03 Dec Autumn Statement 2014 ‘On course for prosperity’
With politicians now firmly in the run up to the May 2015 election, George Osborne’s last Autumn Statement before that election had a welcome surprise for home owners, as well as further measures for savers. However there were several more technical amendments which may also affect landowners.
Stamp Duty changes
Stamp Duty Land Tax (SDLT) has hisorically been payable on a ‘slab’ basis, with the same rate of tax payable on all the purchase cost once a threshold is exceeded and this continues to be the case for commercial property.
From 4 December 2014 residential SDLT rates will be progressive with new rates as follows:
£0 – £125,000 0%
£125,001 – £250,000 2%
£250,001 – £925,000 5%
£925,001 – £1,500,000 10%
Over £1,500,000 12%
For example, under the new rules the SDLT due on the purchase of a residential property for £450,000 which completes on or after 4 December 2014 would be calculated as follows:
0% on the first £125,000 = £0
2% on the next £125,000 = £2,500
5% on the final £200,000 = £10,000
Total SDLT due = £12,500
The SDLT previously would be £450,000 x 3% = £13,500.
This change will not affect purchases of commercial property, including farms which have residential properties. There may be cases in the future where it might be beneficial to have a separate contract for the residential property, but HMRC will introduce anti-avoidance legislation to ignore the paperwork and “link”the transactions for SDLT purposes.
Income and capital gains within ISAs are tax-free, but this tax-free status is lost when the investor dies. This will change from 3 December 2014 for ISAs passing to the surviving spouse (including a civil partner), with the surviving spouse inheriting the tax-free income and capital gain benefits, although the ISA will still be liable to Inheritance Tax if not passed to the surviving spouse.
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, and so will be better able to secure their financial future and enjoy the tax advantages they previously shared.
The treatment of the pension pot on the death of a pensioner had been taxed at 55%, but the Chancellor announced at the Conservative Party Conference in September the following:
- On the death of an individual, aged under 75,currently in drawdown or who has not yet started to take a pension, the fund can pass to beneficiaries tax free as a lump sum.
- On the death of an individual, aged over 75, regardless of whether the individual was in drawdown or not, the beneficiaries can either:
- drawdown themselves from the fund, which will be taxed at their marginal tax rate
- take it as a lump sum. which will be taxed at a flat 45% tax rate, from 2016/17, the 45% will be replaced by their marginal tax rate
The draft legislation to introduce these changes should be published on 10 December and the Chancellor is likely to announce further modifications to allay the fears that pensioners will exhaust their pension pot and then rely on the state.
In addition, from April 2015, the beneficiaries of individuals who die under the age of 75 with a joint life or guaranteed term annuity will be able to receive any future payments from such policies tax free,provided that no payments have been made to the beneficiary before 6 April 2015. The tax rules will also be changed to allow joint life annuities to be passed on to any beneficiary.
Capital Gains Tax – Entrepreneurs’ Relief
There are technical changes to Entrepreneurs’ Relief for Capital Gains Tax purposes from 3 December 2014 dealing with goodwill and reinvestment into Enterprise Investment Scheme (EIS) and Social Investment Tax Relief (SITR).
Annual Tax on Enveloped Dwellings (ATED)
The government will increase the annual charges of the ATED by 50% above inflation for residential properties worth more than £2 million for the chargeable period 1 April 2015 to 31 March 2016.
This tax charge can affect farming companies and farming partnerships which have a company as a partner where there is residential property. Although letting relief and farmhouse relief can remove the payment of a tax charge, there is a requirement to submit returns claiming the reliefs and the value of residential properties subject to the ATED charge reduces to £1 million from April 2015 and £500,000 from April 2016.
Trust Inheritance Tax changes
A third consultation document was issued in June announcing changes to the way that Inheritance Tax trust charges are calculated and setting out proposals for the treatment of the nil-rate band where the settlor (person creating the trust) makes a number of trusts.
It has now been announced that, a single settlement nil-rate band will not be introduced, but new rules to target avoidance through the use of multiple trusts will be introduced instead. As previously announced, the calculation of trust tax charges rules will also be simplified in the Finance Bill 2015.
When will the announcements be enacted?
The General Election will be held in May 2015 and the Finance Bill is likely to be published towards the end of March 2015 following the Budget earlier that month. The clauses in the Bill which are uncontentious are likely to be enacted before Parliament is dissolved prior to the General Election. There will then be a further one, or possibly two, Finance Bills/Acts in 2015 to bring in the other provisions of the Coalition, or the new Government. There were three Finance Acts in 2010 in equivalent circumstances.
If you have any queries, please contact your usual consultant or Caroline Lovibond on 01865 261100 ([email protected])