In his Autumn Statement, Chancellor George Osborne revamped stamp duty that will see the levy being cut for 98% of homebuyers, and made changes that will enable partners to inherit a deceased spouse’s Isa.
Outlining the measures in his Autumn Statement, Osborne said the stamp duty reforms, which come into force from midnight, will mean new marginal rates for the tax. They comprise no tax on the first £125,000 paid by homebuyers; 2% on the portion up to £250,000; 5% up to £925,000; 10% up to £1.5m and 12% on everything over that.
The chancellor said the reforms were needed as the current system, where the amount owed jumps at each threshold level, is “badly-designed”.
He added that homebuyers who have exchanged contracts today but have not yet completed the purchase can choose whether to use the old or new system.
The BBC’s political editor, Nick Robinson, echoed the view of many commentators by noting that the stamp duty reforms were the Tories’ “own version of the mansion tax” proposed by Labour.
Isa to keep tax-free status on death
On the Isa front, for deaths on or after the 3 December, surviving spouse’s will have an additional Isa allowance, equal to the amount the deceased spouse had in their Isa, which can be used from 6 April 2015.
The Isa limit is also to be increased to £15,240 from 6 April 2015 from £15,000.
Danny Cox, chartered financial planner at Hargreaves Lansdown, says: “Couples almost invariably manage their money jointly using individual tax wrappers such as Isas to shelter their savings and investments from tax. This change has righted a wrong in the tax system which was the source of deep frustration and additional cost for surviving spouses.”
The move was also welcomed by Tony Stenning, head of UK retail at asset manager BlackRock. He said: “Today’s announcement by the Chancellor is another step in the once-in-a-generation opportunity to change Britons’ attitudes to saving and developing long-term policies which put savings back at the heart of the country’s economic agenda.
Stenning said Blackrock’s own research shows that 40% of Britons save or invest in Isas, with many using them as portable savings pots to supplement their pensions. “Isas are a simple, accessible and tax efficient savings vehicle. Their continued success shows that Britons are inclined to save more if they have greater certainty around the taxable benefits within well designed products that are both accessible and simple.”
Pensions tax cut
Osborne also announced the end of the 55% death tax when transferring pension pots after death and the ability to pass on annuities if the holder dies before age 75.
Tom McPhail, head of pensions research at Hargreaves Lansdown said: “Confirmation that death benefits paid from annuities will enjoy the same tax treatment as income drawdown, is a welcome equalisation of the new rules. It means investors will not be penalised for selecting the security and efficiency which an annuity offers.”
Big crackdown on corporate tax avoiders
There have been widespread calls for a crackdown in on tax avoiding corporations, and Osborne did not disappoint on this front. He said that banks will no longer be able to write off taxes against losses. That, together with other tax measures aimed at the sector, will bring in £4bn over the next five years, he said.
Shares in banks including HSBC, Barclays and Lloyds edged down on the news.
Osborne’s tax crackdown will also rope in multi-national companies who avoid paying the HMRC “hundreds of millions of pounds” by siphoning off profits to offshore entities. Such companies will now be liable for a diverted profits tax, Osborne said. The measures are aimed in particular at technology companies such as Google and Microsoft, though Osborne did not name and shame.
An analysis by the FT of seven US technology giants found they paid just £54m in UK corporation tax. Their UK turnover was declared at just £1.7bn in 2012, even though their overall sales to British customers totalled $15bn.
Investment managers who disguise fee income as capital gains to avoid paying tax are another tax target for Osborne. There has been an increase in such abuse recently, he said.
Legislation will come into force from 6 April 2015 that aims to ensure sums paid to investment fund managers are charged to income tax. The crackdown “will affect sums which arise to managers who have entered into arrangements involving partnerships or other transparent vehicles, but not sums linked to performance, often described as ‘carried interest’, nor returns which are exclusively from investments by partners”.