We speak to a selection of experts to find out their views on this year’s Autumn Statement, and determine what it means for you
Coutts on the Autumn Statement
CGT on UK residential property – a disincentive to investors:
The CGT on future gains made by non-residents selling UK property could act as a disincentive for some potential investors in UK residential property, although it’s unlikely to trigger a rush of sales by existing owners.
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A further CGT proposal looks to halve from 36 to 18 months the final ownership period which attracts relief on the sale of a property that has at one time been the owner’s main private residence.
Anti-avoidance; could potentially be significant:
The aim to raise £9 billion over five years suggests that new tax anti-avoidance measures, while not unexpected, could potentially be significant. The hope is that these measures won’t cause ‘collateral damage’ to reasonable, non-aggressive tax planning.
Another delay on IHT nil-rate band: more people brought into the IHT net:
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Despite the Chancellor announcing over six years ago that the IHT nil-rate band would rise to £1million under a Conservative government, he remained silent on this pledge. An ongoing freeze of the £325,000 band (while understandable with the current economic backdrop) continues to bring more people into the IHT net. It’s best to consider IHT planning earlier, to get your house in order sooner, but balanced against retaining enough to meet your personal requirements to fund the cost of living in old age.
Tax allowance for married couples: could a more universal tax break not have been given to the lower paid?
Although not a surprise, the big announcement regarding personal allowances was the introduction of a transferable allowance for married couples and civil partners. We remain mildly cynical about the real impact this will have and wonder whether a more universal tax break could not have been given to the lower paid.
Pensions: possible restriction on the tax-free amount that can be withdrawn from pension schemes:
The Chancellor extended the age at which people can in future draw their state pensions, although the lack of any radical changes will be welcome. Speculation prior to today had suggested a possible restriction on the tax-free amount that can be withdrawn from pension schemes. No movement on this should retain public confidence in private pensions as a way of providing for the future.
Withers on Capital Gains Tax
Having considered the Chancellor’s speech this morning, Sophie Dworetzsky and Chris Groves of Withers’ tax team have the following comments on the implementation of a capital gains tax charge for non-residents:
‘As expected, today’s budget hit non-residents but, in a sign of awareness that measures with immediate effect send the wrong message, the Chancellor has promised that capital gains tax won’t apply to property sales by non-residents between now and 2015. After that, the game changes.
‘This will be an interesting test of how much non-resident investors are in UK property for the long term, or whether we see a flurry of sales in the next 12 months. Equally, this gives a good window for alternative holding structures to be explored.’
Boodle Hatfield on Capital Gains Tax
As widely trailed, the Government has today announced that capital gains tax will be extended to overseas investors who dispose of UK residential property. The changes announced will not, however, be effective until April 2015 following a period of consultation which is to begin in early 2014.
Very little detail of the changes has been announced in the Autumn Statement documentation, but overseas investors will at least be relieved to learn that it is only gains arising after April 2015 that will be subject to the tax. The period of consultation also gives investors a period of 16 months in which to consider their options.
The full effect of today’s announcement is not yet clear and the lack of information provided by the Government leaves many questions as yet unanswered. Foremost among these is whether the tax will be extended to all non-residents including companies or whether it will be limited to non-resident individuals.
The announcement sees the UK fall into line with many other jurisdictions which tax property gains on residents and non-residents alike. It does, however, constitute a further move away from the UK’s historic approach of limiting capital gains tax liabilities to UK residents, a process that began with the changes earlier this year that imposed capital gains tax on companies (both resident and non-resident) which disposed of high value residential property.
It is yet to be seen whether the announcement will affect the behaviour of non-resident investors, who choose to invest in the UK for more than tax reasons alone.
Lombard Odier on Capital Gains Tax
David Bell, Senior Wealth Planner, Lombard Odier, London:
‘An interesting announcement from the Autumn Statement was the change to UK residential property taxation. From April 2015, a capital gains tax charge will be introduced on future gains made by non-residents selling UK residential property. A consultation on how best to introduce this will be published in early 2014.
‘This change brings the UK into line with other countries that tax capital gains on residential property, regardless of where the owner lives. The impact will be limited for residents of higher-tax economies, who’ll be credited (under double tax treaties) for any UK capital gains tax paid.
‘The biggest impact will be felt by those in low-tax economies who own homes directly, which they occupy for less than six months a year (ie they are non-resident).
The impact on London property prices of the change on this group of buyers will be offset by a number of factors:
‘I) Increasingly wealthy individuals are choosing to become UK resident.
‘II) For privacy reasons many non UK residents from low-tax economies own properties through companies. Capital gains generated on UK homes worth more than £2 million, owned through a company, have been taxable since April 2013.
‘III) The tax charge is only payable when a gain is made on sale. It’s therefore easier for individuals to manage than a wealth tax on their non-revenue producing home.
‘IV) If the base value is set at 2015 levels, existing owners will only pay tax on future gains.’
Saffery Champness on the Autumn Statement
Ronnie Ludwig, partner in the Private Wealth Group, on CGT for foreign residents who own UK property:
‘Residents in most of Europe, and certain other countries such as the USA, currently have to pay taxes equivalent to CGT in their countries on any second homes sales in the UK. Under the new proposals confirmed today, they may also now end up with a bill from the UK taxman. However, thanks to the double-taxation agreements already in force, they would not have to pay the same tranche of tax again at home.
‘By contrast, those resident in lower tax jurisdictions than the UK, for example in the Gulf states, currently do not pay anything on gains accrued through the sale of UK second homes. This tax will be a real cost to them.
‘Although it may represent a valuable ‘land grab’ of tax revenue from wealthy foreign property owners, today’s announcement could have significant effects on the UK’s attractiveness as a destination for property investment from a number of emerging economies.
Read more on the Autumn Statement 2013 from Spear’s
‘The potential knock-on effects of these changes cannot be ignored, as many foreigners who invest in prime London property also make beneficial investments in UK businesses and other assets. We may find, as a result of today’s announcement, that they start to look elsewhere.’
On the new proposal of accelerated tax payment in avoidance cases:
‘Somewhat controversially, the Revenue has been able to withhold reliefs for those who using schemes that are ruled illegal while appeals are still in progress. In today’s climate it is a logical step to now demand payment of tax upfront. For those affected, it would be as if they had never used the scheme in the first place. This will make tax avoidance schemes even less attractive than they were before.’
On new proposed measures against tax evasion and avoidance:
‘Until we see the actual details of how these new measures to tackle tax avoidance and evasion will work in practice, it is difficult to believe that the government will recover £9bn. The reality is that there is a limited amount that one country can do, without an internationally co-ordinated effort.’
‘The reality is that it is extremely time-consuming and expensive for HMRC to investigate offshore structures. When the taxman gets a sniff, assets can be switched from one jurisdiction to another at almost a moment’s notice. However, it is somewhat encouraging that the Chancellor has announced that HMRC’s budget will be ring fenced in the next round of departmental spending cuts. He is putting his money where his mouth is, to a small extent.’
James Hender, partner in the Private Wealth Group, on the proposed change to dual contracts for non-doms:
‘For many years non-domiciled individuals have been able to structure their employment contracts to ensure that only pay relating to UK duties is taxable here. New rules to prevent the ‘artificial’ division of duties between the UK and overseas are to be welcomed if they give greater certainty to bona fide arrangements. However, we will have to wait to see what additional administrative burdens the rules bring on employers at a time when the government is trying to simplify the tax system.
Nesta on tax relief on social investment
Joe Ludlow, investment director at Nesta Impact Investments:
‘I welcome the introduction of this tax relief on social investment. It is something that Nesta has advocated for many years, and our report ‘Investing for the Good of Society’ showed what a significant factor this will be to attract individual investors to the social investment market.’
Berwin Leighton Paisner on Capital Gains Tax
Commenting on today’s Autumn Statement announcement on Capital Gains Tax, Damien Bloom a partner with international law firm Berwin Leighton Paisner said:
‘The changes to the capital gains tax regime impose CGT on residential property held by non-UK resident individuals, but only from April 2015 and only on future growth. This will be perceived as an appropriate leveling of the playing field compared to UK resident individuals, and it not out of step with other major economies.
However, these reforms ought to have been considered as part of last year’s extensive consultation on the taxation of UK property held by non-resident entities. In order to prevent any further undermining of the stability of the UK tax regime for international individuals, it would be helpful if the Government could confirm whether there will be any further changes to the taxation of residential property for the remainder of the current parliament.’
Berwin Leighton Paisner on ‘unnecessary uncertainty’
Commenting on the anti-avoidance package, Neal Todd, a partner in the tax team at international law firm Berwin Leighton Paisner said:
‘Ensuring individuals and multi-national corporations pay the right amount of tax is a laudable objective but the latest announcements beg the question of why additional reform is needed. We already have the General Anti-Abuse Rule in place which was intended precisely to act as a catch-all framework to ensure the spirit as well as the letter of UK tax legislation is obeyed.
‘Imposing the most wide-ranging anti-avoidance package in this Parliament on top of the GAAR and so soon after the GAAR was implemented will lead to unnecessary uncertainty about the interplay between various sets of anti-avoidance provisions. It can only further lengthen the UK tax code.’
London Central Portfolio on Capital Gains Tax
The implementation of CGT on foreign investors has been an elephant in the room for quite a while. It represents an easy hit and will have popular appeal amongst the electorate who seem to have been revved up by our politicians to be both anti-wealth and anti-foreigner.
The exemption of CGT for foreign owners has unarguably represented an inequality with domestic buyers. The flip side of this exemption, however, is that it is a tax incentive, which attracts foreign investors into the UK and represents a competitive edge over other global capitals.
It appears the Government cannot agree on the value which they set on foreign investment. On the one hand they push to make London the international capital of the world, but on the other they consider strategies which will turn foreign investors away and make it a less attractive place to do business in.
CGT, which is a tax on profit, is unlikely to be a deterrent to investment on its own. However, the cumulative effect of successive taxes introduced in 2011, 2012 and 2013, with regular increases in Stamp Duty and an annual tax on corporate owners, could start to dampen international interest.
The announcement that CGT will not be implemented until April 2015 means the Government have given themselves breathing space. However, the lack of clarify on how values will be rebased will likely cause uncertainty in the market.
If the Government intend to rebase property values from 2015, then LCP predict that CGT will have no dramatic effect on the property market. However, should values not be rebased, this may orchestrate a flood of non-resident owned properties to come to market, as they take their profit before being taxed on it.
There is a positive flip-side, however. For London especially, where around 70% of properties are foreign owned, this could represent a buying opportunity not witnessed since the house price crash of the credit crunch. As property sales flood the market, prices will undoubtedly fall slightly due to increased stock. Once this tax is psychologically absorbed, these buyers will benefit from the price cuts and future price appreciation as patterns return to normal.
Finally, there is one further point which needs clarity from the Government. It was stated by Osborne that the tax will be brought in on non-residents, but not non-residents and non-domiciles. This indicates the tax is aimed at British Expatriates. No other British citizens pay CGT on their main residence, as it is only applicable to second homes, this heavily questions the fairness of the tax.
