Detailed analysis of the Autumn Statement 2015
On Wednesday 25 November, Chancellor George Osborne presented the first Autumn Statement of this Parliament along with the Spending Review. Following the previous two Budgets earlier in the year, most of our clients will be thankful that this time around the Chancellor steered clear of further radical tax changes.
Instead this Autumn Statement focused on the Chancellor’s spending plans, which if you listen to most economic commentators revolve around the economy’s ability to maintain growth and therefore continue to increase the exchequer’s tax retake without the need for significant and substantial tax reform (or more precisely, any more significant and substantial tax reform over and above that already announced/planned).
Now that the dust has settled a little, we have set out in this article the announcements that we see affecting our clients the most.
In the lead up to the Statement it was predicted that the Chancellor would make lots of announcements with regards to measures to boost the housing supply. No doubt good news for property developers and those with that supply chain.
However, as part of the Chancellor’s housing drive it appears that he has taken a specific dislike to residential property landlords/investors. Not content with the proposed restriction on income tax relief for interest costs on residential property investment related borrowing, the Chancellor made two further announcements that will attack those looking to buy and/or sell, buy to let residential or second properties.
From 1 April 2016 higher rates of Stamp Duty Land Tax (SDLT) will be charged on purchases of additional residential properties (above £40,000), such as buy to let properties and second homes. The higher rates will be 3% above the current SDLT rates. These rates will not apply to purchases of caravans, mobile homes or houseboats, or to corporates or funds making significant investments in residential property. As the government intends to consult on the policy detail, it is possible that there may be further exemptions for corporates and funds owning more than 15 residential properties. The government has not mentioned extending this exemption to individual owners.
Some commentators have suggested that this may lead to a 3 month housing bubble with investors looking to get their acquisitions done before the these new charges come into effect. In terms of the position for tenants, will this see a corresponding rise in the cost of letting residential property?
In a further blow, from April 2019, a payment on account of any of Capital Gains Tax (CGT) on the disposal of residential property will be required to be made within 30 days of completion of the disposal. This will not affect gains on properties which are not liable for CGT due to Private Residence Relief.
Currently, CGT is not payable on a disposal of an asset until 31 January following the tax year in which a disposal is made. So a disposal made on the 6 April 2016 will not result in a tax bill until 31 January 2018. The proposed alteration is therefore a significant acceleration of the tax due.
With owner managed businesses still reeling from the announcements regarding dividend tax in the Summer Budget, thankfully this Autumn Statement was light on sweeping taxation reforms.
Initially the announcement that a new Apprenticeship Levy would be introduced in April 2017 caused consternation. It will be set at a rate of 0.5% of an employer’s paybill, which is broadly calculated as total employee earnings excluding benefits in kind, and will be paid through PAYE. Thankfully, each employer will receive an allowance of £15,000 to offset against their levy payment, which means that the levy will only be paid on any paybill in excess of £3 million and will exempt a significant number of SME’s from this charge.
Not mentioned in the Commons but included in the summary documentation is the announcement that later this year the government will publish a consultation on the rules concerning company distributions. There will also be a targeted anti-avoidance rule to prevent opportunities for income to be converted to capital in order to gain a tax advantage. We will await this consultation with great interest at exactly what type of company distributions the government are targeting. It may be that the government are looking at company distributions following a share capital reduction. If so it is possible that this could have implications both for extracting share capital from limited companies, but also in relation to corporate restructuring methods.
No specific mention of the IR35 question was included in the Autumn Statement and the murmurings within the industry suggest that the government are still keen to push through changes to put the onus of resolving that issue onto the subcontractor/employing company (see previous edition of talking tax). The Autumn Statement did however include confirmation that the government will legislate to restrict tax relief for travel and subsistence expenses for workers engaged through an employment intermediary, such as an umbrella company or a personal service company. These changes are expected to come in from April 2016.
You may have seen in the news recently a story around the 45% corporation tax rate. The government has announced that a special 45% rate of corporation tax is to be applied to restitution interest. Restitution interest can arise when a company has made a claim to the courts in relation to tax paid under a ‘mistake of law’ where HMRC are the defendants. Any interest award that represents compensation for the time value of money is restitution interest. If received on or after 21 October 2015, this interest will be charged at a special rate of 45%. This rate does not apply to any amounts which represent the repayment of overpaid tax or interest payments by HMRC under statutory provisions, and so although a news story, will have little effect on the vast majority of businesses.
With effect from 30 November 2015, the provision of reserve energy generating capacity and the generation of renewable energy benefiting from other government support by community energy organisations will no longer be qualifying activities for the Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCT), the Seed Enterprise Investment Scheme and enlarged Social Investment Tax Relief (SITR). The government will exclude all remaining energy generation activities from the schemes from 6 April 2016 as well as from the enlarged SITR.
In general from a tax practitioner’s perspective it was a quiet Autumn Statement, with just enough to keep us interested.
For those with residential property investments the position remains that early advice on ownership structure should be sought, especially where third party funding is required.
For businesses we suspect that the proposed dividend tax regime changes will still be of far greater concern than anything announced recently.