This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

The Autumn Statement
03 December 2014

The Autumn Statement

This was a gloves off, political Autumn Statement in the run up to the 2015 election. There were a couple of overt digs at the Labour leadership as well as a clear attack on Labour's proposed mansion tax with the surprise changes to stamp duty land tax.

George Osborne attempted to deliver a voter-friendly message whilst making it clear that there is still a way to go until a full economic recovery. His was a predictable message of restoring stability and geographical balance in the economy, tightening public finances and supporting hard-working people and businesses. There were several mentions of that ambiguous, and many would say meaningless, term "fairness".

Non-doms and top-end house buyers were under attack, but a rise in the higher rate income tax threshold and generous tax breaks for ISAs and pensions will appeal to middle England. Mr Osborne also made it clear, once again, that the Government will continue to fight aggressive tax planning by individuals and companies, with talk of a fair contribution by all.

In this briefing, we highlight some of the main points of interest. Please contact any member of our tax team if you have any queries.

Overhaul of Stamp Duty Land Tax ("SDLT") for residential property

This was the real rabbit out of the hat in the Autumn Statement. The "slab" system for SDLT has long been criticised for its unfairness and distortion of the market – for example, a person paying £250,000 for a home paid 1% SDLT on the entire purchase price (£2,500) whereas a person paying £251,000 paid 3% SDLT (£7,530). Clearly very few deals were ever done just above the relevant valuation thresholds. For residential property only, this system has now been ripped up and replaced by a more progressive system. Rather than paying a single rate of SDLT on the full purchase price of the property, a buyer now pays different rates within different bands, as follows:

Up to £125,000 0%
£125,001 to £250,000 2%
£251,000 to £925,000 5%
£925,001 to £1,500,000 10%
Above £1,500,000 12%

HMRC has produced this useful factsheet:

The Government is highlighting the fact that 98% of homeowners will pay less SDLT as a result of these changes. The "break even" price is £937,500 – so at prices below this, buyers will pay less SDLT under the new rules, but at prices above they will pay more, and at the top end very considerably more. Even at £2 million, the typical price of a terraced house in many non-prime Inner London suburbs, SLDT will increase by over 50% from £100,000 to £153,750. Coupled with uncertainty over a possible Mansion Tax, transaction levels at this level are likely to fall in the short term. The new rules come into force on 4 December 2014, but those who have exchanged contracts before midnight tonight can choose whether to pay SLDT under the old or new system. Those buying high value residential property should consider exchanging today if at all possible, to lock in the current (lower) SDLT rates.

Clampdown on tax avoidance by international companies

A new “diverted profits tax” was announced to tax the profits of businesses that have substantial economic activities in the UK but pay little or no tax here on those profits. Their taxable profits are reduced, aggressively according to the Government, because they pay significant royalties and licence fees, or they buy in financial services and goods from related companies in low-tax countries, thereby diverting their profits away from the UK. These diverted profits will be taxed at 25% from 1 April 2015.

This looks like a pre-emptive strike ahead of the final outcome of BEPS (the OECD’s Base Erosion and Profit Shifting project). BEPS delivered its first recommendations this year. The project looks at ways of tackling profit shifting and should be finished next year. Given the UK already has a range of measures and a sophisticated transfer pricing regime, one wonders how this will work although it is clearly aimed at those who use the Double Irish, the Double Dutch Sandwich and similar structures. There must also be questions over its legality as the 25% rate is above the mainstream Corporation Tax rate and therefore discriminatory. There is also EU law to consider plus whatever the OECD proposes. The new tax does not appear to target those who trade with, but not in, the UK, for example those supplying electronically supplied services. This is the subject of BEPS Paper No 1 , the conclusion of which was “let’s wait and see what else happens”.

Further clampdown on anti-avoidance

It is not just multinational companies that avoid tax. Others do so too, both within the UK and offshore. For offshore tax evasion there will be stricter civil penalties. The existing offshore penalty regime will be extended to inheritance tax, and to domestic tax avoidance where assets are hidden offshore. There will be a further aggravated penalty of 50% for those who try to hide money in a country with which the UK does not have a bilateral Tax Information Exchange Agreement. For domestic tax avoidance, the disclosure regime for tax planning arrangements is being extended. Those who flout the rules risk being labelled as “high risk promoters” under new legislation.

If you know someone who lives in the UK and has undeclared wealth offshore, which could include inherited wealth where they do not know its history, now is the time seriously to consider coming clean with HMRC. They are drinking in the last chance saloon.

Capital Gains Tax on non-UK residents – final proposals published

The Government's long-awaited final proposals introducing CGT for non-UK residents disposing of UK residential property have now been published. The charge (20% for companies, 18% or 28% for individuals and 28% for trusts) will apply to sales and gifts of UK residential property, although it will only apply to gains arising from 6 April 2015. To calculate the post-April 2015 gain, either the property can be revalued at that date or the entire gain from acquisition to disposal can be time-apportioned. Significantly, the Government has stated that it "…does not intend to broaden the scope of the charge and apply CGT to disposals of interests in non-residential property".

Full details will be contained in the draft legislation to be issued on 10 December 2014. We know there will be an exemption for residential properties held by institutions and widely held companies and funds. We also know the CGT main residence exemption is being restricted: broadly, a non-resident must spend at least 90 midnights in their UK home per tax year for it to be treated as their main residence in that year). This 90 midnights rule will also apply in reverse to UK residents seeking to claim the exemption on an overseas property. Confusingly, the 28% ATED-related CGT charge which currently applies to certain companies owning residential property will remain, and will take priority where both charges apply. The Government have decided against a withholding tax system and are effectively relying on self-assessment.

It will be interesting to see whether this new CGT charge is the forerunner to taxing all UK properties held by non-residents (although some comfort can be taken from the Government's current assurances about the scope of the charge). It is unfortunate that the ATED-related CGT charge remains, as this will introduce a degree of complexity in the operation of the new charge. For example, whilst ATED-related CGT takes priority over the new CGT charge, it is possible that some properties may fall within the two regimes at different times, requiring apportionments to be made. Without a withholding tax, questions remain about how the tax will be enforced where a non-resident sells their only UK property and receives the sale proceeds outside the UK.

Entrepreneurs' Relief strengthened

Entrepreneurs' relief (ER) has been strengthened so that gains which are eligible for ER and therefore qualify for the lower 10% Capital Gains Tax rate but which are instead deferred by rolling them into investments which qualify for the Enterprise Investment Scheme (EIS) or social investment tax relief (SITR) will remain eligible for the ER 10% CGT rate when the deferred gain is eventually realised. This will benefit qualifying gains on disposals that would be eligible for ER but are deferred into EIS or SITR on or after today. In addition, the SITR investment limit will be extended to £5 million per year per organisation up to a maximum of £15 million per organisation from 6 April 2015, subject to EU approval.

This generous change makes it clear the Government wishes to continue offering tax incentives to encourage individuals to invest in smaller and less-established businesses. This is an interesting example of an area where the Government clearly feels the benefit of carefully targeted tax reliefs overrides any charge of promoting tax avoidance. This change also highlights the Government's commitment to encouraging investment in social enterprises.

Changes to the Remittance Basis Charge for non-domiciles

Individuals who are not domiciled in the UK are able to elect to pay tax on the remittance basis so that any income and gains generated from their offshore assets are only taxable as and when they are brought into the UK. The remittance basis can be claimed free of charge for the first 7 years of residence in the UK but thereafter an annual charge applies if the individual wants to continue to benefit from the remittance basis.

The Government has announced that a new charge of £90,000 will be introduced for non-domiciles who have been UK resident for 17 of the last 20 years.

The Government also announced that it will increase the charge paid by non-domiciles who have been UK resident for 12 of the last 14 years from £50,000 to £60,000.

The charge paid by non-domiciles who have been UK resident for 7 of the last 9 years will remain at £30,000.

With this being the second increase in the remittance basis charge since its introduction in 2008, future increases cannot be ruled out, including a possible reduction in the seven-year period before the charge becomes payable. Interestingly, the Government has also announced that it will consult on making the election apply for a minimum of three years, so that non-domiciles are not easily able to arrange their tax affairs so as to only pay the charges occasionally. This would deter non-domiciled individuals from bunching their gains into a single tax year so that they only have to pay the remittance basis charge in that year. The changes will also make it harder to determine the "tipping point" at which claiming the remittance basis is financially worthwhile. This is because they would have to estimate their level of offshore income and gains in the following two years.

Annual Tax on Enveloped Dwellings (ATED) increases

The Government has announced that the Annual Tax on Enveloped Dwellings (ATED) raised five times the amount forecast for 2013/14. The ATED is the annual charge payable by certain companies owning residential properties where the property is not used for genuine business purposes. It is therefore no surprise that the Government intends to increase the ATED for residential properties worth more than £2 million for the chargeable period 1 April 2015 to 31 March 2016 as follows:

Property Value

Annual Charge


£2 million to £5 million



£5 million to £10 million



£10 million to £20 million



Greater than £20 million




The Government also announced that, effective from 1 April 2015, it will introduce changes to the filing obligations and information requirements for properties that are eligible for ATED relief.

These new charges represent a 50% increase on top of inflation. Although the figures only refer to the 2015/16 ATED year, further above-inflation increases cannot be ruled out for future years as ATED is presumably seen by the Government as an easy cash cow. Whether these increases will trigger further de-enveloping remains to be seen.

Preserving tax breaks for inherited ISAs

As part of the Government's effort to support savers, George Osborne today announced a new rule that will benefit those who inherit ISAs from their spouse or civil partner.

From today, the ISA allowance of a surviving spouse or civil partner who inherits the deceased's ISAs will be increased by the value of those ISAs. In making ISA allowances transferable, the Government is also providing surviving spouses and civil partners with an opportunity to double the sum they can invest in ISAs. Surviving spouses will be able to make use of this extra allowance from 6 April 2015.

These changes will be very welcome and will be of considerable benefit to older savers. Many ISA holders who fully invested their maximum annual ISA allowance since ISAs were created can die with an ISA portfolio worth well over £1 million. Although they could always leave the portfolio tax-free to their surviving spouse or civil partner, the income tax and capital gains tax breaks effectively died with them. That will now change. In addition, the doubling up of the survivor's annual ISA allowance is just one of a package of measures intended to encourage and reward older savers. A cynical pre-election bribe to the grey vote or a sensible change?

Restriction on bank loss relief

The Government plans to introduce measures to restrict the amount of taxable profit that banks can relieve from Corporation Tax by the use of historic losses. If the legislation is passed, banks will only be able to relieve up to 50% of taxable profits by using these brought-forward losses and so will be taxed on at least 50% of their overall profits. Two new anti-avoidance rules are also proposed, to prevent banks structuring around the new restriction.

This is an unexpected development, and likely to concern banks that have been able to shelter present profits with the large losses incurred during the financial crisis. This change is likely to be popular with the general public, and the Chancellor made it clear that he was concerned that, without this restriction, banks would be able to shelter their profits from tax for many years to come. The Chancellor is keen to avoid banks benefiting from Government funds twice over – once in the bail out, and then again by use of tax relief. Nonetheless, today's announcement may mean that a higher tax burden will be passed onto banking customers and drive up the costs of borrowing.

Pensions - Amendments to Tax Charges on Inherited Pensions

The nominated pension beneficiaries of individuals who die under the age of 75 with remaining uncrystallised or undrawn defined contribution pension funds, or with a joint life or guaranteed term annuity, will be able to receive any future payments from such policies tax-free where no payments have been made to the beneficiary before 6 April 2015. This change comes into effect for the 2015/2016 tax year. The tax rules will also be changed to allow joint life annuities to be passed on to any beneficiary. Where the individual was over 75, the beneficiary will pay the marginal rate of Income Tax, or 45% if the funds are taken as a lump sum payment. Lump sum payments will be charged at the beneficiary’s marginal rate from the 2016/17 tax year.

These are positive changes for older savers as annuities will now be on a level playing field with drawdown as far as tax on death benefits is concerned. Pension holders will no longer need to worry about their pension savings being taxed at 55% on death. What is particularly encouraging is that the Government did not restrict tax relief on pension contributions which it could have easily done by further decreasing the annual limit on tax relieved contributions or on the total value of the pension pot. Clearly the Governments sees the need to shift the increasing pension burden from the state to individuals, with tax relief being a key driver in that process.

Investment Managers Beware

Hidden in the Autumn Statement and the Policy Costings document there are references to taxing income amounts received by investment managers as a guaranteed reward for their services. The relevant references are:

  • "the Government will stop investment fund managers disguising their guaranteed fee income as capital gains in order to avoid income tax"
  • "Investment Managers' disguised fee income - the Government will introduce legislation, effective from 6 April 2015, to ensure that sums which arise to investment managers for their services are charged to income tax. It will affect sums which arise to managers who have entered into arrangements involving partnerships or other transparent vehicles, but not sums linked to performance, often described as carried interest, nor returns which are exclusively from investments by partners."

It is not exactly clear what these measures are targeting but given the reference to the avoidance of income tax and returns in the form of capital gains, it might not be too much to speculate that these rules are likely to be more relevant to the private equity and venture capital industries than they will be to hedge fund managers. The underlying assumption appears to be that a management "fee" is instead taken as a profit share and satisfied out of capital gains. It could be that these measures will be targeted at fee waiver or other arrangements whereby fees are first settled out of a streaming of capital gain in priority to income (though initially funded as an advance of the GPS or general partners share). This conclusion is supported by the Policy Costings document which expressly refers to how Private Equity Funds "in particular have structured themselves in ways to avoid tax by enabling these fees to be charged to capital gains tax".

Now might be a good time to review management fee structures if any are paid out of capital gains and not income.