Autumn Statement 2015 – summary of Private Client measures
25 November 2015
The 2015 Autumn Statement, delivered on 25 November, was relatively restrained, particularly considering the number of tax-related consultations currently being considered by Government, but it still contained a number of new measures of potential interest to private clients.
Deeds of variation
Deeds of variation can be a useful tool when assets pass between generations. Where an individual inherits assets, they may execute a deed of variation within two years of the death, passing some or all of the inherited assets to a different recipient. Provided certain requirements are met, inheritance tax and potentially capital gains tax will then apply as though the will had left the assets to the new beneficiary.
Although deeds of this sort are often used for sensible planning reasons and to avoid potential double tax charges, the Government announced earlier this year that they were concerned about their use. The Government has now confirmed that they will not be making any changes to the tax effect of deeds of variation for the time being, although they did say that they will continue to monitor them.
The Government confirmed that it will introduce new rules, backdated to apply to deaths since 6 April 2011, to avoid any inheritance tax charges where an individual had designated pension funds for drawdown but had not drawn all the funds by the time of their death. This is a welcome change that will enable individuals to pass more of their unused pensions to their chosen beneficiaries.
Stamp Duty Land Tax
Higher rates on additional properties
The Government is introducing a higher rate for Stamp Duty Land Tax ("SDLT") which will be charged on purchases of additional residential properties (worth over £40,000), such as buy to let properties and second homes. These new rates will take effect from 1 April 2016 and will be charged at 3% above the current SDLT rates.
For example, for a second home purchased for £1 million, the current SDLT liability would be £43,750. After 1 April 2016, the liability will be £70,000 – an increase of £26,250.
There will be exceptions for caravans, mobile homes or houseboats, corporates and funds making significant investments in residential property (thus supporting the Government's housing agenda).
The Government intends to consult on the policy detail, including whether exemptions for corporates and funds owning more than 15 residential properties is appropriate.
According to the statement, the Government will use some of the additional tax collected to provide £60 million for communities in England where the impact of second homes is particularly acute.
Time limits for payment and filing
Purchasers of property currently have 30 days from the date of transfer to self-assess if any tax is due, send HMRC a completed land transaction return and, where necessary, make payment of their SDLT liability. The Government will consult in 2016 on changes to this process with the intention to reduce the filing period from 30 days to 14 days in the 2017-2018. Failure to meet this deadline will carries a penalty that can range from £100 to the total value of the SDLT owing.
Capital Gains Tax
The deadline to pay Capital Gains Tax on the disposal of residential property is currently between 10 and 22 months after the disposal is made. The Government has commented that this is felt to be out of step with the position for other taxpayers, such as those paying income tax through the Pay As You Earn (PAYE) system. To redress this imbalance the deadline will be shorted considerably and, from April 2019, capital gains tax on the disposal of residential properties will have to be paid within 30 days of the completion of the disposal.
Extracting value from companies
Value coming out of a company can be taxed as income or capital depending on how it is extracted, with very different tax implications. The current transactions in securities rules have been in place for a long time, and the Government has announced that a consultation is to take place to amend them and to introduce a Targeted Anti-Avoidance Rule against avoidance in this area. This is already a difficult area in which it is usual to seek tax clearances in advance: whether the consultation and any changes make this any simpler, remains to be seen.
Relaxation of Entrepreneur's Relief limitations
Under this year's Finance Act, rules were brought in withdrawing entrepreneurs' relief in respect of shares in a company which itself holds shares in a trading joint venture company or carries on a trading business in partnership with others. It has been announced that the new rules will be amended to ensure that the restriction will be targeted mainly at "contrived structures" rather than on "genuine commercial transactions".
General anti-abuse rule
The general anti-abuse rule ("GAAR"), introduced in 2013, is aimed at preventing particularly abusive tax-avoidance schemes. The Government is strengthening the GAAR with the announcement of a new penalty of 60% of the tax due that will be charged in all cases caught by the GAAR and a change to the procedure to improve the GAAR's ability to tackle marketed avoidance schemes. Given that the GAAR is less than clear about what is and is not caught, imposing such a large penalty could be very harsh in some circumstances.
New civil and criminal offences
There will be new criminal offences for tax evasion and for companies for failing to prevent tax evasion. Additionally there will be new civil penalties for deliberate offshore tax evasion and for those who enable offshore tax evasion. There will also be an additional requirement to correct past offshore tax non-compliance.