The Chancellor of the Exchequer, George Osborne stood up today for his last Autumn Statement before the General Election next year. The underlying feeling of ‘steady as she goes’ was tempered with some 'give aways': the stamp duty changes with immediate effect, a U-turn on the settlement nil rate band and some clarity on the Governments intentions regarding the taxation on joint annuities.
Some headline catchers, but the reality is not much change to our core business as at today. Although, that can’t be said for 2015. The main changes to taxation and pensions are listed below.
The personal allowance will be increased by a further £100 to £10,600 in 2015-16. The basic rate limit will be £31,785 and the higher rate threshold will be £42,385.
Unlike previous personal allowance increases, higher rate taxpayers will benefit in full from these changes.
The Government is still deciding whether to restrict entitlement to the personal allowance for non-residents. If it decides to proceed, a more detailed consultation would be undertaken but no change will come into effect before April 2017.
The increase in ISA allowance in 2014 to £15,000 has been well received and ensuring that this allowance is increased year on year will help drive the desired savings culture.
From April 2015 the ISA allowance will rise to £15,240. This, combined with changes to the starting rate of savings tax, will mean that those earning under £15,600 need pay no tax on any of their savings income.
From 3 December 2014 if an ISA saver in a marriage or civil partnership dies, their spouse or civil partner will inherit their ISA tax advantages. The government will legislate to allow an additional ISA allowance for spouses or civil partners when an ISA saver dies, equal to the value of that saver’s ISA holdings at the date of their death.
Clearly we need to see the detail of the proposed changes but allowing continued tax efficient savings for widows, widowers and surviving civil partners will again promote a savings culture and move ISA savings closer to the treatment of pensions. These changes provide income tax and capital gains tax benefits rather than inheritance tax benefits.
Qualifying investments – the government will consult on whether to allow crowd-funded debt-based securities into ISAs and how this could be implemented if introduced.
Junior ISA and Child Trust Fund limits will be increased to £4,080.
Direct Recovery of Debts (DRD) - The government will be able to recover tax and tax credit debts from ISAs as well as bank and building society accounts of debtors. Further consultation has resulted in the safeguards being strengthened.
Capital Gains Tax
There are some minor changes to the existing regime but noticeably they introduced a digital calculator for capital gains tax.
Individuals will be prevented from claiming entrepreneurs relief on disposals of goodwill associated with a business when they transfer the business to a related close company. This will affect transfers on or after 3 December 2014.
Gains which are eligible for entrepreneur's relief but which are deferred into investments which qualify for the Enterprise Investment Scheme or the Social Investment Tax Relief will remain eligible for entrepreneur's relief when the gain is realised. This change will benefit gains on or after 3 December 2014.
Inheritance Tax and Trusts
We continue to wait for clarity on the taxation of trusts but the Government took the opportunity to confirm that a single settlement nil-rate band will not be introduced. The Government will instead introduce new rules to target avoidance through the use of multiple trusts. It will also simplify the trust calculation rules.
Stamp Duty reforms on residential property
Stamp duty is being reformed to remove the steep increases in the tax due caused by reaching each higher flat-rate threshold. Instead the rates will be graduated resulting in the property buyer paying a marginal rate.
This is seen as a fairer way to apply tax as the current approach does not reflect a consistent and fair amount of tax to be levied.
The new rules start on 4 December 2014 – but if you’ve already exchanged on a property you’ll have a choice about whether to use the old or new rules.
Completing your sale on and after 4 December 2014
If you exchange and complete (or in Scotland, 'settle') your home purchase on or after 4 December you will pay stamp duty under the new rules.
Completed your sale before the 4 December 2014
If you completed on the purchase of your property on or before 3 December 2014, but have not yet filed your stamp duty return, you still have to pay stamp duty under the old rules.
Exchanged on your contract before 4 December 2014
If you exchanged contracts (or in Scotland, 'concluded missives') before 4 December but complete on or after that date you’ll be able to choose whether the old or new rules apply. In the majority of cases you’ll pay less tax under the new rules.
|Purchase price of property (£)||New rates paid on the part of the property price within each tax|
|0 - 125,000
|125,001 - 250,000
|250,001 - 925,000
|925,001 - 1,500,000
|1,500,001 and over
The government continues to focus on lost revenue and those who look to abuse the current taxation system.
The government today reconfirmed their ongoing commitment to keep the focus on tax evasion, they have confirmed the following:
Strengthening civil deterrents for offshore tax evasion
Following consultation, legislation will be introduced which will enhance civil penalties for offshore tax evasion. This will amend the existing offshore penalties regime to:
- include IHT
- apply to domestic offences where the proceeds of non-compliance are hidden offshore
- update the territory classification system to reflect the jurisdictions that adopt the new global standard of automatic tax information exchange
- include a new aggravated penalty of up to a further 50% for moving hidden funds to circumvent international tax transparency agreements.
The changes will come into effect from April 2016, except for aggravated penalty which will come into effect following Royal Asset (Finance Bill 2015).
Marketed Avoidance Schemes
There are a number of proposals to strengthen HMRC’s position in terms of the promoters of tax avoidance schemes and serial avoiders.
Following consultation of the disclosure of tax avoidance schemes (DOTAS), HMRC will publish information about tax avoidance promoters and schemes that are notified under the regime. The Government will legislate to strengthen the DOTAS regime, including through updating existing scheme hallmarks, adding new hallmarks, and removing ‘grandfathering’ provisions for the future use of schemes that were excluded by those provisions (Finance Bill 2015).
We hope that the Government has listened to the calls from the industry to ensure accepted mitigation schemes such as loan trusts and discounted gift trusts (which would have benefited from the grandfathering provisions) are not inadvertently caught.
Non-Domicile and the remittance basis
Individuals who are not domiciled in the UK are able to elect to pay tax on the remittance basis so any income and gains held offshore are only taxable as and when they are brought into the UK.
The remittance charge for non-domiciles is increasing for individuals who have been living in the UK for a long time.
Time resident in the UK:
- 7 out of last 9 years charge unchanged at £30,000 per year
- 12 out of last 14 years to increase from £50,000 to £60,000 per year
- 17 out of last 20 years – a new charge of £90,000 to be introduced.
The Government will also consult on making the election apply for a minimum of 3 years (Finance Bill 2015).
There were very few changes announced for pensions in the Chancellor’s speech, as many of those amendments related to the new flexibilities from April 2015 had already been publicised.
Contributions Post 75
A decision has been made to continue the current treatment of tax relief on pension contributions up to age 75 only. It had been considered whether relief might be given beyond age 75, but it has been determined that this will not happen.
Joint life Annuity Death Benefits
As recently publicised, for those in receipt of the death benefit from a joint life annuity or a guaranteed annuity, the amount paid out will no longer be subject to tax. This applies where the deceased was under age 75 and no payment is made before 6th April 2015. The recipients of the death benefit will also now be able to be any beneficiary. If the annuity recipient was over 75, any lump sum will be taxable at 45%, changing to the beneficiary’s marginal rate from the 2016/17 tax year in line with payments from uncrystallised pensions and drawdown.
There was no mention of a change in treatment for the death benefits from defined benefit pension schemes. Under defined benefit schemes, dependant’s scheme pensions will still be subject to their marginal rate of tax on pension income. Therefore the current disparity with equivalent payments from defined contribution schemes will continue.
Means testing Pension Credit
For the purpose of means-testing state benefits for those over the pension credit qualifying age (based on a gradual scale in line with the increases in state pension age according to date of birth), treatment of existing pensions, both crystallised and uncrystallised, is now slightly more favourable. The notional income factor to be applied to such benefits will now be based on 100% of an equivalent annuity rather than the 150% which was previously used. However, if the income being drawn is greater than this, it will be the higher figure that is taken into account.
QROPS and QNUPS
There are no changes in the Autumn Statement to these Schemes.