Writing in Portfolio Isle of Man, Carolyn Gelling, Head of the Isle of Man Office of The International Stock Exchange Group (TISEG), reviews the key areas of note for the Exchange and the island from the UK Budget 2020 and finds a new man in Number 11 trying to get to grips with tackling COVID-19.
Upon his appointment, Chancellor of the Exchequer Rishi Sunak might have thought that just a few weeks’ notice or even Brexit were going to be the most challenging aspects of delivering the 2020 UK Budget. Instead, he was left trying to make a series of changes to both boost business and provide fiscal impetus while also trying to directly address the impact of the coronavirus (COVID-19) global pandemic.
Fiscal stimulus was the focus of opening announcements, alongside a series of measures intended to provide welfare and business support in response to COVID-19 and which have been subsequently extended as the situation has become more severe.
Against this immensely challenging backdrop, certain other announcements were not far from expectations, particularly in terms of the much anticipated changes to Entrepreneurs’ Relief.
"all UK REITs need to be listed/traded on a recognised stock exchange and... TISE has been growing its market share so that now more than a third of all UK REITs are listed on the Exchange."
For enterprise, a key area of focus for us at TISE in our support of growing and scaling businesses in the UK, the key highlights were welcome changes to support businesses, including an increase in research & development credits, alongside a forthcoming consultation which will consider whether expenditure on data and cloud computing should qualify for R&D tax credits. The rate of Corporation Tax remained unchanged, a corporate capital loss restriction was introduced and the introduction of a new 2% tax on the revenues of certain digital businesses from 1 April 2020 was not unexpected.
In terms of enforcement, there was a further focus upon avoidance, evasion and non-compliance, as well as announcement of intended legislation to strengthen information powers for HMRC’s existing regime to tackle enablers of tax avoidance schemes as well as the introduction of hybrid mismatch rules.
Further changes in property taxation were of note and will be of potential relevance to those locally with existing or future exposure to UK property, both on their own behalf and in respect of client assets. For a non-resident company, its UK property income and gains are in future collectively brought into the scope of Corporation Tax and the UK government will introduce a 2% Stamp Duty Land Tax (SDLT) surcharge on non-UK residents purchasing residential property in England and Northern Ireland from next year.
Furthermore, but possibly of less direct relevance locally, there will be a new relief for qualifying housing co-operatives from the existing Annual Tax on Enveloped Dwellings (ATED) and the 15% flat rates of SDLT on purchases of dwellings over £500,000.
“For enterprise, a key area of focus for us at TISE in our support of growing and scaling businesses in the UK, the key highlights were welcome changes to support businesses”
These changes and those of a similar theme in preceding budgets have led to more interest in the UK Real Estate Investment Trust (REIT) market. Again, this is a key area of interest for TISE, its member firms and the wider eco-system of local advisors, given that all UK REITs need to be listed/traded on a recognised stock exchange and that TISE has been growing its market share so that now more than a third of all UK REITs are listed on the Exchange.
Having witnessed an uptick in the number of enquiries relating to establishing new UK REITs as a vehicle for holding property assets, these changes are no doubt likely to create more impetus. Although coronavirus and its effects are having an unsettling impact on the UK property market, nevertheless this has relevance for Isle of Man companies both in terms of their individual asset holding, as well as to local service providers who may wish to advise and assist in the ongoing administration of these vehicles and indeed the conversion of other existing property holding vehicles.
Another area of interest was the announcement of a review of the UK funds regime, which we at TISE are watching with interest. The outcomes of this review may have relevance to certain local firms in the fund services arena, with the UK government intending to undertake a review that will cover direct and indirect tax, relevant areas of regulation and with a view to considering the case for policy changes and also consideration of the VAT treatment of fund management fees. Whether this does lead to any areas of potential opportunity for local fund service providers, or reciprocal benefit, is something to consider and of which to remain observant and nimble to react.
In summary, there is actually much more behind the headlines which is of interest to us than perhaps might have been obvious at first sight and especially, given the natural focus on addressing the impact of COVID-19.