Partner Article

Autumn Statement 2013 reaction: Families & Investment

The Chancellor has closed his red box for another year, and so in this edition of Baker Tilly’s weekly round-up of the most important tax news, we give our thoughts and opinions on Autumn Statement 2013.

With much more work to be done to repair the UK economy after the worst financial crisis for many generations, and an election to be fought in 2015, there’s a wide range of tax proposals to give relief where it’s felt to be due and impose extra taxes on others.

The trend of reducing business taxes to boost the economy is set to continue, with the burden of taxes paid by individuals increasing to reflect this. As a result, the “bottom” 30% and the “top” 10% of UK households will be worse off in 2014/15, with the middle 60% unchanged or better off.

The Chancellor had a lot to say about this, but the really ‘big ticket’ issues were:

• Main Residence Relief – reduction of final period from three years to 18 months from April 2014. ‘Bridging relief’ extended the tax exemption on the sale of an individual’s main residence to include the final two years of ownership, irrespective of whether they were still occupying it. This would allow homeowners a reasonable period of time to sell their home without incurring capital gains tax. This was later increased to 3 years during the recession, but once the property markets picked up, the three year period became very generous and enabled people to reduce capital gains on second homes. If the housing market picks up, it will admittedly be easier to sell property within 18 months and benefit from full relief (particularly in London). Is it a justified change? Well given that the rule is intended for bridging between two main residences, 18 months in the current market is probably about right.
• The introduction of a capital gains tax charge on future gains made by non-residents disposing of UK residential property - This wasn’t unexpected, and brings us in line with other European countries such as France and Spain. It’s also consistent with the other measures being introduced such as the Annual Tax on Enveloped Dwellings and CGT on foreign corporates owning residential property. Many individuals will pay CGT in their resident country, and the introduction of CGT in the UK may not impact on them too heavily where double tax relief is available. However, for those who are resident in low tax jurisdictions, the new measure will impact heavily and potentially deter their investment in the UK property market. But it’s pleasing to note that it will only apply to residential property, and there is reference to ‘future gains’ which hints it’s likely only apply to gains accruing after April 2015. Questions remain as to whether it will apply only to properties valued at over £2m, whether an election can be made for main residence relief, and how it will interact with capital gains on foreign corporates as mentioned above.
• Introduction of a transferable £1,000 “Married Couples Allowance“ for basic rate tax payers. £1,000 of the PA can be transferred to a spouse, and the amount will be deducted from the transferor’s PA. This is a welcome measure, has wide application, and is focused on low income couples (hard working families).

This was posted in Bdaily's Members' News section by Baker Tilly .