Mind the Gap

While the housing gap was mentioned early on in the Chancellor’s speech, surprisingly the tax gap was not. However, buried in the detail of the 72-page Autumn Statement, the tax gap is mentioned under “Avoidance and Evasion” and while the UK’s tax gap remains one of the lowest in the world, the Government are committed to reducing the perceived gap and also to raising further revenues given that tax receipts were lower than expected this year.

The Government continue to erode the advantages of using offshore vehicles to shelter profits and the advantages afforded to individuals of foreign birth who can shelter overseas wealth from UK taxation.

It was confirmed in today’s statement that the changes previously announced for non-domiciled individuals will be introduced next April and little has changed following the consultations undertaken earlier this year. As a result, long-term residents will be deemed UK-domiciled for tax purposes if they have been resident for 15 of the past 20 years or if they were born in the UK with a UK domicile of origin. In addition, from April inheritance tax will be charged on UK resident property held in an offshore company or trust. However, the Government remains committed to encouraging inward investment, especially following the Brexit vote, so they propose to make changes to the Business Investment relief scheme to make it easier for non-domiciled individuals to bring offshore funds into the UK without incurring a tax charge.

The Government also consider that there should be equal tax treatment between UK-resident and non-resident companies so will consider bringing all non-resident companies receiving UK income into the UK corporation tax regime.

A further indication that the Government is committed to plugging the gap and raising more revenue is the proposal to introduce a legal requirement for intermediaries to register offshore structures.

Given the numerous Automatic Exchange of Information agreements between the UK and other countries, the eroding of the tax advantages for non-domiciled individuals and the increased level of transparency required for offshore entities, the ability to look overseas for tax mitigation solutions continues to diminish.

Post-Brexit there remains a fine balancing act between extracting a fair tax contribution from those who wish to settle and trade within the UK, against the potential alienation and loss of valuable inward investment if these individuals and businesses choose to turn their back on a not so attractive UK.