2014 Autumn Statement – The Winners and Losers

Politics is often described as a game of cat and mouse.  Yesterday’s Autumn Statement in some ways demonstrated George Osborne’s mission to chase votes next May.  But behind all the headlines around ‘pre-election giveaways’ who are the real winners and losers from the measures announced by the Chancellor?

Changes to Stamp Duty Land Tax for Residential Properties 

The Chancellor has announced that from today the highly unpopular ‘slab’ system for SDLT on residential property is abolished and replaced with a more progressive system.  Instead of SDLT being charged as a percentage of the whole sale price based upon the threshold into which a property falls, the percentages will now be charged only on that element of the price which fall within the relevant band.  For example, a property sold for £150,000 currently attracts £1,500 in Stamp Duty Land Tax (i.e. £150k at 1%).  Under new rules only the excess over £125,000 will be taxable.  This results in a saving of £1,000 (i.e. compared to £25,000 at 2% = £500).

Due to the way the new rate bands operate the changes will, however, result in higher SDLT charges on residential properties in excess of £937,500.

For transactions that exchanged before 4 December but have not completed, there are transitional rules, which broadly will allow the taxpayer to elect to apply the old rules and rates if they wish rather than the new regime.

Research and development tax relief

Two welcome boosts to the R&D tax credit were announced yesterday.  For large companies the ‘above the line credit’ which they can receive is increasing from 10% to 11% with effect from 1 April 2015.  From 1 April 2016 the above the line credit becomes compulsory for large company claims.  For small and medium sized companies – who continue to receive the relief as an enhanced corporation tax deduction – the rate of relief will be increased from 225% to 230% of qualifying expenditure with effect from 1 April 2015.

Pension transfers on death

George Osborne confirmed that the 55% charge which currently applies to certain pension transfers made on death is abolished.

Under the current system, a 55% tax charge on inherited pensions applies when an individual wants to pay their defined contribution pension out to somebody else as a lump sum after they die, and where the pension money is:

  • already in a drawdown account (regardless of the individual’s age), or
  • “uncrystallised” (i.e. hasn’t been touched) and the individual dies at or over the age of 75

Under the new system, anyone who dies below aged 75 will be able to give their remaining defined contribution pension to anyone completely tax free, whether it is in a drawdown account or untouched as long as it is paid out in lump sums or is taken through a flexi access drawdown account. This does not apply to annuities or scheme pensions.

Those aged 75 or over when they die will be able to pass their defined contribution pension to any beneficiary who will then be able to draw down on it at their marginal rate of income tax.

The change will apply to all payments made after April 2015.

ISAs

The Autumn Statement announced that, from today, ISAs which are inherited by a surviving spouse or civil partner will retain their tax free status.  Currently, whilst ISAs could be bequeathed to a widow without Inheritance Tax implications they lost their other tax advantages.  This only applies to inter-spouse transfers – transfers of ISAs to other persons continue to be subject to IHT and lose their tax exempt status.

Increase in the Remittance Basis Charge

The charge which is levied on long term UK residents who are non-domiciled here and who elect to be taxed on the “Remittance Basis” is to increase from 6 April 2015.  Following changes which were introduced in 2008, non-doms who have been resident in the UK for an extended period have had to pay a “Remittance Basis Charge” (“RBC”) or face being taxed on their overseas income and gains.  The RBC is currently set at £30,000 for those who have been UK resident for seven out of the last nine years and £50,000 for those who have been UK resident for twelve out of the last fourteen years.  From next year the £50,000 charge increases to £60,000, and for those who have been resident in the UK for 17 out of the last 20 years the charge increases to £90,000.

In addition, the government is to consult on making the RBC into a 3 year election.  Individuals who are currently paying the RBC will need to review their position, as the proposed increases may now tip the balance in favour of withdrawing the election.

Entrepreneurs Relief Changes

Incorporation

Under current rules sole trader or partnership businesses have been able to benefit from Entrepreneurs Relief (“ER”) – which provides for a 10% rate of CGT – when they sell the business to a company.  From today, where a business is transferred to a company and the transferor or any of their associates has shares in that company Entrepreneurs Relief will be denied.  The disponor will therefore be subject to CGT at normal rates (18% or 28%).

In addition, if the business had been started on or after 1 April 2002 the company used to be able to obtain corporation tax relief for amortisation of any goodwill acquired.  From now on where goodwill is transferred to a close company which the transferors are related to no relief will be given for amortisation.

Reinvestment relief

In contrast to the above, there was a welcome change to the rules on reinvestment relief.  Currently an individual can defer a capital gain by reinvesting their proceeds into shares which qualify for Enterprise Investment Scheme (“EIS”) relief.  The gain comes back into charge when the EIS shares are sold.  However, where ER applied to the original gain usually that relief was lost as the individual no longer met the qualifying conditions.

From 3 December 2014 ER will continue to apply, so when the gain comes back into charge this will now benefit from the 10% tax rate

Changes in tax rate bands

The Chancellor has announced that the personal allowance – which sets the amount of income which can be received in a tax year before tax becomes payable – will increase from £10,000 to £10,600 in 2014/15.

In addition, the higher rate tax threshold (i.e. the level of income beyond which a person starts to pay 40% tax) will increase from £41,865 to £42,365.

Creative industry tax reliefs

Two additional categories have been added to the list of creative industry tax reliefs.  The first is an extension of the relief for television production.  This currently provides a 25% tax credit for expenditure on the production of high-end television programmes.  The relief will be extended from 1 April 2015 to expenditure on children’s TV.  The second is in relation to theatre tax relief.  This relief was introduced in September and provides enhanced corporation tax relief for touring theatre companies.  The relief is now planned to be extended to orchestras, subject to further consultation.

Changes to the annual tax on enveloped dwellings (ATED)

The Autumn Statement announced that the ATED, which applies to the holding of high value residential properties through non-natural persons , is proposed to increase as follows:

Property Value (£)

2014/15

2015/16

1m – 2m

£nil

£7,500

2m – 5m

£15,400

£23,350

5m – 10m

£35,900

£54,450

10m – 20m

£71,850

£109,050

20m +

£143,750

£218,200

 

Additionally, from 2016/17, there will be a £3,000 charge on enveloped properties worth between £0.5m and £1m.

 

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