Autumn Statement 2013

Resisting Temptation!

With a general election only 18 months away and recent economic data showing a significant improvement in the government’s finances, George Osborne may have been tempted to introduce some significant tax savings to the voting public.  However, he has largely resisted temptation (at least for now!) and continues to focus primarily on reducing the government’s annual deficit, as well as introduce some measures that are clearly politically driven.

We have summarised below the main new changes that were announced today from a tax viewpoint:

Capital gains tax on the sale of a former main residence

The current tax regime is relatively generous in that it allows an individual a period of up to 3 years of “deemed occupation” of a former main residence, even though the individual no longer lives in the property (usually because they have moved into a new main residence).

The Chancellor announced today that this “deemed occupation” period of 3 years is to be halved to 18 months.  For some individuals, this could result in a significant increase in the amount of capital gains tax that they will now have to pay when they sell their former homes in the future.

One important point to note is that the introduction of this unfavourable tax change has been deferred until 6 April 2014 and consequently any individuals who fall into these circumstances and currently have their property on the market for sale, should seriously consider taking steps to ensure that the property is sold before 6 April 2014.  Likewise, any individuals who have a former main residence which has increased significantly in value should consider taking planning action before 6 April 2014 in order to crystallise the associated capital gain and thereby lock into the current 3 years relief.

Transferable allowance

From 6 April 2015, spouses and civil partners will be able to transfer £1,000 of their income tax personal allowance to their spouse or civil partner.  Only couples where neither partner is a higher or additional rate tax payer will be eligible to make the transfer.  This change is largely politically driven, as the tax savings will be worth a maximum of £200 per annum (the transferable amount will be increased in future tax years in proportion to any increases in the personal allowance).

Non-residents and capital gains tax

As rumoured over the last few months in the media, non-residents will no longer be exempt from capital gains tax on the sale of property that they own in the UK.  There was some good news however in that the change will not be introduced until 6 April 2015, which will allow time for non-residents to reorganise the ownership of their UK properties and consequently take advantage of the current favourable tax regime.

Inheritance tax and trusts

The government has been consulting on the simplification of trusts and has confirmed legislation will be introduced to simplify filing and payment dates for IHT relevant property trust charges (10-year anniversary and exit charges). Legislation will also be introduced to treat income arising in such trusts which remains undistributed for more than 5 years as part of the trust capital when calculating the 10-year anniversary charge.

Perhaps the area of greatest concern in the consultation process is the proposed removal of the favourable treatment currently available for pilot trusts, which was anticipated to take effect from 6 April 2014.  There was a glimmer of hope today in that the Chancellor has announced that further consultation will now take place on pilot trusts and it will not be until 2015 at the earliest before any changes are made.

The government will extend with immediate effect from 5 December 2013 the capital gains tax ‘uplift’ provisions that apply on the death of a vulnerable beneficiary and extend from 6 April 2014 the range of trusts that qualify for special income tax, capital gains tax and inheritance tax treatment. The government will also consult further on ways to reform the tax treatment of trusts established to safeguard property for the benefit of vulnerable people.

Business Rates

Business rates are an expensive fixed overhead cost for businesses and a great deal of lobbying has been taking place from the business community over recent months.  The government has reacted by announcing various measures to decrease this burden on businesses, in particular smaller businesses and the retail sector.

The government has announced it will help all businesses by capping the RPI increase in business rates to 2% in 2014-15. Without the change the increase would have been 3.2%.

Good news for the businesses currently eligible to claim Small Business Rate Relief (SBRR) – the doubling of the relief has been extended for a further 12 months, and will now be available until April 2015. This means approximately 360,000 businesses will pay no business rates during this period.

In addition, where businesses are looking to grow and expand, the government have announced that they will amend the SBRR criteria to allow businesses who currently receive SBRR to keep it for one year after taking on an additional property (which would currently mean SBRR is lost).

In a move the Chancellor called “Helping the High Street”, there will be a discount of up to £1,000 on business rates for retail premises (including pubs, cafes, restaurants and charity shops) with a rateable value of up to £50,000. This will be available from April 2014 for two years.

To help reduce the number of boarded up shops on our high street, there will be a temporary reoccupation relief, granting a 50% discount from business rates to new occupants of previously empty retail premises for 18 months. The relief will be granted for businesses moving into long term empty retail premises on or after 1 April 2014 or on or before 31 March 2016.

Finally, with effect from 1 April 2014, it will be possible to pay business rates over 12 months rather than the current 10 months, which will help cash flow.

Supporting Youth Employment

Although the government claims employment to be at its highest ever level, it has acknowledged the need to tackle youth unemployment (the rate currently stands at an eye-watering 24% for 18 – 20 years olds).

The government proposes changes that will effectively make it cheaper for businesses to employ young people. The changes will abolish employer’s NIC for under 21 year olds earning less than £813 per week (i.e. the point at which higher rate tax is charged). For example, the change will save an employer approximately £1,000 per annum for every under 21 year old earning £16,000 per annum, and £500 per annum if earning £12,000 per annum.

There is welcome news in that the changes will apply to existing employees (as well as employers taking on new staff), but it is disappointing that the changes will not take effect until April 2015.

Fuel Duty

There is also welcome news for both households and businesses as the government has promised to freeze fuel duty for the remainder of this Parliament, cancelling the planned rise in September 2014.

This announcement will mean that fuel duty will have been frozen for nearly four and a half years, the longest freeze for over 20 years.  This will result in the average fuel price being 20ppl lower in 2015 than what the price would otherwise have been (which equates to a saving of £1,300 for a small business with a van, and £21,000 for a haulier by 2015-16).

Partnerships

The government is taking action to counter a potential loss of tax suffered by firms introducing companies as partners in a trading partnership, and then allocating partnership profits or losses in such a way that the overall taxation liabilities can be significantly reduced, frequently by taking advantage of the lower tax rates which apply to companies.

Following a consultation on the tax issues for these “mixed member” partnerships, legislation is to be introduced which will restrict the amount of profits or losses which can be allocated to the “non individual partner”. The legislation will impose specific rules so that any financial return on the capital invested by the non natural partner will be calculated based on the time value of the contribution made at a commercial rate of interest, and any profit allocated for services performed by the company or its employees will need to be calculated on the basis of what the company would have received if it was not a partner, and was acting at arms’ length from the firm. This is likely to result in reduced profit allocations for corporate partners, leading to additional tax liabilities for the individual partners, which HMRC estimate as being over £1billion per annum.

The new legislation for tax motivated profit allocations for mixed partnership structures was scheduled to be introduced on 6 April 2014, but will now take effect immediately i.e. 5 December 2013, with further anti avoidance provisions coming in to effect from 6 April 2014.

If you have any queries on the Autumn Statement, please do not hesitate to contact one of our tax specialists on 01228 530913 or 01768 864466.

 

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