THE AUTUMN STATEMENT: A PERSONAL VIEW

  
By Alan Pink

  
Increasingly dreaded by the minority of people who pay the majority of this country’s tax, the Chancellor’s Budget pronouncements these days seem to be pretty relentlessly bad news. On 25th November 2015, though, the content of the announcements, insofar as they related to tax, was fairly scant. For once Mr Osborne seems to have resisted the temptation to add several more reams of tax legislation to the statute book. But before praising him for his restraint in this, remember that he has already had two Budgets this year, in March and July!

This article doesn’t aim to be an exhaustive résumé of the Autumn Statement. Instead, as in some previous years, I’ll pick out the (comparatively few) points that stuck in the mind when the Chancellor had sat down and the HMRC press releases had become public.

It’s becoming clearer and clearer, every time a Budget or mini-Budget happens, that this Government is on a mission to try to slow down rampant residential property price inflation. This is obviously what’s behind the major attacks on the residential property investment sector, which seem to come around twice a year. A couple of years ago we had the annual tax on enveloped dwellings, an apparently pointless extra tax that particularly penalises overseas investors in UK property; we had increases in stamp duty land tax (SDLT), the withdrawal of CGT exemption for non-residents – on residential property only, not commercial and earlier this year we had the truly vicious withdrawal of higher-rate interest relief for buy-to-let investors in residential property (more of that elsewhere in this edition) – and now, in the November 2015 Statement, we had a 3% hike in SDLT for those buying buy-to-let or second homes.

In view of the clear intention of all of these measures to slow down the residential property market, this latest change is a bit of a puzzle. After all, adding an automatic 3% on to the price of residential property acquisitions is in itself inflationary. And where else can your average, reasonably well-off investor turn? Pensions have been comprehensively emasculated by a series of government ‘raids’; the stock market bumps along at about the same level for year after year while general inflation continues to erode the value of a stock market portfolio; a lot of people have been driven into property investment because there is really nowhere else remotely sensible, they feel, to put their money.

But what is the practical impact of the SDLT hike going to be? It’s obviously too early to say, but one of the first things that occurs to me is that it is going to be a very difficult measure indeed to police. Presumably, it will be a self-assessed tax as before, and so somebody who buys a property as their main residence, rather than for letting or as a second home, is going to have to be able to claim relief from the new tax. But what happens if, for example, someone buys a property as their own home and then later on decides to let it, or it becomes, perhaps gradually and imperceptibly, a ‘second home’, as another residence belonging to that person become more important? For how long are people in this situation going to have to wait to see whether they have the lower SDLT rate? Frankly, I think introducing a tax charge like this which depends on intentions and nebulous concepts is bad law making.

Another announcement that caught my eye was that the March 2015 changes to entrepreneurs’ relief were under reconsideration. To those who haven’t seen the rants about this change in these pages, I’ll briefly recap. Under cover of an announcement saying that a specific ‘abuse’ of entrepreneurs’ relief was going to be stopped, the Finance Act, introduced in eight days from Budget to Royal Assent in March of this year, actually made huge and wide-ranging changes to entrepreneurs’ relief – needless to say, for the worse. Entrepreneurs’ relief means you pay 10% capital gains tax on qualifying assets (rather than 18 or 28%) when you sell a business.

The change, which was sneaked in (I can use no other phrase) in March 2015, was to treat any membership of a partnership or joint venture by a trading company as if it were an investment activity, which therefore has a tendency to exclude the availability of entrepreneurs’ relief. So if you are a builder, for example, and instead of doing a property development project on your own you go into partnership with another developer, or someone who finances developments, all of a sudden your company loses its trading status, and the sale of your company shares, or the winding up of the company, is suddenly nearly three times as expensive in terms of capital gains tax (CGT). Apparently quite arbitrary and unfair. I understand in any event, through my MP, that this is being reconsidered (or rather considered for the first time – the changes were rushed through Parliament with no scrutiny whatsoever first time round), and with any luck we may get a less unjust and better targeted change in due course. We can only wait and see.

The third announcement that caught my eye is a particularly intriguing one, and, as a reverse to the normal situation, could well be good news under the guise of bad news.

The rather obscurely worded commentary talks about intangible assets being transferred to connected partnerships, and the company member of the partnerships then claiming a write-down under the ‘intangible assets’ corporation tax relief rules. Actually, it would be news to most people that you could do this! But what the commentary tacitly admits is that this has been possible for the last thirteen years. Expect a few tax refund claims to be put in, where you have the following ingredients:

What most hit the headlines, on the tax front, in the Autumn Statement was Mr Osborne’s announcement of another £800 million to employ crack inspectors to clamp down on avoidance. Looking at this in my role as a citizen, and not so much as a tax adviser, I have to say this seems an eminently sensible thing to do. What has been far less sensible, and emanated from Gordon Brown’s period at the helm, has been the huge reduction in staff numbers at HMRC, by nearly 50%, in the last 10 years. Some of this, no doubt, is made up for by putting more of the onus on taxpayers to do all the work – particularly in the area of IT. But obviously it makes HMRC less effective as a tax-raising ‘army’ if you disband half of its regiments. It made me laugh to see the Revenue being hauled over the coals by the politicians for their bad service recently: what do the politicians expect when they’ve sacked nearly one in every two staff members?

What we really need, of course, isn’t an ever-growing army of anti-avoidance police but a tax system that makes some kind of sense and isn’t constantly being tinkered with, and added to, once or twice a year. If we had a simple tax system (which is quite possible to achieve) we could indeed make savings on HMRC staff. If I were Chancellor, I would put through a number of sweeping reforms to make the tax system simple, rather than the nightmare of complexity and grey areas that so encourage avoidance which it currently is: