HNWs face a year of confusion and expense as they scrabble to reorganise their tax affairs after yesterdays Budget, leading lawyers say. A new General Anti-Avoidance Rule and increases in stamp duty will up-end the current tax planning of the wealthy, guests at Withers Budget Breakfast were told this morning.
HNWs face a year of confusion and expense as they scrabble to reorganise their tax affairs after yesterday’s Budget, leading lawyers say. A new General Anti-Avoidance Rule and increases in stamp duty will up-end the current tax planning of the wealthy, guests at Withers’ Budget Breakfast were told this morning.
‘The Lib Dems got a lot of what they wanted: they got a mansion tax in one form and tycoon tax in one form,’ said Christopher Groves, while Sophie Dworetzsky, likened proposals for annual stamp duty to an ‘indirect wealth tax’.
Dworetzsky said that her ‘key concern’ with the GAAR proposed in the Budget was that it would generate massive problems with pre-existing tax planning. She said that if established correctly, a GAAR could provide welcome clarity.
‘The CBI said [a GAAR] would add to the UK’s credibility. If we get a well-defined GAAR then that could actually be helpful in encouraging stability and security. We’re not going to get that if we don’t throw as much Revenue resource at it as we’ve got,’ Dworetzsky explained. It would be helpful if HMRC set up a clearing procedure or a committee so that clients can check whether their tax planning is legitimate, but this would require the devotion of considerable time and money by HMRC to work, she said.
‘There’s a lot of conflation at the moment between avoidance and evasion,’ Dworetzsky added, and many HNWs will worry that their tax planning structures will retroactively fall under the GAAR.
Grove said there will be political pressure for the GAAR to be far-reaching: ‘There will be pressure from the Revenue to move to make it more of an anti-avoidance rule than an anti-abuse rule.’
Over the course of the consultation process this year, HNWs and their advisers will be looking for clarity on how a GAAR will sit alongside existing anti-avoidance legislation and case law, and whether there will be any clearance procedures put in place.
A further blow for HNWs in this year’s Budget was the overnight increase in stamp duty on properties worth over £2 million – which will rise to 7 per cent for most people and 15 per cent on properties owned by overseas corporations. On top of this, the Budget raised the idea of an annual stamp duty on £2 million-plus properties owned by ‘non-natural persons’ (ie trusts or companies), described by Dworetzsky as ‘almost an indirect wealth tax’.
Many non-doms purchased property in the UK via corporations as a means of avoiding UK inheritance tax, and it is believed that the rise in stamp duty is intended to address this. There’s no indication at the moment of how much this annual rate will be, but it is clear that ‘there will be a lot of work to do in terms of reorganisation,’ said Sarah Cormack of Withers.
Clients looking to buy property through a corporation now will have to be careful not to ‘walk into a lion’s den’ while those who have already adopted a corporate ownership structure will now have until next April to try and unwind the structures without incurring further tax liabilities. ‘It looks like it’s going to be very inefficient. It would be amazing if it weren’t worth undertaking [unwinding schemes] versus paying an annual charge,’ Grove added.
While many people will be focussing on the reduction in the top rate income tax to 45p, HNWs may be wondering if this year’s budget was far more ‘Robin Hood’ than newspaper headlines have implied.
Sophie McBain is a Spear’s staff writer