What is the Autumn Statement?
The Chancellor will deliver his Autumn Statement on Wednesday 25 November. This will provide an update on the government’s plans for the economy based on the latest forecasts from the Office for Budget Responsibility, which will be published the same day.
The focus of the Autumn Statement is primarily economic; it is not one of the major events of the tax year, like the Pre-Budget Report which previous governments presented at the same time of the year, until 2009. Significant policy announcements in the tax area are now largely confined to the March Budget, except in the case where (as in July this year) a new government presents a post-election Budget. However, the Chancellor’s speech on 25 November, and the accompanying documents, may well mention some tax matters, though probably not in great depth.
The draft 2016 Finance Bill
Of more interest than the Autumn Statement, as regards tax, is the publication in draft, due on 9 December, of much of the legislation that will form the 2016 Finance Bill in the spring of next year. Most of this relates to policy announcements made in the Budgets of March and July 2015, on which the government has been consulting extensively since then.
Key tax items on which we expect more information on 9 December are:
- a new regime for the taxation of dividends;
- a tax-free allowance for interest income;
- rules deeming UK residents to be domiciled in the UK for income tax and capital gains tax (CGT) purposes if either they are long-term residents or they were born in the UK to UK-domiciled parents;
- measures to align the existing inheritance tax rules on deemed domicile with the new income tax and CGT rules;
- a reduction in the lifetime allowance for pension contributions from £1.25 million to £1 million; and
- measures targeted at serial users of tax avoidance schemes.
For a more detailed list of expected Finance Bill changes, click here.
What measures might be announced in the Autumn Statement?
While making significant tax announcements at the time of the Autumn Statement is a departure from the general pattern the government has set itself, experience suggests that it is unlikely to resist the temptation entirely.
The Chancellor has specifically indicated that the Statement will include transitional measures to ease the impact of the reductions in ‘tax credits’ that were announced in the July Budget, and on which the government recently suffered a defeat in the House of Lords. ‘Tax credits’, despite the name, are welfare benefits for working families, unrelated to the tax system. In theory some of the low earners affected by these changes could be compensated by changes to the income tax thresholds, but this seems an unlikely approach because such changes would inevitably affect a much wider range of individuals and would therefore be costly.
Road fuel duties
Road fuel duties have been frozen for several years. This is a politically popular stance, but a relatively expensive one in terms of revenue forgone. With inflation currently at a very low level, now might be the time for a modest increase in the duty at a time when it will not have a major impact on the cost of living.
The ‘BEPS’ project
The Organisation for Economic Co-operation and Development (OECD) released in October the results of its long-running Base Erosion and Profit Shifting (BEPS) project. This is designed to counter the reduction of the tax liability of multinational companies by means of measures that shift profits artificially to low-tax jurisdictions, or which otherwise reduce the tax base (i.e. the taxable profits). The proposals rely on enhanced co-operation between different jurisdictions, including the adoption of shared standards for allocating profits between them in certain situations. Implementation of these proposals will be a complex matter, but the Chancellor may well take the opportunity to welcome the OECD’s work and to give some indication of the government’s intentions.
A ‘law levy’
There have been rumours (but no more) that the government is contemplating the introduction of a ‘law levy’ on the largest firms of solicitors to fund court costs. Further details are given in our news story here. If this is indeed something that the government is considering, the Autumn Statement would provide a convenient opportunity to make an announcement.
Changes to the taxation of non-UK domiciled individuals
Following an announcement in the July Budget, the government issued a consultation document on 30 September dealing with proposed changes to the tax rules for individuals who are resident but not domiciled in the UK, and who may in certain circumstances be taxable on their foreign income and gains only to the extent that they are remitted to the UK.
There are two major changes proposed. One is that long-term residents will be treated as UK-domiciled for income tax and capital gains tax purposes in addition to (as now) for inheritance tax The other is that individuals born in the UK with a UK domicile of origin, who have acquired a domicile of choice elsewhere, will be treated as UK-domiciled for any periods for which they are resident in the UK.
The consultation only closed on 11 November, so it is unlikely that any definitive response will be available by the time of the Autumn Statement, but the Chancellor may give some indication of the government’s current thinking.
A separate consultation document is still awaited on a proposal to charge inheritance tax on those non-domiciled individuals who hold UK residential property indirectly through an offshore structure such a company or a trust. There is no particular reason to publish this document with the Autumn Statement rather than on any other day. However, the tax treatment of ‘non-doms’ was a politically contentious issue at the time of the General Election, and the Chancellor may perhaps welcome a high-profile opportunity to remind his audience that the government is actively making changes in this area.
The taxation of dividends
A significant change announced at the time of the July Budget was the abolition of the ‘tax credit’ on dividends (which effectively accounts for tax at the basic rate). Instead there will be a £5,000 tax-free allowance for dividends, and thereafter they will be taxed at higher rates than at present. There has been some confusion about how exactly this will work. No doubt the draft legislation to be published on 9 December will make the position clear, but the Chancellor may take the opportunity to comment in the Autumn Statement.
The Public Accounts Committee’s recent report on HMRC was strongly critical of certain aspects of the department’s performance, particularly customer service. The Chancellor may wish to comment on this, and perhaps to announce the allocation of increased resources to address this issue.
Recent Budgets have seen a number of significant changes to the taxation of pensions. Further changes now seem unlikely but, of course, nothing is certain.
The higher rates of income tax
In the longer term, some smoothing of the sharp rise from the 20% basic rate of income tax to the 40% higher rate would give a more rational structure to the tax system and would doubtless be welcomed by middle-income taxpayers. So, also, would the removal of the effective 60% rate that applies to income between £100,000 and £121,200, as a result of the gradual withdrawal of the personal allowance between those limits. Even if the Chancellor is sympathetic to such moves, however, making tax changes to benefit the better-off (however strong the rationale) may be politically unacceptable at a time when the focus is on the effect of tax credit changes on the poorer members of society.