Industry divided over 'largely uncontroversial' Budget - reactions

23/11/2017 Beth Abel

Chancellor Philip Hammond’s Budget yesterday (22/11/2017) caused “most heads to turn” with regard to the abolishing of stamp duty land tax (SDLT) for first time buyers of property under £300,000, according to tax dispute resolution partner at BDO, Richard Morley.

Prior to the Budget announcement, a first time buyer of a property worth £300,000 would have paid £5,000 in SDLT. This SDLT relief will also be available to first-time buyers of property worth between £300,001 and £500,000, in which case the purchaser will pay a rate of five percent of the purchase price that is in excess of £300,000. Head of residential conveyancing at law firm VWV, Jackie Row, said the measure will be a “welcome windfall” for many first time buyers, “especially for those who have already set aside money to pay SDLT at the standard rates”.

However, managing director of Prolific Mortgage Finance, Lea Karasavvas, said: “The whole point of the housing crisis is that demand is too high relative to supply. Fiddling with the economic stop cock by effectively handing out free money only exacerbates the problem and won’t help buyers, brokers, lenders or sellers in the long run.” This is a sentiment shared by managing director of Garrington Property Finders, Jonathan Hoppers, who believes the combination of high rates of SDLT and falling real wages “means affordability is becoming a barrier for ever more would-be buyers”.

Partner and head of London residential property at Irwin Mitchell Private Wealth, Jeremy Raj, shares the notion that there are still issues around affordability: “While this is an excellent opportunity for young people, it may increase pressure on the Bank of Mum and Dad in the longer term, perhaps with less security for them. It doesn’t change the fact potential buyers need a big deposit, but it does affect how parents can help their children as first-time buyers.”

“We’d like the Chancellor to go a step further and cut stamp duty for those downsizing or buying cheaper properties,” admitted Aegon’s pensions director Steve Cameron. “This would have the double benefit of freeing up family homes for families while boosting funds to pay for retirement.”

Furthermore, describing the SDLT relief as a “great headline comment”, partner at Blick Rothenberg Simon Wagman said it will initially “only increase house prices and inflate the market”. Until a Brexit deal is in place, Mr Wagman believes “little will be done to create this number of new homes”, and the UK “will rely heavily on European workers to fill the gaps in our construction industry, so if the government are to demonstrate they can build, they must do a deal on EU nationals living and working here – quickly”.

Of the extension to UK taxation on royalties paid overseas, BDO’s Mr Morley stated that the proposal for “'non-deliberate offshore tax non-compliance’ is key”, and continued that any UK resident taxpayer with offshore interests “must take complying with the ‘Requirement to Correct’ very seriously to ensure correct compliance or where non-compliance is identified to make a disclosure before September 2018 before the higher ‘Failure to correct’ penalties come into force”.

The extension is “in line with the UK’s continued commitment to tackle aggressive tax avoidance and the diversion of profits from the UK,” partner and head of corporate tax at Blick Rothenberg, Genevieve Moore, said. Fellow partner Paul Smith added: “The introduction of withholding tax on royalty payments relating to digital supplies will cause interesting issues with regards to implementation as it would only apply where the end customer is in the UK. Further clarification will be needed.”

Meanwhile, chartered tax adviser and managing director of Mark Davies & Associates, Mark Davies, said the measure is “unlikely to be successful in collecting much tax”. He continued: “The government acknowledges that it will respect double tax treaties, so to avoid this measure intellectual property holding vehicles could be migrated from a country where there is no double tax treaty to a country where there is a low withholding tax applied by the treaty.”

James Hender is a partner and head of the private wealth group at Saffery Champness. He believes the rules being looked at for offshore structures which are used by some to enable offshore evasion are “another nail in the coffin of the murky world of hidden illegitimate fortunes”. Mr Hender added that HMRC can go back 20 years in cases where the taxpayer has been “deliberately keeping the tax authorities in the dark”. He concluded: “For innocent errors HMRC is currently limited to going back six years, but this will now be extended to 12 years which means that additional tax (and lots more interest) can be collected.”

According to head of tax at RSM, Jim Meakin, it is interesting that the UK is seeing itself “very much as a thought leader, diverging from the international approach by proposing new solutions for taxing businesses that derive most of their value from user activity on their platforms”. He added: “This suggests that the UK is trying to shape the direction of the international taxation debate while still maintaining its support for OECD initiatives.”

Regarding the new tax on the disposal of UK commercial property by non-residents, partner in the Withers private client and tax group, and former eprivateclient Top 35 Under 35, Tim George, asked if the new rule (effective April 2019) will result in non-resident and non-dom investors ‘dumping’ their commercial properties. “The rules offer rebasing of property values from 2019 to mitigate the immediate tax impact and the rate of tax is comparable with many other major jurisdictions, but this is unlikely to be much comfort.”

The complexities of the UK tax system, and Mr Hammond’s failure to address them, was an unpopular choice among some industry experts. Managing director of Progeny Group, Neil Moles, said the UK has ‘uneven’ tax regimes due to the “internationalisation” of wealth: “This won't change until the government grasps the nettle and simplifies the UK tax code, and then pioneers its coordination on a global scale.”

BDO’s Paul Falvey described the Government’s lack of tackling the issue of tax complexity as “a huge obstacle to growth and businesses will be disappointed that there was no commitment to setting out a coherent tax strategy”. This sentiment is supported by 62 percent of businesses polled by BDO prior to the Budget stating they would pay more in taxes in return for a simpler system.

On the subject of the Enterprise Investment Scheme (EIS), Mr Moles continued: “Although doubling the EIS investment limit for particularly innovative companies may look positive. It just adds another layer of complexity. If the Chancellor really wants to minimise abuse of the system he should simplify it not complicate it.”

Contrary to Mr Moles’s view, Blick Rothenberg’s Ms Moore said: “ESI tax relief to be increased to support investment in knowledge intensive companies is a positive step and part of a package of announcements to increase investment in technology and innovation. A Budget encouraging technology and growth for Great Britain.”

The Chancellor’s decision to freeze the VAT threshold at £85,000 per annum allows a significant number of small businesses “to focus on running their operations without additional worry”, said VAT partner at Crowe Clark Whitehill, Rob Marchant. “Many small businesses will welcome the retention of the threshold.”

Meanwhile, on the subject of the taxation of trusts, which Mr Hammond said is being reviewed to ensure it is “simpler, fairer and more transparent”, director of private clients and trusts at Kreston Reeves, Kay Mind, wonders who for. “The transparency of trusts is already being addressed through the introduction of the Trust Register where all taxable trustees must provide detailed information on the trustees, settlor, beneficiaries and settled assets.

Ms Mind continued: “This new obligation leaves no hiding place for individuals involved in legitimate family trusts created for purposes other than tax. Although the register is not open to the public it can be accessed by various law enforcement agencies. Trusts cannot be more transparent!”

Private client partner at Wedlake Bell, Ann Stanyer, agrees, stating “it is difficult to know” whether the 2018 consultation is “aimed at making a positive change for trusts, or simply to raise more tax”. Ms Stanyer added: “We have of course been here before, with major changes to the taxation of trusts being introduced in 2006, so it is unlikely that a major tax overhaul will be proposed. However, the inheritance tax regime for trusts is particularly complex and reforms are arguably long over-due.”

Pensions were not mentioned during the Budget, and Tom McPhail, head of policy at Hargreaves Lansdown, welcomed this, noting that no change brings with it stability. Though he highlighted that there may have to be further changes at some point in the future, namely that “higher rate relief in particular is still likely to be scrapped as soon as a government feels it is strong enough to do it”, until then investors “can make hay while the sun shines”.

Sharing Mr McPhail’s view is Les Cameron, retirement expert at Prudential, who said no changes to the pension system has been on the wish list of those in the retirement planning world “for many years”. He said: “Hopefully this is a sign of things to come and will help to increase consumer understanding of, and confidence in, pension planning.”

“The middle classes across Britain will have heaved a collective sigh of relief when Philip Hammond finally sat down at the end of his Budget speech,” concluded Geraint Jones, tax partner at accountants BKL. The Chancellor’s “largely uncontroversial speech” was probably “a wise decision given the Government’s wafer thin parliamentary majority”.

Meanwhile, Mr Hammond’s Budget left a bitter taste in the mouth of some experts. Progeny’s Mr Moles said aside from ‘giveaways’ for first-time buyers, “there is nothing here that is of real use to the economy.

“You may as well have stopped listening following his opening gambit 'I'm being tempted here by something more exotic but I'm going to stick to plain water' as that is all he gave us.”

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