Leading accountant and shipping adviser Moore Stephens says that, despite mixed news for non-UK-domiciled individuals, the UK Budget 2011 appears to be good news for shipping.
The bad news in the Budget, announced on 23 March, is that the existing annual remittance basis charge for non-doms resident in the UK for twelve years or more will increase from £30,000 to £50,000, albeit not until 6 April, 2012.
The good news is that the government also proposes not to tax foreign income or capital remitted to the UK for the purposes of ‘commercial investment in UK businesses’, and to simplify some aspects of the current rules for non-doms to remove administrative burdens, which increased significantly from April 2008. It is also proposed that no other substantive changes to the rules for non-doms will be made for the rest of this parliament. The government will issue a consultation document in June with a view to implementing the rules from 6 April, 2012.
Sue Bill, a tax partner with Moore Stephens, says, “The government will also be consulting on the introduction of a statutory definition of residence. Under current rules, the residency of individuals is a very grey area and greater certainty is only to be welcome. Again a consultation document is proposed for June with implementation of the new measure from April 2012. It is unlikely that there will be more detail until June, but the timetable should provide time for adequate planning.
“Overall, there seems to be an acceptance by the government of the positive impact that inward investment by non-doms brings to the UK”.
Other, minor changes in the Budget include a change to the rate of capital allowances on ships which are leased to tonnage tax companies. The rate of writing-down allowances that can be claimed on the first £40 million of expenditure will be aligned with the rate applicable to other ships, including where the ship is a long-life asset. This legislation has effect for expenditure incurred on or after 1 January, 2011, and is likely to reduce the rate of writing-down allowances in respect of such ships.
There is also a new exemption from tax on foreign branches of UK companies whereby a UK company operating outside the UK through a foreign branch will be able to make an election to exempt the profits of its foreign branches from UK corporation tax. Such companies may be able to reduce or eliminate the UK corporation tax payable on branch profits by offsetting foreign tax paid on these profits in any case. This new foreign branch exemption, however, does not apply to shipping, to the extent that the foreign branch is not taxed in the overseas jurisdiction as a result of the terms of a double tax treaty.
Minor changes have also been made to the ‘controlled foreign company’ (CFC) rules. The de minimis exemption is to be increased to companies with chargeable profits below £200,000 per annum, and there will be a statutory three-year exemption from these rules for foreign subsidiaries that come within the scope of the CFC regime as a consequence of a reorganisation or change to UK ownership. There will be further consultation on these rules.
Finally, corporation tax rate will be reduced by a further 1 per cent, so that, from April 2011, the corporation tax rate will be 26 per cent and, by 2014, it will be 23 per cent.
Sue Bill says, “There is mixed news for non-UK-domiciled individuals. But there are few other changes that will affect shipping. The government has emphasised the need for stability, and clearly intends to consult before making any major taxation changes. The government has also emphasised the need for the UK corporation tax regime to be attractive to international businesses. Overall, it seems to be good news for shipping.”
Source: Moore Stephens LLP