What is causing a certain amount of irritation at the moment is the vacuum in which we advisers find ourselves in terms of certainty and expectation
We concede that sympathy may not be the first emotion that wealthy families evoke in the general public. But what is causing a certain amount of irritation at the moment is the vacuum in which we advisers find ourselves in terms of certainty and expectation, the ever moving targets and the increasing difficulty in being able to advise our clients fully and effectively without significant caveats.
It all started with the publication of the HM Treasury’s Consultation on the Fair Taxation of Residential Property last year. I still struggle with the concept of “fair taxation”; as I understand it, you either have to pay tax or you don’t. And you should be able to tell whether or not you have to pay it by looking at the legislation. It shouldn’t be a question of morality or ethics – but that is another story and probably the heart of the problem.
It was not supposed to be a revenue raising exercise at all, we were assured, but a deterrent from the use of companies. The aim was to deter the purchase of UK residential property through a corporate structure. The method employed was the increase in Stamp Duty Land Tax from 7% to 15% for corporate purchasers and the result, we are led to believe, was the complete and immediate cessation in houses being bought through companies. Job done.
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But it didn’t stop there. A secondary objective emerged; to encourage those already in such structures, to come out of them or to “de-envelope”. Hence the introduction of a completely new tax – the ARPT (annual residential property tax) but now known as the ATED (annual tax on enveloped dwellings) of foreign corporate owners, and the extension of capital gains tax legislation to catch them on the way out. Job done.
But it didn’t stop there. If tax can be squeezed from foreign owned corporates, then there must be UK corporates to tax, so the extension of the taxes to UK corporates was announced. Job done.
But it didn’t stop there. As we waited and waited for the legislation to be published, it was hard for clients to decide what to do… and it’s a challenge for us to advise a client on policy decisions alone and indeed we are still waiting for the publication of Finance Bill which will include the detail tax lawyers and accountants crave (but which is still draft but despite the fact it will come into force on 6th April!).
After HMRC and HM Treasury pondered over the pleas for reconsideration on issues which it seemed had not been fully thought through, they realised they could try and squeeze yet more tax out of both UK and non UK residents through inheritance tax (IHT).
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Hidden in an otherwise unremarkable Budget 2013 was another policy change, the effect of which (we assume, as we await detail in the yet-to-be-published legislation) is that not every debt you owe on death will be deductible against the value of your estate IHT purposes.
The broad intention is that those coming out of property envelopes (as the Government encouraged them to do – keep up!) will be prevented from borrowing against the properties now in personal ownership, to reduce the value for IHT purposes – and the legislation won’t be published until the very day when clients have to complete their de-enveloping to comply with the Government’s last change in tax law.
So it’s the perfect elephant trap, beautifully executed and with immoral effect. And a side effect will be to catch anyone who gears up for IHT efficiency, such as the little old lady who does an equity release scheme on her house, then uses the proceeds to buy AIM listed shares/woodland schemes/etc which are IHT relieved but give her a bit of extra income.
I know I’ve only just suggested that fairness shouldn’t come into taxation, but really…
Sophie Mazzier is counsel at private client law firm Maurice Turnor Gardner LLP
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