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Today’s Autumn Spending Review 2015 was expected to unveil very significant cuts to public spending in line with the government’s election promise to reduce spending by £12billion. Cuts are clearly being made and very significantly; taxes are very carefully being increased, but not with obvious, headline making changes. By the end of the decade, business spending is due to be cut by 17% and culture spending will reduce by 20% for example, much of which will come through reductions to administrative spending. In other words, we can expect large scale public sector reorganisation and job losses. Digitisation of the tax system will also make a major contribution to facilitating these cuts, and George Osborne reminded taxpayers this change was imminent – everyone will have a personal digital tax account within the next 5 years.
Whilst the Chancellor is usually afraid to admit to poor judgment, as a result of public outcry he today made a complete U-turn on the proposed cuts to tax credits which were announced in July. There will also be no cuts to the police budget; these were expected but given recent events in Paris and Brussels, clearly would not be welcomed. Other cuts were introduced, but these were very carefully veiled in the figures being announced and we will have to wait for the detailed proposals to really understand their long term impact.
Perhaps the most relevant announcements for clients to be immediately aware of are:
- Increased stamp duty for purchases of buy to let property or second homes; this is yet another tax that landlords and property investors will now face, after the reduction in mortgage tax relief which was announced in the Summer Budget 2015. The effective date from which the increased stamp duty rate will apply has yet to be confirmed, but the Chancellor has said that stamp duty for these purchases will increase by 3% across the board. This will raise around £1bn, which will help finance the cost of new housing developments and new ‘help to buy’ initiatives. Home buying initiatives are being extended and one new scheme, the London Help to Buy scheme, will enable first time buyers of a new home with a 5% deposit, to get an interest free loan for up to 40% of the overall property value.
- Change to the capital gains tax regime for landlords; in addition to the extra stamp duty, George Osborne announced that by 2019, landlords and those selling second homes will be required to pay any capital gains tax due on a sale within 30 days as part the government’s digitisation of tax services. No real detail as to how this will be administered has been released, but it will mean a significant change for property investors who would previously have had until 31st January following the end of the tax year to pay the tax.
- Business tax cuts for employers offering apprenticeships; from April 2017, a new charge will be introduced of 0.5% of an employer’s total wage bill to encourage employers as a whole and in particular, large employers, to introduce and administer their own apprenticeship schemes. To offset this cost, each employer will receive an allowance of £15,000 so ultimately, the charge will only become effective when an employer has a wage bill in excess of £3million.The Chancellor has said this tax for employers will help to double spending on apprenticeships by 2020 and will raise £3 billion.
- Greater powers for local councils; as part of the government’s wider plans to increase levels of autonomy and power held by local authorities, local councils are being given the right to set their own business rates. Linked to this is the creation of 26 new enterprise zones in rural and suburban areas across the UK. This means councils wishing to attract business owners into an area will have the flexibility to set the cost of local business rates independently.
- Unexpectedly, given the level of controversy currently surrounding the VW emissions scandal, the government has extended the existing diesel supplement until 2021.
Overall, today’s Autumn Statement has been a clever tax-raising spending review which will generate quite a significant level of additional income for the government. The Chancellor has been shrewd in his choice of policy because he has targeted investors and businesses with incremental increases. In addition to making direct increases, he is also giving power to other departments to introduce further increases in the future, for example with the increased rate setting powers given to local authorities. Property investors in particular are once again bearing the brunt of increases and the effects of the increased SDLT charge, together with the reduction in mortgage interest relief on the property market will be interesting to see.
For more information and tax planning advice please contact: Lesley Stalker at las@rjp.co.uk
