UK: Autumn Statement 2014: Key Points For Private Clients

Last Updated: 15 December 2014
Article by Camilla Wallace and Kate Davies

Chancellor George Osborne delivered his Autumn Statement speech to Parliament yesterday. The key points to note for private clients include the Coalition's answer to a Mansion Tax, namely a reform of SDLT.

TAXATION OF RESIDENTIAL PROPERTY

Stamp Duty Land Tax

SDLT was unexpectedly reformed with immediate effect.

SDLT will no longer be charged at a single rate on the whole purchase price of a property. Instead, varying SDLT rates will apply to the parts of the property price that falls within each band.

New rates have also been introduced: 0% for up to £125,000, 2% for up to £250,000, 5% for up to £925,000, 10% for up to £1.5m, and 12% for over £1.5m.

The total SDLT paid will be reduced or remain the same for properties worth less than around £937,000, but for properties with a value of around £937,000 or more SDLT will now be payable on purchase. For example, a further £18,750 SDLT will be payable on the purchase of a £1.5m house.

The additional amounts payable on the purchase of high value properties are significant, but a one off payment is perhaps more palatable than the proposed Mansion Tax. The Mansion Tax proposes an annual charge which many would have to roll up until death at which time it would become payable in addition to Inheritance Tax on the property.

Annual Tax On Enveloped Dwellings

ATED – the annual charge on high-value residential property held through a corporate envelope – will increase substantially from 1 April 2015. The new annual charge will be £23,350 for properties worth between £2m and £5m, £54,450 for properties worth between £5m and £10m, £109,050 for properties worth between £10m and £20m, and £218,200 for properties worth more than £20m.

We expect to see an increase in restructuring as a result of these higher charges, and in many cases will need to review advice given in the past which was based on the lower annual charges.

Changes to simplify filing obligations for properties that fall within ATED but are eligible for relief will be made. The changes will take effect from 1 April 2015 but the details are as yet unknown.

Income Tax

The personal tax free allowance will be increased to £10,600 for the 2015/16 tax year, and the higher rate threshold at which income tax is charged at 45% will increase by 1.2% in line with inflation. Having had to wait 5 years for any increase in the higher rate threshold many taxpayers may feel that these welcome changes are long overdue.

The Government has decided not to restrict the availability of the personal allowance for non-residents but will consider to review whether this restriction should be introduced.

Inheritance Tax

The estates of members of the armed forces whose deaths are caused or hastened by injury whilst on active service are exempt from IHT. This exemption has been extended to emergency service personnel and humanitarian aid workers responding to emergency circumstances and will apply to deaths on or after 19 March 2014.

In addition, the IHT exemption for medals and other decorations awarded for valour and gallantry has been immediately extended to all medals and decorations awarded to the armed services or emergency personnel and to awards made by the Crown for achievements and service in public life.

It came as no surprise that an increase in the Nil Rate Band to £1m which some had hoped for and David Cameron has previously mentioned was not included in the announcements.

Trusts

We are relieved that the Government has abandoned its controversial plan to split the IHT Nil Rate Band among trusts created by the same settlor. The Government will however be introducing new rules to target avoidance through the use of multiple trusts, and will simplify the calculation of trust taxes – we tentatively await the details of these new measures.

Remittance basis charge for non-domiciliaries

The annual charge paid by non-domiciliaries resident in the UK who elect to only be taxed on offshore income and gains when they are brought into the UK is being increased.

There is no charge for the first seven years, and the charge for those who have been resident for seven out of nine years will remain at £30,000. However for those who have been resident in the UK for 12 of the last 14 years the charge will increase from £50,000 to £60,000. A new charge of £90,000 has also been introduced for those who have been resident for 17 of the last 20 years.

Currently a resident non-domiciliary only needs to pay the charge in the years in which they wish to make the election. The Government will now consult on making the election apply for a minimum of three years.

Changes to the remittance basis of taxation were not unexpected, but it is likely to be the proposed three year rule that will cause the most concern – it will make planning when to bring foreign income and gains into the UK more complicated.

ISAs

Currently when a saver dies their ISAs immediately lose their tax free status. With immediate effect, ISAs inherited by spouses and civil partners will retain their tax free status. This is a welcome to relief to families who have spent a lifetime building up their ISA savings.

From April 2015 the ISA allowance will increase to £15,240.

Pensions

It was confirmed that from April 2015 savers will be able to fully withdraw all of their defined contribution pensions on retirement without a 55% tax charge. Full or partial withdrawals will instead be taxed at the saver's marginal income tax rate.

It was also confirmed that defined contribution pensions will no longer be taxed at 55% on death. From April 2015 they can be left to a nominated beneficiary who will receive the pension tax free if the saver dies before 75, or otherwise subject to the beneficiary's marginal income tax rate.

These changes to pensions will be contained in the Finance Act 2015 which will receive Royal Assent and become law after the General Election which could make pensions a hot election topic.

Tax avoidance

Further measures have been introduced to tackle tax avoidance including the introduction of a new 25% tax for profits made in the UK which are shifted offshore, and extended civil penalties for offshore tax evasion are being extended. HMRC are increasing their task force to tackle this area with the recruitment of 200 criminal investigators and 100 more investigators for their Affluent Unit.

This leaves no doubt that "tax avoidance, evasion and aggressive tax planning" remain high on the agenda.

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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