Opinion
James Hender 23 Nov 2017 12:52pm

What the Budget means for private wealth

In the run-up to Budget day, chancellor Philip Hammond was urged by his party to deliver a headline-grabbing statement. However, while the announcements on Stamp Duty and Electric Vehicles will play well in the press, others may potentially be just as, if not more, impactful for individual taxpayers and their advisers.

Property shake-up

 

This Budget was billed as being an opportunity for the government to fix what has been called Britain’s broken housing market, and the chancellor’s abolition of Stamp Duty Land Tax (SDLT) for first-time buyers spending up to £300,000 will be welcomed by many. However, there have been concerns raised recently that this is not addressing the key stumbling block in the market – with a cut to SDLT for downsizers potentially more likely to grease the transactional wheel. Furthermore, there is the inevitable risk that sellers will be tempted to negotiate harder on price with first-time-buyers if they know that the purchaser is not paying SDLT.

There was also a significant shake-up for non-UK resident property owners. A far-reaching change, which was not mentioned by the chancellor in his speech in the Commons, will extend the taxation of disposals of UK property by non-UK residents to all gains on the disposal of interests in UK land and buildings. At present the tax charge on non-residents is restricted to residential property only, but this is set to be rolled out to commercial assets too.

Whilst Budget day only sees the launch of a consultation process, the path ahead is clearly mapped out. The new rules are set to come into effect from April 2019 and will apply for both capital gains tax and corporation tax purposes.

Whilst the foreign ownership of residential property has been a matter of some controversy, especially in the London property market, this is a significant – and completely unexpected – change. Only time will tell what impact it will have on the appetite for foreign investment in UK real estate, particularly in the commercial space where international wealth and finance is a key source of the sectors continued health and vitality.

Savings and investments

Many predicted that pensions would be in the chancellor’s firing line, but both they and ISAs emerged unscathed. ISA savers have enjoyed large hikes in the amounts that they could salt away each year into a tax-free savings environment. Over recent years, the annual increases in ISA allowances have tended to coincide with reductions in the amounts that could go into a pension, and this speaks to the broader indication that the government is nudging people down the path of having more diversified (and tax-efficient from HMRC’s perspective) retirement portfolios.

Meanwhile, much of Hammond’s narrative was centred on the UK as a key centre of innovation and dynamic new businesses – and he rightly observed that tax reliefs such as EIS and SEIS play a highly valuable role in this part of the economy. These reliefs were mooted as potentially in line for cuts to fund spending elsewhere. However, while the rules on asset backed businesses are tightening, he is lifting the EIS threshold for investing in knowledge rich companies. Questions will of course be asked regarding whether this restriction of EIS to high risk companies will make it less attractive to investors – which could have a deleterious impact for entrepreneurs and SMEs.

Alongside this, hidden deep in the Budget Red Book was a promise by the chancellor to make the taxation of trusts simpler, fairer and more transparent. Any relaxation of the tax rules is to be welcomed, but it shouldn’t be forgotten that complex new regulations have piled disclosure burdens on trustees and they are currently reeling from the additional work that the government has recently given them.

There was also a slight change to the Marriage Allowance - the ability for basic rate or non-tax paying spouses or civil partners to transfer up to 10% of their unused personal allowance to their partner. Take up of this has historically been low, largely because most of those affected are not professionally advised, but the relief is now being extended to situations where the one of the parties has died before the claim was made and can be backdated for up to 4 years.

 

Tax planning for a changing economy

Much has already been done to address the issue of tax transparency, but Hammond announced further measures that are forecast to raise £4.8 billion between now and 2022-23.

For many years, professionals who design tax avoidance schemes have had to tell HMRC the details before they sell them to the public. Similar rules are to be looked at for offshore structures that are used by some to enable offshore evasion. With all the information that is now flowing in to HMRC from offshore jurisdictions, this is another nail in the coffin of the murky world of hidden illegitimate fortunes – already close to being six-feet under, with the government bringing a range of new tools and powers (such as APNs) to close to tax gap.

When HMRC does hear about offshore money that should have been taxed, it can go back 20 years where the taxpayer has been deliberately keeping the tax authorities in the dark. It is currently limited to going back six years for innocent errors, however but the chancellor announced this will be extended to 12 years, allowing additional tax (and lots more interest) to be collected.

Meanwhile, as had been announced over the Summer that the commencement of the Making Tax Digital (MTD) changes will not come into force until April 2019. At that point it will only apply to VAT and to those businesses above the VAT threshold (to be kept at £85,000). We are now promised that the earliest date for the roll out of the remainder of MTD will not be before April 2020 and even then only if the initial implementation has been shown to work well.

Whilst a pause to ensure a controlled introduction of such a fundamental change is welcome, the direction of travel and the ultimate destination of a fully digital system are now very clear.

This Budget was prefaced with warnings on productivity and growth, with the chancellor revealing that the much-vaunted headroom so carefully cultivated for public spending had shrunk to £14.8bn. This inevitably limited the scope and scale of investment, (particularly given the £3bn Brexit piggy-bank) but at least a few surprises and tax curve-balls mean that Hammond may well have fulfilled the brief given to him to grab some headlines.

James Hender is a partner and head of the private wealth group at Saffery Champness

Topics