Partner Article

Coutts' perspective on the Autumn Statement

Dominic O’Connell, Executive Director, Head of Tax Trust & Estate Planning at Coutts, shares his views on the Chancellor’s statement.

Autumn statements usually lack the punch and relevance of a spring budget, but not this year. The UK economy’s stubborn refusal to grow has knocked the Chancellor’s borrowing targets off kilter and forced an extension of austerity measures. This ‘mini-budget’ also announced an unusually high number of controversial and high-profile measures, most notably….

Top-earner pensions penalised

Although the changes announced today were significant, it was at least a silver lining that the changes will not come in to effect for at least another year. However, we are disappointed to see that both the pension’s lifetime allowance reduced from £1.5m to £1.25m and the annual allowance will reduce to £40,000 from £50,000. Although the Chancellor stressed that this would only affect a small percentage of people its impact could be significant for many of the wealthy.

Osborne targets tax dodgers

George Osborne has sought in previous budgets to crack down on tax-avoidance, but robust comments in the Autumn Statement, and the restated commitment to a General Anti-Abuse Rule, underscores the Government’s thinking on this topic.

The fine dividing line between what is deemed acceptable and unacceptable tax planning was once reserved for the legal and accountancy world. This is no longer the case - a number of high profile schemes over recent months have catapulted the issue of tax to centre stage in the public’s agenda.

Income tax relief cap threatens entrepreneurship

The proposed cap on income tax relief was one of the more controversial measures from the last budget. Following consultations over the summer, the Government made a U-turn and confirmed the cap would no longer apply to charitable giving, although most other aspects of the proposals are likely to come into effect from 6 April 2013.

We remain very concerned about the impact of the cap on entrepreneurship. For example, as the proposals currently stand tax deductions for loan interest and ‘early’ trade losses associated with certain, often embryonic, trading businesses could be severely restricted. Effectively the Government is capping its own incentive mechanism when it is arguably needed most.

Impact on entrants to the UK

Of positive note, we expect the proposed pension changes to have very limited or no impact on wealthy people coming to the UK, with these changes being outweighed by the wider economic and social attractions for wealthy inpats.

Top-rate cut encourages income deferral

Top-rate taxpayers are likely to defer income, where possible, to the next tax year to exploit the reconfirmed cut in the top rate of income tax from 50% to 45% from April. However, time is running out to effectively plan for this. With capital gains tax remaining at 28%, investing for capital, as opposed to income, returns could prove more attractive.

’Mansion Tax’

The debate over whether a ‘mansion tax’ should be charged on high value residential properties is an extremely contentious and emotive issue both in and outside of the Government. Property owners and buyers have only just been hit by an increase in SDLT for properties valued over £2m and so the introduction of an annual ‘mansion tax’ could have proved hard to bear. Not only would this measure have been extremely unpopular with many high net worth individuals, it could also have been considered unfair for the typically more elderly population living in certain property ‘hot spots’, who may have benefitted ‘on paper’ from the rise in house prices while they themselves are very income-poor.

Personal allowances

As expected the Chancellor reaffirmed the coalition’s aim of raising the personal allowance to £10,000 and most will be pleased that the previously announced increase for April 2013 has been enhanced.

This was posted in Bdaily's Members' News section by Coutts & Co .