Autumn Statement 2015

A listening chancellor…but further bad news for buy-to-let landlords!

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Whilst a softening of the reduction in tax credits was expected today, a complete U-turn by the Chancellor was something of a surprise, but very welcome for those who were going to be hit hardest by the cut in tax credits.

Unfortunately there was no such good news for buy-to-let landlords and to make matters worse George Osborne has followed his previous trend of focussing on residential landlords with the announcement of further changes which will raise an additional £1 billion of tax by 2020.

The largest tax raising measure in today’s Autumn Statement is the 0.5% Apprenticeship Levy which will be introduced in 2017 and will raise an additional £2.7 billion of taxes in its first year.  However, there is good news for smaller businesses as a relief will mean that only businesses with a wage bill of over £3 million per year will have to bear this liability.

Naturally from a local viewpoint there was excellent news that Carlisle is to be granted an Enterprise Zone which will be very beneficial to the local economy.

The main tax changes announced in today’s Autumn Statement are summarised below.

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Stamp Duty Land Tax (SDLT)

From 1 April 2016, an extra 3% above the current rates of SDLT will be applied on the purchase of buy-to-let residential properties and second properties.  The Government is going to consult on how best to introduce this change, as there will be a number of practical difficulties to consider.  For example, if a family is simply moving house, will they have to pay an extra 3% SDLT on the purchase of their new home as a result of a delay in the sale of their old home (on the basis that they will own two houses, albeit for a short period of time).

From 1 April 2017, it is proposed that the payment date for SDLT is reduced to 14 days from the current 30 days.

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Capital Gains Tax (CGT)

CGT is normally payable on 31 January following the end of the tax year in which the disposal takes place, which can result in the tax payment date being up to almost 22 months after the time of disposal.  For example, if a property is sold on 6 April 2016, the CGT will not be payable to HMRC until 31 January 2018.  The Chancellor has announced that from April 2019, any CGT that is payable on the sale of a residential property will be due 30 days after the sale of the property.  This will have a detrimental impact on the cash flow of some buy-to-let businesses.

Dotted LineTax Credits Cuts Scrapped

Earlier this year, George Osborne announced significant changes to the tax credits system whereby only the lowest-income families would be able to claim tax credits.  He had announced that from April 2016 the income threshold would be reduced from £6,420 to £3,850.  This would mean that a claimant’s tax credits would be reduced when their income exceeds £3,850, with the rate of withdrawal being increased from 41% to 48% of income above £3,850.

In addition, it was announced that the income disregard (the amount by which a claimant’s income can increase compared to the previous year before their award is adjusted) would be reduced from £5,000 to £2,500.

As has been widely reported, there was a huge out-cry against these proposals, together with a defeat in the House of Lords for the Government.  The response by the Chancellor today has been to retain the income threshold at £6,420 and to retain the rate of withdrawal at 41% – so great news for claimants.  However, the income disregard reduction to £2,500 is still going ahead.

The changes to Universal Credits (merging 6 benefits into 1) will go ahead as previously announced.  The main change being that the Child Element will not be awarded for third and subsequent children born after April 2017.

Dotted Line2Entrepreneurs Relief (ER)

ER is a very valuable tax relief for individuals, as it can result in a CGT rate of only 10% on the sale of certain assets.  There was a fear that this relief may be curtailed in the Autumn Statement, but not only has the Chancellor left it alone, he has announced that several recent changes were too draconian and he may soften these changes so that they only catch the intended target for which they were introduced.

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Deeds of Variation

The Government had previously announced that it was minded to withdraw the tax reliefs that are associated with Deeds of Variation, but the Chancellor has announced today that the tax reliefs will remain as they are, which is naturally very welcome news (although there was a caveat that their future use will be monitored and if the Government feels that the tax reliefs are too generous it may revisit the position again).

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Salary Sacrifice

Salary sacrifice arrangements have become increasingly popular in recent years, partly as a result of the Government formally endorsing such arrangements with a leaflet explaining how they work.  The Government has today announced that these arrangements are now becoming of some concern (probably due to the amount of tax/NIC relief that the Government is now effectively funding) and consequently the Government will collect further evidence so that policy makers can decide on what action to take.

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Small Business Rates Relief

It was good to hear the Chancellor announce that this relief will be further extended until March 2017.

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Farmers Averaging

The Chancellor confirmed that farmers will have the choice of the existing farmers averaging method or to average over 5 years from 2016, (2016/17 tax return). No details have yet been provided on exactly how this will work.

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Tax Avoidance

As is now always the case, there were a number of announcements targeted at individuals and businesses who undertake tax planning that is viewed as unacceptable.  One potentially worrying change is the announcement in relation to “disguised remuneration” whereby legislation will be introduced at a later date, but it will take effect from today i.e. this is effectively retrospective legislation, which naturally creates an element of uncertainty in the tax system for individuals and businesses.

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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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