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  1. Wealth
December 3, 2012

Withers: What the Autumn Statement May Hold for the Wealthy

By Spear's

Debate around potential fiscal measures we might see is heating up by the day, with proposals from mansion tax to a clampdown on corporate tax avoidance just two issues discussed in the headlines

On 5 December 2012, the Chancellor will deliver his Autumn Statement for 2012. Debate around potential fiscal measures we might see is heating up by the day, with proposals from mansion tax to a clampdown on corporate tax avoidance just two issues discussed in the headlines. Below, Christopher Groves and Sophie Dworetzsky, partners in the wealth planning team at international law firm Withers considers what the likely and less likely reforms might be.

Mansion tax: a non-starter

Christopher Groves comments:

“The idea of a mansion tax keeps making headlines but to add a mansion tax to the UK property market at this point would be insanity. Quite apart from the potential consequences for activity in a market that faces real uncertainty already, a mansion tax would be extremely difficult to implement on a practical level.

“It would require a wide scale revaluation of all properties to work and it would be difficult to have an arbitrary cut off of, say, the properties in the top two bands of Council Tax. If there is a revaluation of some or all properties, then it would be illogical not to apply that to Council Tax as well and there is an existing Government commitment not to revalue for Council Tax this Parliament.

“Even if the Government decided it should implement this measure, the earliest it could apply would be April 2014. That is without valuations being done, which couldn’t be started until it was law and could take at least two years to complete, so realistically it would be 2016 before it would raise any revenue at all.

“That would mean that it would not allow for a current tax cut and in 2016 there will be a General Election. We don’t know who will be elected, but the key Liberal Democrat supporters of mansion tax may have far less influence.”

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Clampdown on anti-avoidance

Sophie Dworetzsky says:

“A crackdown on tax avoidance has been widely trailed in the media but new measures would seem rather pointless as we already have a GAAR – the General Anti-Abuse Rule – on the cards. What we need most at this stage is clarification on how the GAAR will operate and, crucially, how it will interact with existing anti-avoidance legislation. There is already a broad range of anti-avoidance provisions in the UK tax code – are they to be phased out and, if so when?

“The real challenge for the Government should be not to introduce more new rules on avoidance but to ensure the GAAR has taxpayer confidence and works effectively. Clear and comprehensive guidance will undoubtedly be helpful, so it is regrettable that the Government has proposed that this should be prepared by HMRC alone and not supported the proposal by Graham Aaronson QC for an Advisory Panel that would produce guidance, independently from taxpayers and HRMC.

“On balance though the hope is that the GAAR will boost the UK’s attractiveness and provide greater certainty in future so individuals and businesses can know what planning is and is not acceptable. To make this happen clear guidance is vital, alongside clarification of exempt and acceptable planning.

“Naming and shaming’ of tax avoiders has been discussed by HMRC previously and we may see a high-profile revelation or even a consistent ‘naming and shaming’ programme.”

Restrictions on pension contributions

Comments Christopher Groves:

“Removing higher rate tax relief on pensions altogether is unlikely as it would be a disincentive for all higher rate payers to contribute to their pension – effectively, they would be taxed on money they don’t receive. It is more likely that there would be a further reduction in the annual cap on contributions.”

Statutory residence test – more needed to preserve Britain’s tax competitiveness

Sophie Dworetzsky continues:

“The coalition has considered some very interesting measures from a policy perspective to attract talent and enterprise into the UK through tax advantages but there can be no real success without certainty on residence rules. The introduction of the statutory residence test is very much to be welcomed, and we look forward to seeing the final draft of the legislation so we can advise with clarity and certainty, most especially those seeking to become UK resident.

“This is especially so given that the UK is still attractive compared to the rest of Europe from a tax perspective. However, French, Greek or Spanish wealth creators cannot consider the UK a real safe haven to live, work and invest in unless there is real transparency and predictability in the tax system. It would be really good to see alignment in the investor visa rules and the expanded remittance rules (which allow investment in some UK businesses tax efficiently) to make the UK even more attractive.“

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