UK: Autumn Statement 2013: Key Points For Private Clients

Last Updated: 10 December 2013
Article by Fay Copeland

Chancellor George Osborne delivered his Autumn Statement to Parliament yesterday, 4 December 2013. The main headlines for private clients were: (1) the extension of CGT to non-UK residents and (2) the curtailing of CGT principal private residence PPR) relief for those with multiple homes. There was also an announcement on "split contracts" which may affect some international clients. These are all discussed in more detail below.

Tax avoidance was yet again a central theme to this Autumn Statement, with the Chancellor announcing that the Government's new measures represent the largest package of measures of any fiscal event in this Parliament. Notable however, was that the clamp down would be on "aggressive tax planning" as well as tax avoidance. Here is a fine line, and many will be concerned that this gives the Government a mandate to tackle legitimate tax planning practices.

CGT - non-UK residents

Central to the tax avoidance agenda is the extension of CGT to non-UK residents owning UK property. This was widely expected but not perhaps the announcement that the reform will be delayed until April 2015, which should allow scope for non-UK residents to plan in the interim. The Chancellor's announcement suggested that gains will be rebased to their April 2015 values  but this measure will need to be followed through the proposed consultation process before the details become clear.

Solicitor in the Private Client team, Kate Davies, commented as follows:-

"UK residents are subject to CGT on their second homes so it was probably only a matter of time before non-residents were too, but it was not as bad as first feared. In an uncharacteristic gesture of reasonableness, the measure will not come into effect until April 2015 and pre-April 2015 gains will likely not be included."

CGT – Private Residence Relief

Those with second homes were perhaps not expecting any changes to the PPR rules – there had not been any real press speculation – but included was the announcement that the "final period exemption" for PPR will be reduced from 36 to 18 months. Currently, where a property has been your main residence at any time during your period of ownership, any gain made on the property in the last three years of ownership is effectively exempt from CGT whether it is your "main residence" or not during that period, thereby allowing taxpayers (most publically, politicians) to "flip" this exemption from one property to another, so as to achieve PPR for the whole period for each property. 

Partner and Head of Private Client, Fay Copeland, had this to say:-

"The changes to CGT private residence relief were largely off the radar. The much used "last 3 year" rule, the springboard behind the CGT "flipping" scandal a while ago, has been cut back to 18 months. Whilst this was perhaps unexpected, many will acknowledge that the flipping rule has been on borrowed time for a while."

Non-doms and split contracts

Rules will be introduced from April 2014 to prevent high-earning non-domiciled employees from artificially splitting their employment contracts in order to shift income to an "offshore contract", outside the scope of UK income tax. Tax will be levied on the full employment income where a comparable level of tax is not payable overseas on the offshore contract.

This announcement was somewhat of a surprise and could have a significant impact on non-domiciled client who currently have their UK and offshore employment duties dealt with under separate contracts so that payment of the offshore duties is not subject to UK tax. We will need to await the publication of Finance Bill 2014 next week for further details of this measure so that the full impact can be assessed.

IHT and trusts

A consultation was launched following Budget 2013 on simplifying the inheritance tax (IHT) relevant property regime for trusts and the Autumn Statement confirmed that some of the proposals will be introduced in the Finance Bill 2014. Notably however, the proposal to split the nil-rate band amongst multiple trusts created by the same settlor (rather than allowing each trust its own nil-rate band) will be subject to further consultation. This was controversial as, although billed as a "simplification" measure, its real impact would be to put an end to tax planning using "pilot trusts". We shall have to see whether the consultation results in any watering down.

Tax thresholds

It was confirmed that the income tax personal allowance will increase to £10,000 from April 2014, one year ahead of the Government's schedule.

The CGT annual exempt amount for 2014-15 for individuals will be £11,000 and for trustees will be £5,500.

The IHT nil-rate band will remain frozen at £325,000 until April 2018, as first announced in Budget 2013.

Other measures

The above are the flagship points but other measures of note include:-

  • the married couples tax allowance will be introduced from April 2015, allowing married couples and civil partners (neither of whom is a higher or additional rate tax payer) to transfer £1,000 of their allowance to the other;
  • the Government will consult on extending, from 2014/15, the range of trusts for vulnerable people that qualify for special tax treatment; and
  • confirmation that the Government will not make any immediate changes to the tax charge on loans from close companies to participators.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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