RL360’s Neil Chadwick and Aegon’s Margaret Jago highlight how no lifetime ISA cap was announced. Chris Moorcroft, international tax specialist at London law firm Harbottle & Lewis, looks at capital gains tax for UK property held by non-residents. Skandia’s Colin Jelly considers the advice opportunities in the light of the government still pressing ahead with single nil rate band across all trusts. Friends Provident International’s Brendan Harper, meanwhile, looks at the implications of the rise in State pension age and the conclusion of the review of the Government Actuaries Department (GAD) rates that are used to set maximum drawdown limits on UK pensions.
Neil Chadwick, technical manager RL360 – Duller than an incredibly dull thing!
These are probably the words that Blackadder would use to describe this year’s Autumn Statement however; sometimes dull is good, especially where Governments and budget statements are concerned.
The good thing about the Autumn statement is that it gives you a fair bit of warning as to what’s likely to happen in the Budget proper next year, so if it wasn’t mentioned, then we are pretty safe to assume that no changes are intended for a particular area. However, we do always live with that swearword ‘retrospective’ which often raises its head in March.
So what never happened? The anticipated lifetime ISA cap never materialised which is clearly really good news for advisers as ISA’s are generally the public’s first stepping stone to more significant investment.
No further restrictions on the Lifetime allowance for Pensions. We already knew that the limit was being reduced for 2014 but it would have been quite easy to earn a quick buck by further restrictions being imposed for later years. Some commentators had also suggested that the Pension Commencement Lump Sum was going to be taxed or restricted but this never happened either.
No additional surprises in the areas trusts and IHT other than the simplification of charges on discretionary trusts and the planned consultation to split up the nil rate band , so other than having a possible impact on Rysaffe type planning , there are still good opportunities in this area.
Offshore bond planning remains the same, nothing planned to restrict existing reliefs.
Taxes in general didn’t go down but I suppose nobody really expects that now anyway.
The Lib Dem’s still haven’t got their mansion tax although the introduction of CGT on properties owned by non-residents will probably go some way to appease them.
Finally, we can still get our shopping in free plastic bags.
Chris Moorcroft, international tax specialist at London law firm Harbottle & Lewis – capital gains tax on non-resident UK property
A much anticipated change to the taxation of non-residents’ UK property holdings will be introduced in 2015, with a consultation process to start next year.
Currently, individuals resident outside the country do not pay capital gains tax in the UK, even on the disposal of UK assets. This contributes to the attractiveness of property as an investment class for foreign investors, and is one of many factors boosting values in London.
The measure, which was announced as part of Chancellor George Osborne’s Autumn Statement, referred to a capital gains tax charge being introduced on “future gains”. This implies that historic gains on UK properties will fall outside the charge and will come as a relief to the large number of non-residents who have owned UK properties for a long period.
The new rules will almost certainly catch ex-pats, too. As a result, they may in future suffer a UK capital gains tax charge if they sell their UK property.
The changes are also likely to affect other non-resident owners such as trustees and companies, together with their beneficiaries and shareholders.
It remains to be seen how the changes will interact with the vast array of other complicated rules which apply to these entities, and in particular the rules on capital gains tax introduced as part of the new annual tax on enveloped dwellings, which targets high value properties owned by corporations.
Finally, individuals should bear in mind that if they have they no intention of selling their UK property, the changes should hopefully have little impact. When they die their assets (including any UK properties) are automatically re-based to current market values for CGT purposes (although the quid pro quo is that UK inheritance tax is normally payable). There is no current indication that this rule is likely to change.
Margaret Jago, international technical manager, Aegon Ireland – no lifetime cap on ISA savings
There was widespread speculation before the Autumn Statement that the Chancellor would announce a lifetime cap on ISA savings, with a figure of £100,000 being predicted. No announcement was made on this, so even investors with significant wealth in ISAs can continue to invest up to the annual limit. This limit increases to £11,880 for 2014-15.
Even though no cap on ISA savings was introduced, people with significant ISA savings might want to consider whether continued ISA saving makes sense. ISAs are a great shelter from income tax and CGT, saving tax at rates from 18% to 45% on income and gains. These savings can be more than balanced out by the fact that there’s IHT on ISA holdings when the investor dies. That could cost 40% of the entire capital.
A change in the ISA rules from summer 2013 could start to address this IHT issue. ISA savers can now invest stocks and shares ISAs in AIM shares. These shares usually qualify for IHT exemption under the Business Property Relief rules once they’ve been held for 2 years.
ISA investors who want to mitigate IHT will therefore want to think about whether holding AIM shares is within their risk tolerance. Some investors might find this unacceptable, and they’ll need other solutions like the traditional approach of holding offshore bonds in trust wrappers.
Colin Jelley, head of wealth planning at Skandia – Government still targeting multiple nil rate bands on trusts
I feel a sense of disappointment that the Government still seem intent on pressing ahead with the introduction of a single nil rate band across all trusts. These changes have been positioned by the government as a simplification measure, but are little more than another way of raising tax revenue.
The change could significantly raise the tax liability on trusts, with some being liable to a 10 year periodic tax charge for the first time.
Currently, if a settlor creates a number of trusts, each below the IHT threshold of £325,000 then, depending on when these trusts were set up, they potentially don’t need to pay any tax at the 10 year periodic charge point. Under the proposed changes these trusts will share a single nil rate band and could mean some trusts now become liable to tax for the first time, with some having to pay more tax.
The legislation is expected to be retrospective, impacting all existing trusts.
I expect there will be thousands of clients impacted by this, creating an advice opportunity for advisers. Clients will potentially need to have their trust arrangements reviewed to ensure they are structured in the most tax efficient way possible.
Despite these proposed changes, trusts will remain an important tool for financial advisers. The periodic tax charge every 10 years (which is up to 6%) could still be a more attractive option for families when compared to the substantial 40% inheritance tax rate on death.
Brendan Harper, technical services manager, Friends Provident International – the rise in the state pension age, conclusion of review into Government Actuaries Department (GAD) rates
The main change in relation to pensions is the expected increase to the state pension age.
At present, the state pension age is 60 or 61 for women and 65 for men, which will rise to 66 by 2020 and 67 by 2028.
The statement sets out the guiding principle that the government believes should underpin future reviews of the stet pension age. This principle is that people should expect to spend, on average, up to one third of their adult life in receipt of the State Pension.
This principle implies that the increase in the State Pension age to 68 is likely to come forward from the current date of 2046 to the mid 2030s and that the State Pension age is likely to increase further to 69 by the late 2040s.
For those affected by these changes, it may not be the end of the matter: changes to the State Pension age will be considered as part of future reviews, taking into account demographic data available at the time.
The Government also announced today that it had concluded its review of the Government Actuaries Department (GAD) rates that are used to set maximum drawdown limits on UK pensions. This review was commissioned to ascertain if income drawdown rates are a reasonable match to annuity rates. In light of GAD’s findings that withdrawal rates are a reasonable match to annuity rates, the government will not change the basis on which the GAD tables are formulated.
For UK expatriates who have accrued UK pension funds, this change may be a reason to seek advice on whether to transfer the fund to an overseas scheme, where the maximum drawdown could be higher.
