The 2012 UK Budget as always introduced some surprises together with anticipated changes. George Osborne delivered his third UK Budget against the backdrop of an improving economic environment.

As expected, anti-tax avoidance measures featured prominently in the Chancellor’s speech, particularly in relation to stamp duty land tax and home ownership through offshore structures.

The relevant topics which may impact you if you are resident on the Isle of Man or indeed do business here are covered below.

Changes to the taxation on ownership of UK residential property through corporate structures

It was announced that any non-natural person (Company or Trust) acquiring a residential property in the UK worth more than £2 million will pay Stamp Duty Land Tax (“SDLT”) at 15% as of 21 March 2012, thus affecting offshore corporate structures holding UK residential properties.

It has also been announced that consultation will take place concerning the introduction of an annual SDLT charge on such properties with a view to introducing legislation to come into effect in April 2013.

Additionally from April 2013, the UK Government will extend the capital gains tax regime to gains on disposals by non-resident non-natural persons of UK residential property and shares or interests in such property following consultation on the details of the measure.

From 21 March 2012, the SDLT rate on properties with a value of £2 million or more will rise from 5% to 7% if the property is held personally, although the UK Budget did not include any plans for an annual charge for property owned in the taxpayer’s personal name.

There is very little detail on the proposals at present however once further information becomes available it will be possible to assess the impact of these measures on property holding structures. Those affected should look to take advice on how best to deal with these issues and we hope that the consultations will move ahead swiftly so that our team can advise you fully.

Moore Stephens Isle of Man believes that the annual SDLT charge on non-natural persons is effectively the introduction of a mansion tax through the back door. There seems little justification in taxing a non-UK resident holding property through an offshore company where they would not be taxed personally.

It is worth noting that this SDLT charge does not affect the purchase of commercial properties and with the UK Government looking for the introduction of new business zones, this may be an area of interest for offshore entities looking to invest in UK property.

Gambling taxation

The current taxation regime for remote gambling has allowed operators to avoid paying UK gambling duties by basing their operations abroad. To broaden the tax base and provide a fairer basis for competition between UK and overseas remote gambling operators, Budget 2012 announces that the Government will move to a tax regime that ensures operators anywhere in the world pay gambling duties on gross profits generated from customers based in the UK. This is in line with the actions of several other European countries. The Isle of Man, having a strong e-gaming identity will we are sure be very closely monitoring this new development.

Inheritance tax

The Government has advised that they are looking to consult on simplifying the calculation of Inheritance Tax (“IHT”) charges to which trusts are subjected at ten-yearly intervals and when property is transferred out of the trust.

The Government also intends to increase the IHT-exempt amount that a UK-domiciled individual can transfer to their non-UK domiciled spouse or civil partner. The Government similarly intends to allow individuals who are domiciled outside the UK and who have a UK-domiciled spouse or civil partner to elect to be treated as domiciled in the UK for the purposes of IHT.

General Anti-Abuse Rule (“GAAR”)

A consultation document will be issued in summer 2012 with a view to bringing forward legislation in Finance Bill 2013. The Government will consult on: new draft legislation based on the illustrative clauses in the Aaronson report; establishment of the Advisory Panel; and the development of full explanatory guidance. In addition, the Government will extend the GAAR to SDLT. The Government is committed to ensuring that this legislation effectively tackles artificial and abusive tax avoidance schemes and that the supporting guidance is practical both for taxpayers and for Her Majesty’s Revenue and Customs (“HMRC”). It should also be noted that the current Disclosure of Tax Avoidance Schemes (“DOTAS”) regime is being expanded to include tax avoidance schemes not previously caught.

Domicile and residency

As part of the reform of non UK domicile taxation as announced at Budget 2011, the Government will introduce reforms to the taxation of non UK domiciled individuals from 6 April 2012. The annual charge will increase from £30,000 to £50,000 for non UK domiciles who have been UK resident for 12 or more years.

The Government will introduce a statutory definition of tax residence for individuals. As announced on 6 December 2011 with the introduction of this test to take place on 6 April 2013.

The Government will abolish ordinary residence for tax purposes from 6 April 2013 but will retain overseas workday relief and put it on a statutory footing. A summary of responses will be published with draft legislation for consultation after Budget 2012.

VAT

With effect from 1 April 2012, the VAT registration threshold will increase from £73,000 to £77,000.  The deregistration threshold will increase from £71,000 to £75,000.

The Budget also saw the closure of a few VAT loopholes which includes the treatment of hot take-away food; hairdressers chair rents and self storage facilities. From 1 October 2012 these will no longer be zero rated but be subject to VAT to fall in line with similar products/services already supplied at the standard rate of VAT.

It has been widely commented in the press recently that the VAT loophole on low value consignment relief will be closed on 1 April 2012 thus hitting Guernsey and Jersey hard. This essentially stops this relief resulting in all goods (with no minimum value) being subject to the same rate of standard VAT.