Osborne headlines on stamp duty but disappoints on inheritance tax
4th December 2014
The property market was top headline for Chancellor George Osborne in this year's Autumn statement, with a radical change to stamp duty which should see 98% of buyers better off.
Highlighting that the UK is currently the fastest growing economy in the G7, the Chancellor announced an improved economic growth forecast for 2014, increased to 3% from the 2.7% predicted in March, and against a backdrop of 500,000 new jobs created this year, of which 85% were full time.
Grabbing everyone's attention was the news that stamp duty was to shift from a so-called 'slab' tax to a 'slice' tax, like income tax. It means that buyers will now only pay at the relevant rate for each band, rather than a flat rate across the whole amount. The result is that most buyers should find there's less cash to pay on completion – Government figures suggest average buyers will save £4500. The gain is at the expense of those buying at the top end of the market, with a new rate of 12% for the tranche above £1.5m.
Also on the property front, the Chancellor introduced further changes designed to bring in more revenue through Capital Gains Tax (CGT), with clarification of measures first announced last year, whereby gains arising on disposal of residential property by companies or individuals based overseas will be charged to capital gains tax in the same way as UK resident individuals. The non-residents will be allowed the usual CGT annual exemption and the tax will only apply to gains made above market values from 5 April 2015, when the new charge comes into force.
For oligarchs, expats and second home owners, from 6th April 2015, there are changes to the principal residence relief rules and these will apply to UK residents disposing of a property abroad and also to non-residents disposing of a UK property. A property will not be eligible to be counted as the principal residence, and therefore free of CGT, unless either the person making the disposal was resident for tax purposes in the same country as the property for that tax year, or the person spent at least 90 overnight stays in the property.
On the personal taxation front, there's an important change to the ISA rules when someone dies. With immediate effect, their spouse or civil partner will now be able to inherit their ISA funds and keep the tax-free status. In addition, the ongoing annual ISA allowance will be transferred to the survivor, in addition to their annual ISA allowance. The rule will only apply to married couples or civil partners.
On the inheritance tax front, higher net worth individuals who had set up multiple trusts had feared a change in regime. It had been expected that the Government would introduce a single nil rate band to be shared between all trusts set up by an individual, but this proposal has been put to one side with the Government saying it will, instead, introduce measures to curb tax avoidance through the use of multiple trusts. There will also be changes to simplify the calculation of inheritance tax on trusts.
For those hoping for an increase in the inheritance tax nil rate band, particularly as a pre-election sweetener, this has been held at £325,000. Whilst property prices continue to rise, it means that many more families are caught by the tax and it is worth reviewing circumstances with advisors to see if there is anything that can be done, for example with lifetime gifts.
On the employment law front, it's likely that the increasing use of overarching contracts of employment by employment intermediaries such as 'umbrella companies' will be changed next year. Currently, such arrangements allow workers to obtain tax relief for home-to-work travel that would not otherwise be available. A discussion paper will be published shortly and new measures are expected in the 2015 Budget.
The new Stamp Duty bandings are as follows :
0% will be paid for the first £125,000 of any purchase
2% on the portion above £ 125,000 up to £ 250,000
5% on the portion above £250,000 up to £925,000
10% on the portion above £925,000 up to £1.5m
12% on the portion above £1.5m
To see how the figures work out, use the calculator been set up on the Government's website: https://www.hmrc.gov.uk/sdlt/calculate/calculators.htm
If you require assistance with the above, please contact us on 01491 572138 or email;
Mike Beadsworth in our Conveyancing Department email@example.com
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