Autumn Statement - Top 3 announcements for our clients
Not long after moving into Number 11 Downing Street, George Osborne announced that he would do away with the Pre-Budget Report. Under Gordon Brown, the Pre-Budget Report had become a mini-Budget, packed with tax announcements that kept accountants at their desks and away from Christmas parties. Not so for George. He would have an Autumn Statement, focusing on economic growth and government finances. Tax could wait until the snow had cleared. Unfortunately, things did not go to plan in the first few years with tax dominating the headlines. However, George now seems to have got his way as there were few tax announcements in yesterday's speech.
The three announcements most likely to be of interest to our clients are considered below.
Abolition of employer NICs for the under 21s
Employer NICs - aka the 'jobs tax' - seems to be on the Chancellor's hit list (perhaps coming in just after the additional rate of income tax). He's been chipping away at it for the last few years now, introducing a £2k reduction for all businesses only last year (due to take effect from April 2014: see October blog postBetter late than never).
From April 2015, no employer's NICs will be due in respect of employees under the age of 21. As an example, an employer with a 20-year old employee earning £15,000pa will be over £1,000 better off using the rates currently in force.
Restriction of principal private residence relief (PPR)
PPR is what stops you having to pay capital gains tax (CGT) on the sale of your home: if you dispose of a property that is your home PPR removes the gain on the sale from the charge to tax. PPR is available for periods of occupation and for periods of deemed occupation, such as the last three years before the sale of a property. This is useful in a number of situations, including where the taxpayer has relocated to another part of the country and has held onto his old home for a while to see how things go.
In a surprise announcement yesterday, the Chancellor said that the 3yr time limit will be reduced to 1yr.
This will bring many more property sales within the CGT net, no doubt surprising a great number of individuals who suddenly find themselves with a tax bill to pay.
Clearly, this is one to watch out for if you are planning to live away from your home before you sell it.
Introduction of a transferable tax allowance for married couples
This one is a bit of a red herring as, unlike the abolition of employer NICs and the PPR changes mentioned above, it will have very little effect. However, it has been one of the few changes to grab the headlines and so you can expect to hear a lot about it in the months to come.
From April 2015, a person will be able to transfer £1,000 of their personal allowance to their spouse. This is great news on the face of it, particularly for those families where one spouse isn't working or is working reduced hours. However, there is a catch. The transferable tax allowance can only be claimed where neither partner is a higher or additional rate tax payer. As the basic rate band will be set at a lowly £31,865 from April next year (which isn't that far above the average wage of £26,500), less people will benefit from this than you would think.