(photo credit: Thinkstock/Imagebank)
Britain’s Chancellor of the Exchequer George Osborne presented his budget on
March 21. It was a statement of what the UK government intends to legislate,
barring any collapse of the its coalition government. The budget speech in
Parliament was accompanied by various documents that you can view at
Some of the UK budget measures will be
relevant to British olim and to Israeli investors in the UK. Here is a brief
For 2013-14, the main rates of income tax will
be the 20 percent basic rate and the 40% higher rate, while the additional rate
will be reduced from 50% in 2012-13 to 45%.
For 2013-14 the personal
allowance for those aged under 65 will be set at £9,205 and the basic rate limit
at £32,245. The Class 1 Upper Earnings Limit and the Class 4 Upper Profits Limit
for National Insurance contributions will be aligned with the point at which the
higher rate tax becomes payable (£41,450).
As for the elderly, from 2013-
14 (year commencing April 6, 2013), the availability of the “age-related”
income-tax personal allowances will be restricted. The allowance of £10,500 for
2012-13, available to people aged 65 to 74, will be restricted to people born
after April 5, 1938, but before April 6, 1948. The allowance of £10,660 for
2012-13, available to people aged 75 and over, will be restricted to people born
before April 6, 1938. And from 2013-14, people born after April 5, 1948, will be
entitled to a personal allowance of only £9,205, the same as for younger
taxpayers. These cutbacks for the elderly have received much criticism in the
British olim living in Israel who are still within their 10- year
Israeli tax holiday for non- Israeli source income pay UK tax on UK pensions
unless they choose to be subject to Israeli tax thereon. This is based on harsh
provisions in the UKIsrael tax treaty. Such people should review their options
before April 6, 2013.
Proposals announced last December regarding
offshore qualified recognized overseas pension schemes (QROPS) are to proceed on
April 6, 2012.
Such pension schemes are exempt from UK tax if numerous
conditions are met. It seems reporting and other requirements will be
Nevertheless, “the tax position of a UK non-resident member of
a QROPS has not changed,” according to the reply to a frequently asked question
on the HMRC website. This should give greater certainty for British olim
pensioners in relevant cases; there was a fear that more UK tax may become
The budget confirmed that legislation will be introduced in the
Finance Bill 2012 to give effect to the agreement between the UK and Switzerland
on cooperation in tax matters that was signed on October 6, 2011. As a result of
a protocol signed on March 20, 2012, two changes have been made to the agreement
that will be reflected in the legislation.
British residents and UK
passport holders residing in Israel with a Swiss account should take
New UK rules are expected to be finalized and
legislated in 2013 regarding who is fiscally resident in the UK. But the
UKIsrael tax treaty will continue to override UK domestic legislation, including
residency “tiebreaker” rules in the treaty for preventing dual
The main rate of UK corporation tax is to be reduced
from 25% at present to 24% for the financial year commencing April 1, 2012, 23%
for the financial year commencing April 1, 2013, and 22% for the financial year
commencing April 1, 2014.
Companies will be allowed to “elect” a 10%
corporation tax rate to a proportion of profits attributable to patent and
certain other qualifying intellectual property from April 1, 2013. In the
first year this proportion will be 60% and increase annually to 100% from April
2017. Note that “preferred enterprises” in industry or technology in
Israel enjoy an Israeli company tax rate 6%-10% in development area A and
12%-15% elsewhere in Israel.Investments in UK residential property
duty land tax (SDLT) has been increased from 5% to 7% upon most purchases of UK
residential property where the purchase consideration is over £2 million. This
measure takes effect for transactions where the effective date (normally the
date of completion) is on or after March 22, 2012.
However, the SDLT rate
will be 15% in the case of residential properties over £2m. purchased by certain
“non-natural persons.” This will take effect from March 21, 2012. In addition,
the UK government will introduce paving legislation for an annual tax charge.
The term “non-natural person” includes companies, collective investment schemes
(including unit trusts) and partnerships in which a non-natural person is a
partner. There are exclusions from the charge for property developers and
corporate trustees in certain circumstances.
The 15% SDLT charge will
affect Israelis and others that use a non-UK company to make new investments in
UK residential properties costing over £2m. Such companies are typically used to
avoid exposure to UK inheritance tax (currently 40%). It seems that only 5% SDLT
will apply to commercial properties, residential properties acquired before
March 21 and residential properties worth less than £2m.
planning involving the grant or assignment of an option will be countered by a
proposed amendment.To sum up
Those with UK links or investments in the
UK should reassess their UK tax position and whether that affects their Israeli
tax position as well.As always, consult experienced tax advisers in each
country at an early stage in specific cases.
email@example.com Leon Harris is
an Israeli certified public accountant and UK chartered accountant at Harris
Consulting & Tax Ltd.