Changes, changes and more changes

This year's autumn statement and spending review contained various interesting measures for private clients. Rumours had circulated that the government was planning 'stealth' rises in capital gains tax (CGT), coupled with cuts in valuable tax reliefs like entrepreneurs' relief to increase tax revenue, and counter fiscal pressures.

Fortunately these did not materialise, but the main losers from the statement were, in fact, land-owners and second home owners.

Stamp duty land tax

From 1 April 2016, individuals purchasing a second property such as a buy-to-let property or a second home will be hit with higher rates of stamp duty land tax (SDLT).

The rates will be three percentage points above the current SDLT rates, (for residential properties with a sale price in excess of £40,000). Significantly, this measure will not apply to property purchases by corporate entities and funds making 'significant investments' in residential property. A 'significant investment' is considered, for now, to mean holding more than 15 residential properties.

The merits of holding residential properties outside of a corporate structure will, once again, be brought into focus, although tax advisors will be acutely aware the considerations surrounding incorporation are far more wide ranging.

Deeds of variation

Deeds of variation are safe for the moment. This is welcome news as the use of deeds of variation goes beyond tax avoidance. For example, to ensure that an intestate estate is distributed according to the needs and wishes of the deceased's family or to alter a will or intestate distribution to divert funds to charity and, as a consequence, to secure the 36 per cent rate.

One must not also forget that deeds of variation do not exploit a 'loophole'. Instead they are specifically provided for in IHT and CGT legislation and are for tax planning purposes.

Capital gains tax

Non-UK residents selling UK residential property received some good news in the statement. The double charge that occurs in some circumstances when CGT is calculated on the disposal of a UK residential property will be removed.

After restricting the availability of entrepreneurs' relief in the 2015 budget, the government also announced that it will now consider bringing forward legislation to amend the changes made to entrepreneurs' relief. The aim is to support businesses by ensuring that the relief is available on certain genuine commercial transactions.

One unexpected change is that from April 2019, CGT payments on disposals of residential property must be made within 30 days of the completion of the disposal, a measure that will accelerate tax receipts. Currently, no such payment is required and the tax is payable in full on or before 31 January, following the end of the tax year of disposal.

Business investment relief

The government introduced this relief in 2012 with much fanfare, enabling resident non-domiciled individuals to invest their foreign income and gains in certain qualifying UK businesses (namely UK private limited, trading companies) without triggering the UK tax charges that would otherwise fall due on a remittance of those funds to the UK.

The government's announcement that it will consult on how to change the rules to encourage greater use of business investment relief to increase investment in UK businesses might be politically and economically motivated. It would also suggest that there has been very limited take up of this relief to date.

Tax evasion

The government continues to take a tough line on those avoiding tax. A new criminal offence for tax evasion was announced, together with new civil penalties for offshore tax evaders. Coupled with substantial new penalties of 60 per cent of the tax due to be charged for those cases where tax evasion is successfully tackled, these represent significant new measures.

Making tax digital

George Osborne allocated £1.3bn to transform HMRC into one of the most digitally advanced tax administrators in the world. An ambitious aim, but given HMRC's somewhat archaic reliance on paper, one wonders if £1.3 billion will be enough to see this through.

Digitising HMRC is certainly welcome, as many practitioners bemoan the current paper based systems which have long since lost pace with the digital world around us. If done well, I am sure it will be a move welcomed by taxpayers too.

Combined with the draft Finance Bill 2016, the next year promises to be a busy one for private client practitioners.

Sarah Robinson is a private client knowledge lawyer at Penningtons Manches