Practical Law and Lexis Nexis have published comments from the Fieldfisher Tax & Structuring Team in their Autumn Budget coverage.
The full text of our comments is below. A link to the Treasury Budget page is here. A link to the "Consultation on the tax treatment of gains accruing on disposals of interests in UK immovable property by non-residents" is here. If you have any questions about any aspects of the Autumn Budget discussed below, or indeed any other issue arising from the Chancellor's speech and the associated Budget papers, please get in touch.
Andrew Prowse, Practical Law's Leading Practitioners' comments:
"A future that will be full of change; full of new challenges and above all full of new opportunities", so said the Chancellor (perhaps reflectively).
Well, foreign investors in UK property will agree with the first two of those, and may see the opportunities arise from investing elsewhere, owing to the consultation to tax their direct and indirect gains from UK property from April 2019. This will likely be a big tax raiser over time, although the 2019 rebasing may soften the blow for existing investments. Much of our skyline is owned by, and was built with money from, foreign investors and only time will tell whether the new regime, coupled with the headwinds the UK is already facing, will reduce investment in UK real estate.
The allied proposal to tax UK property income received by offshore companies under the corporation tax regime rather than to income tax, so that a reduced tax rate applies but so do rules like the corporate interest restriction, will no doubt help some and hinder others.
UK investors were not immune, and arguably the bigger story is the freezing of indexation allowance for disposals from 2018, raising very significant extra tax on the treasury projections.
Bricks and mortar investors have been a frequent target in recent budgets. The new tech order was not spared though, with a new withholding tax proposed on royalties paid to low tax jurisdictions relating to UK sales in 2019. We await the consultation to find out exactly how that will operate.
Andrew Loan, Lexis Nexis - Views from the Market, Autumn Budget
The first Autumn Budget for some 20 years was more of the same, steady as she goes, as the UK ship of state continues its determined progress into clouded and choppy waters. The uncertainties over Brexit and the continued disappointing figures for productivity growth suggest things will not be getting better any time soon.
In the grand tradition of Great British Budgets, some of the more significant changes were not highlighted in the Chancellor's speech but rather buried in the papers. High on the list must be the proposed changes to taxation of real estate.
When capital gains taxation was extended to UK residential property held by non-residents, there was a concern that commercial property would be next on the list. After all, who can complain at imposing taxes on someone who does not vote, and why should a non-resident be in any better position than a resident?
And so it came to pass. Hammond made great play of his £44 billion investment in new homes over five years, but failed to mention that he would be taxing gains made by non-residents on UK commercial property from 2019. Thankfully the proposals include a rebasing to April 2019 values, a boon to property surveyors and valuers. The change is forecast to raise relatively little money in the grand scheme of things, in the hundreds of millions per year, and of course will be cyclical, depending on whether commercial property values rise or fall. More importantly, it could well make the UK less attractive at a time when we might want to find reasons to encourage overseas investors to come here.
Some investors will welcome the doubling of certain financial limits in the EIS rules as they apply to "knowledge-intensive" businesses with sufficiently high R&D expenditure. But most investors will not look forward to the threat implicit in the proposals in the patient capital review to restrict relief for lower risk investments. These changes are unlikely to make the already fiendishly complex EIS rules any simpler. In many cases, you could be forgiven for thinking it is hardly worth the bother.