Chancellor's Autumn Statement - unwrapping the detail
Donald Drysdale selects some topics of interest from Chancellor George Osborne's 2015 Autumn Statement.
With the consumer prices index increasing by less than 1% a year, while average UK house prices rise by about 5%, the Chancellor decided to use his Spending Review and Autumn Statement to boost the supply of affordable housing in both rented and owner-occupied sectors.
The UK Government is to invest heavily in what it describes as the biggest house building programme by any government since the 1970s. This will include starter homes, sold at 20% off market value to young first time buyers; a new ‘help-to-buy shared ownership’ scheme with many of the previous restrictions on shared ownership removed; and an extension of the ‘right to buy’ to tenants of certain housing associations. This extra support for housing has been described by some as quantitative easing by another name.
New tax measures also aim to release existing buy-to-let properties for owner occupation. Wednesday’s Autumn Statement has been described as a double whammy for buy-to-let landlords – with increased Stamp Duty Land Tax (SDLT) and a tighter deadline for paying Capital Gains Tax (CGT). But of course it’s worse than that, because the same landlords are still reeling from the Summer Budget, which announced sweeping new restrictions on mortgage interest relief while also changing the rules for tax relief on replacement furnishings.
The extra 3% SDLT will apply from 1 April, 2016 to buy-to-let properties and second homes costing over £40,000 – well below the current SDLT starting threshold of £125,000. Companies and funds may be exempted from the extra charge if they own 16 or more residential properties. SDLT doesn’t apply in Scotland, but it would be surprising if the Scottish Government didn’t impose a similar surcharge on Land and Buildings Transaction Tax (LBTT).
Anyone currently invested in buy-to-let properties, and those advising them, should already be looking very closely at the impact of the restriction of interest relief to basic rate income tax, being phased in from April 2017; this can quickly turn profitable letting concerns into loss-makers, especially where gearing is high. Now potential purchasers of buy-to-let properties or second homes also need to study the latest changes, with draft Finance Bill 2016 clauses expected to be published on 9 December.
From April 2019 any CGT due on disposals of residential property will have to be paid within 30 days (instead of up to 21 months) after completion – though this won’t of course apply to main residences exempt from CGT. The swifter payment regime will improve the government’s cash flow. It will also impose onerous new compliance pressures on taxpayers, although we’re told that this will be manageable as a result of HMRC’s planned transformation.
Access to HMRC
As part of a digital revolution across Whitehall, HMRC is to transform itself to become one of the most digitally advanced tax administrations in the world – with every individual and every small business able to manage their tax online through their own digital tax account by 2020.
This is a noble if not ambitious aspiration for an organisation which admitted only this month that it fails to answer 24% of incoming phone calls – and has claimed this as an improvement on earlier levels. However, its plan to close 137 local offices over 12 years and replace them with 13 regional centres is daunting, and it might be realistic to anticipate several years of increased disruption to what might be expected as ‘normal service’ before any benefits become apparent.
Tax agents, on whom the success of the government’s tax collection process heavily depends, need priority access to fully trained specialists at HMRC. Taxpayers themselves need a simple, manageable tax regime, supported by ready access to HMRC when things go wrong. Vulnerable taxpayers and those with poor or non-existent internet access need an alternative to digital tax accounts, and a paper alternative ought to be retained for them. It’s unclear whether any of these needs will be met by HMRC in its new guise.
From April 2018, Northern Ireland is to fix its own rate of corporation tax, which is likely to be set initially at 12.5% to compete on equal terms with the rate in the Republic of Ireland. This devolved rate will apply to trading income only, with other sources of income remaining chargeable at the main UK rate.
In most cases the new 12.5% rate will apply to all trading profits of a small or medium-sized company if its employee time and costs fall largely in Northern Ireland. Larger companies will need to differentiate their Northern Ireland trading profits or losses from other (‘mainstream’) trading profits or losses, using internationally recognised transfer pricing principles where appropriate. Special rules will provide for cases where a large company makes a mainstream profit combined with a Northern Ireland loss, or a mainstream loss combined with a Northern Ireland profit. Thus the devolution of corporation tax to Northern Ireland will bring added compliance burdens for many companies operating across the UK.
It has been recognised that the devolution of further powers to the Scottish Parliament under the current Scotland Bill, incorporating the Smith Commission proposals, needs to be underpinned by an agreed fiscal framework, and the Chancellor announced that Westminster is ready now to reach an agreement. The Holyrood administration, for its part, has indicated that it won’t endorse the framework unless it is ‘fair’ to Scotland.
Devolution of income tax powers to the Welsh Assembly was to have been conditional on the result of a referendum in Wales; it has now been announced that it can happen without a referendum. Consequential technical changes to the definition of a Scottish taxpayer for the purposes of the Scottish rate of income tax are to come into effect if and when the devolved income tax powers are implemented in Wales.
Steps towards even wider devolution are planned, and the Chancellor noted that in recent weeks Sheffield, Liverpool, the Tees Valley, the North East and the West Midlands have joined Greater Manchester in agreeing to create elected mayors in return for powers over transport, skills and the local economy. We can only speculate that this move towards decentralising government may lead to greater devolution of tax powers – and perhaps greater tax compliance burdens.
Article supplied by Taxing Words Ltd.