George Osborne today delivered his first Autumn Statement and Spending Review as Chancellor of a standalone Conservative Government, and his third announcement of the year - after his pre-election Budget in March and his summer Budget in July.
Interestingly today’s statement perhaps represents a return to the old ways in so far as traditionally the announcements made in March represent the tax raising plans whilst the autumn statement dealt with spending. Today we saw the government plans for spending with very little in terms of tax changes. This may be due to the fact that a number of fundamental changes were announced in the July budget speech. Of the changes that were announced today, the following may be of interest:
Following the tightening up of the rules for interest relief on let property, an increase in Stamp Duty Land Tax (SDLT) is to be announced for properties which are either bought as second homes or on a buy to let basis. The increase is at 3% above the normal rate for the property concerned.
Furthermore, the 30 day filing deadline for making the necessary returns and paying the SDLT is to be reduced to 14 days, this change is to come into effect in either 2017 or 2018.
Still on the theme of residential property, changes are proposed to bring forward the date on which capital gains on the disposal of residential property is to be paid. Naturally the sale of a main domestic residence will not give rise to a tax charge but any chargeable sales will now require any tax arising to be paid within 30 days of completion of the sale. These changes are coupled with digital accounts (see below) and are expected to come in from April 2019.
The issue that this creates is that currently capital gains tax rates are either 18% or 28% on this type of disposal, the actual rate depending on the level of other income arising in the year. If tax is due to be paid within 30 days there needs to be some certainty in the rate of tax to apply which leads one to think that either a fixed rate of CGT will apply to this type of disposal or a fixed rate of CGT will be imposed generally (which was last in place during Alistair Darlings reign as Chancellor).
The changes to the payment of CGT for residential properties is coupled with a move towards digital accounts for certain taxpayers (primarily self employed individuals and landlords) which the government is expected to introduce by 2019 with a requirement for the taxpayers involved to update the records quarterly. Perhaps this represents a move to real time information for income tax following the apparent successful introduction of real time for PAYE/NIC in 2013/2014.
The Chancellor announced a surprising U-turn in the changes that were announced to restrict tax credits. The original proposals proved to be a political hot potato and The Chancellor justified his change of plan by virtue of other savings that were made to departmental budgets coupled with an increased tax revenue (arising from a stronger economy).
Other key announcements on spending plans can be viewed here.
In light of the fact that very little by way of tax changes were announced today, we would like to remind you of the changes made in the post election budget in July. The main features announced at that time are detailed below:
The Government is supporting investment by small and medium-sized firms, increasing the permanent level of the Annual Investment Allowance (AIA) to £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016. This means that businesses will be able to spend up to £200,000 per annum on plant and machinery and receive a full revenue tax deduction in the period of acquisition.
SME’s National Insurance Contributions are to fall as a result of an increase in the Employment Allowance from £2,000 to £3,000 from April 2016. This means that SME’s will not pay the first £3,000 in Employers National Insurance Contributions. However, from April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance.
As previously commented a change to the taxation of dividends has been announced by replacing dividend tax credit with a new tax free dividend allowance of £5,000 and changes in the tax rates applying to dividends.
Personal allowances are to rise to £11,000 in 2016/2017 as part of the overall ambition to increase this allowance to £12,500 by 2020. In addition, the threshold at which higher rate tax commences will increase to £43,000 by 2016/2017.
The new National Living Wage for the over 25’s to start in April 2016 at the rate of £7.20 per hour to be increased to reach £9 per hour by 2020.
The Chancellor will be increasing the tax free allowance for each individual so that they may be able to pass their home to children and grandchildren after death. The individual allowance in this instance is increased by £175,000 meaning a married couple or those in a civil partnership have a tax free allowance of £1M from April 2017.
With effect from April 2017, there will be a staged restriction on the tax relief available on let property. Ultimately, relief will only be available at 20% regardless of the individuals marginal rate of tax. This poses issues with the high income child benefit charge for people earning over £50,000 and the withdrawal of personal allowances for those earning over £100,000 as the income figure for these two matters will now be at a higher level than previously the case as the relief for interest will now only be regarded as a reduction in tax as opposed to an expense.
Wear and Tear allowance which is available to landlords with furnished property is to be replaced by a new system which will grant tax relief only when furnishings are replaced.
The rent-a-room relief which has remained at £4,250 since its inception in 1997 is to be increased to £7,500 from April 2016.
Current rules permit taxpayers to pay up to £40,000 per year into their pension fund (either by way of personal contributions paid net of tax or gross contributions paid by a corporate employer). High earners, which have been classified as those earning over £150,000, will find their maximum contribution reduced such that there will be a maximum of £10,000 being available to contribute without further charge.
As we have always maintained, with all matters referred to in the Chancellors announcements the “devil will be in the detail” and the full impact and understanding of all the announcements will not be made clear until the full parliamentary process has been undertaken and the proposals become law in the relevant finance act. We will issue further notices should any matters of significance be announced.Last modified on