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  1. Wealth
March 21, 2012

Budget 2012 Expert Reaction

By Spear's

Click here to read expert reaction throughout the afternoon from London’s top lawyers and accountants

Read expert reaction throughout the afternoon from London’s top lawyers and accountants

Highlights/lowlights: 7% stamp duty on £2m houses, 45p rate from 50p, General Anti-Avoidance Rule to be introduced.

Read the details of the 2012 Budget as it happened here

Philip Eddell, Head of Savills Country House Consultancy commented on the Budget announcement that zero rate of VAT for listed building alterations will be removed. Work involved in carrying out ‘approved alterations’ to listed buildings has previously been zero-rated by VAT-registered contractors, providing the work has been granted listed building consent and is neither a repair or maintenance.

“It is a big deal for owners of listed buildings, as most will be privately owned; reconstruction costs and materials tend to be more expensive, therefore restoration and improvement has always been proportionately more expensive. At worst it will make listed buildings requiring extensive repair and improvement less attractive for private owners, which will ultimately affect capital values.

“Repairs on listed buildings have always been subject to full rate VAT, but there was often a point that in some cases the extent of repair was so great that it constituted improvement, and was therefore subject to the lower rate of VAT.”

Stephen Lewin, Bircham Dyson Bell on enveloping of high value residential properties:

“There has been much speculation about a mansion tax, and what has come through is rather intriguing. The focus has been narrowed down to the use of corporate vehicles, particularly those based offshore, to hold valuable UK real estate.
The Stamp Duty Land Tax (SDLT) charge on residential properties over £2m, purchased by certain ‘non-natural persons’ is brought in with immediate effect – this will certainly cause any purchaser of this value residential property to pause before using a corporate vehicle.
Use of a company would still, it seems, provide cover against an Inheritance Tax (IHT) charge but not Capital Gains Tax(CGT) on resale. If the proposed annual tax on £2m+ property is added in, one wonders if this will change the view of overseas buyers about the cost of buying in the London market, it may certainly have a detrimental effect on property values.
The government is to consult about the annual and re-sale charges so the detail of the new proposals remains to be seen.”

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Louise Somerset, Tax Director at RBC Wealth Management, comments on today’s Budget announcement:

Stamp duty land tax (SDLT)

“The Government’s move to block stamp duty land tax avoidance schemes was expected and had been on the cards for a while. This has been an ongoing battle between HMRC and SDLT planning specialists and we have probably not heard the last of changes in this area.

“Avoiding SDLT by buying shares in a company rather than purchasing property directly has for a long time been a very simple way to save up to 5% tax. The imposition of a 15% charge for properties worth more than £2m being transferred into a “corporate envelope” is likely to stop this at a stroke.   What will worry many families who already legitimately hold domestic property through a company is the suggestion of the imposition of a large annual charge on such structures.”

SDLT increase

“Stamp duty land tax is a cheap and easy way for the Government to collect tax, because payment is linked into the process of registering the change in ownership. The increase in the SDLT rate from 5% to 7% for £2m properties should not cost much for the Government to implement and will be easy to police.

“SDLT is a voluntary tax in the sense that it is only paid by people choosing to buy more expensive properties. It is also a low key tax – buyers factor it into the price they are willing to pay for a property, and there are no ongoing payments required. By fixing the entry level at £2m the Chancellor has excluded a large number of family homes in and around London, which should minimise the pain for the middle classes.

“All of this makes it very attractive for the Government to raise SDLT rates at the top end of the market, but it remains to be seen how much extra revenue will be received as a result.”

50% tax rate

“Despite the pre-Budget lobbying and the informal briefings given over the weekend about the withdrawal of the 50% tax rate, the economic rationale for a reduction in the rate to 45% rather than its outright removal is far from clear. However, this was always largely going to be a political decision rather than an economic one. The HMRC estimate of £100m a year cost of reducing the tax rate from 50% to 45% suggests that the cost of a further 5% reduction to 40% would not be big enough to make a real difference to the Treasury, so the Chancellor’s decision is the result of balancing different messages.

“Cutting the tax rate says that the UK wants to encourage business and is not afraid to be seen as favouring the wealthy.  Keeping a higher rate for income above £150k emphasises the idea that “we’re all in it together” and provides a defence against accusations of cronyism. The Chancellor has obviously decided that a 45% rate strikes the right balance between these competing interests, but the risk is that he will not satisfy people on either side of the argument.

“It has been argued that delaying the reduction in the 50% tax rate will have little impact because top rate tax payers will simply defer income until 2013. This is certainly true for individuals who run their own businesses, who can control their cashflows. For other employees, deferring income is much more difficult in practice, not least because most employees do not want to rely on the good will of their employer to pay them large amounts on a voluntary basis at a later date.

“Before the introduction of the 50% tax rate taxpayers arranged to pay themselves an estimated £16 billion in one-off income payments to avoid the higher rate. It is unlikely that taxpayers will defer the receipt of similar amounts to benefit from the new 45% rate.”

General anti-avoidance rule (GAAR)

“While we welcome the introduction of a general anti-avoidance rule (GAAR), we will need to look very carefully at its terms. Most tax payers should have nothing to fear from a GAAR, but by its nature this type of legislation will be widely drafted and there need to be strong checks in place to stop it being abused by HMRC.”

CGT on UK residential property held through “corporate envelopes”

“The decision to tax UK capital gains made by non resident companies on the sale of UK residential property represents a big shift in the principles of UK taxation. On one level it seems logical that anyone making a profit on the sale of a UK asset should pay UK tax. However, the potential knock-on consequences could be huge. How many foreign investors will be put off from buying UK residential property now that they face a 28% tax charge?

“We will need to wait and see exactly how this proposal is to be implemented, but advisers will be concerned that this could be the beginning of an unwelcome attack on the acquisition of UK assets by foreign residents. It is to be hoped that the plans are very limited in their application.”

Capping Tax Reliefs

The proposal to limit the availability of certain tax reliefs for losses and investments to a maximum of 25% of total income does not appear unreasonable. It represents a balance between encouraging investment in the UK with maintaining the Government’s tax base. It is to be hoped that this does not introduce further unnecessary complexity into working out the tax position of individual investors.

Seed Enterprise Investment Scheme (SEIS)

“The terms of the SEIS are very attractive but it is difficult to see many investors taking advantage of them. The relatively low investment limit and the fact that investors need to be hands-off mean that finding suitable investors, other than family and friends, may be difficult. Unless the scope of the relief is significantly widened, it is hard to see how the scheme will increase genuine third-party investment in start-up businesses.”

Enterprise Investment Scheme (EIS)

“The extension of the EIS investment limit is very welcome. Our clients are increasingly turning to investments with Government-approved tax relief, such as the EIS, to improve investment returns while interest rates remain so low. It is to be hoped that the ability to invest more money in a wider range of companies under the scheme will encourage greater investor interest.”

Andrew Haigh, Executive Director, Entrepreneurs at Coutts:

“This government seems to understand small to medium businesses. We all know that the chancellor has limited room for manoeuvre but his budget had a good focus on the issues that the UK‘s entrepreneurs are talking about. He has tried to take supportive action on a number of fronts either through kick starting more infrastructure projects, expanding sources of finance, developing enterprise zones and development to supporting key growth sectors such as the creative industries. 

“He is listening as evidenced by the consultation on changing the basis of small companies taxation to cut real red tape and the funding of young entrepreneurs as an alternative to university, both ideas that have been much flagged. Let’s hope he hasn’t lost sight of the “big one” namely giving more SME’s access to public procurement programmes which could be the most significant boost to the sector.

“As important as the attraction of foreign investment is, building and refocusing the UK’s export performance is just as critical for both short and longer-term growth in the UK economy. The chancellor has set an ambitious target, the hard work will now be to put measures in place to help deliver that.”

David Scott, Managing Partner, Vestra Wealth:

“Vestra Wealth is pleased with the reduction in corporation tax and higher rate tax. It welcomes any moves to clarify tax planning issues. It supports measures to make the system fairer to all taxpayers. We wait to see what the proposed general anti-avoidance legislation will bring.

“There needs to be very full consultation with the legal and accountancy profession to ensure that non-aggressive tax planning is not unwittingly caught. Any moves that can bring more certainty to tax planning are more beneficial than retrospective legislation. This should reduce the need for tinkering with the tax system which allows people to plan for their future in a clear manner.”

Knight Frank’s initial thoughts on the UK’s new stamp duty regime:

After a long  period of speculation, we now have the detail on the Government’s new approach to property taxation. The Chancellor has announced several changes to Stamp Duty Land Tax:

   1. The introduction of a new SDLT rate of 7% for residential properties over £2 million, this applies from 22 March 2012
   2. Additionally for residential properties over £2 million purchased by “non-natural persons”, such as companies, a new SDLT rate of 15% will apply from 21 March 2012
   3. The Government will consult on the introduction of an annual charge on residential properties valued at over £2 million owned by “non-natural persons” with the intention of legislating in the 2013 Finance Bill for commencement in April 2013
   4. An extension of the capital gains tax regime to gains on the disposal of UK residential property by non-resident, non-natural persons, such as companies, commencing from April 2013

So in short the Government are saying if you buy expensive residential properties as individuals rather than a company you will pay 7% rather than 15% SDLT and avoid a future annual charge.

Impact on the market

Liam Baily, Head of Knight Frank Residential Research, comments: “Our view is that the prime market, especially in London, will be able to absorb a new stamp duty rate at 7%, with domestic and especially international demand for prime London property is likely to remain strong.

“The most obvious question is whether prices above £2m will fall in response to the new rate? There has to be an element of price adjustment, and we would expect tough negotiations around the £2m level. It is important to bear in mind that on average prime London prices have risen by 42% in price since 2009, with no pause in the increase in values since the introduction of the 5% £1m+ SDLT rate in April 2011. It seems unlikely therefore that the new 7% rate will result in dramatic price changes.

“There is a bigger question around the tripling of the stamp duty paid by “non-natural persons” on the purchase of properties, which has jumped from 5% to 15%. The objective is obviously to ensure that wealthy purchasers are not tempted to use off-shore companies or similar structures, which are difficult for the UK authorities to track over time. However whereas tax may in some cases be the reason for the adoption of these structures, for many wealthy buyers it is privacy which is the main benefit from using this ownership route.

“It seems likely that the 15% rate and the threat of an annual charge on the value of properties held may dissuade some buyers for opting for this purchase route, and for some purchasers this will undermine the attractiveness of the UK as a home for their investment capital. However it is far too early to try to quantify the potential impact in terms of numbers of purchasers.

“Aside from pricing, the evidence from previous stamp duty hikes is that rising stamp duty rates tend to mean owners stay in their properties for longer. There is a greater incentive to improve and extend properties rather than moving properties. The impact of this process is to reduce supply and reduce transaction volumes over time.

“Finally stamp duty is such a blunt tax that changes to rates tend to have unintended consequences. One trend to watch will be the potential for the prime country house market to benefit from the new 7% rate. Wealthy London buyers looking to move on to a family house might decide to move out of London, reasoning that a few thousand pounds in commuting costs is worthwhile, if for example it allows them to buy a house at £1.9m in the country rather than a similarly sized London property for £2.2m, and saving themselves £59,000 in stamp duty in the process.”

Chris Groves, partner in the wealth planning team at international law firm Withers said:

“Charities may well come to regard the 2012 Budget as a significant attack on their funding. The introduction of the cap on income tax reliefs to 25% of an individual’s income effectively reinstates that cap. This measure will particularly affect large donations made by philanthropists, who may have donated amounts significantly in excess of their annual income and will now see the tax relief and incentive for giving reduced.

“This measure and the rules to be introduced that will reduce the rate of inheritance tax for estates leaving 10% to charity may together have the effect of encouraging delaying giving until death, creating a significant funding gap for charities.

“The Budget contains a glimmer of hope in the Government’s stated commitment today to explore with philanthropists ways to ensure that this cap will not have a significant impact on charities; we can only hope that this will result in greater incentives for lifetime giving to be introduced sooner rather than later.”

Commenting on today’s Budget Speech, Tim Gregory, a partner in the private wealth group at top 20 accountants Saffery Champness highlights the following points:


“Most of the tax measures that were announced in the Budget were trailed well before it started, so it was something of a surprise that the speech lasted all of 58 minutes. The Chancellor was keen to point out that he was seeking to reward those who worked, and ensure that the wealthy pay more tax and the poor pay less. The Chancellor said there would be no deficit-funded giveaways and, given the recent warnings from international credit ratings agencies, he will have been conscious of the need to show constraint: he said that his Budget was fiscally neutral over a 5-year period.”

Top tax rate reduction

“The reduction of the highest rate of income tax from 50% to 45% from 2013/14 will clearly be welcome news for those who are currently paying this tax. However, the news that the 50% tax raised only £1 billion (just a third of what was forecast), against all the missed opportunities for investment that the rate led to, has shown that a higher tax rate is clearly not good for the nation as well as being disliked by the wealthy.

“The cut to a more modest 45% is forecast to cost only £100 million. This highlights the fact that there simply are not enough very wealthy people for the tax rate they pay to have a substantial impact on the nation’s finances: we all have to bear the cost of the economic recovery. This cut is likely to lead to some immediate-term tax planning.”

Tax-efficient investment: video games, animation and TV production

“There is to be new tax relief available for investment in television production, video games and animation, based on the tax relief currently afforded to film tax schemes. This will be welcome news for people who wish to make tax-efficient investments. However, the Chancellor also announced a new cap on tax relief for investment, in that relief over £50,000 in any one tax year would be limited to a 25% rate. Exactly how this will work remains to be seen, but it could serve as a severe limiting factor on investment in UK business.”

Stamp Duty Land Tax

“The clampdown on Stamp Duty Land Tax (SDLT) avoidance schemes was widely expected, and a rate of 15% for homes bought within a corporate ownership should be enough to close most of the existing schemes. It seems likely that the greater impact though will be an increase in the rate of SDLT from 5% to 7% on homes worth more than £2 million. However, with such a substantial amount levied on the purchase of a home affected by the new rate (at least £140,000), there is bound to be more interest in seeking ways to avoid this tax.”

Personal allowance

“The increase in the personal allowance will take many more people out of paying tax altogether. Still aiming for a £10,000 allowance, the Chancellor announced that the figure of £8,105 for 2012/13 would be increased to £9,205 in 2013/14. Higher rate taxpayers will also benefit from this, though people with income of more than £100,000 will still see the personal allowance tapered away as at present.”


“Whilst the confirmation that there would be no changes to the tax system for pension contributions is great news for an area that has seen nothing but upheaval for several years, there were two announcements in relation to pensioners. First, the age-related personal allowance, by which pensioners benefit from a higher tax-free allowance, will be scrapped from April next year for those who have not reached age 65 by then.

“For those who are already 65, it will be frozen until full abolition when the standard personal allowance matches it. This will put pensioners on the same footing as other taxpayers in this respect. The other aspect is that it was proposed for consultation that the State pension age be revised periodically so as to be in line with life expectancy. This is likely to lead most people having to work longer before retirement.”


“The main corporation tax rate is to reduce from the planned 25% to 24% in 2012/13, and then still to reduce annually, to get to 22% in 2014/15. This will be encouraging for those who own shares in larger companies, and should attract further commercial investment in the UK.

“Finally, the proposed General Anti-Avoidance Rule is to be consulted on… watch this space.”

Charles Hutton, Partner in the Private Client Team at law firm Speechly Bircham LLP, comments on Government plans to raise stamp duty for non-UK residents:

“Although parts of this announcement were expected, the scale of the tax increase is surprising – the 15% rate is triple the current top stamp duty rate and more than double the new top rate announced only today.

“Anybody who has an offshore structure owning UK residential property, or non-UK residents thinking of acquiring UK property, will have to review the implications of the announcements in today’s Budget very carefully. The details are limited, however, it does appear that the use of offshore companies to own UK residential properties will be severely curtailed by the immediate stamp duty rise and, from April 2013, by changes to Capital Gains Tax and a possible annual tax charge. It is possible that timely action may reduce the effect of these swingeing proposals.

“It is difficult to predict the future impact of this rise as we have yet to see how wide-ranging the new charges will be. In the long term we are likely to see a large increase in non-UK residents owning their properties direct.”

Sophie Dworetzsky, partner in the wealth planning team at international law firm Withers said:

“An almost radical Budget which still had a few surprises despite being quite ‘leaky’ in advance. We see the promised crackdown on Stamp Duty Land Tax Avoidance, with a real twist in the tail – where UK property is bought through an offshore company, SDLT will apply at 15% if the property is worth £2m or more.

“Coupled with the announcement that capital gains tax will apply to properties held in ‘overseas envelopes’, does this indeed mark a new basis for taxing foreign holders of UK properties. At the very least, significant and speedy restructuring of offshore property holding structures will be needed.

“We were told it would be a Robin Hood budget. If so, it is prettily presented. The 50% rate falls to 45% as of April 2013, on the basis that HMRC and the OBR both apparently concur that only £1bn (if that) has been raised, rather than the £3bn estimated when the increased rate was brought in. The income tax rate drop is to be matched with increases in SDLT to 7% for properties over £2m, and a radical clamp down on avoidance. The interesting question is whether the headline reduction mitigates talk of retrospective legislation where SDLT planning is concerned

“The UK is to have a General Anti Avoidance Rule (‘GAAR’). Although details are hazy and the rule will not be introduced until next year, when combined with talk of retrospective legislation to block Stamp Duty planning, it marks a rather seismic shift in the approach to tax planning, with taxpayers and advisers needing to be very alert to the risk of planning being unwound after the event.”

James Johnston of Bircham Dyson Bell on a General Anti-Avoidance Rule:

“The Chancellor has committed to introduce a General Anti-Avoidance Rule (GAAR). However, to my mind a GAAR would create more issues than it resolves.
“A broadly worded anti-avoidance provision would make it difficult for professionals to advise their clients on the effect of entering into any transaction. For genuine commercial transactions, a client needs to know whether or not they will fall within the rule. There therefore needs to be a proper clearance procedure, but the government has indicated that it would be too expensive to implement a separate procedure for the GAAR – the implementation of such a rule without a clearance procedure will cause major problems.
“Furthermore, one would have thought that the compulsory tax disclosure procedures have gone quite a long way to address the issue of aggressive tax avoidance schemes already. The Revenue has been very successful in gathering information about tax schemes and it is difficult to see why they have concluded that a GAAR procedure is needed on top of this.”

On the 50p tax rate:

“As widely predicted, the Chancellor has reduced the rate from 50p to 45p. This is certainly a compromise position, although with the rate not due to come in to force until April 2013, it probably meets the conflicting demands on the Chancellor.”

Bart Peerless, Head of the Private Wealth Sector at Law Firm Charles Russell on changes to stamp duty on top properties:

“The devil will clearly be in the detail of the tax changes affecting property, but the implication seems to be that to avoid these new penal rates of tax (and the new capital gains tax charge) international purchasers should own properties personally and not through other entities such as offshore companies. For such individuals the main reason for holding through a non-UK company was usually Inheritance Tax mitigation – if that risk now has to be managed in other (more costly) ways it may well affect sentiment towards the London property market.”

Glen Atchison and David Scott, partners at Harbottle & Lewis

“The Budget followed the pattern of recent years so, depending on your point of view, a considerable part of it was either well trailed or a little leaky. It was also a classic case of giving with one hand and taking with the other. The changes aimed at making the UK a more attractive jurisdiction for business are good news.

“Further reductions to the headline rate of corporation tax, the reduction of the highest rate of income tax from 50% to 45% in 2013, the expansion of the existing film tax credit to big budget TV shows and the games industry and significantly increasing the limit on the value of shares that an individual can hold under EMI options together with the extension of entrepreneurs relief to EMI options are all welcomed as incentives to business in the UK.
“However, the Chancellor also made his widely anticipated attack on SDLT avoidance. Although we knew that changes would be made to SDLT, the details have come as a shock to many. The combined effect of increasing the rate to 7% for residential property over £2m along with the application of SDLT on residential properties bought by offshore companies above £2m at the rate of 15% and CGT charges being introduced on property held in overseas “envelopes” used to avoid stamp duty will receive a mixed reception.

“These changes could deter some individuals from coming to the UK or investing in UK property. However, SDLT avoidance in relation to high-value residential purchases has become a political issue in recent years and the Chancellor was very keen to be seen to be acting; perceived abuses of SDLT will come under ever-closer scrutiny and SDLT mitigation will become more difficult to achieve effectively.”

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