Autumn Statement 2013 – George's Marvellous Medicine?

11 December 2013. Published by Ben Roberts, Partner

In the midst of the political point-scoring, last week's Autumn Statement was light on significant new tax announcements.

Although much was made (at least on the Government's side of the House) of the positive economic news, there were almost as many references to the need to guard against complacency and to make 'difficult decisions' as there were to the 'plan' starting to work. In a 'steady as she goes' Autumn Statement, it is perhaps not surprising then that headline-grabbing tax measures were few and far between.

Aside from a number of measures designed to help smaller businesses, perhaps the main theme running through the Statement was the continued attack on perceived tax avoidance.

What follows is a summary of some of the main announcements.

1. Taxation of partnerships (to include LLPs)

Following the launch of a Government consultation earlier this year on the taxation of partnerships, draft legislation has now been published to counter the artificial allocation:

  • of partnership profits to non-individual partners; and
  • of partnership losses to individual partners,

in each case, in 'mixed membership' partnerships.

The measure is designed to address a perceived exploitation of the differential tax rate for individual versus corporate partners. Where a partnership (which for these purposes includes an LLP) is made up of individual members, but also includes a 'connected' corporate partner/member, HMRC's clear view is that retaining profits in the corporate partner/member at a lower tax rate is abusive. The artificial profit allocation rules will apply if an individual partner has the "power to enjoy" the corporate partner's profit share (e.g. through being a controlling shareholder).

The legislation will be included in Finance Bill 2014 and will take effect retrospectively from 5 December 2013 (as far as the allocation of profits is concerned) and from April 2014 (in respect of the allocation of losses).

It has been announced that, as part of the consultation process, the Government received new information that the impact of the proposals on the alternative investment fund manager industry will be greater than anticipated.

There was no mention of the first aspect of the partnership tax consultation ("disguised employment" of LLP members), save that the proposals are being taken forward.

2. Real estate

CGT on disposals of UK residential property by non-UK residents

From April 2015, non-UK resident individuals (and certain non-UK resident companies) will pay CGT on sales of UK residential property. The CGT charge will only arise on any gains realised since April 2015. A consultation on this will follow in 2014.This was widely expected and follows, and builds on, the package of tax measures introduced recently in respect of "high value" UK residential property (i.e. property worth £2m or more).

SDLT charities relief

Following the Court of Appeal decision in The Pollen Estate Trustee Company Ltd (1) King's College London (2) v HMRC [2013] EWCA Civ 753,which held that SDLT charities relief is available to joint purchasers of land to the extent that the joint purchasers are a charity for SDLT purposes, from the date of Royal Assent of Finance Bill 2014, legislation will clarify that a charity which jointly with a non-charity purchases a property, will be eligible for SDLT relief on the proportion of the purchase attributable to the charity

3. Employment taxes

Dual employment contracts

From April 2014, legislation will target the artificial use of dual employment contracts by UK resident but non-domiciled individuals (where the duties of one employment are split between two contracts, one for UK duties and one for non-UK duties, with a view to avoiding UK tax). Income from both the UK and non-UK duties will be taxed in the UK, if the non-UK duties are not taxed at a 'comparable level'. There is no further detail at present.

Employment intermediaries

Also from April 2014, existing legislation will be amended to prevent employment "intermediaries" being used to disguise employment as self-employment (thereby avoiding employment taxes). Again, there is no further detail at present.

Employee ownership

Finance Bill 2014 will introduce three new tax reliefs to encourage employee ownership, in light of the Nuttall review:

  • CGT relief on disposals of shares to an employee benefit trust (EBT), if as a result the EBT acquires a controlling interest in the company
  • an inheritance tax exemption on transfers of shares and other assets to EBTs
  • an income tax exemption (up to £3,600 per year) on bonus payments to employees of companies that are indirectly employee-owned

4. Stamp duty and ETFs

From April 2014, stamp duties on transfers of shares in Exchange Traded Funds will be abolished. This follows the announcement at this year's budget that stamp duty on 'junior' share transfers (e.g. AIM-listed companies) would also be abolished, again from April 2014.

5. Banks

Predictably, the UK bank levy will rise again from 1 January 2014 (to 0.156% for short-term liabilities and 0.078% for long-term equity and liabilities).

Draft legislation has been published to allow HMRC to annually 'name and shame' those banks that are (and are not) complying with the voluntary Code of Practice for Banks. The Code, first introduced in 2009, requires banks to abide by both the letter and spirit of UK tax law. Although safeguards have been built into the draft legislation (so that, for example, before naming a non-compliant bank in its annual report, HMRC must engage an independent reviewer) there remains a concern that this represents a new, media-driven, approach to a specific industry.

6. Reliefs & incentives

There is little to report here. A 2014 consultation will consider the extension of the creative industries tax reliefs to commercial theatre productions, and relief for theatres investing in new works or regional touring productions.

7. Anti-avoidance measures

Not surprisingly, a large chunk of this year's Autumn Statement addressed further anti-avoidance measures. Not only is this an easy vote-winner, in the absence of tax increases it is also necessary to fund 'giveaways' such as free school meals and the transferable marriage allowance.

In addition to the partnership tax and employment tax measures highlighted above, the following are just a selection of the measures and announcements that fall squarely within the avoidance realm.

International tax avoidance: the Government confirmed its commitment to work with the G20 and OECD to prevent multinational companies from exploiting international tax rules.

Various measures against promoters and users of aggressive avoidance schemes: new rules will be introduced to demand higher standards of reasonable care, and higher penalties, applicable to "high risk" promoters of avoidance schemes.

New rules will also apply to users of 'failed' avoidance schemes, namely those that have already been defeated in a case before the court / tribunal involving another taxpayer (so-called 'follower cases'):

  • users will be required to amend their tax return in line with the court / tribunal decision (or face penalties)
  • HMRC will be able to issue a 'pay now' notice requiring the taxpayer to pay the disputed tax, rather than wait for the matter to be settled

World Wide Debt Cap ('WWDC')

Changes are to be made to the WWDC rules, which serve to restrict tax deductions on interest payments available to UK companies. Broadly, the WWDC regime seeks to limit UK tax deductions to the total finance costs of a UK company's "worldwide group".

The main change is that, for accounting periods beginning on or after 5 December 2013, a UK company without "ordinary share capital" (for example a company limited by guarantee) will be brought within the scope of the WWDC regime. Companies without ordinary share capital will also no longer be able to be interposed as intermediate companies, breaking a group for WWDC purposes.

Total Return Swaps

Draft legislation, which will apply from 5 December 2013, has been published to deny tax deductions for intra-group payments under derivative arrangements that are linked to profits.


The continued focus on anti-avoidance can be interpreted in one of two ways. The new GAAR (general anti-abuse rule) may have been introduced this summer, but it is clear that there will be no let up on new targeted anti-avoidance legislation. This could either be viewed as the Government / HMRC being true to their word that the GAAR is simply an additional weapon, designed to combat only the most "abusive" of schemes, or a tacit recognition that the GAAR is unworkable. No doubt that particular debate will continue.

Assuming that the economic news continues to improve, next year's Budget and Autumn Statement are likely to feature more tax policy announcements designed to boost growth and ease the cost of living (and win votes!).

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