Insights

In a very clever example of electioneering, George Osborne gave us a surprisingly generous autumn statement today. Many of his policies were pre-leaked and in spite of earlier warnings that there is no money available for ‘giveaways’, he actually announced a number of potential tax savings for taxpayers across the UK.

Clearly the stamp duty reforms have attracted the most attention and these remained a very carefully guarded secret until the end of his speech. We predicted a possible revision to the inheritance tax threshold, but this didn’t materialize; instead this stamp duty shake up represents a significant tax saving opportunity, particularly for first time buyers and property investors.

Starting from midnight tonight, the current ‘slab’ system is being abolished and will be replaced with a new, tiered rate as follows:

• No tax payable on property purchases up to £125,000;
• 2% payable on property costs between £125,001 and £250,000;
• 5% SDLT is payable on property costs between £250,001 and £925,000;
• 10% on property costs between £925,001 and £1.5m; and
• 12% payable on property costs over £1.5m.

This means that for properties costing over £937,000 the stamp duty payable will increase, whereas for those costing less, the tax due will decrease. For current property sale transactions where the vendor and buyer have exchanged but not completed, it is possible to choose either the new or former rates. Solicitors working on expensive property transactions that are near closure will clearly be very busy between now and midnight!

Pensions tax reforms to take effect from April

Other changes of benefit include the boost to pensions. This was already announced but now becomes official and will take effect from April 2015. It means that pension funds can be inherited without the recipient incurring the former high ‘55% death tax’ and also, that funds can be accessed by the pension owner more flexibly, in stages, without the need to purchase an annuity. This subject was covered in detail in one of our recent blogs.

Another benefit for taxpayers will be the right for a surviving spouse or named beneficiary to inherit an ISA tax-free plus the amount that can be invested into an ISA each year has increased; from April 2015 up to £15,240 can be invested per annum into a new ISA.

UK growth outperforms rest of Eurozone

George Osborne also announced a number of new measures for the business community. Economic growth levels are encouraging and at 3% according to the latest OBR figures, the UK economy is currently outperforming Germany by two and a half times; is growing seven times greater than France; and is three times higher than the rest of the Eurozone.

‘Google tax’ finally arrives

Tax avoidance measures will continue to be prioritised and the government anticipates securing around £8billion from new initiatives. A ‘Google tax’ to halt the practice amongst multinationals of diverting profits into tax havens was widely expected and this has come, in the form of a new ‘diverted profits tax’. This will require multinationals to pay a flat rate of 25% tax on any UK profits that are ‘artificially shifted out of the UK’.

In addition, banks that have brought forward any losses made during the financial crisis will face restrictions over the amount they can offset against future profits. This will mean the total amount of current year profits that can be offset will be restricted to 50% and it is expected to mean banks have to pay an extra £4bn in taxes over the next few years.

Impending change to goodwill valuations for incorporation

Under the overarching theme of “aggressively avoiding tax”, George Osborne has announced another impending change to the way goodwill and intangible assets are valued during incorporation. We covered this in a recent blog and it could significantly impact small business owners by restricting the level of tax relief available when intangible assets are transferred during incorporation. As yet, more specific details are not available and we will provide further updates as soon as possible.

Tax avoidance

In addition, further campaigns to limit the use of umbrella companies and investment strategies associated with tax avoidance were also mentioned. These have been disliked by HMRC for some time and are not something RJP recommends.

Strengthening of entrepreneurs’ relief and R&D tax credits

The Chancellor announced that he intends to ‘strengthen entrepreneurs’ relief’. As this is already widely viewed as a strong relief it will be interesting to see what this involves.

More quantifiably, R&D tax relief is to be increased to 230% (from the current rate of 225%) for small and medium sized companies and additional relief will be given to larger companies. Whilst the increases are not huge, this remains a valuable tax relief and reinforces the government’s focus on encouraging innovative companies; claiming R&D tax relief can of course mean a company is able to eliminate the burden of corporation tax for a number of years.

Further cuts to employer’s NICs

Also of interest to SMEs will be the impending change to NICs. The obligation to pay employers NICs has already been removed for businesses employing young people under 21 and this will now be extended to include the employment of apprentices aged under 25.

The ‘non doms’ levy is being increased and the annual tax charge for non UK domiciled individuals claiming the remittance basis will be increased to £60,000 for those having been UK resident for 12 of the last 14 years, and to £90,000 for those having been UK resident for 17 of the last 20 years.

Further penalising taxpayers who own investment property within a company wrapper, the ATED (annual tax on enveloped dwellings) is to increase by 50% on properties valued above £2m.

Overall, we think this was an encouraging Autumn Statement and a clear example of clever electioneering by the Tory party. It gives a welcome boost to taxpayers and is clearly designed to continue attracting entrepreneurs into the country, which is exactly what we need to sustain the levels of economic growth we are currently seeing.

If you wish to discuss your own tax liabilities or need help completing your self assessment tax return please contact Lesley Stalker buy emailing las@rjp.co.uk.