Following a Budget which contained more surprises than many predicted, George Osborne’s first all-Conservative Autumn Statement may drop fewer bombshells and be more about clarity.
The Chancellor has previously proved adept at using the Opposition’s economic policies as a political sounding board, but with Labour staying under the radar on tax Osborne may have to turn his gaze slightly further inward than usual.
The Private Wealth Group at Top-20 accountancy firm Saffery Champness discuss what the Chancellor may reveal on November 25th.
The government faced a rebellion from the House of Lords on tax credits in October and George Osborne may have to tone down the policy’s rhetoric if he is to get the cuts over the line.
Martin Holden, partner in the private wealth group, observes:
We still expect to see cuts of some sort to tax credits but the Chancellor may have significantly less flexibility in this Autumn Statement than the original plan of over £4bn worth of cuts would have allowed him. This could mean that those hoping for some tax give-aways will be disappointed.
Deeds of variation
Having announced a review of deeds of variation, an arrangement by which family members can alter the distribution of a deceased’s estate, the Autumn Statement may reveal the initial findings and the Chancellor’s proposed next steps.
Martin Holden, partner in the private wealth group, comments:
The chancellor announced a review of deeds of variation after it was revealed that Ed Miliband had used the mechanism to change his father’s will. Deeds of variation are sometimes used to lessen the tax due on the deceased’s estate but are often useful tools for families. Any changes announced will need to be carefully managed.
In the Budget, George Osborne announced sweeping changes to the non-dom regime and promised to do away with the tax advantages that being a non-domiciled long-term resident in the UK brings. At the end of September, the government confirmed that the remittance basis would be removed and those non-doms living in the UK for 15 out of 20 years would pay the same tax as everyone else from 2017.
Martin Holden commented:
The issues surrounding non-doms have been debated at great length, with politicians attempting to balance the economic benefits they bring with the perceived injustice of their tax status. Non-doms have been pulled from pillar to post and we can only hope that the Statement will bring some clarity to the issues, particularly around how these changes work in relation to other forms of relief, and indeed pensions.
We are hoping that the Chancellor can offer much needed technical guidance for those non-doms whose UK property has been drawn into the inheritance tax net. In addition, many people may now be facing a high Capital Gains Tax bill and will need advice on how to efficiently extract their assets from offshore structures.
Following significant investment in tackling tax planning mechanisms, referred to as avoidance, government taskforces have recouped over £100m in the last year and the ‘tax gap’ has fallen to 6.4%. With HMRC now targeting affluent taxpayers in addition to HNWs we can expect the Chancellor to continue to place emphasis on anti-avoidance in the Autumn Statement, alongside providing clarity for policies already in the pipeline. Dividend tax reforms, for instance, were introduced in the Budget to discourage individuals from incorporating in order to gain tax advantages but many of the details remain unclear.
Martin Holden noted:
The government has made headway in tackling the tax gap, with taskforces targeting individuals and professions in a persistent investigative campaign. However a solution for the so-called hidden economy remains elusive and potentially the target of further investment.
Reforms such as those to Dividend Tax are intended to tackle avoidance, and the Autumn Statement may reveal how the new system will work in practice and how it will be introduced.
Recent tax cases have brought up the subject of employee benefit trusts again and offshore trusts set up, arguably legitimately in years gone by, to pay out salaries or benefits may catch the eye of the Chancellor again.
Any reforms announced in the Statement which will come into effect immediately will need to be monitored carefully. For those affected by policies which we know are in the pipeline, such as changes to the non-dom system, it is always worth seeking advice before additional reforms are announced that may muddy the waters further.