This year’s autumn statement has been hailed by some commentators as a non-event. But if you look carefully at the small print there is plenty which is likely to effect some of our clients, especially those in business.
As had previously been announced, married couples and civil partners will be able to transfer up to £1,000 of the personal allowance to each other, provided neither partner is a higher rate tax payer.
This will only result in a maximum tax gain of £200, but you should still make sure all your clients who are entitled to this take full advantage.
Despite suggestions they were going to change the rules on multiple trusts (the Rysaffe Principle), the government has not chosen to do so. This means your clients can still set up multiple trusts on different days to receive their entire estate on death, and provided the amount in each trust remains below the Nil Rate Band there will be no periodic or exit charges.
If you have not yet looked at such trust planning opportunities with your wealthier clients, perhaps now would be a good time to do so.
The rules on private residence relief are going to be tightened. This could mean some residential property investors will now pay more Capital Gains Tax.
Non-resident investors will face Capital Gains Tax on residential property from April 2015.
The final period of “assumed residence” is currently 3 years. This is to be reduced to 18 months. This still gives plenty of opportunity, however, for clients with a residential property portfolio to switch their residence to another property in their portfolio each time they buy or sell a property and thereby gain significant reductions in their overall Capital Gains Tax bill. They need to ensure, however, that they do not give HMRC the opportunity to argue they are trading in property, which would mean Income Tax applied rather than Capital Gains Tax. This has always been a potential pitfall, but now HMRC are looking more carefully at private residence relief they may well view this as a good way to meet their targets!
The government has announced it will press ahead with the proposals to limit the use of LLPs to disguise employment relationships, and the use of corporate partners in an LLP to reduce Income Tax.
Stamp Duty Reserve Tax will no longer to apply to the sale of Exchange Traded Funds. Perhaps this reduction in trading cost will lead to a greater use of passive management using ETFs.
The ISA limit will be increased to £11,880.
Further restrictions have been announced on the use of venture capital trusts for tax planning without the appropriate level of risk. There will be no relief if the investment is linked to a share buy back arrangement. Also, clients will no longer be able to have two bites of the cherry – there will be no relief if they invest back in the same VCT. But there is nothing to stop a client taking an investment from one VCT and putting into another.
Employer’s National Insurance will not be payable on salaries to employees under 21 if they earn under the higher rate threshold. This gives our family business owners the opportunity of saving an extra 13.8% by getting their children involved in the business.
Previously the limit was 16, but many business owners were reluctant to employ minors in their business and possibly fall foul of the many regulations that apply to the employment of minors. Now they can look at employing older children in order to obtain this saving.
Employee Share Ownership
There will be an income tax exemption for up to £3,600 bonus paid to employees of companies indirectly owned by the employees.
The tax free limit of free shares in the Share Investment Plan will be increased to £3,600, and the limit on tax free partnership shares to £1,800.
The SAYE contribution limit will be doubled to £500.
Perhaps now is a good time to review the various tax efficient employee share schemes with your clients.
Business Exit Route Planning
If a share disposal results in a controlling interest in the company being held by an employee trust there will be Capital Gains Tax relief on this disposal. This could be an option for business owners to consider when looking at exit route planning.
The rules which prevent business losses being passed on to a new owner are going to be relaxed slightly.
Clients considering investing in retail premises may wish to take over previously empty premises, as they will get a 50% reduction in business rates from 1/4/14 to 31/3/16
Other matters for business owners
Following the HMRC consultation there will be no change in the close company rules on directors loans. But be aware of the changes that have already taken place, which mean it is no longer tax efficient to roll over directors loans.
We will await with interest the government publication “Small Business: GREAT Ambition”, which is to be published tomorrow.
Where a scheme is found by a court to be tax avoidance, anyone who used the scheme will be required to pay the tax immediately. Keep an eye on any claims by HMRC to apply this, as court decisions are based on the facts of a specific case, which might not apply to your client.