HM Treasury has recently published its Consultation Paper on the new property taxes first outlined in the Budget earlier this year.

See below a brief overview of the main suggestions.  The consultation period runs until 23 August.

• Since the Budget in March, Stamp Duty Land Tax of 15% already applies to new purchases above £2m in value by “certain non-natural persons”;
• It is also proposed that an annual tax charge and CGT will apply from April 2013 on property owned by “non-natural persons” and “non-resident companies”;
• The main areas for consultation seem to be around the scope of the 15% tax rate and how bona fide developers might be exempt.

The annual tax charge proposals are roughly as follows:

• The annual tax charge will range from £15,000 (on properties worth £2-5m) to £140,000 (on properties > £20m), increasing annually in line with Consumer Price Inflation (“CPI”);
• Property values will be set at April 2012 or date of purchase (if later).  They will apply for 5 years (2013-18) and then be updated for a further 5 years;
• The annual charge will apply to companies (with some exceptions) but not trusts.

The Capital Gains Tax (“CGT”) proposals are roughly as follows:

• CGT will apply to the sale of property by non-resident companies;
• They are consulting on whether CGT should also apply to sales by offshore trusts;
• CGT will also apply where shares in the company itself are sold;
• CGT will apply to historic as well as future gains;
• The rate of CGT hasn’t been set and is open to consultation.

Interestingly, though, the Exchequer expects the impact of the CGT rules on overall tax receipts to be ‘negligible’ (whereas on the SDLT and annual charge, there is expected to be an increase in tax receipts).

In our view, these changes are very significant.  It is definitely worth reviewing existing arrangements as soon as possible, although subject to the caveat that this is still in the consultation phase so the rules are likely to change.  Specific actions should therefore be left until the rules have been clarified (hopefully later in 2012 or early 2013).  While the new rules are specifically designed to encourage the unwinding of these ‘envelope’ structures, consideration does also need to be taken of other (non-tax) reasons for holding a property in this manner (particularly the issue of privacy).

Image copyright: Peter Thwaite and licensed for reuse under this Creative Commons Licence.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Not all areas of Tax Planning are regulated by the Financial Services Authority.

Much like last year, the weather has been very kind to George Osborne on Budget Day.

Please find below an brief overview of the main points, with some thoughts and opinion thrown in. Hope it’s useful.

Like the weather, the overall message this year was much the same as last year. While austerity remains the order of the day, I can’t help but think that there was a slightly more positive spin to this year’s announcements. This has been helped by slightly better-than-expected growth figures from the Office for Budget Responsibility, meaing the UK will technically avoid a recession (this time).

However, I’m going to christen this the “Wallace and Gromit” Budget. Tax incentives for video games, animation and TV production provided Mr Osborne with an unmissable opportunity to have a quick dig at Ed Miliband. I leave it to you to notice the resemblance.

There seemed to be fewer attention-grabbing headlines in this Budget compared to last year, with many of the main announcements leaked the day before. “Steady as she goes, Gromit,” as Wallace might say.

To highlight some of the more salient points (in no particular order):

- The biggest point in my view is not the change to the 50p tax rate (will will grab all the headlines) but the fact that the Personal Allowance (the earnings below which an individual pays no income tax) will rise to £9,025 from next April, the largest increase in over 30 years. Age-related Personal Allowances for those in retirement will be phased out for new retirees (i.e. anyone born after 5th April 1948). At the same time, the basic-rate tax band will be adjusted so that basic rate taxpayers will get the full benefit, while higher rate taxpayers earning up to £100,000 will see one quarter of the benefit. Only those earning over £100,000 will see no benefit.

- As already alluded to, the additional rate of income tax will reduce from 50p to 45p from April 2013. The 50p tax rate was always touted as a temporary measure, and it seems that HMRC has conceded that a 50p top tax rate has raised little in additional tax receipts (one-third of what they expected). Given the “massive distortions” that the 50p tax rate has created, reducing it by 5p is expected to have no material impact on overall tax receipts.

- there was also a long-overdue clampdown on Stamp Duty avoidance schemes. A new Stamp Duty Land Tax of 15% will apply from today to residential properties worth in excess of £2m held within “company envelopes”. An annual charge may also apply from April 2013. Furthermore, Capital Gains Tax will apply to such properties (even if principal prime residences) from April 2013. The Chancellor also signalled an intention to move retrospectively in respect of the above.

- A new tier of Stamp Duty Land Tax of 7% will apply to properties over £2m in value, starting at midnight tonight. According to Land Registry data, this would have applied to just 121 homes (0.2%) bought in November last year (of which 98 were in London, or 1.3%). Clearly, this will only be effective if the loopholes are closed.

- Corporation Tax rates will continue to reduce, with a further 1p reduction next month (on top of the one already planned). From April, Corporation Tax will hence be 24p (although banks aren’t expected to benefit because the Bank Levy will increase to counteract this reduction) . I commended this change last year and commend it again as a good catalyst for growth. A new Corporation Tax regime for small businesses (turnover less than £77,000) will be implemented on the basis of cash flowing through the business. This should simplify tax returns if nothing else – there is no indication as to whether this might reduce or increase their tax bills.

- A General Anti-Avoidance Rule (“GAAR”) to help clamp down on tax avoidance is set to be introduced in the Finance Bill 2013. This has been mooted for some time, but by its very nature (i.e. ambiguous) is likely to be very controversial and it remains to be seen how effective one might be. The countries with GAARs (e.g. Canada, Australia and New Zealand) don’t tend to be any better off as a result.

- Tax incentives are to be introduced for patents as well as video games, animation and TV production, “to attract Disney and HBO to the UK.” Cue Wallace and Gromit gag.

- The Basic State Pension is to be simplified to a single-tier payment of £140 a week. This has been announced previously and more details are expected in the Spring.

- No change to alcohol and fuel duties. Big increases for tobacco, though (37p on a pack of cigarettes from 6pm this evening).

- There will be a new cap on “unlimited” income tax reliefs (a bit like the Annual Allowance when it comes to pension contributions). For those claiming income tax relief in excess of £50,000, a cap of 25% of income will apply. It’s important to note that this only applies to currently “unlimited” reliefs, so those that currently have limits (e.g. pension contributions, EIS and VCT reliefs) won’t be affected. Personally, I’m struggling to think of genuine examples of “unlimited” income tax reliefs.

- Finally, Child Benefit (currently £80pm for all families) is to be removed gradually for those families where one member earns over £50,000. Those earning over £60,000 will receive no Child Benefit at all. Note that it sounds like Child Benefit will still be paid, but it will clawed back through an income tax charge.

To summarise, if you’re a heavy-smoking higher-rate taxpayer approaching retirement, you’re probably the biggest loser. Especially if you have been or were planning to avoid Stamp Duty on your house in Millionaires’ Row.

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