Autumn Statement 2015 - Chancellor banks on growth to avoid tax credit cuts

For anyone focussing on tax changes, the majority of the 2015 Autumn Statement amounted to a long preamble in the form of the now customary summary of statistics on growth, both past and expected. Significantly, the Chancellor was able to avoid making any cuts to tax credits, which will be welcomed by many. However, what was less clear is how this and other measures mentioned will be paid for.

Individuals

There were no indications of any general intention to raise taxes or NICs, directly or indirectly in the foreseeable future. Key announcements are:

  • From 1 April 2016, there will be further pain for residential landlords with a 3% surcharge rate of SDLT on second homes and buy to lets costing over £40,000. Though the Chancellor’s announcement mentioned buy to lets it appears to apply to all additional residential properties, including holiday homes (but excludes mobile homes).
  • ISA subscription limits are frozen at 2015/16 levels for 2016/17, which is perhaps to be expected after recent hikes. On the positive side, the range of investments is being expanded to include crowd-funding debt securities from Autumn 2016 (including crowd-funding equity is still under consideration). Also in 2016 deceased estates in administration will retain the tax benefits on ISAs held by the deceased.
  • Initially, the proposed introduction of digital tax accounts sounded innocuous, but from April 2019 it will be necessary to make a payment on account in respect of CGT due on the disposal of residential property within 30 days of completion. That sounds simple but how will it accommodate delayed completion and settlement? Could this herald a move in the longer term to bring forward tax payment dates generally and boost the Exchequer’s cash flow?

Businesses

A significant money spinner affecting businesses is the introduction of the Apprenticeship Levy in April 2017 which will raise some £3 billion a year. All employers will receive an allowance of £15,000. 

Privately-owned businesses

Private business owners will be relieved this time round that there are no new measures significantly increasing their tax burden.

  • There is the promise of a rethink of the entrepreneurs’ relief restrictions introduced in the 2015 Finance Act. The new rules were widely criticised for not being targeted at ‘abusive’ arrangements alone. Now there is to be a relaxation embodying an anti-avoidance rule that should allow genuine commercial transactions to benefit.
  • The Government today announced plans to review rules that encourage non domiciled individuals to invest in UK businesses
  • Where close companies make loans to participators that are trustees of a charitable trust, the trustees will be exempt from the associated tax charge provided the loan is applied wholly for the trust’s charitable purposes.
  • The transactions in securities rules will be tightened to prevent owners seeking to exploit lower tax rates on capital gains by converting income to capital.

Corporate and International Tax

After a sustained period of media interest in tax avoidance in the corporate sector, the Government has decided to press ahead with plans to make large businesses publish their tax strategies, insofar as they relate to UK taxes. 

  • Changes are being made to the intangibles tax regime to make it clear that it is not possible to convert non-qualifying intangibles in to qualifying intangibles simply by transferring ownership of those intangibles from a corporate partner in to a partnership.
  • One of the most significant developments in international tax has been the publication of the OECD’s final reports and Action Plans on its Base Erosion and Profits Shifting (BEPS) project. The UK Government is fully supportive of these measures, and we can expect to see changes to UK legislation as a result. It has been announced that measures to tackle ‘hybrid arrangements’ (which seek to exploit differences in the way that instruments or entities are treated between different jurisdictions) will be introduced from 1 January 2017.
  • There is no detail at this stage but a consultation process will take place on company distributions.

General measures

The Government continues to tighten the net on tax avoidance and tax evasion. 

The mention of £800m being invested in HMRC to tackle evasion may be old news. On looking at the detail, it appears that this is money that HMRC has ‘saved’ through its past economies that is being reinvested within HMRC to tackle evasion. A ‘strict criminal offence’ for those who fail to declare offshore income and gains will be introduced – this is contentious because HMRC do not need to prove the intent to evade tax. Other measures include a 60% penalty where the GAAR applies (to further increase its deterrent effect), and further clamping down on serial tax avoiders and promoters. The Chancellor has flagged that the use of tax avoidance schemes to circumvent the disguised remuneration rules will be targeted, with measures being effective as of today’s date. 

Some good news is that the reliefs from the Annual Tax on Enveloped Dwellings and the 15% SDLT will be extended from April 2016 to cover equity release schemes, property development activities and properties occupied by employees.

More so than ever the devil will be in the detail, some of which has started to appear already, while more will be revealed in the draft Finance Bill clauses on 9 December and Government consultations. To read more in depth commentary on the Autumn Statement visit our blog, Let's Talk Tax

Tim Davies | UK Head of Tax 
 T: 44 (0)20 7063 4564

 

Let's Talk Tax blog - Autumn Statement 2015

Employment Tax Simplification: What was expected, not there, and new…
With a number of discussion documents issued by HMRC which would impact employment taxes, I was expecting more…

Disguised Remuneration - A further clampdown ahead
Following the introduction, in 2011, of anti-avoidance legislation to curb tax avoidance in the form of Disguised Remuneration, HM Revenue and Customs (HMRC) have increasingly sought to legislate and litigate against remuneration arrangements which seek to minimise tax liabilities.

Non-dom investors boosted by Business Investment Relief
The Government today announced plans to review rules that encourage non domiciled individuals to invest in UK businesse.

No great surprises for High Net Worth individuals in Autumn Statement 2015
Recent Budgets and Autumn Statements have been chock full of shocks and giveaways for High Net Worth individuals but Autumn Statement 2015 bucked the trend...

Inheritance Tax – Minor measures
Following lots of discussion and debate in recent years regarding the reform of inheritance tax (IHT), only a couple of minor points arose in the autumn statement.

Cash is King for Capital Gains Tax on disposals of residential property
The payment window for capital gains tax (CGT) due on the disposal of residential properties will be reduced dramatically from April 2019, but little is known as to how this will work. 

Additional homes and buy-to-let properties stamped on!
As part of his stated aim of supporting families buying their own home, the Chancellor announced that from 1 April 2016, purchases of additional homes and buy-to-let properties costing more than £40,000 will be subject to stamp duty land tax at a rate 3% higher than the current rates.

Closing the loopholes
As has become traditional in recent budget and autumn statements, the Government has introduced anti-avoidance provisions to address areas of avoidance. Two new sets of draft legislation relate to capital allowances.

GAAR Penalties – or the Introduction of the Death Penalty for Drinking Cyanide
It’s peculiar what the Government thinks it should legislate upon but here’s a penalty for breaking a rule that no-one has yet broken…

The Continued Pursuit of the Offshore Golden Goose
The Government remains convinced that there are pots of evaded tax still sitting outside the UK and – despite diminishing returns from its ‘disclosure facilities’- is determined to penalise those involved with yet higher civil penalties and even some strict criminal penalties for ‘the most serious cases’.

Employers taking on apprentices…
In April the Government will introduce an apprenticeship levy of 0.5% of an employer’s wagebill (see below) which will be collected through PAYE. Each employer will receive an allowance of £15k to offset against their levy payment.

“Play it again, George” or “Was that really news?”
In the Autumn Statement, the Chancellor proudly referred to the £800m that was being invested in tackling tax evasion. But a bit of investigation suggests that we might have heard this song before...

Academy status for English sixth form colleges
Academy schools are among the group of entities allowed to recover VAT incurred on non-business activities. Sixth Form Colleges in England will be given the opportunity to become academies.

The Tampon Tax
VAT charged on women’s sanitary products to be used to fund women’s health and support women’s charities...

Employee Share Schemes: Simplification of the rules
A raft of changes to both tax-advantaged and non-tax-advantaged employee share schemes have hit the statute books in recent years and it is, perhaps, not surprising that amongst the changes made to date a few matters slipped through the net.

Exemption from loans to participators legislation for certain trustees
The Autumn Statement saw the release of a new draft clause to exempt certain loans or advances made to trustees of charitable trusts from the loans to participators legislation (which applies a charge to tax where close companies make loans or advances, broadly, to their shareholders).

Entrepreneurs’ Relief: welcome but overdue relaxation of restrictions is late but still welcome!
In Finance Act 2015 measures were introduced to amend the definition of a “trading company” which restricted the availability of Capital Gains Tax Entrepreneurs’ Relief where the claimant did not hold a 5% stake in the trading company in its own right. Those changes look set to be amended so that their impact may not be as far reaching as was originally the case.

Good news – the Chancellor continues to make Great Britain and Northern Ireland great for international businesses
Given the Government’s commitment to remain a major player in international affairs, the Chancellor’s Autumn Statement contained no surprises when it came to international business.

Serious problems for serial tax avoiders (and promoters of avoidance schemes)
In its efforts to eradicate tax avoidance, the Government introduces yet more penalties for ‘serial’ tax avoiders and the promoters of tax avoidance schemes.

Relief restricted for companies holding intangible assets through a partnership
Greater “clarity” is being given to the intangible tax regime to make it clear that it is not possible to convert assets which do not qualify for tax relief under the regime in to assets that do, simply by transferring ownership of those from a corporate partner in to a partnership.

SDLT Property Fund seeding relief finally arrives … next year!
The Government has confirmed the introduction next year of relief from stamp duty land tax (SDLT) for seeding Property Authorised Investment Funds (PAIFs) and changes to the SDLT treatment of Co-ownership Authorised Contractual Schemes (CoACSs) designed to remove barriers to investments in these funds.

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