24 Nov 2016 03:53pm

What the Autumn Statement means for private wealth

The chancellor kept his cards fairly close to his chest in the run-up to the Autumn Statement and, following his first appearance at the despatch box, it became clear why. He was, on the whole, shorthanded

Caption: No rabbits from the hat, but the Spring Statement is a surprising March Hare

Despite the loud comments from the opposition benches, it was well known that Hammond had already scrapped plans for a budget surplus by 2020. Following the shock of Brexit and the uncertainty brought to businesses, investors and savers, an Autumn Statement which was focussed almost entirely on economic growth was to be expected. However, this chancellor is as cash-strapped as his predecessor and a spending splurge was never really on the cards.

Given Theresa May’s announcement to match Donald Trump’s pledge to reduce US corporate rates to 15%, many were expecting provisions to reduce corporation tax rates further. However, the chancellor stuck with his pledge to not follow George Osborne’s lead. On the whole, though, there will be a sigh of relief at the reiterated commitment to bring rates down to 17% as planned, and to make the UK more competitive across Europe and the world.

Ensuring that National Insurance thresholds are the same for employees and employers will also remove unnecessary complications for businesses. However, the additional employer cost of up to £7 per employee per year will not be welcomed at a time of increased payroll costs, such as the Living Wage and the apprenticeship levy.

The overall commitment to innovation, infrastructure, and research and development is of course welcome and it remains to be seen whether the proposed investment will be backed up by any additional tax reliefs which, as the film and TV industry has demonstrated, can be a key stimulus. Of course, reliefs can also be the target for cuts and crackdowns.

Clamping down on the inappropriate use of reliefs was inevitable, but the chancellor, and HMRC, will have to be careful not to hit innocent people. Likewise, professional costs may well go up as businesses seek to ensure that they do not fall foul of the rules – including over offsetting profits and remuneration-based tax planning mechanisms.

Salary sacrifice will likewise be addressed, with the tax advantages of some schemes being removed from April 2017 (though plenty of arrangements, including childcare and cycle-to-work, remain unaffected) and the government will consult on measures regarding benefits in kind and business expenses.

It wouldn’t be an Autumn Statement without at least one surprising rabbit from a hat

While proudly stating that the UK has one of the lowest tax gaps in the world, the chancellor claimed that this crackdown on avoidance would generate a further £2bn to plug the gap further. This is significant change in tune from George Osborne’s day and a demonstration of how effective the recent rules clamping down on tax avoidance have been.

On the other hand, £2bn is really only a drop in the £36bn tax avoidance ocean and only addresses one of the behaviours which contribute to the gap. For instance, "failure to take adequate care" is responsible for a far larger proportion of the tax gap than avoidance and the hidden economy accounts for over £6bn of the tax gap. These issues are, arguably, more in need of significant attention than avoidance – for which the government now has a plethora of tools and systems at its disposal.

While businesses may, on the whole (business rates aside) be pleased with the stability offered by the Chancellor, many individuals will likely be left a little underwhelmed from a tax perspective.

Although there is a commitment to raise the personal allowance to £12,500 and the basic rate band to £50,000 by 2020, there is still little information as to how and when the increases are going to take place except that they will move to £11,500 and £45,000 in 2017.

This impacts on working families and does not provide the level of relief hoped for by those dragged unexpectedly into the higher rate tax band. We also wait for information on how this is to be funded. Historically such moves have been facilitated by moving the thresholds for the higher tax rate.

There was also little in the way of guidance for non-doms. The chancellor confirmed that new rules for non-doms and their offshore structures will come into force from 2017 and we wait draft rules at the start of December. Advisers who set up offshore structures for clients will now have to let the taxman know what they are up to.

It wouldn’t be an Autumn Statement without at least one surprising rabbit from a hat and it was with a final flourish that the chancellor produced his own March Hare in the form of a Spring Statement. Many will be hoping that this will also bring an end to the tax tinkering that two fiscal events inevitably brings.

James Hender, head of private wealth at Saffery Champness


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