Background
The UK Budget, as announced on 29 October 2018, put in place certain measures that had previously been announced but not implemented. In addition, it was a more positive Budget than many had anticipated.
The key measures, a number of which will have an impact on individuals investing into the UK from overseas, are detailed below.
Commercial Real Estate
It was confirmed that measures originally announced in the autumn 2017 budget will apply from 6 April 2019. From this date, non-UK residents who dispose of interests in UK land will be within the charge to UK corporation tax or capital gains tax, as appropriate. Indirect disposals will also be taxed where there is a disposal of an entity deriving 75% of its value from UK land.
UK Property Income of Non-UK Resident Companies
UK property income of non-UK resident companies will be charged to corporation tax rather than income tax from 5 April 2020. Transitional provisions will allow the carry forward of existing income tax losses against future UK business profits.
Off-payroll Working (IR35)
From April 2020, the private sector will be brought into line with existing rules applying to the public sector. The company (if it is medium or large) engaging an individual off-payroll will become responsible for assessing that individual's employment status. Where it concludes that the rules apply, income tax and National Insurance Contributions must be deducted from the amount paid to the individual and employer's National Insurance Contributions must be paid.
Entrepreneurs' Relief
Entrepreneurs' Relief gives a reduced Capital Gains Tax rate of 10% on disposals of shares in a qualifying company. The minimum qualifying period for which conditions must be met has been extended from one to two years, for disposals on or after 6 April 2019.
As well as needing to hold 5% of the voting rights and ordinary share capital, individuals will also have to hold at least a 5% interest in both the distributable profits and net assets on a winding up of the company. This applies to disposals from 29 October 2018. As previously announced, individuals whose holding is diluted below 5%, by means of a new share issue, will be entitled to Entrepreneurs' Relief up to the date of the new share issue.
Capital Losses
In line with the recent changes to trading loss relief, companies' use of carried forward capital losses will be restricted to 50% of capital gains, subject to an annual allowance of £5,000,000 capital or income losses.
R&D
The payable credit, which loss making SMEs can claim from HMRC will be restricted to three times the company's total PAYE and NIC liability for accounting periods starting on or after 1 April 2020. Where companies outsource their R&D offshore or utilise a large number of subcontractors, consideration should be given to whether work should be brought in-house to prevent a restriction to the claim.
Annual Investment Allowance("AIA")
The AIA, which allows businesses to claim a full tax deduction in the year of purchase of qualifying plant and machinery, has been increased from £200,000 to £1,000,000 from 1 January 2019 for two years. The allowance can be claimed in respect of most capital expenditure, with the main exception being cars.
Structures and Buildings Allowance ("SBA")
This new allowance (SBA) means that eligible construction costs of non-residential structures and buildings will qualify for relief at a rate of 2% per annum, where costs are incurred on or after 29 October 2018. The contract must be entered into after that date.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
