Autumn Budget 2017: all around the houses

The chancellor of the exchequer, Philip Hammond, delivered his second Budget on 22 November. Given the general view that he did not have a particularly strong hand to play, radical changes were neither expected, nor presented. It was widely trailed that housing measures would be central to this Budget and so it was appropriate that the announcement most likely to grab headlines was the abolition of SDLT for first-time buyers up to £300,000 (and 5% between £300,000 and £500,000).

Will this solve the housing problem? Jeremy Cape, partner at Squire Patton Boggs, has his doubts: ‘Alistair Darling introduced this in 2010 (up to £250,000) so at least they can use the old drafting’, he quipped. The CIOT highlighted a November 2011 report from HMRC which concluded that the policy had little effect on improving the affordability of homes. The CIOT also expects discussions on how land and buildings transaction tax might be adapted to support first-time buyers in Scotland, with the Scottish Budget due in December.

Not mentioned in the speech was the proposed extension of capital gains tax to include disposals of UK commercial property by non-residents from April 2019, as well as indirect disposals of residential property. The detail is set out in a consultation document, with a separate technical note containing an anti-forestalling rule to apply from 22 November.

Business measures included a doubling of the EIS annual investment limit for individuals to £2m, provided any amount over £1m is invested in one or more knowledge-intensive companies, with the annual investment limit for knowledge-intensive companies doubled to £10m from April 2018.

Demonstrating the government’s commitment to tackling tax avoidance and evasion, the Budget included 18 new anti-avoidance measures, forecast to raise an additional £4.8bn between now and 2022-23. These include three changes having immediate effect from 22 November, concerning intangible fixed assets related party ‘step-up’ schemes, adjustments for depreciatory transactions within a group, and a change to the double taxation relief TAAR.

The decision to introduce a withholding tax from April 2019 on royalty payments made to low or no-tax jurisdictions in connection with sales to UK customers is one part of the government’s plans for plugging holes in the international tax system exposed by the digital economy. A position paper sets out a combination of coordinated reforms within the OECD framework and unilateral measures. ‘Reforming international tax rules for digitalisation is a hugely complex task’, said Carolyn Fairbairn, CBI director-general, warning that ‘unilateral changes hamper coordinated international action to reform the global tax system and can damage countries’ competitiveness’. The CIOT also struck a cautionary note about the effectiveness of unilateral measures without broader international agreement.

Despite much speculation around VAT threshold changes, this will remain frozen at £85,000 for the next two years. Measures to extend VAT joint and several liability for online marketplaces and the requirement to display VAT numbers online will be included in the forthcoming Finance Bill. A number of the other anti-avoidance measures are to be the subject of consultations in December 2017 or early in 2018.

The CIOT expressed regret at the government’s decision not to extend disincorporation relief beyond the current 31 March 2018 expiry date. John Cullinane, CIOT tax policy director, said: ‘We hope that the government will keep this area under review. A broader relief with some anti-avoidance provisions might play a sensible part in a more rational overall system which tries to reverse the current tax incentive for businesses to incorporate’.

In all, 22 consultations and calls for evidence are promised between now and Spring 2018, as listed in Annex B of the Budget overview document.

Ten measures were introduced with immediate effect:

·         removal of CGT transitional rules on carried interest;

·         removal of six-year time limit on corporate CGT adjustments for depreciatory transactions;

·         restriction of double taxation relief for overseas permanent establishment losses;

·         application of market value rule to intangible fixed asset licences granted between related parties;

·         disguised remuneration close companies’ gateway rules to apply whether or not amounts contributed were taxed previously as employment income;

·         widening the scope of the double taxation relief TAAR;

·         backdating of marriage allowance claims on behalf of deceased partners by four years (effective 29 November);

·         adjustments to SDLT higher rates for additional dwellings;

·         new SDLT relief for first time buyers; and

·         removal of an unintended CGT charge on assets transferred to a non-resident company in exchange for shares on restructuring.

The Finance Bill will be published on Friday 1 December. Next Budget: Spring 2018.