the previous 20 years from April 2017, under the proposals announced by the government last year. The Budget revealed that re-basing will be available to such individuals so that their offshore gains will be taxed on the arising basis by reference to the value of the asset as at 6 April 2017 (the base cost).
The Common Reporting Standard (CRS), a new reporting and information-gathering initiative that has secured widespread global participation, came into effect in the UK on 1 January 2016. Under it, UK financial institutions are required to identify customers who held accounts with them >>
>> as at 31 December 2015 and open new accounts from 1 January 2016 onwards, who appear to be tax resident in a country that has signed up to the CRS, and report details on the account and customer to HMRC.
HMRC will then share this information with
the tax authorities of the customer's country
of residence, and in turn will start receiving information from participating countries on UK residents with accounts in their jurisdiction.
The first reporting is due by 31 May 2017.
The CRS represents a significant step towards ensuring global tax compliance.
In a linked move, the Liechtenstein disclosure facility, the most prominent disclosure facility in the last few years that enabled persons with unreported liabilities relating to assets held overseas to settle them with HMRC on favourable terms, closed early at the end of 2015. We are awaiting announcement on a replacement disclosure facility for anyone with undeclared offshore income and gains, to allow them to come forward ahead of their information potentially being shared with the UK under the CRS from 2017, after which the government will inevitably take an even more aggressive stance towards tax evaders. In line with the government's move towards greater transparency, with effect from 6 April 2016, UK companies need to keep and maintain a register of people with significant control (PSC register), which records all the people or legal entities that have significant influence or control over it. Such information is to be lodged with Companies House, and thereby made publicly available, from 30 June 2016.
Hot on the heels of the PSC register will follow the Fourth EU Anti-Money Laundering Directive, which the government announced in autumn 2015 will be implemented under the UK's anti-money laundering regulations in 2017, requiring trustees to hold information about the settlor, trustees, and beneficaries of express trusts.
The directive requires the UK to establish a central register to hold beneficial ownership information of trusts that generate tax consequences in the UK; such information
can then be accessed by relevant domestic authorities. It is anticipated that offshore trusts with UK tax-paying beneficiaries will be caught. We are yet to see whether the register will be linked to other EU member states' trust registers and accessed via a centrally held EU register by relevant foreign authorities.
Attorneys and gratuitous care payments
The case of Re WP deceased and EP  EWCOP 84 underlines the need for attorneys appointed under an enduring power of attorney (EPA) or a lasting power of attorney (LPA) to apply to the Court of Protection for authority to pay themselves or family members for care provided to the incapacitated donor unless remuneration is expressly authorised in the EPA/LPA.
In this case the applicant attorneys applied for retrospective authority for payments of £150 made to themselves and their sibling out of their incapacitated parents' assets by way of reimbursement of travel expenses and gratuitous payments for care they provided which enabled their parents to continue living in their own home. The court authorised the payments and, relying on the case of Re HLN  EWCOP 77 (regarding deputies), explained that such payments will only be authorised where the care provided is reasonably required, the payments are affordable taking into account the resources, age, and life expectancy of the incapacitated individual, and the payments represent a saving on the commercial cost of the care services in question.
Attorneys and deputies need to be aware that they cannot simply help themselves to gratuitous care payments but should take comfort from the case that such payments are likely to be authorised, provided they can be shown to be in the best interests of the donor by satisfying the aforementioned criteria.
Wills for cohabitants
A recent, well-publicised (but unreported) case has highlighted the importance of unmarried couples making wills. Ms Joy Williams had lived with her partner, Mr Martin, for over 18 years after he separated from his wife, from whom he was never divorced and who was not excluded from his will. On Martin's death, his share in the property in which he lived with Williams, and his other assets, passed to his estranged wife rather than Williams. To avoid losing her home, Williams applied to the court for a share in Martin's estate and was successful. However, the high cost and emotional stress of the court proceedings could easily have been avoided if Martin had kept his will up to date to reflect his circumstances.
Upon a marital breakdown, a spouse is only automatically excluded from benefit if the couple divorce. Otherwise, a new will should be prepared to revoke the former will. The case serves as a reminder that cohabiting couples have no entitlement to their partner's estate on death, contrary to public perception. It also highlights the need for cohabiting couples to seek legal advice when purchasing a property together to ensure that the property will devolve on death as they would like it to. In this case, owning the property as joint tenants would have ensured that Williams received Martin's share in the property, regardless of the terms of his will.