The 2014 Autumn Statement and our Clients
You have probably already read lots of commentary on the 2014 Annual Statement. But there may be some vital points for your clients which have not received much focus.
For example, do you have corporate clients using aggressive schemes to reduce or eliminate their corporation tax, and can you be certain that the new Diverted Profits Tax will not apply to them?
Or are you aware of the changes in the rules on Entrepreneurs Relief?
For more information on these and other important changes, read on!
Perhaps the most noticeable announcement in the Autumn Statement was the revolutionary reform to residential Stamp Duty Land Tax. This tax will now work very much like Income Tax. You will pay higher percentages for higher values, but the increase in rate will only apply to the excess over the threshold. As we all know, the big jumps in SDLT at the thresholds caused anomalies in property prices. If the property value was just over the threshold the seller would usually either accept a lower price or artificially separate out fixtures and fittings for the extra one or two thousand. We will probably still see some artificial separation of this kind, but the motive for doing this is now very much lower and probably no longer justifies the likelihood of an enquiry by HMRC.
You should note, however, that the big jumps at the thresholds still apply to Annual Tax on Enveloped Dwellings. In other words, cases where a residential property has been “enveloped” in a corporate wrapper. This tax jumps from £23,350 to £54,450 at the £5 Million threshold, from £54,450 to £109,050 at the £10 Million threshold and £109,050 to £218,200 at the £20 Million threshold. Remember too, this is an annual tax, not one that is just paid when the property is sold.
Pension reform was mentioned in the Statement, but no new details were announced. Whilst our clients must certainly be made aware of the impending change I would certainly be reluctant to encourage them to take action now which relies on those changes taking place in the way we expect. Many of us still have memories of the big u-turn on residential property investment by SSAS and SIPP schemes. Even if there is no u-turn on the concept itself (which I agree is most unlikely), we should bear in mind there may be a few hidden “nasties” which could make “pension freedom” seem far less attractive than when it was originally announced.
From April 2015 it will no longer be necessary for an employer to report a trivial benefit under £50. This is not an invitation, though, to give regular annual benefits just under £50 to all staff tax free. The key word here is “trivial”. Check here what HMRC means by trivial:
The only real difference is that an employer will no longer have to ask permission from HMRC to treat a benefit as trivial.
From April 2016 the concept for benefit purposes of a “lower paid” employee will disappear.
Tax benefits, and savings limits, will now pass to the spouse on death through an additional NISA allowance. This should make a NISA even more advantageous, although we should bear in mind it is still subject to Inheritance Tax.
The £600 increase in the personal allowance will apply this time to all taxpayers, not just those at basic rate and lower. A 40% taxpayer will therefore get an additional £240 tax benefit. Not a large sum, but perhaps clients should be reminded this means they can increase their regular investments by £20 a month without this making a blind bit of difference to their disposable income.
If you have clients using the remittance basis, you should be aware that the tax charge they pay for this privilege will increase quite steeply if they remain in the UK for long. The charge will increase from £50,000 to £60,000 for those who have been in the UK for 12 out of 14 years and for those who have been here for 17 out of 20 years it will increase to £90,000.
Anyone using aggressive tax schemes to reduce or eliminate Corporation Tax should check that their scheme is not impacted by the new Diverted Profits Tax. This is aimed at big multinational companies taking advantage of cross border transactions, but could also apply to some of the more aggressive schemes used by smaller companies. Diverted Profits Tax will be introduced in April 2015 and will be 25%. We do not have much in the way of detail about how “diverted profits” will be defined. What we do know is that this will be a “deemed profit” rather than an adjustment to the actual taxable profit, and therefore the taxpayer will be unable to use the argument that tax law does not allow profits to be taxed in the UK if they are taxed elsewhere under a double tax treaty.
An announcement was made that the government intends to prevent the use of so-called “hybrid mismatches” by multinational companies. An example of a “hybrid mismatch” is where a company can make a payment to an associated company in another country and claim a tax deduction for the payment, but the receipt in the other country does not result in tax being paid. The rules preventing this are quite a long way off though. The legislation will be introduced in 2017, and in the meantime there will be an extensive consultation by HMRC and the Treasury with all interested parties.
Some reports are confusing the two concepts, but you should note they are quite different as is the timing of the relevant anti-avoidance legislation.
Capital Gains Tax
Entrepreneurs Relief from CGT on goodwill is to be removed where a sole trader or partner transfers their business into a company they own. The acquiring company will also not be able to obtain Corporation Tax relief on such a purchase.
When you defer a gain into an Enterprise Investment Scheme or a Social Investment Tax Relief Scheme any Entrepreneurs Relief attached to the gain is lost. This has discouraged many of our clients from using such investments in their tax planning. The announcement that Entrepreneurs Relief will no longer be lost in these circumstances is therefore greatly welcome.
Small Business Rate Relief is now extended to April 2016.
Not much of a song and dance was made of this, and perhaps for the very good reason that local authorities are not too keen on your clients obtaining this relief – which is only available if you claim it.
The reality is that many smaller and even medium sized businesses throughout the country which are entitled to the relief are not claiming it simply because they do not realize it applies to them.
Many of our clients will have properties that have too high a rateable value for them to claim the relief, but some will not. Also, they may well not be aware that they should still pay lower business rates if they are a small business and the rateable value of their property is below £18,000 (or £25,500 in Greater London). Check out further details here: