Autumn Statement 2016: Will our wishes come true for private clients?
In Philip Hammond's first Autumn Statement, we await to see how he plans to shape the economy and tax system, whilst balancing the government's spending. Will this be a light touch statement or are we in for a raft of further changes? How will the changes impact individual taxpayers?
In the run up to the Autumn Statement, Blake Morgan considers what we hope to see covered.
Widen the beneficiaries of the Residence Nil Rate Band
Whilst we would welcome the new IHT allowance to be simplified, we would settle for it to simply be fairer. Thanks to the press, many clients already think that they have a '£1m Nil Rate Band' when in reality they have a £325k allowance presently and it starts to ratchet up from April 2017 provided that certain criteria are met. By April 2020, they may have a £500k allowance but only as between spouses or civil partners, only if there is a main residence (or it has been disposed of in certain circumstances) and the total estate doesn't exceed a certain limit and only if they are leaving to their 'children'. The exemption is designed to benefit those wishing to pass wealth to their dependents but why does it only apply to those who are married or in civil partnerships and only to their children rather than any other chosen beneficiary? We would urge Mr Hammond to rethink this.
Unfair consequences of the SDLT surcharge
The SDLT 3% surcharge on second homes has resulted in a nasty trap for those who have not lived in their property for over three years. They might have been living in job related accommodation or renting, but retained and rented out their previous home so as to remain on the property ladder. This applies to many situations, but examples are vicars who live in a vicarage owned by the church, or teachers at independent schools who live in the boarding houses.
If they buy a new home to live in before they sell their previous home, they will have to pay the 3% surcharge. Worse, they cannot recover the surcharge when they later sell their old property. That is because three year rules are already in force where the purchase takes place before the sale. An extension to the transitional provisions to assist these types of individuals would be of assistance here.
Another area where the rules are applying unexpectedly is leasehold renewals. Long leaseholders paying £40,000 or more to extend the lease of their home are often now caught by the 3% surcharge if they own another residential property. This frequently comes as a surprise and does not fit well with the policy of the surcharge. A specific exemption would be welcome here.
Delay the non-dom changes
No one should be excused from paying tax rightfully due and the system was due an overhaul, but with the decision to leave the EU, there are additional complex factors surrounding many individuals' decisions of whether to stay or leave. Whilst it won't be universally popular, could the government delay imposing the non-domicile changes scheduled for 6 April 2017?
The uncertainty over Brexit, coupled with the uncertainty, still, over what these changes will involve leaves very little time for individuals to make decisions that could affect their families, their children's education, their business interests and long-term plans. A delay to 6 April 2018 would give a much clearer picture for tax payers and their advisers.
Other non-dom consequences
Certain non-doms are also going to find their tax status radically altered. From next year, people who are domiciled elsewhere through choice but have a UK domicile of origin (maybe just because a parent was born in the UK) will automatically become domiciled for all taxes as soon as they become resident in the UK. This will hit people who might be planning to live in the UK just for a short time – perhaps to look after ageing parents, or send the children to school.
There is going to be a grace period so such non-doms can live in the UK for short periods without becoming domiciled for inheritance tax – so why shouldn’t this be extended to all taxes? Moving countries is hard enough and people who are only planning to live in the UK temporarily would appreciate not having to chop and change their tax status, just because they have a UK domicile of origin. The reasoning for treating this class of non-doms differently from everyone else isn't clear – and doesn't seem very fair.
If you have any queries about how the Autumn Statement may impact you, please contact your usual Blake Morgan adviser.