Autumn Statement: Expert Reaction and Analysis - Spear's Magazine

Autumn Statement: Expert Reaction and Analysis

We will be bringing you expert reaction to George Osborne's Autumn Statement today from top lawyers and accountants who will analyse what it means for the wealthy

We will be bringing you expert reaction to George Osborne's Autumn Statement today from top lawyers and accountants who will analyse what it means for the wealthy

Read our Autumn Statement 2012 liveblog here

Lawyers from Withers

Sophie Dworetzsky: “In an autumn statement containing the widely expected note of continuing austerity, a few points stood out, most notably a reduction in allowable pension contributions and taking the tax avoidance fight offshore. There were very few, if any, surprises this afternoon, and while no one can argue with the contention that everyone should pay their fair share, as the Chancellor no doubt knows, he walks a tightrope in combining fairness with retaining the UK’s continuing attraction as a place to live and do business.”

Tackling avoidance – will investment equal returns?
Sarah Cormack: “Clearly much rests on the recently concluded agreement with Switzerland, due to come into force on 1 January 2013, which effectively allows recovery of tax on previously undeclared funds and imposes a withholding tax going forwards. This agreement alone is forecast to raise over £5bn over the next six years. However, what that forecast is based on remains highly unclear.

“The other main prong of the anti avoidance offensive announced is further investment in HMRC, to the sum of £77m, to give it further strength and depth in tackling tax avoidance. It is stated that this will secure additional revenues of £22bn a year, or 70% increase up from 2010-11. While this may sound very impressive, again it is far from clear that this prediction is much more than that.

“We are familiar with large numbers being casually thrown around in the context of tax avoidance, and it remains to be seen whether investment will equal expected return in this case.

“While clearly tax obligations must be complied with, it will be vital to ensure that HMRC does not alienate taxpayers through unnecessary investigations. This is all the more the case as the UK seeks to position itself as an attractive place to live and do business.”

No mansion tax
Christopher Groves: “To the consternation of Nick Clegg, the Chancellor confirmed that he has no plans to introduce any new property taxes, so no mansion tax or higher council tax bands. However the proposed tax changes for non-natural owners of high value residential property will go ahead, but more details will be available when the draft Finance Bill 2013 is published next week.”

Henry Moss, senior associate in the private client practice of Wedlake Bell

Despite no nasty surprises lurking around the twists and turns of the Chancellor’s Autumn Statement, it is certainly not likely to be a joyride for wealthy taxpayers in the near future.

The cuts to pension tax relief, with the reduction of the lifetime allowance from £1.5 million to £1.25 million and in the annual allowance from £50,000 to £30,000, may encourage people into other investments, such as property, once reliefs have been exhausted.

Elsewhere, any enthusiasm at announcements of increases in the allowances and thresholds for income tax (higher rate threshold up from £41,450 next year to £41,865 and then £42,285 in the following two years); capital gains tax (annual exempt amount up to £11,100); and inheritance tax (nil rate band up to £329,000 in 2015-16) was tempered by the fact that those 1% increases will not keep pace with inflation.

Fairness was a watchword for this Autumn Statement and this was exemplified by the confirmation that the introduction of the General Anti-Abuse Rule (GAAR) remains on track for 2013. Further guidance on this, together with draft legislation, is set to be published later this month. The announcement is coupled with the news that HMRC's war effort on tax evasion and avoidance schemes is to be bolstered by increased funding and manpower.

The introduction of GAAR and the focus on the roles of offshore tax havens is inevitable and will be politically popular, appeasing those who have been stunned by the revelations about the low tax bills of large international corporates. However, successful results have not been widely forthcoming in other jurisdictions with similar GAAR provisions, so it remains to be seen how effective our legislation will be.

As expected, it was confirmed that mansion tax measures will not be brought in and there continues to be a freeze on council tax rates, so wealthy home-owners can breathe a sigh of relief for the time being. However this should not be confused with the annual charge that is still expected to be introduced on corporate ownership of high value UK residential property next year. There was no further announcement in relation to this latter charge, nor to the planned extension of the capital gains tax (CGT) rules in the same field. We therefore await the publication of the draft legislation, in a few days time, to see if and how the government plans to introduce a tax measure (in the context of CGT) that is fraught with operational complexity.

It would be remiss not to mention the main positive news, which came in the announcement that corporation tax rates will continue to fall, to 21% from April 2014, a measure designed to attract investment in the UK.

Glen Atchison, Head of Tax and Private Client, Harbottle & Lewis

There were few new measures and policies, but rather the Chancellor took the opportunity to voice his support for a now growing trend towards more aggressive enforcement against what the Government perceives to be ‘tax dodgers’. The language used by the Treasury seems to increasingly indicate a new policy of treating both those evading tax, and those using “aggressive” tax avoidance schemes, as one and the same, namely “tax dodgers”.

As a result, it seems that the historical parlance of ‘legal’ tax avoidance and illegal tax evasion will need to be re-framed, with tax avoidance being split into two sub-categories: legitimate tax planning, which will still be viewed as legal (even if tax is avoided), and aggressive tax avoidance, which will not.

For advisors, the days of being able to explain to clients about the clear line between tax avoidance and tax evasion are gone, and instead we all need to enter into more complicated explanations about what is legitimate tax planning and what is not. In the absence of clear guidance on where the new boundaries are, this may prove to be a difficult task.

Dominic O’Connell, executive director, head of Tax Trust & Estate Planning at Coutts

“Autumn statements usually lack the punch and relevance of a spring budget, but not this year. The UK economy’s stubborn refusal to grow has knocked the Chancellor’s borrowing targets off kilter and forced an extension of austerity measures. This ‘mini-budget’ also announced an unusually high number of controversial and high-profile measures, most notably….

Top-earner pensions penalised
Although the changes announced today were significant, it was at least a silver lining that the changes will not come in to effect for at least another year. However, we are disappointed to see that both the pension’s lifetime allowance reduced from £1.5m to £1.25m and the annual allowance will reduce to £40,000 from £50,000. Although the Chancellor stressed that this would only affect a small percentage of people its impact could be significant for many of the wealthy.

Osborne targets tax dodgers
George Osborne has sought in previous budgets to crack down on tax-avoidance, but robust comments in the Autumn Statement, and the restated commitment to a General Anti-Abuse Rule, underscores the Government’s thinking on this topic.

The fine dividing line between what is deemed acceptable and unacceptable tax planning was once reserved for the legal and accountancy world. This is no longer the case – a number of high profile schemes over recent months have catapulted the issue of tax to centre stage in the public’s agenda.

Income tax relief cap threatens entrepreneurship
The proposed cap on income tax relief was one of the more controversial measures from the last budget. Following consultations over the summer, the Government made a U-turn and confirmed the cap would no longer apply to charitable giving, although most other aspects of the proposals are likely to come into effect from 6 April 2013.

We remain very concerned about the impact of the cap on entrepreneurship. For example, as the proposals currently stand tax deductions for loan interest and ‘early’ trade losses associated with certain, often embryonic, trading businesses could be severely restricted. Effectively the Government is capping its own incentive mechanism when it is arguably needed most.

Impact on entrants to the UK
Of positive note, we expect the proposed pension changes to have very limited or no impact on wealthy people coming to the UK, with these changes being outweighed by the wider economic and social attractions for wealthy inpats.

Top-rate cut encourages income deferral
Top-rate taxpayers are likely to defer income, where possible, to the next tax year to exploit the reconfirmed cut in the top rate of income tax from 50% to 45% from April. However, time is running out to effectively plan for this. With capital gains tax remaining at 28%, investing for capital, as opposed to income, returns could prove more attractive.

‘Mansion Tax’
The debate over whether a ‘mansion tax’ should be charged on high value residential properties is an extremely contentious and emotive issue both in and outside of the Government. Property owners and buyers have only just been hit by an increase in SDLT for properties valued over £2m and so the introduction of an annual ‘mansion tax’ could have proved hard to bear. Not only would this measure have been extremely unpopular with many high net worth individuals, it could also have been considered unfair for the typically more elderly population living in certain property ‘hot spots’, who may have benefitted ‘on paper’ from the rise in house prices while they themselves are very income-poor.

Personal allowances
As expected the Chancellor reaffirmed the coalition’s aim of raising the personal allowance to £10,000 and most will be pleased that the previously announced increase for April 2013 has been enhanced.”

Lucy Brennan and Ronnie Ludwig of Saffery Champness offer their views

Inheritance Tax
Lucy Brennan comments: “The increase in the inheritance tax threshold is more a PR stunt than anything else. It sounds like a nice gesture, but in reality will take little off taxpayers’ final bill.
     
“Furthermore, inheritance tax still risks trapping lots of people without huge amounts of wealth, including thousands of property owners in areas of the country such as the south and London  where house prices rose dramatically in the property boom and have not fallen by such a degree since 2008.”
   
Pensions
Lucy Brennan says: “The Chancellor is actually being very fair in this announcement. He clearly recognises that a clampdown on the wealthy will drive them out of the country and reduces the overall tax take. This is demonstrated in the pension changes where he has moderated the reduction in relief and kept in place what is still a pretty big incentive for future-saving. Pension-saving taxpayers are still getting a good deal here with the tax relief they can benefit on.”
  
Income tax
Lucy Brennan says: “The changes here will have more impact than the changes relating to inheritance tax. The increase in the upper rate threshold means that taxpayers will be gaining something tangible – they will have more cash in their pocket.
   
“It is also clear that the Chancellor is aligning this particular alteration more with growth targets than inflation.”
   
GAAR
Ronnie Ludwig  says: “This is a truly tricky piece of legislation, as catching ‘abusive’ or ‘aggressive’ acts of tax avoidance will first require defining them, which is no easy task. The wording used in the GAAR is crucial as one pen stroke here or there really could be the difference between a flexible and effective tool against tax dodgers and a draconian clampdown on almost any form of tax planning.
 
“Now that the GAAR has been confirmed, Osborne needs to be careful he doesn’t create more problems for HM Revenue & Customs than he solves.”

Liam Bailey, Head of Knight Frank Residential Research

'After a 33% year-on-year fall in transaction volumes for properties valued over £2m in Q3 this year, largely due to the increase in stamp duty in March, the market will welcome the fact that George Osborne has ruled out any new property taxes today.'

Read the Spear's Autumn Statement liveblog

Read predictions for what will be in the Autumn Statement here

Read more on previous Budgets and Autumn Statements

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