Budget Summary 2013

Other Measures

Annual tax on ‘enveloped’ dwellings

Last year’s Budget included a package of measures to target the avoidance of stamp duty land tax and CGT by people owning high value houses through companies and other legal vehicles – so-called ‘envelope schemes’. The first measure, a 15% SDLT charge on transferring a house worth £2m to certain ‘non-natural persons’ (e.g. companies), took effect in March 2012.

A new charge called the ‘Annual Tax on Enveloped Dwellings’ (ATED) takes effect from April 2013. It applies a flat rate charge based on bands of value to residential property in the UK worth over £2m which is owned by a non-natural person. There are a number of exemptions, such as for working farmhouses or other employee accommodation.

A CGT charge at 28% will apply to any gain on such a property accruing after 6 April 2013. This will be higher than the corporation tax that would be payable by a UK company, and will bring foreign companies within the charge to UK tax. Enforcement of these charges on foreign entities may pose practical problems for HMRC.

Anti-avoidance measures

As usual, the Chancellor hoped to raise considerable amounts of money by ‘closing loopholes.’ The speech included the announcement that people who promote aggressive tax avoidance schemes may in future be ‘named and shamed’ (although those who do so may simply regard this as good publicity).

A ‘General Anti-Abuse Rule’ (GAAR) will take effect after the Finance Act 2013 receives Royal Assent. This will enable HMRC to negate the effect of artificial tax avoidance schemes if the economic effect of transactions appears to be different from the tax effect (e.g. a loss arises for tax which is larger than the economic loss suffered by the taxpayer). A scheme must be referred to an advisory panel before HMRC can use the GAAR, and taxpayers will still have a right of appeal against the panel’s opinion. It remains to be seen whether this will reduce the enthusiasm of UK taxpayers for avoidance schemes.

By contrast, changes were announced to the rules on ‘transfer of assets abroad’, which seek to stop avoidance by UK residents who move incomebearing assets out of the country. The government is keeping this rule, but the European Commission has pointed out that it does not comply with EU law in its present form. The conditions will be relaxed where assets are moved elsewhere in the EU.

Statutory residence test

An individual’s ‘residence’ status has a significant effect on their liability to income tax and CGT. Up to now, it has been determined by a mixture of statute law, case law precedent and HMRC practice. A number of recent highprofile legal disputes have shown that the law is confusing and contradictory, and several taxpayers have been held to be liable to UK taxes when they believed they had done enough to sever their links with the country. After a long consultation, the government will now introduce a statutory test of residence which is supposed to make the question clearer. The legislation will be in the Finance Act 2013 and will take effect from 6 April 2013.