Autumn Statement 2017. Main points
Yesterday the Chancellor unveiled his budget, the first since the election and the penultimate one prior to Brexit, while Brexit was obviously in his thoughts and in one announcement the thin majority of the Conservative party led to the budget being fairly bland with no big surprises and no controversial measures in the headlines.
From a UK income tax perspective, the allowances and rate bands were increased as expected with the personal allowance rising from £11,500 in the current year to £11,850 next year. The level at which higher rate tax starts has risen from £33,500 to £34,500.
Capital gains tax is facing a significant change as it is proposed that from 5th April 2019 capital gains tax will apply to all UK property. The tax has been charged on residential property owned by residents since 2015 and this change will bring the UK into line with many other major economies. The actual rules have not been announced as there will be a period of consultation, but anybody non UK tax resident holding UK commercial property which is pregnant with gains should keep a close eye on proceedings as some restructuring may be required. When the tax was introduced for residential property it was only on gains arising after the date it was introduced, there is no guarantee that that will be the case this time, although it is the most likely outcome. This move will no doubt make UK commercial property a less attractive option going forwards. This is important as the market in the UK is heavily dominated by offshore investors. However institutional investors such as pension schemes will still be exempt.
The annual capital gains tax allowance has been increased from £11,300 to £11,700. The limits for Entrepreneurs relief are unchanged as are the rates of tax. The nil rate band for Inheritance tax is unchanged but the Residential nil rate band has increased from £100,000 to £125,000 as previously announced.
There are changes to stamp duty for first time buyers, effective immediately the rate of 0% will be charged on the first £300,000 of the value of properties up to a value of £500,000 for first time buyers. The rates for properties over £500,00 and the other rates remain unchanged.
Also in respect of residential property the budget will allow councils to charge a surcharge of 100% of the council tax due on empty property, this will affect many second home owners. Sometimes the discount may be applied depending on the property location.
The headline rates of Corporation tax remain unchanged, however there is a major change in the way gains are calculated in that Indexation allowance has been frozen. The allowance gave relief for the element of the gain which was attributable to inflation meaning that only the real gains were taxed. From January 2018 the relief is frozen so that from that date inflationary gains will also be charged to tax as well as real gains. This change will also affect many buy to let investors who hold their portfolio’s in limited companies.
Business rates have also been revised, as the increases build into the system will now be calculated by reference to the consumer prices index rather than RPI, this is an advantage as the consumer index is lower. This move was planned but has been brought forward by two years. The estimated saving for each business as a result of the measure is 1% of their rates bill. Another rates change is the abolition of the staircase tax, where a company occupying two floors of a building was taxed as having two premises thus denying it the relief it would have had if it had only occupied one property. Many firms faced significant bills back dated to April 2015, these will now be written off. A further change to the rates system is revaluations will occur every three years rather than every five years as now.
There has been a major concern and public outcry recently about tech firms such as Amazon, Facebook and Google who along with many others have been shifting profits overseas by charging significant royalties from companies registered in tax havens. There is already a withholding tax charged on such payments. For the future there is to be a consultation on how UK sales can be taxed in the UK, even if the company does not have a presence here The consultation will be into the method by which such taxes can be charged and the rate at which they should be charged. It was also announced that sites such as Amazon and e-bay will become liable for any VAT owed by third party retailers on their sites.
The good news in the budget is that duties on most alcohol and fuel have not been increased as feared and have been frozen, there was an increase in vehicle excise duty on new diesel cars, which sends out mixed messages to the public about such cars, but the change does not apply to Van’s.
Overall a pretty neutral budget as one may expect, but how is received will play out over the next few weeks.