Today George Osborne delivered what could possibly be his final Autumn Statement. In a speech heavy with political undertones, delivered against a backdrop of strong economic forecasts, headlines such as “Northern Powerhouse” and statements confirming increased funding for the NHS and improvements to Rail and Roads will have been music to the ears of those of us living north of Watford Gap!
Every headline tells a story – below we set out our view of the key measures announced by the Chancellor.
Corporate taxes
Research & Development (R&D) tax relief
The rate of relief available for the small and medium scheme will be increased from 225% to 230% with effect from 1 April 2015. At the same time, the above the line tax credit for large businesses will increase from 10% to 11%.
There will be a restriction to items treated as qualifying expenditure where costs of materials are incorporated in products that are then sold. This change is again effective from 1 April 2015 and clarifies an existing grey area.
The Government will also be looking into ways to help small business to make their first R&D claim.
Personal taxes
Personal allowances
The personal tax allowance will increase to £10,600 from April 2015 (currently £10,000). Anyone earning less than £10,600 will not pay any income tax on earnings/pensions.
The basic rate band remain will increase to £31,875. In the past, when the personal allowances have increased the basic rate band has decreased, so higher earners have not benefited from the increase. From April 2016, the higher rate band will increase, so higher rate taxpayers will also benefit from the increased personal allowances. Taxpayers will start to pay higher rate tax when their income exceeds £42,385.
The annual tax charge for non-domiciles will increase from 6 April 2015. If you are non-domicile in the UK and you claim the remittance basis of taxation, your tax charge remains at £30,000 if you have been UK resident for 7 out of the last 9 years. If you have been resident for 12 out of the last 14 years, your tax charge will increase to £60,000 (currently £50,000). A new charge of £90,000 will be introduced for those who have been resident for 17 out of the last 20 years. In addition, the Government is consulting on making any election for remittance basis to apply for three years, so you cannot opt in and out of the charge on an annual basis.
ISA limits
ISA limits are to increase from 6 April 2015. From this date the limit will increase to £15,240 for ISAs and £4,080 for junior ISAs and Child Trust Funds. The Government is consulting on whether crowd funding can be included as an ISA investment.
Although ISAs are exempt from income tax and capital gains tax, they are subject to inheritance tax. The Government will bring in legislation so that if an ISA is transferred to a spouse or civil partner, it will retain its ISA tax exempt status, rather than becoming a savings account subject to taxation.
Inheritance tax exemptions
There is currently an inheritance tax exemption if a member of the armed forces dies whilst on active service. This exemption is also extended to members of the emergency services or humanitarian aid workers if their death is caused, or hastened by, injuries sustained on active service responding to emergency circumstances, applicable to deaths after 19 March 2014.
An inheritance tax exemption will be introduced from 3 December 2014 to all decorations and medals awarded to armed services or emergency services personnel. This also includes awards made by the Crown for achievements and service in public life, and brings these awards into line with awards for gallantry or valour, which are already exempt.
Trusts
In Budget 2014, the Government announced new rules for trusts which would effectively have abolished planning using “pilot” or multiple trusts, by making only one nil rate band available to all trusts. This rule will not now be introduced, but instead the Government will introduce new rules to target avoidance in this area.
International taxes
‘Google tax’
Already dubbed the ‘Google Tax’, the Chancellor announced a new ‘Diverted Profits Tax’, to be charged at a rate of 25% from 1 April 2015, where aggressive tax planning has been used by multinationals to divert profits overseas in order to avoid UK tax. No detail is yet available on the workings of this new tax.
Property Taxes
Stamp Duty Land Tax
The ‘headline grabber’ in the Statement is a welcome reform of Stamp Duty Land Tax (SDLT), removing the unfair ‘cliff-edge’ on purchases of residential property, whereby, for example, a house bought for £250,000 would attract SDLT of £2,500 (1%), but if bought for just £1 more would attract SDLT of £7,500 (3%). Concessions on business rates are of importance to businesses
The new rates of SDLT on residential property will be:
|
Purchase price of property |
Rate paid on part of price within each band |
|
Up to £125,000 |
0% |
|
Over £125,000 and up to £250,000 |
2% |
|
Over £250,000 and up to £925,000 |
5% |
|
Over £925,000 and up to £1,500,000 |
10% |
|
Over £1,500,000 |
12% |
The new rates will apply to transactions completed on and after 4 December 2014. For purchases up to just over £937,000, this will reduce the SDLT cost as against the old system; above that figure, the cost will increase. It is estimated that 98% of house purchases will have a reduced SDLT charge as a result of these reforms.
Purchasers in transactions which have exchanged but not completed by 4 December will be able to choose whether to apply the old rates or the new.
In Scotland, the new rates will apply until superseded by the devolved Land and Buildings Transaction Tax from 1 April 2015. For purchases over £254,000, the new rates will result in a lower liability than under LBTT, when that becomes effective.
Annual Tax on Enveloped Dwellings
The Annual Tax on Enveloped Dwellings (ATED), which (very broadly) makes an annual charge on residential properties held within companies, where the value exceeds £2m, is to be increased by 50% more than inflation for 2015/16. Note that from April 2015, the charge will apply also to properties worth over £1m, but no changes have been announced to the previously set rates.
Business rates
Business rates will be cut and capped. The ‘high street discount’, which applies to around 300,000 shops, pubs, cafés and restaurants will go up from £1,000 to £1,500 from April 2015 to March 2016. This is in addition to doubling Small Business Rates Relief for a further year, which means that 380,000 of the smallest businesses will pay no rates at all. For all businesses, the annual increase in business rates from April 2015 to March 2016 will be capped at 2%. Finally, the transitional arrangements for smaller properties that would otherwise face significant increases (due to the ending of ‘transitional rate relief’) will be extended.
Private residence relief
In conjunction with a proposal to charge non-UK residents to capital gains tax on disposals of UK residential property, changes are proposed with effect from April 2015, whereby the relief will only be available on a disposal of a property in a country where the taxpayer has been resident for that tax year, or has spent at least 90 midnights in that country in the tax year. More detail is expected in due course, but it is clear that UK residents with no overseas properties will not be affected by these changes.
Capital gains taxes
Capital gains
Gains eligible for Entrepreneurs’ Relief (ER) which are deferred into investments which qualify for the Enterprise Investment Scheme (EIS) or Social Investment Tax Relief (SITR) will now remain eligible for ER when eventually realised. Previously this relief would have been lost.
ER provides for qualifying capital gains to be taxed at a 10% rate rather than 18% or 28%.
Previously it was common for individuals to want to ‘bank’ ER by paying the 10% tax. This would therefore leave the post-tax proceeds available for reinvestment. The changes will allow individuals who invest under EIS or SITR to defer the gain (as is allowed under current rules) but still benefit from ER when the gain is realised. The change is relevant for gains deferred from 3 December 2014 onwards.
A further measure has been announced which means that ER will no longer be available on disposals of goodwill by a sole trader or partnership to a company. The rules apply to disposals made on or after 3 December 2014.
Employment taxes
Salary Sacrifice
From April 2016 there will be a new exemption for reimbursed expenses, but the exemption will not be available where the expenses are paid in conjunction with Salary Sacrifice. This will affect all employers with travelling employees who have introduced Salary Sacrifice arrangements for tax free round sum Day Subsistence Allowances. The haulage industry will be particularly affected, as will all companies with field based engineers, maintenance staff etc.
Employee benefits and expenses
From April 2016 the £8,500 exemption (below which employees do not pay Income Tax) on certain benefits in kind will be removed (although a new exemption will be introduced, covering only ministers of religion and carers). There will be a new exemption for reimbursed business expenses, which will end the requirement for forms P11D. Also, following a successful pilot study, there will be a statutory framework for the voluntary payrolling of benefits in kind. This will result in tax being collected on benefits in real time, and will greatly reduce the enormous number of underpayments that arise when benefits are provided, or changed, part way through a tax year. Although initially this will be voluntary, there is a possibility that in future years this will become mandatory, thus removing the need for forms P11D. These measures arise from a wide ranging reform of the rules for employee benefits and expenses in response to recommendations by the Office of Tax Simplification, and it is estimated that they will reduce the administrative burden on employers by £20 million per annum.
Employers’ National Insurance contributions for apprentices
Employers’ National Insurance contributions up to the Upper Earnings Limit will be abolished for apprentices aged under 25 from April 2016.
National Minimum Wage
In 2015/16, the Government will give an extra £3m to HMRC to improve enforcement of the National Minimum Wage.
Travel rules for temporary workers
In a bid to change the travel rules for temporary workers employed by intermediary companies, (such as umbrella companies), the Government will review and publish a discussion paper in time for possible changes to come into effect at Budget 2015.
The current arrangements allow temporary workers engaged by an intermediary employer to claim tax relief on their home to work travel (a relief that directly engaged workers are not entitled to).
‘Trivial’ benefits
From April 2015, employers will be able to give their employees ‘trivial’ benefits, such as a bottle of wine or flowers, tax-free if they cost less than £50. This is a proposal put forward by the Office for Tax simplification that HMRC has accepted, however further details are not yet available.
