Tax changes in today's Autumn Statement

Today's Autumn Statement included some key tax changes. We list below some of the main changes that may be of interest to our site members.

New SDLT provisions

The whole basis for charging SDLT will be changed from midnight tonight. Under the current "Slab" system if you're even a £1 over the relevant tax band you're fully taxed at that rate.

Under the new rules which apply from midnight tonight each tax rate (and there are new ones) will apply only to the particular slice of the selling price to which they apply, not the whole value of the property.

The new rates are:

- No tax on the first £125,000

- 2% on the portion up to £250,000

- 5% up to £925,000

- 10% up to £1.5 million

- 12% on everything above that

For most people this will mean a significant cut in SDLT on the purchase of residential property.

In fact if you plough through the numbers the breakeven point with the old rates is £937,500. So if the property is costing less than this you'll be better off. If it's more than this you'll be worse off.

New RBC for non doms

Under the current rules, UK residents who are also non UK domiciled and who want to claim the remittance basis have to pay either a £30,000 or £50,000 tax charge depending on how long they've been UK resident.

The benefit of paying this is that their foreign unremitted income and gains aren't subject to UK tax.

The current rates are:

UK resident for 7 out of the last 9 years = £30,000 Remittance Basis Charge

UK resident for 12 out of the last 14 years = £50,000 Remittance Basis Charge

They will increase this to:

UK resident for 7 out of the last 9 years = £30,000 Remittance Basis Charge

UK resident for 12 out of the last 14 years = £60,000 Remittance Basis Charge

UK resident for 17 out of the last 20 years = £90,000 Remittance Basis Charge

The new tax charge for individuals who have been UK resident for >17 years ties in with the deemed domicile rules for Inheritance tax purposes. After 17 years of UK residence a non dom would also be deemed to be a UK domiciliary for UK IHT purposes. Therefore there will be a potential "double whammy".

They will also consult on making the election apply for a minimum of 3 years so non doms can't swap and change from year to year. This would make it a lot less attractive, particularly for non doms looking to avoid CGT on one off capital gains by claiming the remittance basis.

ATED increase

Special rules apply to residential properties that are held in a company. Aside from a CGT charge (and increased SDLT charge), there is also an annual tax charge (ATED).

The annual charges on the ATED will increase by 50% above inflation for residential properties worth more than £2million from 1 April 2015.

So from 1 April 2015, the ATED rates will be:

More than £2 million but less than £5 million = £23,350

More than £5 million but less than £10 million = £54,450

More than £10 million but less than £20 million = £109,050

More than £20 million = £218,200

These increases further reduce the potential tax advantages (of mainly non doms) who want to own high value properties via a corporate envelope).

Incorporation

Under the current rules, one of the tax strategies on incorporation of a sole trader business is to sell goodwill to the newly formed company and crystallise a gain at 10% using Entrepreneurs Relief. The proceeds can be left outstanding and extracted free of tax in the future. This then avoids the higher rates of income tax.

Under new rules HMRC will prevent individuals from claiming ER on disposals of 'goodwill' when they transfer the business to a related close company.

Diverted profits tax

This is one of the big headline grabbing proposals but there is very little detail as to how it will work.

Currently they says that

"...A new tax to counter the use of aggressive tax planning techniques by multinational enterprises to divert profits from the UK will be introduced. The Diverted Profits Tax will be applied using a rate of 25% from 1 April 2015.

For example, if a company generates strong sales in the UK, but can avoid paying corporation tax by moving profits generated in the UK to other countries through the manipulation of the international tax rules, the UK will now be able to tax those profits at a rate of 25 per cent..."

It will apply to both UK and foreign multinational companies.

It looks to attack planning such as:

Using the Double Irish Structure

Transferable ISA allowance to spouse on death

If an ISA saver in a marriage (or civil partnership) dies, their spouse/civil partner will inherit their ISA tax advantages.

From 6 April 2015, surviving spouses will be able to invest as much into their own ISA as their spouse used to have, on top of their usual allowance

Single settlement nil-rate band: Update

Following consultation launched after Budget 2014, the government will not introduce a single settlement nil-rate band.

You can see more on these proposals at Single settlement nil-rate band/

Instead they will introduce rules to target avoidance through the use of multiple trusts. They will also simplify the calculation of trust rules.

Personal allowance for non-residents

Over the summer HMRC launched a consultation on whether or not to restrict the Income Tax personal allowance for non-residents.

Following this it looks as though its been put on hold, or at least on the backburner.

They have said:

"...Whilst the government believes there is a strong rationale for doing this, it recognises it is a complex change for both employers and individuals who may be affected. The government will continue to discuss implementation of this change with stakeholders. Should the government decide to proceed, a more detailed consultation will be undertaken. No change will come into effect before April 2017..."

You can see how the personal allowance applies for non-residents in our tax calculator:

Personal allowance for non residents calculator