Author: Charlie Kelleher

The varying liabilities of a trustee

Trustees play a crucial role in managing assets and safeguarding the interests of beneficiaries. However, the extent of a trustee’s duties and liabilities can vary depending on the negotiated terms between the settlor (the donor) and the trustee. One significant aspect that has emerged from case law is the concept of ‘anti-Bartlett clauses’, which limit a trustee’s duties and potential liability. 

Here we explore how these clauses came about, their implications for trustees, and recent legal developments in this area.

The origin of anti-Bartlett clauses 

The case of Bartlett v Barclays Bank Trust Co Ltd [1980] Ch 515 focused attention on the potential range of liability faced by trustees. In this case, a trustee failed to intervene in a speculative building project, this led to substantial losses for the trust. The judge ruled that the trustee should be allowed to offset the loss with a gain from a different investment. As a result of the ruling, draftspersons of trusts began to utilise anti-Bartlett clauses which limit a trustee’s duty of supervision over controlled underlying companies.

Understanding anti-Bartlett clauses

An anti-Bartlett clause typically states that the trustee is not bound or required to interfere in the management or conduct of a company in which the trust fund is invested. The trustee can leave the management to the company’s directors without being liable for any resulting loss, as long as they have no actual knowledge of fraud or dishonesty. These clauses aim to shield trustees from liability when they have no breach of duty, thus preserving the negotiated terms of the trusteeship.

IQEQ (NTC) Trustees Asia (Jersey) Ltd v Arboit and Sutton [2019] HKFCA 45: In the case of IQEQ, the Hong Kong High Court and Court of Appeal upheld an anti-Bartlett clause, rejecting the existence of a residual obligation for a trustee to intervene in certain circumstances. The Court of Final Appeal firmly stated that such an obligation is inconsistent with the purpose of anti-Bartlett provisions. This ruling emphasised the importance of respecting the terms agreed upon between the settlor and trustee in determining the trustee’s duties and liabilities.

Obligation to intervene

While anti-Bartlett clauses limit a trustee’s duties, they cannot completely override the core obligation to intervene when the trustee has actual knowledge of dishonesty. Trust law maintains that trustees must act if they possess such knowledge, regardless of any exoneration clauses in place. This ensures that trustees cannot evade responsibility in cases of dishonesty.

Onus of proof

When a trustee tries to rely on an exoneration clause, it is the claimant’s burden to prove that the trustee had actual knowledge of dishonesty, thus nullifying the protection provided by the clause. The statement of claim must provide full particulars of the trustee’s actual knowledge, which requires an understanding of what constitutes such knowledge. Recent case law emphasises that blind-eye knowledge, where a person deliberately avoids confirming suspicious facts, can be considered as actual knowledge.

The implications for donors and trustees

The case of IQEQ highlights the importance of the donor’s role in determining the extent of their bounty for beneficiaries. When creating a trust, both the settlor and trustee have the right to negotiate and agree upon the terms of the trusteeship. The level of risk involved in implementing the settlor’s investment strategy should be considered, with anti-Bartlett clauses providing protection for trustees taking on such risky ventures. Once the terms have been agreed upon, beneficiaries cannot challenge the extent of the trustee’s duties as determined by the Trust Deed.

Crucial protection whilst not removing core obligations

Anti-Bartlett clauses have become an important tool in trust planning, allowing donors and trustees to define the scope of a trustee’s duties and potential liability. While these clauses provide crucial protection for trustees, they cannot absolve them of their core obligation to intervene in cases of dishonesty. The recent case of IQEQ reaffirmed the importance of respecting the negotiated terms of a trusteeship, emphasising that donors have the authority to shape the extent of their gifts to beneficiaries. By understanding the implications of anti-Bartlett clauses, both donors and trustees can navigate the complex landscape of trust law and protect their respective interests.

The UAE Golden Visa: the closest thing to permanent residence?

In 2019, the emirates of Abu Dhabi and Dubai introduced a long-term residence program in the form of the Golden Visa. This provides eligible individuals and their families with long-term residence permits of 5 or 10 years, with the option for renewal of the visa at expiry of the initial term.

The Golden Visa is available to various categories of individuals identified by Abu Dhabi and Dubai as having the potential to bring significant skill, wealth of expertise to the regions, including:

• Real estate investors who purchase property in either Abu Dhabi or Dubai with a minimum value of AED 2 million.
• Investment in Business: entrepreneurs who establish a business in the UAE, with a minimum capital investment of (typically) AED 500,000.
• Investment in Financial Assets: investors who deposit a minimum amount of AED 2 million in a business or investment fund within the UAE.
• Specialists in Science, Medicine, and Research: professionals in the fields of science, medicine, and research, who can demonstrate significant achievements, contributions, or expertise recognized internationally.
• Those with exceptional creative talent in the fields of the arts and culture.
• Executive Directors with a bachelor’s degree; minimum of five years’ experience in their role; and a salary of at least AED 30,000 per month.
• Pioneers of humanitarian work, including funders of humanitarian efforts in an amount not less than AED 2 million.

For qualifying individuals, the process of obtaining a Golden Visa once already present (and, ideally, resident) in the UAE is relatively straightforward. Even for those who may not strictly fall neatly into one of the categories, those whom the UAE see as ‘attractive’ to the region may well find themselves on a path to long-term Golden residence.

It is important to note that while most visas issued in any of the seven emirates allow individuals to live anywhere in the UAE (including outside of the emirate from which their visa was issued), currently only Abu Dhabi and Dubai issue Golden Visas. Nonetheless, this does not preclude Golden Visa holders from residing in one of the other emirates should they so wish.

A considerable benefit of the Golden Visa is that the holder can be absent from the UAE for as long a period as they wish; whereas with other types of visa, they are ordinarily automatically cancelled if the holder is absent from the UAE for a continuous period of six months. Golden Visa holders may also sponsor their spouse, children, certain company executives and helpers (such as maids and nannies), subject to meeting certain criteria.

‍How Sanctoras can help

We have helped a number of clients obtain their Dubai Golden Visa, providing security and long-term stability for them and their families. Although neither ‘permanent residence’ nor UAE citizenship are currently available to most people, the Golden Visa goes some way to address this.

For a discussion about your circumstances, an assessment of whether you are likely to qualify for a Golden Visa, or to begin the application process, please get in touch with our Dubai team.

In April 2023, significant amendments were made to the capital gains tax (CGT) rules concerning divorce and dissolution of civil partnerships in the United Kingdom. These changes aim to simplify the process of dividing assets during and post-separation, ensuring fairness and clarity for all parties involved. Here we will delve into the details of these modifications and explore their implications for tax professionals and their clients.

The pre-April 2023 rules

Before we explore the recent changes, let’s recap the previous rules surrounding CGT in divorce and dissolution cases. Ordinarily, assets can be passed between spouses and civil partners free of CGT. However, under the pre-April 2023 rules for divorcing couples, transfers between the parties were deemed to take place at market value for CGT purposes if the transfers took place after the end of the tax year of separation (which could be much earlier than the divorce itself).

In other words, if a couple separated on 1 May 2020, they would be able to make CGT-free transfers between themselves until the end of that tax year – therefore until 5 April 2021. However, had that couple instead separated on 1 April 2020, they would have had just five days to make any CGT-free transfers! This was clearly inequitable and led to considerable confusion – and significant ambiguity amongst clients, lawyers and tax advisors as to what the “date of separation” actually was…

Overview of the changes

The changes implemented in April 2023 represent a hugely welcomed simplification of the CGT treatment in divorce and dissolution cases. The key modifications include:

Potentially indefinite deadline

Under the new rules from 6 April 2023, transfers of assets between separating spouses or civil partners are now treated as “no gain/no loss” transfers for CGT purposes for an indefinite period, provided the transfers are made pursuant to a formal divorce agreement (including an Order made by consent). This means that the transfer is deemed to occur at the original cost of the asset, thereby deferring any CGT liability until a future disposal.

The ‘three-year’ rule

The changes now allow transfers made between the parties other than under a Court Order until the end of the tax year three years following separation. A couple who separated on 1 May 2023 will therefore now have until 5 April 2027 to benefit from the no gain/no loss transfer provisions (in effect, almost four years since the actual date of separation).

This three-year period, however, will end if the Court pronounces decree absolute or issues a final order. Any subsequent assets being transferred between the parties would therefore need to be included in the formal court-approved agreement to continue to benefit from tax-neutrality.

Accurate record-keeping

It is crucial to emphasise the importance of maintaining accurate records of all asset transfers, including the original cost and acquisition dates. This information will be vital for future CGT calculations when the assets are eventually disposed of.

Seeking expert advice

Given the multidisciplinary nature of divorce and dissolution cases, tax professionals should collaborate with family law solicitors, financial planners, and other relevant professionals to provide comprehensive advice and ensure a holistic approach to the parties’ financial well-being.

This is particularly relevant in international, high-value or otherwise complex cases, where specialist advice – often across jurisdictional borders – is paramount. Clients obtaining advice at the very earliest stage remains paramount, and the tax position can still be highly complex; though the relaxation on timings outlined above is certainly a positive step in the right direction.

How can we help? 

We are regularly instructed by family lawyers in London and around the UK to advise on the tax implications of complex divorce cases, acting either for one party or as a ‘Single Joint Expert’ for both. We are well-versed in the rules for expert witnesses advising the Family Court, and we recognise that such advice is often required at short notice. We also have excellent relationships with family lawyers and tax advisors in other jurisdictions – including the US, Italy and France – on whom we can call if necessary.

Please contact James Heathcote to discuss your own specific circumstances – or those of your client – in confidence. If you would like to understand more about James’s professional CV relating to divorce, he will be happy to share this.

The concept of domicile

The English common law concept of domicile is one that has developed through centuries of case law, rather than being set out in statute. In broad terms, it relates to the country to which an individual is most closely connected and where they have their permanent home.

Every individual must have one, and only one, domicile under UK law. Although we generally refer to ‘the UK’ as shorthand, we actually mean one of the three legal jurisdictions that make up the UK: England & Wales; Scotland or Northern Ireland. It is distinct from residence, nationality and citizenship, so is not necessarily determined upon the country of residence. Domicile is dependent on numerous factors sometimes hidden in the grey areas of case law, but it is more specifically based on a person’s country of birth, their family’s origin and their own choice to establish a permanent home in a particular country. 

There are three main types of domicile that have been established:

·      Domicile of origin – This is the domicile that is acquired by an individual at birth, which is usually the same as your father’s domicile. However, if the parents are not married at the time of birth, or your father dies prior to birth, an individual’s domicile of origin is that of the mother.

·  Domicile of dependence – This is the domicile that an individual acquires through the domicile status of someone on whom they are dependent (usually their father, as above) changing their own domicile status before they reach the age of 16. Women who married before 1 January 1974 automatically acquired the domicile of their husband – thankfully, women are now assessed independently!

·      Domicile of choice – This is a domicile that an individual acquires after the age of 16 by way of their actions and intentions. A domicile of choice is formally established by evidencing that the individual has a permanent home in the country of choice; that they have the intention to live there permanently or indefinitely and that they have severed all ties with their domicile of origin or dependence. Therefore, it is possible for an individual to have a domicile of choice that is different from their domicile of origin or dependence.

It should also be noted that since 6 April 2017 there is also the concept of deemed domicile, whereby some individuals who are not UK domiciled under the general law are treated as if they are domiciled in the UK for income tax, capital gains tax and inheritance tax purposes.

Establishing domicile of choice

Domicile of choice is considered the most difficult to establish because it is based on a person’s subjective intentions and actions, rather than their birth or dependent status. It is also very hard to displace a domicile of origin, this permanently exists and will return if a domicile of choice is acquired, but later lost. To establish a domicile of choice, an individual must demonstrate that they have a permanent home in a particular country and that they have the intention to live there permanently or indefinitely.  

This can sometimes be challenging to prove, especially if a person has ties to multiple countries or has frequently relocated, therefore this point is most commonly scrutinised by HMRC and gives rise to many enquiries. There are a couple of recent cases on this regarding living taxpayer’s domicile which highlight important points to bear in mind. 

Coller v HMRC

The recent decision in the First-tier Tribunal in Coller v HMRC [2023] is an example of HMRC successfully challenging an individual’s domicile position and the aforementioned incremental scrutiny of the domicile status of individuals.

The tribunal concluded that despite Mr Coller’s father having an Austrian domicile of origin, he had acquired a UK domicile of choice by the time of his son’s birth when fleeing Nazi occupation in the 1930s. Mr Coller’s father was found to have had a settled intention to remain in the UK. The tribunal also concluded that Mr Coller himself would have acquired a domicile of choice in the UK, regardless of his father’s status, based on the length and quality of his residency. For example, he was born in the UK, established a family here and had no home elsewhere.

As well as this, it highlighted that the actions of relevant parties are important, rather than just a stated intention and is therefore of note more broadly than the facts. The number and quality of links to the countries applicable are also relevant. It also stated that a domicile of origin, whilst usually hard to displace, would be lessened if there are few, if any, links to the country of domicile of origin. It will therefore be relevant to see what happens next and if there’s an appeal. 

The importance of taxpayers having clarity on their domicile position

Given the degree of scrutiny applied by HMRC in their enquiries into domicile status, individuals must continually review their position and ensure they have substantial evidence to support their position. This is applicable to anyone claiming to have a non-UK domicile, whether they have arrived in or left the UK. 

As specialists in residence and domicile, Sanctoras ensure our clients have a thorough understanding of their circumstances and the implications of any changes to their residence and domicile position. We also provide support in complying with HMRC’s requirement in evidencing residence and domicile position.

If you are a client and have any queries about this topic, please feel free to talk to your usual contact at Sanctoras. If you haven’t worked with us yet, any of our team would be happy to talk over your individual circumstances.

The UK Chancellor of the Exchequer, the Rt Hon Jeremy Hunt MP, has today delivered the Spring Budget. Seen as a somewhat more calming influence than his predecessor (whose ‘Mini-Budget’ ultimately played a large part in the shortest tenure of any Prime Minister in British history), Mr Hunt has pledged to put Britain on a ‘hard road’ to recovery, while delivering a ‘budget for growth’; a difficult balancing act for the Treasury with Hunt’s attempt to reduce inflation, mitigate the cost of living crisis and keep a balanced budget.

Although advisors and clients alike will be settled by the relatively few tax changes announced in the Budget, it nonetheless provides a timely reminder for taxpayers to review their affairs before the end of the UK fiscal year on 5 April.  

‍Personal taxes 

Coined as the ‘back to work’ Budget, it was speculated that Hunt would tackle labour shortages and get people re-engaged in economic productivity from his Budget proposals.

Unlike the drastic changes that were proposed (and then reversed) in the ‘Mini-Budget’ under the leadership of the ephemeral Liz Truss in September 2022, Mr Hunt and current Prime Minister Rishi Sunak are taking a more conservative approach in an attempt to stabilise the economic turmoil that has been created by the raft of political uncertainty over the last few years.

No previously-unknown changes to tax allowances, rates or thresholds were announced today. While inflation sits at 8.8% as of January 2023, It appears Hunt and Sunak’s plans to continue freezing tax bands will provide a mechanism for reducing inflation, utilising the effects of fiscal drag. This should contribute to the prediction by the Office for Budget Responsibility that inflation will fall to 2.9% by the end of 2023.

Of exceptional note, however, are pension changes:  the annual pension allowance (the maximum an individual can contribute to a pension each year) will rise from 6 April 2023, from £40,000 to £60,000. This is good news for higher-earners who wish to save for retirement, whilst obtaining valuable tax relief for doing so.

Of significant surprise was the abolition of the pension lifetime allowance cap (very broadly meaning the maximum value a pension may be worth without incurring tax charges, subject to various historic transitional provisions) of £1.07m. Although it had been widely speculated that the lifetime allowance would increase, few had envisaged it being scrapped entirely. The significance of this move cannot be understated; although its effects are likely to be felt most immediately by higher-earners, will a return to an ‘unlimited’ pension pot allow for considerably greater investment within the UK by institutional pensions?

‍Inheritance tax

There was little to no mention of inheritance tax in this Budget.

However, Mr Hunt proposes to simplify the administration of trusts and estates, with plans to formalise and extend an existing income tax concession for low income trusts and estates and provide further changes to make calculations and reporting more straightforward. HMRC also intends to make changes to inheritance tax regulations to remove non-taxpaying trusts from reporting requirements. Details are yet to be finalised.

‍Business investment

Although corporation tax is set to increase to 25% in April as expected, an overhaul of capital allowances will provide welcome tax breaks for business investments. From 1 April 2023 until 31 March 2026 investments made by companies in qualifying plant and machinery will qualify for a 100% first-year allowance. This means companies across the UK will be able to deduct the full cost of qualifying assets when calculating their profits, which may go some way to offsetting the increased rate of tax… Companies purchasing other types of capital assets than plant and machinery will also benefit from a 50% first-year allowance in the year of investment.  This is on top of the decision in Mr Hunt’s Autumn Statement to permanently set the Annual Investment Allowance at £1 million.

‍Actions to take

This may not have been a particularly ‘exciting’ Budget for tax advisors (for which many of us are breathing sighs of relief), financial advisors will be kept busy updating clients’ retirement plans in light of the significant pension changes. 

Nonetheless, it is a well-timed reminder to review your or your clients’ tax affairs more generally ahead of the tax year-end. Worthy of consideration:

Increasing pension contributions from April 2023 to mitigate your tax liability, making use of the abolishment of the annual pension allowance (specialist investment and financial planning advice must be taken in this respect);

• Maximising business investment into qualifying assets to make use of increased allowances from 1 April 2023, in order to offset the increasing rate of corporation tax;
• Maximising available personal tax bands, rates and allowances available before the end of the tax year on 5 April 2023 – for example, making full use of your income tax and capital gains tax allowances (as the saying goes, ‘use them or lose them’).

‍Important note:

The pension changes form the most significant part of today’s announcements. However, pension legislation and regulation can be exceptionally difficult to navigate, with numerous opportunities to unintentionally trip yourself up. Before taking or refraining from taking any action in respect of your pension, you must always seek specialist advice from a qualified, experienced pension advisor. Sanctoras does not provide this advice, but we will happily provide you with details of firms that do.

‍Get in touch

To discuss your own or your clients’ circumstances in more detail, and to review any actions you may need to take as a result of today’s announcements or more generally, please contact one of the Sanctoras team who would be delighted to arrange a consultation.

hello@sanctoras.com

+44 (0)204 574 4796 (UK)

+971 (0)4 888 6520 (UAE)

As the current tax year draws to a close on the 5 April 2023, the team at Sanctoras have been putting measures in place to support clients with their year-end tax-planning strategies. This is particularly important given the changes coming in as of 6 April.

Allowances and reliefs as an individual

The end of the tax year is an important opportunity to maximise your tax allowances and reliefs.

It is beneficial to check whether you have utilised your £20,000 ISA allowance, as well as to bear in mind time limits and record keeping. With regards to time limits, as an example, you can only claim losses or repayments back over 4 tax years. This means that 2018/19 tax year losses/repayments must be claimed back by 5 April 2023.

Below are some key considerations:

Tax bands

‍The UK government plans to freeze most tax bands until April 2028; making minimal changes to allowances and reliefs for the upcoming tax year.  However, Scottish tax rates are due to change from 6 April 2023.

In 2022/23 individuals with a total income in excess of £150,000 will pay the additional rate of income tax, currently 45% on most income, (46% in Scotland). Although certain individuals with income between £100,000 and £125,140 are subject to an effective 60% tax rate (61.5% in Scotland) owing to the tapered removal of the personal allowance (£12,570 for 2022/23). 

From 2023/24, the additional rate of income tax will apply to incomes in excess of £125,140. 

CGT

‍Although CGT rates are to remain the same, a drastic change will be made to the tax-free allowance, with this reducing from £12,300 to £6,000 from 6 April 2023. The allowance will be halved to £3,000 from 6 April 2024.

Dividend bands

‍Whilst these bands will remain the same, the dividend allowance will be halved from £2,000 to £1,000 as of 6 April 2023. It will then be halved again to £500 from 6 April 2024.

Corporate investments

‍It is also necessary to consider investments held within a corporate structure,  because the main rate for corporation tax is due to increase from 19% to 25% as of 1 April 2023. Rates of less than 25% can apply where profits are less than £250,000, unless the company is a ‘close investment holding company’. This will apply to Family Investment Companies.

Transferring assets to spouse of civil partner

Consideration should be given to gifting income and capital-producing assets to spouses or civil partners if they do not already use their personal allowance, basic and higher rate bands.

Please be aware that calculating the effects of a transfer of assets can be complex, and a transfer is likely to have wider implications than tax. We recommend that you discuss any potential transfer with us in advance.

Maximising your personal allowance

For those receiving an income above £100,000, the tapering or removal of your personal allowance is a key consideration.

This will mean that for each £2 of your income above £100,000, your personal allowance will be tapered by £1. The result will be that those earning above £125,140 will not receive a personal allowance at all.

Reducing taxable income below £100,000 before the taper kicks in is a consideration for many individuals. This can be achieved in a number of ways, such as increasing pension and charitable contributions, as well as paying a part dividend and part salary (to make use of any available unused dividend allowance). Please discuss any intended action with us in advance.

Charitable donations

You may be able to make cash charitable donations to reduce your taxable income and preserve your personal allowance.

For example, an individual paying tax at the additional (45%) rate who makes a qualifying donation to a Gift Aid registered charity of £10,000, can obtain tax relief of £3,125 through their tax return. The Charity can also reclaim £2,500 from HM Revenue & Customs . This means that the charity receives a £12,500 donation at a net cost to the donor of £6,875.

Tax relief may be available for certain charitable donations not made in cash form, but you should review this with us to ensure that any tax relief is claimed.

Retirement and succession planning

Retirement and succession planning is often overlooked, despite being a guaranteed consideration for all. Although there has been minimal impact to succession planning from the UK government’s fiscal changes over the last tumultuous 6 months or so, it is an area to keep in mind.

‍Pension contributions

Maximising pension payments can be a useful way to reduce your taxable income and preserve your personal allowance. Pensions can be quite a complex area, and often involve wider financial and investment considerations as well as tax.

In summary, the amount of tax-deductible pension savings that can be made for each individual is limited to the ‘annual allowance’. Since 6 April 2014 the standard allowance has been £40,000.

Where taxable income exceeds £240,000, this will be reduced by £1 for every £2 between £240,000 to £312,000. This will give a minimum annual allowance of £4,000. There is also a ‘lifetime allowance’ which currently sits at £1,073,100 (the total savings that can be accumulated in registered pensions without incurring a tax charge), which is set to remain until 5 April 2026. Where this amount is exceeded, charges apply.

We recommend talking to us if you have any questions relating to your pension contributions.

Other considerations

Succession planning, and inheritance tax planning should be reviewed regularly. We recommend you start this long before you think it is necessary; both are areas very specific to each client’s needs. If you have any questions, one of the team at Sanctoras will be more than happy to advise.

Non-UK domiciled individuals

At Sanctoras we work with many individuals who are non-UK domiciled. It is of the utmost importance that these individuals have a plan in place to ensure they are being taxed appropriately.

If you are a client and have queries about anything mentioned in this article, please feel free to talk to your usual contact at Sanctoras. If are not a current client, but would like to speak to us, any member of our team will be happy to talk over your individual circumstances.

The Register of Overseas Entities (‘ROE’), introduced by the Economic Crime (Transparency and Enforcement) Act 2022, requires non-UK entities that own UK land or property to register with Companies House by the end of this month. Failure to do so may be a criminal offence, as well as leading to possible fines.

The legislation is very complex (and will no doubt change over the coming months), but we have been assisting private clients and trustees with their filing obligations, including the verification and registration process. Please get in touch with one of the team if you or your clients require assistance with this, or you would like to understand your obligations under the ROE.

The magic of raising taxes without raising tax rates

The Chancellor of the Exchequer, the Rt. Hon. Jeremy Hunt MP, has today delivered his Autumn Statement – less than two months after his short-lived predecessor, Kwasi
Kwarteng, announced a raft of tax measures that were almost all reversed within days amid economic chaos.

The backdrop

Opening his Statement, Mr Hunt outlined three key priorities: stability, growth and public services. Blaming the UK’s high rate of inflation – currently more than 11% – primarily on global economic conditions, the Chancellor recognised the pressure on households from higher mortgage rates, fuel bills and groceries.

With the Office for Budget Responsibility now considering the UK to be in recession and unemployment expected to rise, Mr Hunt contrasted the need to make “difficult decisions” with a principle of maintaining “low taxes”. Although headline personal tax rates have remained at their current levels, and the Chancellor’s assertion that those with the broadest shoulders should pay more, it is certain that everyone will feel the pinch of real-terms tax increases.

What isn’t changing?

Given the multiple announcements, reversals and U-turns in recent months, it is worth reminding ourselves what is to stay:

• The additional rate of income tax of 45% is to remain
• The additional rate of income tax on dividends will remain at 39.35%
• The National Insurance increase of 1.25% continues to apply, and will become a standalone Health & Social Care Levy from April 2023
• The main rate of Corporation Tax will increase from 19% to 25% from 1 April 2023

Will reducing allowances increase tax take?

The Chancellor announced a number of cuts to various allowances and thresholds that will impact private clients in the higher tax brackets:

• The threshold above which the 45% additional rate of tax will apply is to be reduced from £150,000 to £125,140
• The tax-free dividend allowance will be reduced from its current level of £2,000 to £1,000 from 6 April 2023, and then to £500 from 6 April 2024. It would be surprising if this is not abolished entirely thereafter
• The annual exempt amount for Capital Gains Tax will be reduced from its current level of £12,300 to £6,000 from 6 April 2023 and £3,000 from 6 April 2024

The Government projects these two latter measures will raise an extra £1.2billion a year from April 2025. However, the payment of dividends and realising capital gains are very commonly within private clients’ control. A business owner may simply choose not to declare a dividend (with many already only paying dividends up to the £2,000 exempt amount). Capital gains can be easily avoided by simply not selling assets.

It remains to be seen whether HM Treasury will raise anywhere near the amount they project, once taxpayers’ actual behavioural responses are taken into account. Although these measures appear targeted at those “with the broadest shoulders”, many will see them as not going far enough.

When a freeze is actually a rise

The Chancellor announced that the tax-free personal allowance, higher-rate tax threshold and National Insurance Contribution limits will remain frozen until at least 6 April 2028.

In addition, the tax-free nil-rate band for Inheritance Tax will also be further frozen at its current level of £325,000 until at least 6 April 2028.

Taking into account the impact of inflation, as well as rises to the National Living Wage, these freezes will increase the tax take from existing taxpayers, as well as bringing more of those on low incomes into the tax net.

This is often referred to as ‘stealth tax’ – the rates and allowances remain the same, but the impact is felt in people’s pockets.

Stamp Duty Land Tax

The previous increase to the nil-rates of Stamp Duty Land Tax in England andNorthern Ireland will now be temporary. This was something of a surprise, being one of the only remaining announcements from the Truss administration that had not already been reversed.

	Current	1 April 2025
Residential	£250,000	£125,000
First-Time Buyer*	£425,000	£300,00
*Maximum price	£625,000	£500,000

Annual Tax on Enveloped Dwellings

ATED is an annual flat-rate charge payable by companies owning UK residential property, based on the value of the property.

The charges will increase by the September 2022 Consumer Prices Index rate of inflation of 10.1% for the 2023-24 ATED charge period. Although ATED has already been increased each year by the rate of inflation, this year will see a particularly substantial increase given the overall economic conditions.

Share-for-share exchanges

Prior to today’s Statement, non-UK domiciled individuals may have been able to benefit from restructuring provisions in order to ‘exchange’ shares in a UK-incorporated company for shares in a non-UK incorporated company. Draft legislation has been released to remove the Capital Gains Tax benefits, and it is effective for transactions from today (17 November 2022) onwards. The Government expects this measure to raise £830million over the next five years.

Actions to take

Some clients may wish to consider accelerating disposals of assets to make use of their current Capital Gains Tax annual exempt amount of £12,300. It may also be desirable to declare dividends of up to the current annual allowance of £2,000.

However, these are routine considerations that most private clients will already be aware of as part of their year-end tax planning, so substantive action may not be necessary.

For those who will be drawn into the higher 45% rate of income tax (or who already pay this top rate), they may wish to consider ways of reducing their taxable income to below the threshold of £125,140. For example, business owners may wish to consider making pension contributions or reviewing any available tax-efficient employment benefits.

Get in touch

If you would like to discuss your or your clients’ circumstances in more detail, and how today’s announcements might impact you, please do not hesitate to get in touch.