Tax changes outlined in draft Finance Bill 2020 – 2021

The Government has unveiled its draft legislation for the 2020 – 2021 Finance Bill (the Bill). The new proposals cover a number of measures that were previously announced in the 2020 Spring Budget.

To help you gain a greater appreciation for potential tax changes on the horizon, we have prepared a summary of some of the key measures outlined in the Bill:

SDLT surcharge for non-UK residents – This new surcharge will add an additional two per cent to all residential rates of Stamp Duty Land Tax (SDLT) where a non-UK buyer purchases residential property in England and Northern Ireland.

This new surcharge will be added to the existing additional surcharges, such as the three per cent surcharge for ‘additional homes’, and will take effect from 1 April 2021.

It will apply to UK residential transactions involving non-resident:

  • individuals
  • unit trusts
  • partnerships
  • corporate entities
  • beneficiaries under life-interest
  • bare trusts and trustees of other types of trust.

This will primarily affect overseas individuals purchasing residential property. However, overseas corporates that bulk-buy residential property will, in most cases, no longer benefit from claiming for multiple dwellings relief, which results in the residential rates applying in place of the bulk-buy commercial rates.

Corporate interest restriction (CIR)  The Bill aims to amend two technical points so that the existing CIR rules work as intended.

The first amendment relates to how the CIR rules interact with the UK real estate investment trust (REIT) rules and deal with potential issues regarding the allocation of a CIR disallowance, where a non-UK company is within the charge to UK Corporation Tax (CT) in respect of a UK property business but its residual business is not within the scope of CT. 

The other amendment ensures that no penalties will arise for the late filing of an interest restriction return if there is a reasonable excuse.

New reliefs for housing co-operatives – The draft legislation in the Bill also relieves qualifying housing cooperatives, such as organisations that are neither publicly funded nor social housing cooperatives, from the 15 per cent ‘envelope’ rate of SDLT and the charge to the annual tax on enveloped dwellings (ATED).

The relief for the ATED will be applied retrospectively from 1 April 2020, while the SDLT relief will be introduced following the Autumn Budget later this year.

Amendments to HMRC’s civil information powers – New legislation will give HMRC powers to issue a ‘Financial Institution Notice’, that requires organisations, such as banks, to provide information about a specific taxpayer when requested.

This law will do away with the need for approval from an independent tax tribunal.

The Bill also includes a series of amendments to existing legislature aimed at tackling promoters and enablers of tax avoidance.

Alongside the Bill, the Government also launched several important consultations including:

Business rates review – HM Treasury will carry out a wide-ranging review of the business rates system, including a consideration of the strengths and weaknesses of the current system and the introduction of alternatives, such as dedicated property and online sales tax schemes.

R&D qualifying expenditure – HM Treasury will explore whether the scope of qualifying expenditure could be expanded to include data and cloud computing costs. However, the consultation also asks whether other qualifying expenditure should be restricted as a result to make the tax relief fairer.

Link: Finance Bill 2020-21

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