Autumn Statement 2015

The Chancellor has announced the date of the Autumn Statement.

In late July, the Chancellor announced that the results of the Spending Review would be announced on 25 November. At the time he made no reference to the Autumn Statement, probably because the focus was still on his July Budget. However, in the beginning of September an exchange between Mr Osborne and the Office for Budget Responsibility revealed, much as expected, that 25 November will also see the publication of the Autumn Statement.

In recent years the Autumn Statement has increasingly become more like a second Budget – last year’s was particularly notable in this regard. This time around there may not be quite such a Budget overlay, if only because the Chancellor has already presented two budgets in 2015. In July’s he announced most of the income tax details for next tax year, revising figures he had put forward in March. It is difficult to imagine he will make further changes on this front.

Nevertheless there will be two areas worth watching:

  • Pensions The July Budget was accompanied by a consultation paper on the future of pension taxation, which contained little detail, but hinted at the end of higher rate tax relief – and possibly all tax relief – on contributions. The results of that consultation, which ended last month, could appear in November. If you are contemplating making a one-off pension contribution in coming months, it may be wise to act before 25 November. 
  • National Insurance Contributions (NICs) The Treasury is in the throes of overhauling NICs for the self-employed and has said it aims to scrap the weekly Class 2 payment and just have a Class 4 earnings related payment. Tellingly, self-employed NICs were left out of the legislation to freeze NIC rates (along with income tax and VAT rates). The July reforms on dividend taxation, which take effect from 2016/17, were designed to discourage the self-employed from incorporating. We might see why in November – some commentators are predicting a rise from 9% to 12% in the main Class 4 rate. 

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.  The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

The Fed interest rate rise – the dog that didn’t bark

A long-awaited meeting of the US Federal Reserve did not result in an interest rate rise.  

2 p.m. New York time on Thursday 17 September had been much anticipated by investment professionals around the world. It was the hour when the Federal Reserve Open Market Committee would release its meeting statement, revealing its latest interest rate decision. Ahead of the announcement there had been much speculation that an interest rate ‘lift-off’ would happen. Even the head of the Federal Reserve, Janet Yellen, had hinted as much.

When the time arrived, there was something of an anti-climax. The decision was to keep rates on hold, which at first sight might have been expected to be good news. However, the market thought differently:

  • 13 of the 17 members of the Federal Reserve Board (Fed) still thought 2015 was the year in which to start raising interest rates. So the waiting game continues.
  • The statement said “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” This prompted a familiar market worry: what does the Fed know that we don’t?

The next Fed meeting is in late October, but it is a meeting where there is no scheduled press conference afterwards. The final meeting of the year on 15-16 December, complete with press conference, is now being penciled in as when the decision to increase rates will be taken. In the interim, we can expect more market gyrations as the experts attempt to second guess Ms Yellen and company.

If volatility concerns you, do talk to us before taking any action.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

HMRC accelerates to £1bn of collections

HM Revenue & Customs’ (HMRC’s) accelerated payments programme has now collected £1bn from users of tax avoidance schemes.    

Last year HMRC gained the power to demand upfront tax payment from users of tax avoidance schemes subject to the Disclosure of Tax Avoidance Schemes (DOTAS) rules or the General Anti-Abuse Rule, or where a similar scheme had already been defeated in the courts. In 2015, the power was extended to schemes involving National Insurance Contributions.

In August 2014 HMRC started sending out ‘Accelerated Payment Notices’ and to date it has issued over 25,000. By the end of next year, HMRC anticipates it will have issued around 64,000 notices. Anyone receiving such a notice has 90 days to pay up or make representations to HMRC if they consider the notice is incorrect. So far those choosing to pay up have put £1bn into the HMRC coffers. By March 2020 HMRC is projecting that it will have collected £5.5bn of brought forward payments.

HMRC would have to repay some of that money if the courts decide in favour of any litigating scheme users. However, as HMRC regularly reminds taxpayers, the taxman wins 80% of avoidance cases and many people choose to settle before embarking on the expensive path of litigation.

As if to prove the point, HMRC recently won a High Court Judicial Review case in which two users of a film-based avoidance scheme argued that accelerated payments process was unlawful.

The lesson from HMRC’s £1bn revenue raising is that users of aggressive tax avoidance schemes are no longer able to delay tax payment until it is proven in court that their schemes fail the rules – often a protracted process.  Nevertheless, there remain many relatively uncontentious ways to reduce your tax bills. Please get in touch to discuss your options.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

Buy-to-let: a future tax trap?

A close reading of the summer Finance Bill has highlighted a further tax consequence of the government’s moves to limit tax relief for interest on buy-to-let mortgages. 

The July Budget included an attack on individual investors in buy-to-let residential property. As well as abolishing the 10% wear-and-tear relief for furnished lettings from next April, the Chancellor also announced a deferred and staged reduction in the maximum amount of tax relief on finance costs. At present all interest for purchasing buy-to-let housing is fully tax-relievable against rental income, so if you are a higher rate taxpayer, the interest you pay benefits from 40% tax relief. In 2017/18, 75% of your interest will be fully relievable and a quarter will be relieved at only basic rate. In 2018/19 the split becomes 50/50 and in 2019/20, 25/75. By 2020/21 the tax relief you will receive will be limited to basic rate on all interest.

The way this will be achieved has now been made clear in the Finance Bill. The basic rate relief will be given as a tax credit rather than allowing a proportion of the interest to be offset against rental income. This may sound an arcane difference, but it could be costly for some buy-to-let investors because it increases their total net income figure. The example below shows the effect on child benefit tax, but there are similar consequences for phasing out of the personal allowance and loss of the forthcoming personal savings allowance.

Buy-to-let and increased income

Tom has income from earnings and non-property investments of £45,000. He also owns a buy-to-let property which produces £15,000 a year rental income after fees, but before deduction of £11,000 a year mortgage interest. In 2016/17, his net taxable income is £49,000 (£45,000 + £15,000 – £11,000). As this is under £50,000, he is not subject to the child benefit tax charge.

In 2017/18, the new rules for buy-to-let interest relief start to be phased in and only 75% of the interest is allowable against the rent. All other things being equal, Tom’s net taxable income thus rises to £51,750 (£45,000 + £15,000 – £11,000 x 75%) and he starts to be liable for some child benefit tax charge. By 2020/21, none of the interest is allowable and Tom’s net income is £60,000, at which point the child benefit tax charge is equal to 100% of the child benefit).

Buy-to-let has been a popular investment, but this latest twist is another reminder that the tax benefits will not be as good in coming years.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

 A difficult quarter for share markets

It was not just the poor weather that made it a bad summer for investors.

Index Third Quarter Change
FTSE 100 – 7.04%
FTSE All-Share –  6.57%
Dow Jones Industrial -7.58%
Standard & Poor’s 500 -6.94%
Nikkei 225 -14.07%
Euro Stoxx 50 (€) -9.45%
Hang Seng -20.59%
MSCI Emerging Markets (£) -15.42%

It was the worst quarter for investors since 2011, but as ever, the raw numbers do not tell the whole story:

  • The fall in the FTSE 100 has much to do with its exposure to mining and energy companies, which have suffered as commodity prices have fallen.
  • UK Companies outside the FTSE 100 have fared better. The FTSE 250, which is a yardstick for mid-sized companies, fell by less than 5% ­– hence the lower drop for the broader FTSE All-Share than the FTSE 100.
  • Sterling weakened against the main global currencies in the third quarter, reducing the impact of the fall in overseas markets.
  • Emerging markets had a torrid time, but it is becoming increasingly clear that the label is too broad. For example, while the Shanghai Composite is now down nearly 30% from the start of the year, the BSE Sensex (India’s main index) has fallen less than 2%.

The falls mean that some value is appearing – the FTSE 100 yields 4% – but volatility is unlikely to disappear in the short term.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.