In his Autumn Statement delivered on 5 December 2012 in the Commons, Chancellor George Osborne outlined the way ahead along his much vaunted "hard road" to recovery. While there were no particularly nasty surprises lurking around the twists and turns of his speech, it is certainly not likely to be a joyride for wealthy taxpayers in the near future.
Pension relief cuts
Looming on the horizon long before Osborne reached the despatch box was the prospect of cuts to pension tax relief, and this unsurprisingly was the most notable revenue-raising measure in the context of taxes on private wealth. With the reduction in April 2014 of the lifetime allowance from £1.5 million to £1.25 million and the annual allowance from £50,000 to £40,000, the impact of this measure is generally likely to be restricted to the top 1-2% of those with pensions.
It will be interesting to see whether these cuts will encourage those affected to seek alternative investment opportunities when planning for their retirement. It is possible that high earners will increasingly turn to buyto- let property investments instead of contributing to pension pots where reliefs have been exhausted.
Camilla Wallace, partner in Wedlake Bell's Private Client team, reacted to the pension announcements as follows:-
"A further restriction on pension tax relief is likely to have an impact on first time buyers who are already struggling to get on the property ladder because of reduced lending and high property prices. Aspiring second home owners, international investors and property developers have already crowded the market without the arrival of future pensioners driven into buy-to-let investments by unappealing conventional pension arrangements, looking for a safe haven for their "old age" funds." Elsewhere, any enthusiasm at announcements of increases in the allowances and thresholds for income tax (the 40% "higher rate" threshold up from £41,450 in 2013/14 to £41,865 and then £42,285 in 2014/15 and 2015/16); capital gains tax (annual exempt amount up to £11,000 in 2014/15 and £11,100 in 2015/16); and inheritance tax (nil rate band up to £329,000 in 2015/16) was tempered by the fact that those 1% increases will not keep pace with inflation.
GAAR
Fairness was a watchword for this Autumn Statement and this was exemplified by the confirmation that the introduction of the General Anti-Abuse Rule (GAAR) remains on track for 2013. Further guidance on this, together with draft legislation, is set to be published later this month. The announcement is coupled with the news that HMRC's war effort on tax evasion and avoidance schemes is to be bolstered by increased funding and manpower.
Camilla Wallace commented that the introduction of a GAAR and further focus on offshore tax havens is "inevitable and will be politically popular, potentially appeasing voters following the recent Amazon/Google/ Starbucks revelations." However, successful results have not been widely forthcoming in other jurisdictions with similar GAAR provisions, so it remains to be seen how effective our legislation will be.
Property ownership
As expected, it was confirmed that mansion tax measures will not be brought in and there continues to be a freeze on council tax rates, so wealthy homeowners can breathe a sigh of relief for the time being. However this should not be confused with the annual charge that is still expected to be introduced on corporate ownership of high value UK residential property next year to discourage stamp duty avoidance. There was no further announcement in relation to this latter charge, nor to the planned extension of the capital gains tax (CGT) rules in the same field. We therefore await the publication of the draft legislation, in a few days' time, to see if and how the government plans to introduce a tax measure (in the context of CGT) that is fraught with operational complexity.
It would be remiss not to mention the main positive news, which came in the announcement that corporation tax rates will continue to fall, to 21% from April 2014, a measure designed to attract investment in the UK. And the fuel tax rise originally set for January has been cancelled, which should get us a little further along the Chancellor's hard road.
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