George Osborne has just delivered his 2014 Budget and whilst some of the measures had been pre-announced there were surprises too. It’ll take a few days for the dust to settle and 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 affect our clients and contacts:
1. Residential property purchased in a company
The existing measures to combat perceived avoidance by those who use a company to buy residential property will be extended from the current threshold of £2m, to property costing £500,000 or more. Changes are:
- SDLT at 15% on affected purchases
- ATED payable on £1m properties from 1 April 2015. The charge will be £7,000
- ATED payable on £500k properties from 1 April 2016. The charge will be £3,500
- Capital gains tax will be introduced for non-residents owning UK residential property from 1 April 2015 - details are expected to be published shortly
This sounds harsh, but for many of our clients who own investment properties via an offshore company, relief should be available from the SDLT and ATED charges in line with the existing provisions for £2m+ properties.
2. Relief for capital investment
The temporary increase in Annual Investment Allowance, which gives most businesses 100% relief for the first £250,000 of expenditure on plant and machinery was due to revert to £25,000 at 1 January 2015. Now it will not only be extended into 2015 but doubled to £500,000 from April 2014.
3. Research and Development Credits
Loss-making small or medium sized enterprises can claim a repayable tax credit of 11% of R&D spend: this is to be increased to 14%.
Subject to seeing the draft legislation some radical changes are proposed in the pension arena including:
- A significant loosening of the tax regime for pensions so that those with defined contribution schemes will be able to draw down from it at their marginal rate of income tax rather than current, punitive rate of 55%
- Drawdown of income from a defined contribution fund is currently possible where the taxpayer has income of £20,000 and is limited to 120% of an equivalent annuity. The income threshold will be reduced to £12,000 and the drawdown level increased to 150% of the equivalent annuity
At the same time, legislation is being introduced to counter attempts to ‘liberate’ pension funds on which tax relief has been given.
This was billed as a Budget for savers and measures include:
- An upgraded ISA limit of £15k without restriction as to the cash or stock content.
- Pensioner bond at market-leading interest rates for those aged 65+
- 0% tax rate on savings for the first £5,000 of savings income (previously 10% on the first £2,790)
6. Tax avoidance - the Government’s battle continues
A new measure will be introduced to deter those using marketed avoidance schemes - where the claimed tax benefits have been defeated at tribunal, HMRC will be given power to issue a notice to the user to settle the disputed tax with HMRC. If the dispute continues to court and the user wins then the tax will be refunded with interest, but in the meantime the user risks incurring a penalty.
HMRC currently has a backlog of cases lined up for tribunal thought to run into tens of thousands and this measure, which has predictably been unpopular with those marketing tax avoidance products, seeks to encourage existing users to settle and deter others from using schemes.
7. Other highlights
- SEIS (Seed Enterprise Investment Scheme) relief is to be made permanent
- Class 2 National Insurance Contribution scheme is to be brought into the Self Assessment regime to save additional admin
- Long-held Lib Dem ambition to raise the tax threshold to £10,000 is realised for tax year 2014/15, with a further rise to £10,500 for 2015/16
- Higher rate threshold increased to £41,865, possibly in response to recent press coverage of the increasing numbers of middle income earners brought into the higher tax rate net
- New corporation tax relief for theatrical productions
- For the drinkers, duty on spirits and cider frozen, duty on beer down by 1p per pint!
For further information about how these issues could affect your own tax affairs, please contact one of our tax partners: Clare Munro or Phil Moss.