The Autumn 2021 Budget was, from a private client perspective, surprisingly uneventful. After meaningful speculation on potential tax rises, including aligning the current 20% CGT rate with the current 45% top rate of income tax, there is simply to be a freeze of personal allowances up to and including 2025/26 for CGT and income tax. Further, for income tax, the higher rate threshold is also to be maintained to 2025/26, meaning more taxpayers will be welcomed into the higher rate. Of course, tax rises were already announced last month in the shape of increased NICs and increased dividend tax rates from. The question of course remains whether further tax rises are needed to pay for the cost of pandemic support, and what form will they take.
By Sophie Dworetzsky and Helen Coward (Charles Russell Speechlys).
Today, against the backdrop of ‘record peacetime borrowing’ and a contraction in GDP of 24% in the short months from February to April 2020, the chancellor delivered a Budget with a stated aim, unsurprisingly, of ‘ensuring the economy can build back better’.
The importance of rebuilding the economy becomes even more stark when one considers that total government support for the economy for 2021 and 2022 totals £407bn, and public sector net debt is forecast to reach 93.8% of GDP in 2020/21.
We are all far too aware that there has been significant speculation as to how this is to be paid for. Again, unsurprisingly, today’s documents made clear that the approach of fairness will mean ‘the highest income households paying more’ is to form part of the policy approach for retrieving a level of economic stability.
So, turning to the key question: what were the key personal tax announcements and what might they mean?
Stealth rises
Given the anticipation of increased CGT rates, and the already broken triple lock which promised to freeze the rate of income tax, NICs, and VAT, it is perhaps surprising that no major personal tax hikes were announced today. Instead, in an approach with which we have become familiar, the personal allowance and higher rate threshold for income tax is to be maintained up to and including 2025/26.
Beyond this, the CGT annual allowance is also to be frozen until 2025/26. The same approach is being taken for inheritance tax (IHT) with a freezing of the nil rate band up to and including 2025/26. Allied with increasing house prices, this is likely to mean a greater number of estates will be subject to IHT.
Notably, there was no mention of a wealth tax.
Income tax and NICs increases already announced
As ever, prior announcements were restated, including the health and social care levy (the levy), which was first announced on 7 September this year. The levy includes a 1.25% increase to NICs from April 2022, as well as the increase of dividend income tax rates by 1.25% from April 2022, so that the additional rate of tax on dividends will be 39.35% from 38.1%. For the dividend ordinary rate, the increase will be from 7.5% to 8.75%, and for the dividend upper rate the increase will be from 32.5% to 33.75%. For trusts, the impact will be that the dividend trust rate will increase from 38.1% to 39.35%. All increases will take effect from April 2022.
Corporation tax
As we know, the rate of corporation tax is to increase to 25% (from the present 19% rate) by April 2023. However, an interesting question is whether the broad-based tax rises represented by increasing that tax and the new health and social care levy will mitigate the need for targeting wealthier taxpayers specifically.
CGT and residential property: more time
In a welcome move, there is to be an extension of the current 30 day time limit in which individuals disposing of UK residential property must deliver a CGT form and make a payment on account to HMRC. To date, there has been a requirement to make a payment on account within 30 days of completion of the property disposal.
Following the recommendations of the Office for Tax Simplification, the deadline is to be extended to 60 days, and will apply to residential property disposals which complete on or after 27 October 2021.
It has long been considered that the 30 day time limit is rather tight, and leads to accidental non-compliance, especially for offshore owners of residential property.
Tax avoidance
HMRC is to be granted extensive powers to clamp down on certain promoters of tax avoidance. Building on existing anti-avoidance measures, HMRC is to have powers to, inter alia, seek freezing orders to ensure that any penalties charged can be recovered.
HMRC will further be able to impose additional penalties on a UK entity which facilitates the promotion of tax avoidance by offshore promoters.
These measures, when combined with the policy approach in the consultation entitled ‘raising standards in the tax advice market’, which closed on 15 June 2021, represent an increasing focus on tax advisers. It will however be interesting to see if the measure announced today does indeed deter offshore promoters of tax avoidance, if in practice they can simply operate without UK entities.
Basis periods
A seemingly technical, but significant change, is the alignment of basis periods for the self-employed, partners in partnerships and certain other taxpayers with the tax year, from 2023/24. This is likely to have significant cash flow implications on the initial transition. The intention is to move matters to a ‘tax year basis’. This prevents the creation of overlap relief, which may well cause complications for a number of affected taxpayers.’
Open for business
In a surprising but welcome move, as part of the Autumn Statement package the government has published a consultation on allowing the re-domiciliation of foreign-incorporated companies to the UK. The intention appears to be to bring large multinationals with foreign headquarters to the UK, to increase investment and skilled jobs in the UK and to provide a tax efficient way for that to take place. However, this is also something that is likely to be of interest to private clients with international holding structures.
This is particularly likely to be the case for property holding structures, given the tax benefits of using offshore companies to hold UK real estate are now minimal in most cases. In order to re-domicile, the entity must be allowed to do so in its place of incorporation and comply with any legal requirements in respect of the transfer. However, there is no suggestion that only firms of a certain size or with UK operations will be eligible. The suggestion is that all bodies corporate that are comparable with UK forms will be eligible for re-domiciliation.
Alongside the implementation of the new asset holding companies regime, the government appears to have the UK’s competitiveness as a holding company jurisdiction firmly in mind: certainly a welcome move for UK professional services firms. The measure will, among many other things, allow remittance basis users to treat certain payments by a QAHC as non-UK source.
Residential property development
The Autumn Budget also provided some further clarity in respect of the new residential property developer tax (RPDT). This is currently not a measure that will impact many private clients, if any, as the new tax will only be charged on companies or groups with profits in excess of £25m in a 12 month accounting period. However, it remains to be seen whether there will be ‘mission creep’ by reduction of that allowance in the future if the tax does not generate the anticipated yield.
Importantly, the response to the consultation has now confirmed that the RPDT will not apply to build to rent units, which will also rule out many privately owned groups. However, again, this is to be kept under review – so this decision might yet be reversed in a future year.
The Autumn 2021 Budget was, from a private client perspective, surprisingly uneventful. After meaningful speculation on potential tax rises, including aligning the current 20% CGT rate with the current 45% top rate of income tax, there is simply to be a freeze of personal allowances up to and including 2025/26 for CGT and income tax. Further, for income tax, the higher rate threshold is also to be maintained to 2025/26, meaning more taxpayers will be welcomed into the higher rate. Of course, tax rises were already announced last month in the shape of increased NICs and increased dividend tax rates from. The question of course remains whether further tax rises are needed to pay for the cost of pandemic support, and what form will they take.
By Sophie Dworetzsky and Helen Coward (Charles Russell Speechlys).
Today, against the backdrop of ‘record peacetime borrowing’ and a contraction in GDP of 24% in the short months from February to April 2020, the chancellor delivered a Budget with a stated aim, unsurprisingly, of ‘ensuring the economy can build back better’.
The importance of rebuilding the economy becomes even more stark when one considers that total government support for the economy for 2021 and 2022 totals £407bn, and public sector net debt is forecast to reach 93.8% of GDP in 2020/21.
We are all far too aware that there has been significant speculation as to how this is to be paid for. Again, unsurprisingly, today’s documents made clear that the approach of fairness will mean ‘the highest income households paying more’ is to form part of the policy approach for retrieving a level of economic stability.
So, turning to the key question: what were the key personal tax announcements and what might they mean?
Stealth rises
Given the anticipation of increased CGT rates, and the already broken triple lock which promised to freeze the rate of income tax, NICs, and VAT, it is perhaps surprising that no major personal tax hikes were announced today. Instead, in an approach with which we have become familiar, the personal allowance and higher rate threshold for income tax is to be maintained up to and including 2025/26.
Beyond this, the CGT annual allowance is also to be frozen until 2025/26. The same approach is being taken for inheritance tax (IHT) with a freezing of the nil rate band up to and including 2025/26. Allied with increasing house prices, this is likely to mean a greater number of estates will be subject to IHT.
Notably, there was no mention of a wealth tax.
Income tax and NICs increases already announced
As ever, prior announcements were restated, including the health and social care levy (the levy), which was first announced on 7 September this year. The levy includes a 1.25% increase to NICs from April 2022, as well as the increase of dividend income tax rates by 1.25% from April 2022, so that the additional rate of tax on dividends will be 39.35% from 38.1%. For the dividend ordinary rate, the increase will be from 7.5% to 8.75%, and for the dividend upper rate the increase will be from 32.5% to 33.75%. For trusts, the impact will be that the dividend trust rate will increase from 38.1% to 39.35%. All increases will take effect from April 2022.
Corporation tax
As we know, the rate of corporation tax is to increase to 25% (from the present 19% rate) by April 2023. However, an interesting question is whether the broad-based tax rises represented by increasing that tax and the new health and social care levy will mitigate the need for targeting wealthier taxpayers specifically.
CGT and residential property: more time
In a welcome move, there is to be an extension of the current 30 day time limit in which individuals disposing of UK residential property must deliver a CGT form and make a payment on account to HMRC. To date, there has been a requirement to make a payment on account within 30 days of completion of the property disposal.
Following the recommendations of the Office for Tax Simplification, the deadline is to be extended to 60 days, and will apply to residential property disposals which complete on or after 27 October 2021.
It has long been considered that the 30 day time limit is rather tight, and leads to accidental non-compliance, especially for offshore owners of residential property.
Tax avoidance
HMRC is to be granted extensive powers to clamp down on certain promoters of tax avoidance. Building on existing anti-avoidance measures, HMRC is to have powers to, inter alia, seek freezing orders to ensure that any penalties charged can be recovered.
HMRC will further be able to impose additional penalties on a UK entity which facilitates the promotion of tax avoidance by offshore promoters.
These measures, when combined with the policy approach in the consultation entitled ‘raising standards in the tax advice market’, which closed on 15 June 2021, represent an increasing focus on tax advisers. It will however be interesting to see if the measure announced today does indeed deter offshore promoters of tax avoidance, if in practice they can simply operate without UK entities.
Basis periods
A seemingly technical, but significant change, is the alignment of basis periods for the self-employed, partners in partnerships and certain other taxpayers with the tax year, from 2023/24. This is likely to have significant cash flow implications on the initial transition. The intention is to move matters to a ‘tax year basis’. This prevents the creation of overlap relief, which may well cause complications for a number of affected taxpayers.’
Open for business
In a surprising but welcome move, as part of the Autumn Statement package the government has published a consultation on allowing the re-domiciliation of foreign-incorporated companies to the UK. The intention appears to be to bring large multinationals with foreign headquarters to the UK, to increase investment and skilled jobs in the UK and to provide a tax efficient way for that to take place. However, this is also something that is likely to be of interest to private clients with international holding structures.
This is particularly likely to be the case for property holding structures, given the tax benefits of using offshore companies to hold UK real estate are now minimal in most cases. In order to re-domicile, the entity must be allowed to do so in its place of incorporation and comply with any legal requirements in respect of the transfer. However, there is no suggestion that only firms of a certain size or with UK operations will be eligible. The suggestion is that all bodies corporate that are comparable with UK forms will be eligible for re-domiciliation.
Alongside the implementation of the new asset holding companies regime, the government appears to have the UK’s competitiveness as a holding company jurisdiction firmly in mind: certainly a welcome move for UK professional services firms. The measure will, among many other things, allow remittance basis users to treat certain payments by a QAHC as non-UK source.
Residential property development
The Autumn Budget also provided some further clarity in respect of the new residential property developer tax (RPDT). This is currently not a measure that will impact many private clients, if any, as the new tax will only be charged on companies or groups with profits in excess of £25m in a 12 month accounting period. However, it remains to be seen whether there will be ‘mission creep’ by reduction of that allowance in the future if the tax does not generate the anticipated yield.
Importantly, the response to the consultation has now confirmed that the RPDT will not apply to build to rent units, which will also rule out many privately owned groups. However, again, this is to be kept under review – so this decision might yet be reversed in a future year.
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