Weekly Tax Update - Monday 9 December 2013

1 GENERAL NEWS

1.1 Autumn Statement

Most of the rumours reported in the press prior to the Chancellor's Autumn Statement turned out to be true which raises the question whether Autumn Statement and Budget secrecy is now a thing of the past.

Mr Osborne confirmed that CGT will be imposed on gains by non-residents who dispose of UK residential property. This new charge will not come in until April 2015 and it appears that it will only apply to gains accruing after that date which suggests that owners will be able to rebase the value of their properties. It will be some time before we know the detail of the changes, but the delayed introduction will give time for sales to be completed free of CGT in the interim.

As regards residential property owned by residents, currently the last three years of ownership of a property which has a qualifying period of private residence relief are ignored so as to give time for the owner to sell after moving out without losing the tax exemption. This is to be reduced to 18 months from April 2014.

Mr Osborne confirmed that certain spouses and civil partners will be able to transfer £1,000 of their personal allowance to their spouse or partner with effect from April 2015. However this proposal will be subject to tight conditions and will only be available where neither is liable to income tax above the basic rate and it appears that only one-third of married couples will potentially benefit. Consequently this is rather more of a sound-bite than a meaningful relief.

We were already aware that new rules would be introduced to restrict the ways that mixed partnerships (comprising both individual and corporate partners) allocate profits and losses. Draft legislation was published alongside the Autumn Statement but the wording is very imprecise so that the position will remain uncertain for many businesses and many may well decide that they need to completely restructure.

The Chancellor's basic message was that the economy is improving, but more work needs to be done to stimulate growth and jobs. This included removing employers' NIC (which he called 'the jobs' tax') in respect of employees under 21, but not until April 2015.

He indicated that the reduced rates of corporation tax (falling to 20% by 2015) were leading to increased investment, thereby justifying the policy. This gives useful clarity which should help reassure internationally mobile businesses.

The Chancellor reiterated the focus on tackling tax avoidance and evasion; however his estimate that an additional £9bn will be collected over the next five years sounds optimistic bearing in mind the work done to date and the receipts already generated. He introduced a range of measures aimed at reinvigorating Britain's high streets. This should help give a fillip to struggling retailers up and down the country.

www.smith.williamson.co.uk/autumn-statement

1.2 Finance Bill 2014 - Draft Legislation

HMRC has confirmed that further documents will be published on 10 December including draft clauses for Finance Bill 2014, Tax Information and Impact Notes and Responses to Consultation on Budget announcements.

2 PRIVATE CLIENT

2.1 HMRC guidance on the tax treatment of manufactured dividends from overseas securities

HMRC has issued new guidance to cover the fact that from 1 January 2014, there will be no requirement to deduct tax from manufactured overseas dividends, and so tax should not be deducted from that date.

www.hmrc.gov.uk/specialist/man-oseas-divs.htm

2.2 Intergovernmental agreements (IGAs) with British Overseas Territories

Bermuda, Montserrat, the Turks and Caicos Islands and the British Virgin Islands all signed IGAs with the UK in London during the week of the Joint Ministerial Council (w/c 25 November).

The agreements with these territories (and the one with the Cayman Islands signed on 5 November) are non-reciprocal, meaning that UK financial institutions will not have any reporting obligations under the terms of the agreements.

www.hmrc.gov.uk/fatca/index.htm

www.hmrc.gov.uk/fatca/bermuda.pdf

www.hmrc.gov.uk/fatca/montserrat.pdf

www.hmrc.gov.uk/fatca/turks-caicos.pdf

www.hmrc.gov.uk/fatca/bvi.pdf

3 PAYE AND EMPLOYMENT MATTERS

3.1 Whether options are regarded as legal options

HMRC's most recent Employment Related Shares and Securities Bulletin included a note that its guidance on the tax treatment of options had been updated. This update includes a new page (ERSM110015) discussing securities options and legal options.

The HMRC guidance includes the following:

The term "legal option" will commonly be understood to describe an option which is a contractual legal entitlement given by one party (usually the employer) to another, for consideration or under deed or seal (see also ERSM110010). Where the option is granted under foreign law, other factors may be relevant.

The case of Abbott v Philbin (see ERSM110100) concerned a contractual option. The option in that case could be turned into money at the date when it was granted, even though it could not be transferred: Mr Abbott could have made an agreement with a third party to exercise the option and transfer the shares to that third party.

References in this guidance to "legal options" (see for example ERSM70410) should be read as shorthand for rights to acquire securities that themselves constitute money's worth for general earnings purposes on acquisition (see Employment Income Manual at EIM00530) in the way that the option in Abbott v Philbin constituted (in the taxation...