Autumn Statement update: surprises but no need to panic

Most of the major announcements at the Autumn Statement followed consultations HMRC had conducted over the summer. However, it provided a few twists that surprised both tax professionals and the public.

We hadn't seen any changes in capital gains tax (CGT) for UK residents for some time until the announcement. Although there had been calls for the higher earners' rate to increase and for measures to discourage buy-to-let landlords, the actual change that occurred was unexpected.

The final period for principal private residence relief (PPR) - which allows owners to obtain it for the 36 months before disposal, even if the property is not being used as a main residence - will reduce to 18 months. While this may discourage buy-to-let landlords, the change also affects individuals who let out their home instead of selling when they move out. This comes into effect from 6 April 2014.

However, before individuals rush to complete a property transaction before that date, it is worth carefully reviewing a property's overall tax position. In addition to PPR, let properties that have been an individual's home benefit from lettings relief of up to £40,000. Each individual owning the property also has an annual CGT exemption (£11,000 in the 2014/15 tax year). Therefore the change's overall effect may have been overstated.

And non-UK residents for tax purposes who own second homes in the country will be liable to CGT when selling those properties. This legislation brings the UK into line with many other countries that tax foreign residents on property disposals.

The effects on individuals will depend in part on double tax treaties with wherever they are tax resident. Those in countries with similar or higher tax rates - many European jurisdictions, for example - will be relatively unscathed.

While this change will commence on 5 April 2015, we look forward to a consultation to resolve certain unanswered questions, including whether gains from ownership will be taxed, or only gains accruing after the legislation has come into force.

NICs and LLPs

Taxing LLPs will affect many. As well as expected measures to tackle using corporate members of LLPs for tax planning, the Chancellor announced legislation to bring many partners in LLPs into the employment taxes net.

The proposals remove the presumption that members of LLPs are self-employed for tax purposes. If they meet three conditions, they will be taxed as self-employed: the first relates to fixed remuneration, the second to management responsibility, and the third is about capital contribution. If the conditions are failed, members would be subject to higher NIC rates and the LLP to employers' NIC, which would be a real cost.

While this legislation will counteract those LLPs structured to avoid NIC, it will also affect many traditional partnerships. Accordingly, partners in LLPs should review their LLP agreements. The legislation comes into force on 5 April 2014, although it is still under consultation and will not be enacted until July 2014. We may therefore still see some changes.

Inheritance tax

Even though inheritance tax (IHT) was largely untouched, a HMRC consultation on the simplifying trust taxation concluded last summer. The main conclusions, issued on 10 December, were as follows:

The Finance Bill 2014 will include legislation to treat income that has remained undistributed in trusts for more than five years as part of the capital when calculating the ten-year charge. It's effective from 6 April 2014 and could entail a significant liability for some trusts.

The Finance Bill 2014 will align filing and payment dates for IHT purposes for trusts from 6 April 2014. It requires filing IHT account and payment of tax six months after the end of the month in which the chargeable event occurs. This is a considerable change in the filing date, which currently stands at 12 months from that same point. The payment date will therefore be less complicated but will cut the payment window for some trusts by up to six months. Trustees and advisers are urged to be more mindful of deadlines and cash flow.

Further proposals on splitting nil rate bands between the number of trusts one settlor creates are under consideration. Legislation is anticipated in the Finance Bill 2015.

Lucy Brennan is a partner at Saffery Champness

She writes a regular blog on tax and estate planning for Private Client Adviser

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