The UK Chancellor of the Exchequer presented his budget on March 21. This was a statement of what the UK government intends to legislate, barring any collapse of the UK‘s coalition government. The Budget speech in the UK Parliament was accompanied by various documents which you can view at www.hmrc.gov.uk/budget2012.
Some of the UK budget measures will be relevant to UK Olim and to Israeli investors in the UK. Here is a brief selective overview.
For 2013-14, the main rates of income tax will be the 20 per cent basic rate, the 40 per cent higher rate and the additional rate will be reduced from 50% in 2012/13 to 45%.
For 2013-14 the personal allowance for those aged under 65 will be set at 9,205 and the basic rate limit at 32,245. The Class 1 Upper Earnings Limit and the Class 4 Upper Profits Limit for National Insurance contributions will be aligned with the point at which the higher rate tax becomes payable ( 41,450).
As for the elderly, from 2013-14 (year commencing April 6, 2013), the availability of the ‘‘age-related‘‘ income tax personal allowances will be restricted. The allowance of 10,500 for 2012-13, available to people aged 65 to 74 will be restricted to people born after 5 April 1938 but before 6 April 1948. The allowance of 10,660 for 2012-13, available to people aged 75 and over will be restricted to people born before 6 April 1938. And from 2013-14, people born after 5 April 1948 will be entitled to a personal allowance of only 9,205, the same as for younger taxpayers. These cutbacks for the elderly have attacted much criticism in the UK.
UK Olim living in Israel who are still within their 10 year Israeli tax holiday for non-Israeli source income pay UK tax on UK pensions unless they choose to be subject to Israeli tax thereon. This is based on harsh provisions in the UK-Israel tax treaty. Such people should review their options before April 6, 2013.
Proposals announced last December regarding offshore qualified recognized overseas pension schemes (QROPS) are to proceed on April 6, 2012. Such pension schemes are exempt from UK tax if numerous conditions are met. It seems reporting and other requirements will be tightened. Nevertheless, ‘‘the tax position of a UK non-resident member of a QROPS has not changed‘‘ according to the reply to a frequently asked question on the HMRC website. This should give greater certainty for UK Olim pensioners in relevant cases there was a fear that more UK tax may become payable.
The budget confirmed that legislation will be introduced in the Finance Bill 2012 to give effect to the Agreement between the UK and Switzerland on cooperation in tax matters that was signed on 6 October 2011. As a result of Protocol signed on 20 March 2012, two changes have been made to the Agreement which will be reflected in the legislation. UK residents and UK passport holders residing in Israel with a Swiss account should take professional advice.
New UK rules are expected to be finalized and legislated in 2013 regarding who is fiscally resident in the UK. But the UK-Israel tax treaty will continue to override UK domestic legislation, including residency ‘‘tie-breaker‘‘ rules in the treaty for preventing dual residency.
The main rate of UK corporation tax is to be reduced from 25% at present to 24% for the Financial Year commencing 1 April 2012, 23% for the Financial Year commencing 1 April 2013, and 22% for the Financial Year commencing 1 April 2014.
Companies will be allowed to ‘‘elect‘‘ a 10% Corporation Tax rate to a proportion of profits attributable to patent and certain other qualifying intellectual property from 1 April 2013. In the first year this proportion will be 60 per cent and increase annually to 100 per cent from April 2017. Note that ‘‘preferred enterprises‘‘ in industry or tech in Israel enjoy an Israeli company tax rate 6%-10% in development area A, and 12%-15% elsewhere in Israel.
Investments in UK residential property:
Stamp duty land tax (SDLT) has been increased from 5% to 7% upon most purchases of UK residential property where the purchase consideration is over 2 million.This measure takes effect for transactions where the effective date (normally the date of completion) is on or after March 22, 2012.
However, the SDLT rate will be 15% in the case of residential properties over 2 million purchased by certain ‘‘non-natural persons‘‘. This will take effect from March 21, 2012. In addition, the UK government will introduce paving legislation for an annual tax charge. The term ‘‘non-natural person‘‘ includes companies, collective investment schemes (including unit trusts), and partnerships in which a non-natural person is a partner. There are exclusions from the charge for property developers and corporate trustees in certain circumstances.
The 15% SDLT charge will affect Israelis and others that use a non-UK company to make new investments in UK residential properties costing over 2 million. Such companies are typically used to avoid exposure to UK inheritance tax (currently 40%). It seems that only 5% SDLT will apply to commercial properties, residential properties acquired before March 21, and residential properties worth less than 2 million.
SDLT tax planning involving the grant or assignment of an option will be countered by a proposed amendment.
To sum up:
Those with UK links or investments in the UK should re-assess their UK tax position, and whether that affects their Israeli tax position as well.
As always, consult experienced tax advisors in each country at an early stage in specific cases.
The writer is an Israeli certified public accountant and UK Chartered Accountant at Harris Consulting & Tax Ltd.