The Treasury has announced that the 2018 Budget will be delivered on Monday 29 October, a few weeks earlier than the November date which would ordinarily have been expected. Interestingly, this will be the first Budget delivered on a Monday since 1962, and the first delivered in October since 1945. Officially, the Treasury has said that this timing gives Parliament more time for debate before it rises for recess on 6 November – whether it also has anything to do with falling between two key Brexit summits in mid-October and mid-November is a matter for conjecture.
In accordance with the new Budget timetable the 2018 Budget will make the final announcement on measures to be introduced in Finance Bill 2018-19 and an initial announcement about measures which are being considered for Finance Bill 2019-20. A large part of the draft legislation for Finance Bill 2018-19 was published in July 2018 (and that after a period of consultation), so we have a good idea of what to expect. Some of the key changes are expected to be:
• An extension of the availability of Entrepreneur’s Relief to cases where an individual’s shareholding has been reduced below the 5% de minimis limit as a result of a dilution of his/her shareholding. This change is being implemented to avoid entrepreneurs being placed in a position where they are unwilling to seek additional capital for their businesses if this would jeopardise their Entrepreneur’s Relief position. The new rules will operate by way of two elections (the first being for a deemed disposal and reacquisition of the shares at market value immediately prior to dilution, and second for a deferral of the gain arising until an actual disposal), with the intention that the gain arising in the period up to dilution should qualify for Entrepreneur’s Relief. Following consultation, HMRC have confirmed that the market value required for the purposes of the first election will not have to take account of a minority discount (which would otherwise potentially disadvantage taxpayers). [Effective from 6 April 2019]
• The implementation of changes to bring UK property income of non-resident companies within the scope of UK corporation tax rather than income tax. Although the corporation tax rate applicable to such income is expected to be lower than the basic rate of income tax which is currently applicable (17% v 20%) and there will be provisions to allow existing income tax losses to be carried forward against corporation tax profits, this change will bring such companies within UK corporation tax rules for loan relationships (including corporate interest restriction and the anti-hybrids rules) which they hitherto would not have been required to consider. [Effective from 6 April 2020]
• Similarly, all non-UK resident persons will be taxable on gains on disposals of interests in any type of UK land, whether residential or non-residential – currently, such gains are only taxable (with some exceptions) for residential properties. The new rules will also give rise to a tax charge on indirect disposals of UK land, i.e. where a person makes a disposal of an entity that derives 75% or more of its gross asset value from UK land. There will be an exemption from this ‘indirect disposal’ rule for investors in such entities who hold an interest of less than 25%. [Effective from 6 April 2019]
• The disposal of a residential property by a UK resident will need to be reported in a return to HMRC, together with any applicable payment on account, within a ‘payment window’ of 30 days following the completion of the disposal. Certain non-UK residents are already required to make such returns and payments – the range of persons to whom these rules apply will be expanded. [Effective 6 April 2019 and 6 April 2020]
• The filing deadline for a Stamp Duty Land Tax (“SDLT”) return (and payment of related SDLT) will be reduced from 30 days to 14 days. [Effective 1 March 2019]
For further information or to discuss how the potential changes may impact you or your business, please contact Mark Hood, Director – M&A Taxation