Almost 24 hours on, though, the potential implications and effects of Osborne's proposed changes to the pension regime had some experts struggling to come up with an analysis they felt comfortable with, given the scope of the changes, and the variables that would be brought into play.
Some in the business of providing international pensions, such as qualifying recognised overseas pension schemes and qualifying non-UK pension schemes, were also struggling to determine exactly how the changes would affect them and their clients, although the consensus was that the rules of the game had, once again, been changed.
As always, International Adviser’s panel of experts came through in the end, with thoughts as to how Osborne's package of changes is likely to affect IA's readers and their clients over the days, months and yeaers ahead.
Neil Chadwick, technical manager, RL360°
The Government has extended its Annual Tax on Enveloped Dwellings to now catch properties worth £500,000 or more and owned by "non-natural persons". (A non-natural person is generally a corporate vehicle.)
When initially introduced, this measure only applied to properties worth more than £2m, and essentially levied an increased level of stamp duty on the sale/purchase, an annual tax, and a charge to capital gains tax unless the property was transferred into individual ownership.
By forcing the transfer into individual ownership, such propeties become subject to UK inheritance tax. You could argue that the previous threshold was set to simply target wealthy non-residents looking to take advantage of a tax loophole; however, this reduction in the threshold means that even those with modest London properties held through a corporate vehicle for convenience are now going to be caught.
In addition to the above, anyone looking to seek a tax advantage through a marketed tax avoidance scheme will now be required to pay the disputed tax immediately, where HMRC is of the view that the claimed tax effect has been defeated in other, similar litigation.
Currently, HMRC is required to take the taxpayer to court and prove that a case does not work before the taxpayer is required to pay the difference between what they think they owe, and that assessed by HMRC.
However, going forward, it will be the case that the user of the scheme must pay in full at outset, and then reclaim the difference if they win their case.
The intention here is to firstly deter people from using such schemes, and secondly, to reduce the number of cases finding their way to court, and the costs incurred by HMRC.
While tax avoidance may be frowned upon by many, it is not illegal. However, the success of the Disclosure of Tax Avoidance Schemes legislation introduced nearly 10 years ago has rendered all but the tried and tested, non-aggressive schemes little more than potentially expensive white elephants.
Gerry Brown, technical manager, Prudential
George Osborne’s fifth Budget heralded far-reaching reforms of pension arrangements. These have grabbed the Budget headlines, but there was plenty in the small print to interest the offshore practitioner.
The following are some of the items that might interest the international planner.
Annual Tax on Enveloped Dwellings (ATED)
Finance Act 2013 introduced the ATED on certain non-natural persons (e.g. trusts and companies) owning UK residential property where that property is valued at more than £2m. With this threshold being reduced to £500,000 with effect from 1 April 2016, many more properties will be brought into the charge.
Offshore employment intermediaries
Anti-avoidance legislation will be introduced in Finance Bill 2014 to strengthen obligations to ensure that the correct income tax and National Insurance contributions are paid by offshore employment intermediaries. These changes will have effect from 6 April 2014.
From 6 April 2015, the maximum amount of an eligible individual’s savings income that can qualify for the starting rate of tax for savings will be increased to £5,000, and this starting rate will be reduced from 10% to 0%.
If an individual’s taxable non-savings income in a year exceeds the starting rate limit for savings, that limit will not apply. However, should taxable non-savings income in a year be less than the starting rate limit, the savings income will be taxable at the starting rate (0%), up to the “starting rate limit”.
This could offer a planning point for holders of offshore bonds. (For more on this and other of Brown's observations on the Budget, click here.)
Michael Wistow, Head of Tax, Berwin Leighton Paisner
If the Government will insist on demanding upfront tax payments in avoidance cases, a proper right of appeal is critical. This was not included in the document put out for consultation. Without this right to appeal, the Chancellor risks putting political considerations ahead of basic taxpayers' rights.
It is also proposed that HMRC will demand upfront payments in cases similar to those which have already been decided in favour of HMRC. While this may have certain appeal for some, it is practically impossible to use one case to determine hundreds of others, given the variety of taxpayers’ circumstances.
John Cassidy, partner, tax investigations, Crowe Clark Whitehill
Another Budget, another Government "crackdown" on tax avoidance schemes.
And so we have stiff new legislation, a robust new regime, and heavy penalties attached for non-compliance, which will apply not only to the promoters of those schemes but also users of the schemes.
Once a decision has been made in a case at the relevant tax tribunal or court that a particular scheme does not work, other users of that or similar schemes will now be expected to pay up as well – upfront.
That is the complete opposite of what happens now. Government is clamping down on people it feels have not paid the right amount of tax, and rightly so. However, in many cases, the “right amount” of tax has not yet been determined.
What's more, these rules will apply to all relevant schemes, not just those entered into after Budget Day, a move which may be criticised as being retrospective taxation, but which certainly demonstrates the robust stance being taken by the authorities to discourage those who may be enticed to use avoidance schemes.
Anyone who is unwilling to pay the tax due under these new rules should bear in mind that the Budget also includes an announcement that legislation will be introduced next year to allow HMRC to recover tax it believes it is owed directly from taxpayers' bank accounts.
In a bid to tackle tax avoidance by large corporate entities, meanwhile, new legislation will provide that when, in substance, profits are transferred between group companies – and a main purpose of those arrangements is to secure a tax advantage, then for tax purposes, the transfer will regarded as not having taken place.
The draft legislation and guidance notes are far from clear, but the new rules are to apply immediately, so any such transfers made on or after Budget Day are caught – which again demonstrates the Government’s determination to tackle tax avoidance.
Mark Sanderson, chief operating officer, Brooklands Pensions
The increased flexibility Osborne has afforded to UK registered pension scheme members, by the changes he’s proposing for such products as self-invested personal pensions (SIPPs), will make these even more attractive to pension savers going forward.
In particular, proposals for access to the entire pension fund at normal retirement age will make SIPPS a very tax efficient option for international residents who live in jurisdictions in which double tax agreements with the UK are in force.
UK pension scheme members will also welcome Osborne’s announcement that the UK government plans to carry out a review of, and – depending on the findings – either reduce or even remove the special lump sum death benefit charge. This is currently a 55% tax on lump sums after benefits are taken from a UK registered pension scheme.
For advisers, meanwhile, we believe that the proposed changes to defined benefit (DB) pension transfers suggest a huge potential opportunity, as an already strong demand among overseas residents could increase greatly ahead of the deadline.
That said, the proposed changes to DB pension transfers may need some further consideration, when you look at jurisdictions like New Zealand and Australia, which effectively require an individual to transfer their pension to that country when they move there.
John Batty, group intermediary partnership director, Momentum Pensions
The UK budget yesterday was, as Chancellor George Osborne said, one of the "biggest changes to pensions since the 1920’s".
Once the initial headlines have faded away, as always, the devil will be in the detail.
Effectively, apart from the increased triviality amounts, the main proposed change simply brings the advantages of flexible drawdown to everyone with a pension fund, without the need for a minimum income level to be guaranteed elsewhere.
While many will initially see this as a great idea, because it will enable them to encash their pensions, this will lead to a tax charge, of at least 20% and, potentially, up to 50% on larger pension funds.
In addition, if the funds are not immediately spent on goods and services, this money will need to be invested – potentially incurring further capital gains tax and income tax. The tax advantages of leaving the money within the pension fund will then be lost and, in addition, any money not spent will also form part of the client’s estate for IHT purposes.
It is important to remember as well that the proposed changes are subject to consultation, so there may be additional changes before everything is finalised.
For advisers and those individuals who are considering QROPS, meanwhile, the main considerations will still apply, i.e., control by the pension scheme member of his or her own pension fund, the amount of income required, and the ability to pass unused funds on to his or her dependants. Consequently, expert advice on the options is needed.
Sophie Dworetzsky, partner, Withers
We were promised a big announcement in the Budget, and we actually got quite a few of them.
While there are lots of good headline announcements for savers, many of those investing in property through a company will be less happy. The much publicised Annual Tax on Enveloped Dwellings (ATED) has raised five times the amount expected for 2013-14 and, evidently encouraged by this, the Chancellor yesterday announced that anyone holding residential property worth £500,000 or more through a company will now be exposed to ATED. It will be key to monitor any impact this has on the housing market, especially among foreign investors.
As announced in the Autumn Statement, all taxpayers with existing tax disputes arising from planning which is within the DOTAS rules or which falls under the new general anti-abuse rule ('GAAR') will have to pay the amount of tax HMRC says is under contention upfront. This could prove to be interesting, given that it extends to old open enquiries, and, given that what is said to be in dispute and any tax actually due, are not always the same.
This is clearly a massive potential cashflow issue for some taxpayers, who may also need advice on their position. And a potential human rights issue as well.
HMRC is also now going to have powers to dip into the bank accounts of taxpayers who owe more than £1,000 of tax. This may come as a nasty surprise for anyone with a tax enquiry with the government open, who may not have an actual liability, but who now will face either paying the tax in dispute, or having their bank account debited.