On 5th of December 2013 the chancellor George Osborne gave his autumn statement and we would like to provide you an overview of this statement.
First of all it would be beneficial to provide a brief summary of key headlines which have been included in the statement documents.
Economy: George Osborne stated that " Britain’s economic plan is working – the job is not done yet”. Britain is growing faster than any major advanced economy. He announced that economic growth forecasts for this year have more than doubled from 0.6% to 1.4%. Forecasts indicate no deficit by 2018/19. Bank of England given power to deal with ‘asset bubbles’ in house prices. There was no double dip recession. Autumn Statement is fiscally neutral.
Welfare and Pension: Welfare was addressed by placing a cap on overall welfare benefit bill (excluding pensions). State pension would be up by £2.95 next year, which means that each pensioner would be £800 better off per year. New opportunities have arose for those who reach state pension age before 1 April 2016 to "buy" additional state pension. State pension age rises to 68 in mid 2030s and to 69 in mid 2040s.
Personal tax: With regards to personal taxation, capital gain tax (CGT) imposed on sales of UK residential property by non - residents; technical change to principal private residence relief for CGT was introduced, regarding last three years of ownership. The various employment arrangements were addressed in the statement, including dual contacts for employment (in the way of creating an artificial division of the duties of one employment between contracts in both the UK and overseas), salaried members of LLPs, tax avoidance where employees provided through intermediaries etc. It was confirmed that personal allowance of £ 10,000 and capital gain allowance of £11,000 would from April 2014 and basic rate married couples and civil partners can transfer £1,000 of allowance. Also £ 50 saving on energy bills would be achieved through a rolling back of green levies. The annual limit for investment into individual savings accounts (ISAs) will be increased to £11,880, of which half can be invested in cash, from 2014. The limit is currently £11,520 and increases are inflation linked.
As per business concern, bank levy is to be raised to 0.156% from January 2014. Business rate relief for small firms was extended until April 2015, possibility to pay business rates in monthly instalments would be given. Business rates discount would be available for new occupants of previously empty retail premises. National insurance contributions of employer would be abolished from 2015 on employees under the age of 21, who earning less than £813 per week.
Other aspects such as new start up loans for entrepreneurs, limit on raise of train fare to inflation etc were announced in autumn statement as well. One of the hottest agenda as previously was tax avoidance, tax evasion, fraud and error which with help of introduction of general anti - avoidance rules should bring extra of £9 billions of unpaid tax over 5 years period.
Let's briefly touch couple of points of George Osborne announcements which we believe might be at interest for you.
Under current legislation non resident individuals are not liable for capital gain tax upon disposal of UK property.
Further to introduction of annual tax on enveloped properties and CGT payable upon disposal of £ 2 million plus property by offshore type of corporate entity with effect from 1 April 2013, George Osborne developed CGT matter further and announced that from April 2015 non UK resident individuals would face CGT on the disposal of their UK properties. Only capital growth arise from April 2015 onwards would be subject to CGT. There will be a consultation on this measure in due course. For many non-residents the impact of this charge will depend upon the tax regime in their country of residence and the terms of any double tax treaty with the UK. Most double tax treaties provide that capital gains from land and buildings may be taxed in the country in which they are situated. Any UK tax payable would normally be credited against any liability for tax on capital gains in the non-resident's home country although some countries do not impose capital gains tax. If the liability in the home jurisdiction is more than or equal to the UK liability in the UK, the change will simply shift the tax revenues from the country in which the non-resident resides to the UK.
Secondly the technical change was announced on principal private residence relief. Under current legislation when you sell your main property, you would not have to pay any CGT if you satisfy the following conditions:
- it's been your only home or main residence
- you have used it as your home and nothing else
The final three years (36 months) always were qualified for relief. When the measure was first introduced that period was just 12 months, increased to 24 months from 1980 and 36 months from 1991. From 6 April 2014 the final period exemption will be reduced to a maximum of 18 months. This may also affect the entitlement to residential lettings relief, given when a property qualifying for the final period exemption was also, at some time in the period of ownership, used for residential letting.
As per taxation of corporate entities in the UK, no changes were announced to the proposed reduction in corporation tax. The main rate of corporation tax is to fall by 1% to 21% from April 2014 - the lowest rate of any major Western economy. From April 2015, it is proposed that all companies pay a flat rate of 20% corporation tax. The Chancellor says this sends out the message: "Come here, create jobs here, Britain is open for business."
In summary, Autumn statement on 5 December 2013 was a serious plan for a continues growth of the UK economy. There was plenty of good news in the Autumn Statement, but it all came with heavy caveats attached from the both the chancellor and the Office for Budget Responsibility. The real challenge will be to boost longer term productivity growth, not just short term consumer spending. We believe more information will be available shortly when the 2013 Finance Bill is published.