Q. It is possible for you to summarize some of the main tax changes announced by George Osbourne in his last Autumn Statement?
A. The Chancellor delivered the 2011 Autumn Statement on 29 November keeping to the course he set out last year. He made no adjustment to overall spending and borrowing, saying “people know that promises of quick fixes and more spending this country can’t afford, at times like this, are like the promises of a quack doctor selling a miracle cure”.
The majority of the Chancellor’s statement centered on initiatives to drive private sector growth and further restrain the cost of the public sector, and responded to the OBR’s forecasts.
As expected, the statement did include a few tax announcements, including some important surprises, which are highlighted here.
Corporate tax system
The Chancellor once again confirmed the Government’s commitment to develop the most competitive corporate tax regime in the G20, trailing next year’s reduction in the mainstream rate to 25% and the draft foreign profits legislation to be released next week.
He also announced that 100% capital allowances would be available for plant and machinery investment incurred between April 2012 and March 2017 in the following six English Enterprise Zones: Black Country, Humber, North Eastern, Sheffield, Tees Valley & Liverpool.
Discussions between the Government and the devolved administrations may lead to enhanced capital allowances becoming available in other UK Enterprise Zones.
Consultation will commence at Budget 2012 to introduce an ‘above the line’ tax credit to encourage research and development activity by large companies. This is intended to build upon the measures announced in the Budget 2011 to increase the generosity and accessibility of R&D tax credits for SMEs, but no details have been announced at this stage.
Relatively little new corporate tax anti-avoidance was announced. It will however, be put beyond doubt that manufactured overseas dividends cannot be used to obtain repayment or set off of income tax not paid over to HMRC. Furthermore, the amount of tax relief given to employers making asset-backed pension contributions to registered pension schemes will be clarified so as not to give rise to additional relief from tax geared schemes.
Income tax and capital gains tax
From April 2012, in a further significant improvement to the Enterprise Investment Scheme, 50% income tax relief will be provided in qualifying new startups of up to £100,000, regardless of the investor’s marginal rate of income tax.
This new Seed Enterprise Investment Scheme (SEIS) may be more of a major headline than a major new tax incentive, however, as individual companies are restricted to a cumulative investment limit of £150,000 and the budgeted cost is a mere £50m in year one. It is also subject to state aid approval.
A capital gains tax holiday will be offered for investments made to the SEIS. This will provide for CGT exemption on gains realised on disposal of an asset in 2012/13 and invested through SEIS in the same tax year, giving overall tax relief at up to 78%.
There will also be consultations on relaxing connected person rules for the Enterprise Investment Scheme and anti-avoidance to prevent its general abuse. The £1m investment limit per company for Venture Capital Trusts will be removed to reduce the administrative burden of the scheme.
The above measures will largely be paid for by a freezing of the CGT annual exemption of £10,600 for 2012/13.
At the time of writing a significant amount of draft legislation was due to be released on Tuesday 6 December, so watch out for further updates
In addition to the announcements made above I detail below a reminder of some of the changes already announced that are being made from 6 April 2012.
Income tax and personal allowances
The personal allowance for those aged under 65 increases to £8,105 from 6 April 2012. However, the advantage to higher rate taxpayers will be countered by a lowering of the higher rate threshold, to £34,370.
The current system of capital allowances will see significant changes from April 2012, including a reduction in the amount of expenditure on plant and machinery which qualifies for a 100% year one write-off (via the annual investment allowance) from £100,000 to just £25,000.
In addition, for chargeable periods ending on or after 1 April 2012 (for businesses within the charge to corporation tax) and on or after 6 April 2012 (for businesses within the charge to income tax), the rates of writing down allowances will be reduced to 18% (main rate pool) and 8% (special rate pool).
Pensions tax relief lifetime limit
The lifetime allowance on money that can be accrued in a pension fund and still receive tax relief, is set to fall from £1.8m to £1.5m from April 2012.
A reduced inheritance tax rate of 36% will apply from 6 April 2012 to death estates, where 10% or more of the net estate is left to charity.
If you need any further help or information then please call our tax advice service on 01455 852550 who will be able to assist you.