The Autumn Statement - 25th November 2015
Often thought of as a “mini-Budget” the Chancellor’s 2015 Autumn Statement effectively means that George Osborne has now presented three Budgets in one fiscal year, and, depending on the date of the spring Budget, potentially even running to four Budgets! An observer, therefore, cannot help but to speculate as to the amount of enjoyment he may derive from presenting his fiscal facts and figures to Parliament and the nation. As ever, many of the announcements made on 25 November are subject to further consultation and so we do not yet have the full details of how these will work. However, we have detailed below some of the key points that were announced on the day, and have previously been announced, which we feel have the potential for the most wide ranging impact on our clients.
- Personal allowances - as previously announced, the personal tax allowance, which is the level of income that can be received before which income tax becomes payable, will be £11,000 as from 6 April 2016. The Government has committed to increase the personal allowance to £12,500 and once it has reached that level it will always be set at an amount which is at least the equivalent to 30 hours a week at the level of the national minimum wage.
- Company car tax – the 3% supplement in the calculation of car and fuel benefits for diesel cars compared to petrol cars is to remain in place until 2021, at which time new diesel cars are expected to meet air quality standards.
- Basic state pension to rise by £3.35 to £119.30 a week from next year. The new single tier state pension is going to be set at £155.65 p.w.
- There was speculation before the statement that there could be further changes to tax relief but this did not materialise.
The previously announced changes still come into effect from April 2016; reduced annual allowance for those with income over £150,000 and a reduction of £250,000 on the lifetime allowance which is the total value of your pension funds.
It is possible to do some very valuable planning before the tax year end to mitigate the potential effect of these changes.
- Stamp Duty Land Tax - SDLT - effective from 1 April 2016 this will be charged at 3% above the current SDLT rates for purchases of certain “additional” residential properties, for example second homes or buy to let properties. There will be a consultation as to whether corporates and those owning more than 15 residential properties should be exempted from the charge. In addition there will be a consultation on changes to the SDLT reporting and payment process to review whether the filing and payment window should be reduced from 30 days to 14 days with the aim that this will be introduced from 2017/18.
- Capital Gains tax payment deadline – effective from April 2019, where there is a disposal of residential property any associated capital gains tax (CGT) will need to be paid within 30 days of the completion date. Currently CGT is due for payment by 31 January after the end of the tax year in which the sale takes place. This new deadline will not apply to capital gains on the sale of property covered by the main residence exemption.
It remains to be seen exactly how far ranging the scope of the additional SDLT charge will be; for example, whether or not it will apply where a family member is purchasing a residential property as a home for an elderly relative who personally owns no other residential property; or even if there will be an exemption from the additional SDLT if the “additional” residential property is only to be retained for a short period i.e. where there is an overlap period between the acquisition of a new home and the sale of the old home.
The shortened payment deadline for capital gains tax on the disposal of residential property mirrors the reporting and payment deadline for non UK residents disposing of UK residential property. The exemption for gains covered by the main residence exemption is welcome and suggests that as well as the payment of tax, a report will need to be made to HM Revenue & Customs (HMRC) within 30 days and no doubt the legislation will clarify the position in due course. The new measure will mean that a taxpayer will need to ensure that he is in a position to be able to calculate any capital gain and make the relevant report within the required timeframe; we already have the facilities available to offer a service to calculate any CGT liability and report any relevant transactions to HMRC for all of our residential conveyancing clients within the proposed new deadline.
- Employment allowance – most businesses that pay Class 1 National Insurance Contributions (NIC) on their employees’ and directors’ earnings will be eligible to claim the employment allowance. As from 6 April 2016 the level of the allowance is increased to £3,000 and therefore businesses will not pay any employers’ NIC until their liability exceeds this level.
- The Apprenticeship levy – this has been set at a rate of 0.5% of an employer’s payroll bill and each employer will receive an allowance of £15,000 to set against their levy payment; with the result that the levy will only be payable only by employers with a payroll bill of in excess of £3M – estimated to be only approximately 2% of UK employers.
- Farmers’ averaging - As previously announced, effective from 6 April 2016, farmers who are not trading via a limited company will be able to average their business profits for tax purposes over five years, an increase from the current two years. Relevant businesses will be able to choose which of the two periods they wish to average over.
- Personal service companies – individuals working via personal service companies, where the intermediaries legislation applies, will have relief for travel and subsistence expenses restricted with effect from 6 April 2016.
The term personal service company is not clearly defined, but it is commonly used to describe a business structure where there is an intermediary - commonly a company - which sells the work – the services – of an individual or a group of individuals and is owned and operated by the same individual or group of individuals. The Government views these arrangements as being set up to avoid tax and national insurance contributions (NIC) and therefore this move could herald further legislation to be introduced aimed at combating the tax and NIC advantages of operating as a personal service company; especially as the majority of the recommendations of the Office of Tax Simplification regarding their review of employment status are to be taken forward.
FURTHER HELP: Tax Planning Team
- Tax avoidance – the General Anti Abuse Rule (GAAR) is to be altered to improve on the Government’s ability to attack marketed tax avoidance schemes and where there has been a successful outcome a new penalty of 60% of the tax due will be charged. A special reporting requirement and surcharge will be introduced for those who have submitted an incorrect tax return due to the use of a defeated tax avoidance scheme, and also the names of such avoiders will be published. Those who persistently abuse tax reliefs will be restricted from accessing certain tax reliefs for a period of time.
- Tax evasion – a new criminal offence will be introduced that will remove the need to prove intent for the most serious cases of failure to declare offshore income and capital gains; and there will also be a new criminal offence for corporates who fail to prevent their agents from criminally facilitating tax evasion. Civil penalties will also be increased for those who engage in, or enable, offshore tax evasion.
The Government has been targeting tax avoidance for some time now and marketed schemes - those which exploit “loopholes” in the tax legislation – have been very much under the spotlight. The negative press coverage associated with celebrity involvement in such schemes has meant that that they have already fallen out of favour for many taxpayers; especially when considering the moral argument as to tax avoidance (legal) and tax evasion (illegal) and where the boundary between the two camps lies. However, there are legitimate ways to effectively reduce your tax liabilities and we can advise you of how to arrange your finances in a tax efficient manner.
If you have subscribed to a tax “scheme” and are now subject to an enquiry into your tax affairs by HMRC, we can assist you with dealing with them.
FURTHER HELP: Tax Planning Team
The future increases to contributions levels meeting the requirements under auto enrolment have been delayed. Current minimum contributions levels are 2% from qualifying earnings and were due to rise to 5% from October 2017 – which has now been delayed until April 2018. There was a further rise to 8% from October 2018 which has been delayed until April 2019.
In practical terms, this delay will save employers six months contributions on the first increase and a further six months on the second increase – this could be a welcome saving, especially to small businesses.
FURTHER HELP: Financial Planning Team
INDIVIDUAL SAVINGS ACCOUNTS
- ISA subscription limits will not be changed in 2016-2017, remaining at £15,240.
- Junior ISA and Child Trust Fund savings limits will remain at £4,080.
ISA allowances can accumulate into a significant portfolio, giving tax efficient growth and income, with no capital gains tax on sales.
Following the Spring Budget, you can now inherit your spouse or civil partner’s ISA allowance if they died after 3rd December 2014 i.e. as well as your normal ISA allowance, you can add a tax free amount up to the value of their ISA at the time of their death.
Help To Buy ISAs become available from 1st December, offering good incentives for first time buyers; the government will provide a bonus of 25% of the total saved, capped at £3,000.
FURTHER HELP: Financial Planning Team
ENTERPRISE INVESTMENT SCHEMES & VENTURE CAPITAL TRUSTS
The Government will amend the eligibility criteria of schemes to exclude all energy generation activities.
These schemes are designed to stimulate investment in small and growing UK businesses, offering tax incentives to investors. They are generally higher risk but can offer income tax relief at 30%, the opportunity to defer capital gains and inheritance tax relief – all of which is subject to qualifying criteria. Energy has been a very popular area of investment in recent years. However, many growth industries remain available.
FURTHER HELP: Financial Planning Team & Tax Planning Team
OTHER POINTS OF NOTE:
- Planned cuts to tax credits have been scrapped.
- Defence is to be kept at 2% of GDP
- Home ownership - 200,000 starter home will be sold at 20% discount compared to market value, to young first time buyers, extended help to buy schemes; schemes to enable a tenant to save for a deposit whilst renting; and specialist homes for older people and those with disabilities.
- The Government will introduce a new penalty of 60% of the tax due to be charged in all cases successfully tackled by the General Anti Abuse Rule (GAAR).
- Investment of £23 billion in school buildings, opening 500 new free schools and creating 600,000 school places.