George Osborne has just delivered his 2014 Autumn Statement, his last opportunity for significant change before next May’s General Election. As usual, we’ll release more information as we digest the press releases, but here’s a brief selection of the matters we think are most likely to be of interest to our clients and contacts.
1. Overhaul of Stamp Duty Land Tax (SDLT)
At present SDLT is charged at a single rate on the whole transaction value and the rate is determined by that value. For purchases completed after 4 December, SDLT will be payable at each rate on the relevant portion of the purchase price, so that purchasers do not lose the value of the lower bands as the value increases.
At the same time, the rates and bands are being revised so that, although the 0% band is retained for transactions below £125k, a top rate of 12% will be charged on consideration over £1.5m. The net effect is that anyone buying property for £937k or less should be better off.
Where contracts are exchanged before 4 December but completed afterwards purchasers will be able to choose between applying the old and new rules.
2. UK tax resident non-UK domiciles
We currently have two rates of remittance basis tax charge for non-UK domiciles who have been resident in the UK for the long term. The current remittance basis charge for those who have been tax resident for 12 out of the last 14 years will increase from £50k to £60k, and a new level of charge at £90k is proposed for those non-UK domiciles who have been in the UK for 17 out of the last 20 years but wish to claim the remittance basis.
3. ATED - Annual tax on enveloped dwellings
ATED rates for the year to 31 March 2016 (payable in April 2015) will increase by 50% above the rate of inflation for properties valued in excess of £2 million.
4. ISAs to pass to spouse or civil partner
Currently, if someone passes away, they cannot pass their ISA to their spouse even if the savings have been made jointly. From 4 December the surviving spouse or civil partner will be able to use an additional ISA allowance equivalent to the deceased’s ISA savings, to preserve the income tax and CGT-free status of the funds.
5. Diverted profits tax
A new tax is to be introduced to counter the use of tax planning techniques to shift profits offshore for tax purposes. The Chancellor has said that the tax will be charged at 25% of the profits diverted from 1 April 2015, although it is unclear how this will be achieved as yet.
6. Country-by-country reporting
Greater transparency will be required in reporting profits derived by multinationals from the various jurisdictions in which they operate - in line with forthcoming OECD recommendations.
7. Consultation on cross-border structures
The Government will consult on the appropriate way to tackle tax avoidance via mismatches between the treatment of different forms of commercial enterprise in different jurisdictions (hybrid mismatches).
8. More penalties
Further civil penalties will be introduced specifically to tackle offshore tax evasion, especially where hidden funds are moved to avoid discovery. In these latter cases a new aggravated penalty of a further 50% will apply - producing a maximum penalty of 250%.
9. Business tax - R&D
New measures will be introduced to facilitate research and development, particularly in the SME sector:
- The rates will increase to 230% from 225% for small and medium enterprises and from 10 to 11% for large companies.
- An advance assurance procedure will be introduced for small companies claiming for the first time.
10. Business tax – restricting tax reliefs on incorporation
The Finance Act will remove some of the tax advantages of incorporating an existing business after 3 December 2014. The company’s ability to obtain tax relief on associated goodwill will be restricted, and individuals will be unable to claim Entrepreneurs’ Relief on these disposals.
11. Interaction between Entrepreneurs’ Relief (ER) and the Enterprise Investment Scheme (EIS)
Gains deferred via an investment in shares qualifying for EIS or Social Investment Tax Relief (SITR) currently come back into charge at the standard rates on disposal of the investment. For investments made after 3 December 2014 this deferred gain will benefit from any Entrepreneurs’ Relief that would have applied at the time of the original disposal. This removes a significant disincentive to invest the proceeds of business disposals in EIS shares.
12. More pain for the banks
From 1 April 2015 long-standing banks will only be able to set losses brought forward from the financial crisis against up to 50% of their annual profits.
To discuss any of the issues raised in the Autumn Statement, please contact one of our tax partners - Clare Munro or Phil Moss.