Autumn Statement 2016 predictions

The only certainty is uncertainty.

All eyes will be on Philip Hammond as he takes to the floor for his first Autumn Statement on 23 November 2016, following the hugely significant EU referendum result. Mr Hammond has already warned that Brexit will create economic turbulence and fiscal uncertainty. It is probably the case that the only certainty we will have for some time is that there will be uncertainty.

What we do already know is that Mr Hammond has abandoned the plans of his predecessor, George Osborne, to return the economy to surplus by 2020. He has also indicated his intention to ‘reset’ economic policy, so the Autumn Statement will present the first opportunity to see what this entails. A key factor is likely to be encouraging investment in the UK to stimulate the economy, which may take the form of a mix of tax incentives and investment in major infrastructure projects - in view of the continuing need to bring down the fiscal deficit this will no doubt require a balance between major announcements and deferred implementation. 

The Prime Minister has also spoken about a government that works for everyone and not just the privileged few, but the government’s hands are somewhat tied on tax policy by the tax lock put in place by George Osborne, under which the government pledged not to increase income tax, national insurance or VAT over its current term. There is no such tax lock on corporation tax, and the trend set by Mr Osborne was to reduce the headline rate to attract inward investment.  This is already set to fall to 17% in April 2020, but further reductions look less likely under the ‘new management’ (unlikely Mr Osborne’s intention to further reduce the rate to 15%). Nor is there any obvious limitation to the introduction of further "stealth taxes".  The 3%  SDLT surcharge has proven to be a major money spinner, whilst the second Insurance Premium Tax increase in a year  took effect on 1 October 2016 with the Apprenticeship levy coming into effect next April: the question is how creative could the Chancellor be?

Tax rates

It is unlikely that tax rates will be reduced further. 

Corporation Tax

Whilst the CT rates are down to 17% have already been enacted, they are unlikely to move further towards 15%.

Income Tax

There is no reason to assume that income tax rates will fall, but the personal allowance and higher rate threshold may not increase as fast towards the £12,500 and £50,000 levels as was targeted last year.

Capital Gains Tax

Capital gains tax revenues, in the main due to the healthy property market and the continued improvement in the equity market, have been robust but it is unlikely that the 28% rate applicable to property transactions and carried interest will be significantly reduced.

Stamp duty land tax

SDLT revenues have also been buoyant, in part due to the introduction of the 3% “surcharge” announced in the autumn statement last year and brought into effect in April this year. This had the result of buoying the market in the period to its introduction. Whilst there has been much criticism of the detail, it is unlikely that there will be any significant concessions.

Indeed it is possible that one of the consequences is that the rates for commercial properties could rise by a modest amount (the nil rate band could fall to, say, £100,000 and the rates increase to 3% and 6%) without having a major impact on the market and this would bring the tax burden on residential and commercial property transactions closer.

Other changes could be made to the technical detail – for example, removing the rule that 6 or more residential properties in a single transaction are deemed to be "non-residential" – to ensure that the higher rates on residential property transactions are not so easily avoided by portfolio investors. Similarly, the multiple dwelling relief, that reduces the charge for linked transactions to that which would apply to properties acquired at the average price, could be amended to increase the base rate from 1% to a level more in line with the new schedule of tax rates. 

Consultation has been undertaken on a proposal to accelerate the filing and payment dates for SDLT from 30 to 14 days prior to April 2018. Whilst some have argued for it to be 15 working days as opposed to 14 calendar days, the principle appears to have been accepted. It is worth noting that approximately 70% of payments are made on-line (and 98% of returns are), so the acceleration in the filing and payment obligations is unlikely to affect many: the key issue is likely to be whether the amount of detail that needs to be supplied with the more complex transactions (for example, the need to supply a schedule of sub-leases: this information is not required for LBTT!), primarily required by the VOA, can be reduced: if so, very few will have difficulty in complying with the shortened timeline.

Private client

The focus on the tax affairs of the high net-worth individuals will no doubt mean continued attention on "tax avoidance" issues - particular as regards offshore issues.

Non-dom taxation reforms have come in for a lot of criticism and the consultations on them have dragged on for a long time. There has been a lot of discussion and lobbying behind closed doors and now we are seeing speculation that the proposals to tighten up the non-dom tax régime may not turn out to be so stringent after all: taxing non-doms remains politically popular generally (except, of course, with the wealthy non-doms likely to be affected).

Inheritance Tax

One area of particular interest is the ownership of residential properties within off-shore corporate and trust structures. It did not escape the attention of the Treasury that the ownership of residential properties in this way was not primarily to avoid SDLT but was often driven for IHT reasons. The detailed proposals in this regard, intended to come into effect next April, are complex and will, undoubtedly, create many anomalies. 

Following the introduction of the ATED charge in 2013 pleas were made for a means to facilitate "de-enveloping" of residential properties from such structures. One particular issue that arises is that of an SDLT charge where the owner of the company has also funded the purchase by the company through a loan. To date HMRC have not been prepared to confirm that they would not invoke the SDLT anti-avoidance provisions. The pleas continue to be made, with increased vigour, in the light of the proposed IHT changes: it would be nice to think that such a facility will be made available in time for the IHT changes.

IHT revenues are also buoyant and whilst there has been no suggestion of a U-turn, the extremely complex transferable Residential Nil Rate Band that comes into effect for deaths after 5th April 2017 could be modified as could the very generous Business Property Relief (particularly as regards "unquoted" shares).

Capital Gains Tax

In March 2016 the rates of tax came down, except on residential property and carried interest, but this left gaps and opportunities for planning, e.g. by using reinvestment reliefs into EIS, it has been suggested. Normally it takes a full year before any changes are made again but a new Chancellor may decide to act more promptly and increase rates or at least address the consequences unforeseen by his predecessor.

Investors’ reliefs

What has been put to HM Treasury is that we seem to be in a race to the bottom re Corporation Tax rates - anything that boosts productivity should thus be encouraged. There is evidence that share schemes and employee ownership do that and some tinkering here is possible.

Investor reliefs appear to be the flavour of the season (with the reversal of many of the ill-considered changes to Entrepreneurs’ Relief and the introduction of the new Investors’ Relief), so we may see further enhancements, even though investors’ relief is still new - perhaps more likely, there will be new niche sector innovation reliefs (encompassing, possibly, both CGT and income tax benefits) to encourage inward investment.

Savings / Pensions

There have been so many changes to pensions over the last few years that we hope that no further changes are announced this year. However it is possible that there will be announcements as regards the detail of the LISA following the publication of draft regulations in October, and which are subject to consultation until 6 January 2017. It is also possible that the rate at which tax relief is given on pensions contributions may be reformed to provide a fixed rate of relief for all taxpayers.

Privately Owned Businesses


As regards property letting businesses, the proposed restriction in the relief available for financing costs of property businesses has been roundly criticised and may therefore be modified: possibly with a longer phase-in period. It is, however, unlikely to be reversed.

The conditions for claiming CGT incorporation relief could however be tightened to deter businesses from incorporating.

Entrepreneurs’ relief and Investors’ relief could be restricted both as regards the amount qualifying for the 10% rate and the actual rate of tax; some have argued that the 10% rate is not justified given the top rate of CGT on shares is now only 20%. Entrepreneurs’ relief has also proved to be an expensive relief, meaning questions are being asked about its value for money, and whether investors’ relief which enjoys no restriction to those working in a particular business and, as such, is potentially available to a much wider range of investors, will also prove to be very expensive.

Technical Issues

There are a number of technical issues that the Professional bodies have been discussing with HMRC / HM Treasury. We should then expect mention of the various projects of the OTS (Office of Tax Simplification) - in particular, the Sole Enterprise Protected Assets discussion document which supports enabling small unincorporated businesses to obtain protection for their main residence against claims from business creditors. Other technical issues that have been considered are:

  • Partnership taxation: proposals to clarify tax treatment may get a mention but are more likely to appear as consultation follow-ups.
  • Life assurance policy part surrenders and assignments may be reformed to remove the unfairness of the present rules as highlighted in the Lobler case 

Employment-related securities 

We are not expecting any announcements that would impact share schemes specifically, however the following matters may arise;

  • Tax advantaged share plan advance valuation agreements by HMRC SAV are currently under review for potential withdrawal (as per other SAV services axed 31 March 2016) and may be axed at short notice at any time.
  • Representations on the various share schemes matters (especially re CSOP limit) have been made via various lobby groups but HM Treasury policy research analysts have made it clear that ministers will instead prioritise focus on anything that eliminates paper/manual process and frees up HMRC resource.
  • EMI changes are unlikely given that this needs renegotiating with EU by April 2018 anyway as part of the State Aid renewal agreement. EMI probably will not be allowed to time expire but there seems currently little appetite for doing anything more, or sooner than absolutely necessary.

Employment tax

Three issues of which we are aware here:

  • Salary sacrifice for benefits in kind: we pretty well know what is coming here: the intention is to restrict the number of cases where salary sacrifice will be viable to a few officially sanctioned areas including in particular pension provision but also cycle to work - but precious little else.
  • The NIC treatment of termination payments will be much more closely aligned with the tax treatment.
  • A Pensions Advice allowance of up to £500 (to be taken out of the pension fund) has been consulted on.  The existing £150 tax and NIC free employer-arranged pension’s advice amount is intended to be increased to £500 from April 2017.


The proposals to introduce new rules for those working in the public sector has been subject to much detailed criticism.  The extremely short time in which the various parties will need to be able to prepare for the major changes is of concern and it is hoped that there will be a deferral of the implementation date.

Corporate and International Tax

Tax rates 

The rate of corporation tax is already set to fall to 17% from April 2020, but it is unlikely that there will be any further reductions, bucking the trend set by George Osborne. However, this cannot be entirely ruled out since the UK needs to make sure its economy remains strong and a crucial element is the continuing need to attract inward investment, which is likely to be affected by the uncertainties around the Brexit decision.  

Encouraging investment 

The annual investment allowance for plant and machinery had been set at a new permanent level of £200,000. However, at the expense of introducing some complexity with transitional rules again, increasing this to stimulate investment would provide a boost to the economy.


There are a number of very significant developments in the corporate tax arena as far as reliefs are concerned. The major issues relate to interest relief, corporate loss relief and the substantial shareholdings relief.

The UK has historically had relatively attractive rules for tax relief on corporate interest deductions, notwithstanding existing limitations through anti-avoidance rules such as the worldwide debt cap and transfer pricing. However, changes have been proposed to be introduced from April 2017 as a result of the UK’s commitment to implement the G20/OECD BEPS project.  The proposals are for net interest relief over £2 million per annum to be limited by reference to a ‘fixed ratio rule’, which would restrict tax relief where net interest exceeds 30% of ‘tax EBITDA’ (ie. EBITDA as modified for certain items such as capital allowances), and with the possibility of a group ratio rule which might be more generous for highly leveraged groups.  As it stands, the UK would be an early adopter of these restrictions, so we would welcome a delay in their introduction to avoid making the UK look a less attractive location for inward investment at such a critical time after the Brexit decision which is likely to impact inward investment.  Furthermore, the proposals are of great concern in the real estate sector which is highly geared, and there are unresolved issues concerning the application of rules to the financial sector.

Another major area of reform is corporate tax loss relief, also proposed to take place from April 2017. On the one hand the proposals are good news in that they will create greater flexibility around relieving different types of losses, but this comes at the cost of limiting the amount of losses that can be relieved to 50% of profits (25% for banks) in excess of an annual allowance of £5 million. This restriction is therefore unattractive for larger groups which have built up past losses, which will now take considerably longer to relieve. Particularly hard hit is the banking sector which the Chancellor may now want to mollify to avoid an exodus to other territories only too happy to welcome them. Additionally, the proposals are hugely complex and a rethink here would also be welcome.

The substantial shareholdings exemption was introduced in 2002 and exempts gains on the disposal of trading companies by trading groups. We are expecting to hear proposals to extend the scope of this exemption so it covers a wider range of scenarios, making the exemption more competitive in the international arena.

Transfer pricing

The government proposed to introduce secondary adjustments within the UK domestic legislation - it is to be hoped that an announcement will be made that this will not be pursued. The proposals are not consistent with the intention to ensure the UK tax system is more efficient and competitive.

Taxes management

Penalty provisions

There have been numerous consultation documents on a very large number of initiatives. In particular the following are worth noting;

Tackling offshore tax evasion: a Requirement to Correct.

There were some nasty features to this particular condoc which included additional penalties (up to 300%) for those who failed to correct their returns to declare offshore evaded tax. It is geared (and the proposal is timed) very much towards the information that they expect to receive under the CRS (Common Reporting Standard) exchanges of information but the condoc included the proposal that the time limits for assessments (of 4, 6 and 20 years respectively for normal, careless and deliberate) should each be extended by 5 years to afford HMRC time to deal with the CRS data. The condoc reads very much like an HMRC wish list and it is likely that most of the respondents will have responded negatively – we wouldn’t be surprised if we saw some of this appearing in the Autumn Statement.

Strengthening tax avoidance sanctions and deterrents.

This document  related to proposals for penalties for enablers and users of tax avoidance “which is defeated” – the trick being, of course, that you don’t know if it will be defeated when you take part in it. Again, we believe we can expect to see some of this included in the Autumn Statement as part of the real and propaganda war on tax avoidance.

Making Tax Digital 

The drive to implement MTD fully by 2020 still steams on, regardless of the icebergs and foreseen obstacles. Much of the detail remains to be precisely worked out but expect mention of:

  • simplified cash basis for unincorporated property businesses;
  • voluntary (at least in this Parliament) Pay as You Go; and
  • great stress on the need for MTD to enable HMRC to track down all those pesky tax evaders by analysing their bank account information.

Tackling the hidden economy

  • Extension of data-gathering powers to money service businesses.
  • Off-payroll working in the public sector: reform of the intermediaries’ legislation. Nobody has explained why this is only a problem in the public sector when all forms of business are under constant pressure to cut costs, leading to pressure to put senior servants into self-employed contracts and engagement through service companies.