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The Denton Briefing June 2016

Welcome to the Denton Briefing, my personal take on tax-related stories that piqued my interest over the last week or two. Perhaps we shouldn’t be surprised that the campaigning on both sides of the “Brexit” referendum has been so unremittingly negative. After all, it is generally acknowledged that fear and greed win more votes than anything else. But it is a sad reflection on the quality of the debate that despite all the possible economic, constitutional, strategic and cultural issues, it may all come down to … house prices. Meanwhile poor old Take That and Lionel Messi should have come to Sovereign first.

The EU vote and house prices
With the opinion polls leaning towards a Brexit, chancellor George Osborne has predicted a fall in the economy accompanied by an 18% fall in house prices, writes Carol Lewis in The Times. Is this propaganda designed to make us all vote Remain or a realistic estimate of what will happen should we vote to leave on June 23? The property market is linked to the economy and with few predicting that a Brexit would be good for the economy in the short term it is reasonable to surmise that property will suffer. But the chancellor’s own stamp-duty changes could stifle the market regardless of the result. There have been 18 months of property taxation changes in the UK — including changes to stamp-duty land tax introduced in 2014 and a 3% increase in stamp duty on second homes this year.

However international and British buyers, who have converted some of their wealth out of sterling to hedge their currency risk, are likely to benefit from a fall in the pound’s value against the dollar. The Treasury has predicted sterling would depreciate by 12 to 15% in the short term. Trevor Abrahmsohn, managing director of Glentree International, said: “International buyers are going to get a 25% capital discount plus probably a 20% bonus from the currency markets. This will give them property at a discount of almost 50% on peak prices at the top end of the market — above £8 million.”

UK property tax squeeze raises £174m
The tax on residential property owned by offshore companies rose 50% to £174 million last year, as the Treasury tightened its squeeze on home ownership structures used by wealthy foreigners, writes Vanessa Houlder in The Financial Times. The steep rise in revenues in the year to March was driven by the increased rate and scope of the annual tax on “enveloped” dwellings (Ated), which was introduced in 2013 to deter people from owning expensive properties through companies. About four-fifths of the tax is levied on properties in just 13 square miles of Central London, namely the boroughs of Westminster and Kensington & Chelsea.

Osborne unveils £30 billion emergency budget if voters go for Brexit
George Osborne threatened to put 2p on the basic rate of income tax and slash spending on health, education, defence and pensions in an emergency budget in the weeks after a Brexit vote, write Francis Elliott and Niamh Lyons in The Times. He also said that the Treasury could be forced to increase the higher rate of income tax by 3p, raise inheritance tax by 5p and put another 5% on alcohol and fuel duties. That would fill half of the hole in the public finances that the Institute for Fiscal Studies think tank says would be created by Brexit. The remaining cash would be found from 2% cuts to the NHS, schools and defence, a £2 billion reduction in the pensions bill and cuts of 5% in other budgets such as policing, transport and local government to meet the remaining £15 billion shortfall.

Scrapping tax havens would be unrealistic, experts tell MPs
The Treasury committee was told it would be unrealistic to think low corporation tax jurisdictions, or so-called tax havens, could be eradicated, writes Hayley Kirton in City A.M. Michael Devereux, director of the Oxford University Centre for Business Taxation, remarked that if the UK was concerned about its tax base being eroded or profits that should be taxed in the country being pushed out to a lower rate jurisdiction, then he “wouldn’t blame the tax haven…[he] would look at our own tax rules to solve any problems that we perceive to be there”.

Take That pay back more than £20 million owed to HMRC
Pop band Take That have repaid more than £20 million owed to HM Revenue and Customs after three members joined a tax-avoidance scheme, writes Nicola Methven in the Daily Mirror. Singers Gary Barlow, Mark Owen and Howard Donald, along with manager Jonathan Wild, poured £66 million into the artificial tax shelter known as “Icebreaker”. More than 1,000 investors put over £300 million in the scheme, supposedly investing in creative industries, which provided them tax relief on losses bigger than their investments. In a tribunal two years ago, however, judge Colin Bishopp ruled that the scheme was more about tax avoidance than investment.

Messi in court over tax fraud charges
He is best known for poetry on the pitch, but when footballer Lionel Messi appeared in court accused of multimillion-euro tax fraud, his performance was decidedly more prosaic, writes Stephen Burgen in The Guardian. The Barcelona and Argentina forward denied any knowledge of the tax issues that led to the charges against him, saying that he signed documents without reading them because he trusted his father and the advisers responsible for managing his finances.

Asked what he knew of the alleged €4.1m (£3.2m) fraud involving image rights and earnings, Messi repeatedly denied any knowledge. “I didn’t know anything,” Messi told the court in Barcelona. “I only worried about playing football.” Crowds of photographers packed the courthouse steps and there were cheers – along with one shout of “Why don’t you go and play for Panama?” – as the five-time Fifa Ballon d’Or winner arrived.

If you would like any further information, or to arrange a “no obligation” conversation or meeting with me or one of the London team on matters affecting you or your clients, please email me at sdenton@SovereignGroup.com or call on +44 (0)20 7389 0555.


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