The Autumn Statement is an annual update on the Government’s plans for the economy, with a review of how matters are preceding and a revision of any future forecasts previously given. The news headlines had already trailed the key message of the Statement, despite the UK’s strong economic growth, weaker-than-expected wage growth and tax receipts are forcing the Treasury to borrow more than £90bn. Not the budget reducing deficit plan initially announced by the Government a few years ago! More cuts and tax rises on the way!
It is the last Autumn Statement before the general election, so a last opportunity for the Chancellor to unveil some giveaways to business and individuals, while putting some positive spin on the UK’s economic health.
As part of the Statement, The Office for Budget Responsibility (OBR) revised up its forecasts for UK growth to 3% in 2014 and 2.4% in 2015, from respective forecasts of 2.7% and 2.3% in the March Budget. In the lead up to the Statement, the Government had already announced some capital spending measures on roads and flood defences. Another positive non tax announcement was the review of the business rates systems, which a number of organisations have been pushing for due to its unfair and outdated methodology.
The big tax headliner was the reform in Stamp Duty Land Tax (for the less young like me, “Stamp Duty”) rates for residential property. A little “knock” towards Labour’s plan to introduce a mansion tax. The tax will be payable at each rate on the portion of the purchase price which falls within each band, i.e. it is graduated rather than fixed.
As of midnight the new UK rates of Stamp Duty Land Tax will be as follows: £0-£125,000 0% £125,001 to £250,000 2% £250,001 to £925,000 5% £925,001 to £1,500,000 10% £1,500,001 and over 12%
The change will save money for buyers at the lower end of the property market, for example buying a property at £200,000 will save £500, but a significant impact on the higher value property market. Buying a £2 million property today, will cost an additional £53,750 in stamp duty.
If contracts have been exchanged before 4th December, but completion is after the buyer can decide under which regime they wish to be taxed.
Banks have yet again been reminded that they are no longer untouchable. The Government has now restricted the amount of losses (those large ones they made recently) which they may use to 50% of current year profits.
Other Tax Changes Announced in the Statement:
Personal Allowance 2015-16 – Increase to £10,600 and the higher rate threshold (the rate at which you start to pay 40%) increased to £42,385. Taxation of UK Resident/Non-UK Domiciles – Non-UK domiciles who wish to claim the remittance basis (only taxed on their UK source income) currently have to pay a charge for the privilege of £30,000 if they have been UK resident for 7 out of 9 years, increasing to £50,000 when reach 12 out of last 14 years. A new charge of £90,000, will be introduced for individuals who have been UK resident for 17 out 20 years. Currently an individual can elect each year if they wish to be taxed on the remittance basis. The Government is to consult on whether the election should apply for a minimum of three years. ISA’s & Pensions – Legislation will be introduced to allow an ISA to be transferred to a spouse or civil partner, when the ISA saver dies, as opposed to the current position when the accounts have to be “cashed in.” From April 2015 beneficiaries of an individual who dies under the age of 75 can receive future payments tax free, if they are over 75, it will be taxed as the beneficiary’s income. CGT and Enterprise Investment Scheme (EIS) and… Entrepreneurs’ Relief!gains which are eligible for Entrepreneurs’ Relief (ER) may now be deferred into investments which qualify for the EIS or Social Investment Tax Relief (SITR) whilst keeping eligibility for ER. Enough acronyms! This applies to elected disposals on or after 3 December 2014.
R&D Tax Credit This generous relief for companies is to be increased for small and medium sized businesses from 225% to 230% from 1st April 2015. (Large companies which have a different system known as “above the line” will also receive an increase). In addition, an advance assurance scheme for small businesses who are making their first claim will be introduced. A consultation will be announced in January to establish how this should operate. Children Television – A new corporation tax relief for the production of children’s television programmes will introduced from 1st April 2015.
Two main anti-avoidance measures have been introduced:
Shifting Profit Offshore (Commonly referred to a Base Profit Erosion) – A new tax to be known as the diverted profits tax (already being named ‘Google tax’ by the press) will be introduced from 1st April, which will apply a 25% tax to profits diverted offshore. In addition, multi nationals will have to provide information to HMRC on their global allocation of profits and tax paid, as well as details of economic activity in the country where profits are allocated. Restricting Tax Advantages on Incorporation - The Chancellor has finally noticed that significant numbers of sole traders and partnerships have transferred their businesses into limited companies, which had a number of tax advantages. The proposed changes affect people incorporating on or after 3rd December 2014. There is a double-whammy for such people. The first change is to deny the 10% effective rate of CGT (Entrepreneurs’’ Relief) that usually applies when business owners sell their business and receive payment for the value of their intellectual property and goodwill – the standard rate of 28% will apply. In addition,the company that pays for the intellectual property and goodwill will get no corporation tax relief for the amount it pays (known as ‘amortisation’).
Air Passenger Duty (APD)
Book your flights for your 12 year old child (or younger) after 1st May 2015, as they will be exempt APD from this date (assuming the carrier passes on the discount). The same will apply for children under 16 from 1st March 2016.
Other than the stamp duty changes not a great deal of tax changes, which was as expected, the real questions around cuts and tax rises still to be answered.If however you wish to discuss any of the Autumn Statement announcements or any other tax matter, please do not hesitate to contact us.If you wish to sign up to our regular update please go to our website.
4th December 2014
Harbour Key Limited
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