Legal Experts Unpick What Chancellor’s Key Announcements Mean For You And Your Business
The Chancellor Philip Hammond has made a raft of measures, from boosting infrastructure and innovation to increasing housebuilding, in his first Autumn Statement.
Legal experts at national law firm Irwin Mitchell were watching closely as the Statement, the Government’s first major economic statement since the Brexit vote, was delivered in the House of Commons.
The team, based in the firm’s offices across the UK, have analysed the legal implications of the announcements and have commented on what they mean for individuals, families and businesses
For a more in-depth legal analysis you can register for our Autumn Statement webinar, which takes place at 12pm on 29th November.
The webinar will feature Irwin Mitchell Private Wealth experts, Alex Ruffel, Richard Jordan, Conor Brindley and Andrew Watters and can be streamed live to both UK and international jurisdictions.
The Chancellor announced a £2.3 billion investment in a housing infrastructure fund to help provide 100,000 new homes in high-demand areas and in addition a spend of £1.4billion to deliver 40,000 extra affordable homes. Carl Dyer, Head of Planning at Irwin Mitchell, questioned if the measures would provide enough and at the right end of the market.
Expert Opinion"Once again we see a Chancellor targeting the wrong end of the housing market, and promising to spend a lot of money to little purpose.
The government set a target of building 1 million new homes over the five years of this Parliament. A present rate of construction, they will be at least 300,000 homes short of the target.
Even if this cash injection delivered an extra 140,000 homes, it would not bridge the shortfall from the target the government is already missing.
More likely, measures such as cash for homes etc. will simply further bid up the price of the existing inadequate supply, so much of Mr Hammond's funding will simply transfer money from the taxpayer to the house builders, with little additional housing to show for it.
Disappointingly, there was no mention at all of retirement housing. Mr Hammond could have had a far greater effect on supply of housing if he had incentivised the construction of retirement living and care homes. If just half of the elderly people who say they want to downsize their property were to do so, that would release 3,500,000 homes onto the market. That is something like five Parliaments' supply at current rates of construction.
The land take for such a construction program will be far less than needed for a comparable supply of ordinary housing and much of it could be on brownfield site instead of on the Greenfields that NIMBYs hold so dear." Carl Dyer - Partner
Carl also welcomed today’s announcement of a £23bn national productivity investment fund over five years.
He praised the announcement of the £1.1bn investment in improving English local transport networks, £200m for traffic pinch-points, £450m for digital signalling on trains and £390m for low-emissions vehicles.
He said that Hammond seems to be addressing productivity problems by trying to alleviate workers and businesses hampered by poor transport. The 100% business rate relief on new fibre infrastructure and £1bn for broadband was also applauded showing that the Government is prioritising infrastructure aimed at improving business output.
Expert Opinion"Improving local roads, with a particular emphasis on relieving congestion, is to be welcomed. It will also provide a faster boost to the economy than the "big ticket" infrastructure schemes to which this government already looks addicted. Money going towards ‘hyper-fast’ broadband is also what we need.
Smaller specific schemes can be implemented relatively quickly. Being short, quick, and relatively certain, they also considerably more likely to be delivered on time and reasonably close to budget – in stark contrast to all the major infrastructure schemes delivered over the last couple of decades. I am delighted no further white elephants have been announced today." Carl Dyer - Partner
Partner and pensions expert, Penny Cogher, said that the Chancellor could have used the Autumn Statement to clarify tax charges on withdrawals.
Expert Opinion“Phew - no great pension changes the 2017 Autumn Statement. Pension contributions can still benefit from salary sacrifice. Pensioners should be keen to invest in the new bond with an interest rate of 2.2%- however it is only a safe haven for £3000. HMRC are obviously concerned about the better off being able to recycle their drawdown pension monies. Consultation is to begin for the annual allowance for those in money purchase drawdown to be reduced to £4000, which seems reasonable.
However this Statement, while helpful in terms of clamping down on pension scams, is a missed opportunity for an easy win for pension simplification. Many pension savers are aware when they withdraw pension monies that there is potentially an income tax charge at the individual's marginal rate of tax. But how many people actually understand what this means? It's not their lowest rate of income tax but their highest. A change in name would be an easy way of highlighting more clearly to people the potential tax charge they face. It would make people pause before they withdraw and it would result in no extra cost to the Revenue apart from updating their information. The legislation itself would not need to change.” Penny Cogher - Partner
Penny also discussed the tax treatment of foreign pensions, and added that the 2017 Autumn Statement recognises some of the questions which the legitimate QROPS providers have grappled with since the April 2015 freedoms were introduced.
This includes how to determine what slices of pension monies should be used for the payment that would be a pension commencement lump sum if it were paid from a UK registered pension scheme. For this, 25% can be paid tax free but the question has been 25% of what?
The full value of the member’s fund on the member’s commencement date? How are investment losses and gains that have arisen to be treated while the monies have been in the overseas pension scheme?
How do the crystallisation events interact when there has already been one crystallisation event (BCE8) on the member transferring their UK registered pension savings to the overseas pension scheme? What happens in pension tax terms if additional pension contributions are paid to the overseas pension. What happens if the member returns to the UK and brings their pension monies back into the scope of all UK taxation?
The pension legislation is extremely complex and seems to leave some gaps and the pension tax manual gives very limited answers these types of questions. Legitimate QROPS have been concerned that if they get things wrong not only will their members suffer unexpected tax charges but also the QROPS providers face a real risk of losing their valuable QROPS status and have been asking HMRC for clarification.
Expert OpinionThe tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones. The government will also close specialist pension schemes for those employed abroad (“section 615” schemes) to new saving, extend from 5 to 10 years the taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief, align the tax treatment of funds transferred between registered pension schemes, and update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.
The approach set out in the Autumn Statement does seem to be one of simplification for QROPS i.e. the QROPS providers will be expected to more fully follow the UK tax treatment so there should be an overall streamlining of tax treatment. This may also make QROPS less attractive pension vehicles for everyone apart from those who are genuinely moving or retiring abroad.
The last piece of the jigsaw however will be that the overseas jurisdictions have to update their pension and tax laws to reflect these new UK QROPS requirements to ensure QROPS eligibility. Given this, there will be a period of some further uncertainty while the UK legislation is updated and then the overseas legislation is also updated by the various countries who still want to offer QROPS.
Penny Cogher - Partner
Chris Rawstron, Partner and Head of Business Legal Services at Irwin Mitchell in Birmingham, praised the Chancellor for taking steps to bridge the productivity gap between London and Birmingham.
Expert Opinion“It is encouraging to hear that the Midlands Engine is firmly on the Government’s agenda. A second devolution deal and a soon to be published Midlands Engine strategy demonstrates that the significant production gap between London and Birmingham is recognised by the Chancellor and that action is required.
A £5m investment into the Midlands Rail Hub is a good start and will go a long way towards reducing congestion across the region and helping to boost productivity.” Chris Rawstron - Partner
Roy Beckett, Regional Managing Partner for Irwin Mitchell in Manchester, said the Government’s reaffirmation of its support of the Northern Powerhouse plans were a promising sign for reducing the productivity divide between London and the North.
Expert Opinion“This Autumn Statement appeared to prioritise infrastructure spending and increasing productivity and it was encouraging to hear that the government reaffirm its intention to support the Northern Powerhouse and other schemes aimed at rebalancing the economy.
“Businesses generally support investment in improving local transport infrastructure over large national schemes such as HS2 so we therefore welcome the announcement that there will be more investment in this region. We eagerly await further details over the coming weeks, particularly as serious investment in helping to reduce traffic congestion and increase access to a larger talent pool for thousands of businesses in the region are crucial and can have a big impact on boosting productivity.” Roy Beckett - Partner
Tax expert from Irwin Mitchell Private Wealth, Alex Ruffel, welcomed the Chancellor's announcement that this year's Autumn Statement would be the last one and that starting next year, the UK will have a Budget in the autumn, with a Spring Statement to be issued from 2018, replacing the March Budget.
Expert OpinionThe way we make new tax laws is all changing – for the better. Moving to an Autumn Budget is a welcome change announced by the Chancellor, Philip Hammond, in the final Autumn Statement on 23 November. It means Parliament can properly scrutinise new tax legislation before the next tax year in April, when new law typically takes effect.
We need to avoid complex tax provisions coming into effect long before their final form is known, as happened last April with the new 3% higher SDLT charge for owners of second properties. Taxpayers are subject to laws and charges that have not yet been formulated, an impossible and unfair position for taxpayers and their advisers (and presumably HMRC).
We will still sometimes need complex draft legislation to be published further in advance to allow for consultation with professional bodies and iron out problems with technical detail.
This applies particularly to changes such as the revolution in non-dom taxation that will take effect next April, where we have seen only some draft legislation and await more with the draft Finance Bill clauses due on 5 December.
That leaves just four months, including the hectic holiday period, for advisers to understand and guide clients on action needed. The Chancellor’s acknowledgement of advantages of a more logical timetable is a good start.
Alex Ruffel - Partner