Changes to Entrepreneurs’ Relief in the 2018 Budget

In the 2018 Budget the Chancellor announced two key changes to entrepreneurs’ relief which are likely to have a significant impact on the number of individuals/shareholders benefitting from the relief.

The two key changes are broadly:

  • An extension to the qualifying holding period from one year to two years; and
  • A tightening of the rules governing the definition of a personal company – so the share rights an individual must benefit from before they qualify for the relief – introduced with immediate effect. This change requires the claimant to have a 5% interest in both the distributable profits and the net assets of the company.

Looking at these two changes in more detail:

Qualifying period

The extension of the qualifying holding period from one year to two years will mean that individuals/shareholders need to consider their position at least two years in advance of any potential transaction to ensure their position is protected.

This measure will have effect for disposals on or after 6 April 2019, except where the business ceased before 29 October 2018. In cases where the claimant’s business ceased, or their personal company ceased to be a trading company (or the holding company of a trading group), before 29 October 2018, the existing one-year qualifying period will continue to apply.

Personal company

The tightening of the rules regarding the definition of a personal company which essentially governs the share rights to which an individual must be entitled will have wide-ranging implications.

Previously, in order to qualify for entrepreneurs’ relief, an individual must:

  • Be an employee or officer of the company;
  • Hold at least 5% of the “ordinary share capital”; and
  • Have at least 5% of the voting rights by virtue of that holding of ordinary share capital.

However, in tightening up these rules, from 29 October 2018, the shares must also entitle the holder to 5% of the company’s distributable profits and five percent of the assets available to equity holders on a winding up.

This means that going forward, in order to qualify for entrepreneurs’ relief, the individual must:

  • Be an employee or officer of the company;
  • Hold at least 5% of the “ordinary share capital”;
  • Have at least 5% of the voting rights by virtue of holding that ordinary share capital;
  • Be entitled to at least 5% of the company’s distributable profits; and
  • Have a right to at least 5% of the net assets of the company available to equity holders on a winding-up.

The government has said that this change ensures a shareholder must benefit from a genuine economic entitlement to 5% of a company in order to qualify for entrepreneurs’ relief.

This means that shareholders will be required to continually monitor their position to ensure they qualify for relief.

For disposals before 6 April 2019, these additional requirements will apply for one year to the date of disposal. For disposals on or after 5 April 2019, these additional requirements will apply for two years to the date of disposal, except where the company ceased trading before 29 October 2018.

Dilution protection

The draft legislation also confirms that proposals will be introduced from 6 April 2019 to protect an individual’s Entrepreneurs’ Relief entitlement up to the point they are diluted below the 5% qualifying requirement.

Conclusion

The definition of “ordinary share capital” covers all the shares of a company except fixed dividend shares.

So, in practice, before 29 October 2018, pretty much any class of shares, however they are described, could have qualified for entrepreneurs’ relief. Provided the shareholder also had sufficient voting rights, the other rights they held to dividends could be negligible.

While these changes are likely to affect many shareholders, those who have built up their own company and as such hold ordinary shares with full voting rights as well as rights to the company’s assets on a winding-up should not be affected.

However, those who may for example, have taken part in a management buyout, may find that they have less rights to the company’s assets on a winding-up so are likely to be affected.

As always, advice will be essential to determine whether relief will be available going forward.

Through our Professional Network we have built up an expert team of legal and tax advisers to guide you through the process of selling your business. We will be happy to direct you to the right expert to get the advice you need.

 

Other notes and risk warnings

This article contains the opinions of the authors but not necessarily Donald Wealth Management (the Firm) and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. It is not a promotion of Donald Wealth Management’s services. Donald Wealth Management strongly suggests that no investor should act on any of these ideas without first seeking financial advice.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated. The value of an investment is not guaranteed and on encashment you may not get back the full amount invested. Errors and omissions excepted.

Donald Wealth Management is a trading style of Donald Asset Management Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom (FRN: 223784). Donald Asset Management Limited is registered in England and Wales under Company No. 4675082. The registered office address of the Firm is: Stable End, 12 Heather Court Gardens, Four Oaks, West Midlands, B74 2ST.

 

Family business owners and entrepreneur relief

DWM20150626-001In my book, Sell Your Business and Retire Happy, I looked at the amazing opportunities available for business owners who are considering selling their business. The current entrepreneur relief available to business owners is a fantastic opportunity to generate funds tax effectively. For more information on entrepreneurial relief, go to my blog on the opportunities available.

A common issue family business owners have is where there is no obvious third-party purchaser for either all or part of their business (in the scenario where the business owner doesn’t want to relinquish complete control of the business but at the same time still wants to take some of their investment ‘off the table’). This is where you could consider constructing your own sale for retiring shareholders.

For example, in the case of the family business, the father’s shareholding could be purchased by the son and if everything is done correctly, securing entrepreneurial relief on the sale proceeds of the father’s share proceeds.

As an example, you might have a business worth ten million, owned as a 50% shareholding by the father who wants to retire and 50% by the son. The father wants to exit as he approaches his retirement and wishes to sell his shareholding in the business. The shareholding is appropriately valued (with a discount as a minority shareholding) and the son structures the purchase for say £4,500,000 for the shareholding. The father receives £4.5 million, less 10% capital gains tax under entrepreneur relief, so net proceeds of £4.05 million. He can then plan for his retirement with very tax efficient proceeds. The son takes control of the business and can use his own entrepreneur relief allowance on any future sale (if that happens and subject to any rule changes in the future). The family has effectively de-risked their exposure to the business and raised funds tax-effectively, securing the retirement for the father.

This type of planning works great with families. Indeed, in my own scenario, I purchased my mother’s and father’s shares in the family wealth management business, leaving me as the sole shareholder, and providing them with a tax-efficient source of capital for their retirements.

It is critical that you seek advice in this specialist area. That’s where our professional network concept really comes into its’ own. We can provide access to some of the UKs leading tax and legal minds once we’ve established exactly what you need to achieve from your business to meet your financial goals.

Does this sound interesting? Why not get a second opinion on your current wealth management needs? For further information about our second opinion service, please follow this link.

 

Donald Wealth Management doesn’t give taxation advice and you should seek appropriate legal and tax advice before undertaking any form of business sale planning.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily Donald Wealth Management (the Firm) and does not represent a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. It is not a promotion of Donald Wealth Management’s services. You are strongly cautioned not to rely on the information you find here to inform your decisions – rather, use it as a starting point for doing your own independent research and consult your professional advisers. Proceed with caution – you remain responsible for your own actions.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated. The value of a unit linked investment is not guaranteed and on encashment you may not get back the full amount invested. Errors and omissions excepted.

Donald Wealth Management is a trading style of Donald Asset Management Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom (FRN: 223784). Donald Asset Management Limited is registered in England and Wales under Company No. 4675082. The registered office address of the Firm is: Stable End, 12 Heather Court Gardens, Four Oaks, West Midlands, B74 2ST.

Entrepreneurs Relief: Understanding the Opportunity

I’m always surprised to learn that when we meet business owners and discuss potential exit strategies with them, how many are still totally unaware of the fantastic tax planning opportunities that are available for them on the sale of their business. Unfortunately, the entrepreneurs relief which replaced business assets taper relief following the announcement in January 2008 is still not widely known. However, this tax relief provides a fantastic opportunity to substantially reduce the capital gains tax that would normally be paid on the sale of an asset when the sale involves a business or interest in a business. In our client survey, we asked how business owners discovered entrepreneurs relief and the results are shown in the graph below.

Chart showing where people heard about Entrepreneurs' Relief

 

Surprisingly, the biggest source of this information was the existing accountant. However, our own experience has shown that many such accountants are not specialists in this advice area and they may not have dealt with many business sales historically, so they don’t always necessarily understand the full extent of the entrepreneurs relief. You could also argue there is the potential for a conflict of interest where the accountancy firm is reliant upon the annual company audit fees, and obviously a potential sale may put those fees at jeopardy. Therefore, it is not surprising that a significant number of the responses to our survey indicated poor knowledge of entrepreneurs relief and certainly, in many instances from our experience, this has not been taken into account until quite late in the sale process. The importance of entrepreneurs relief should not be understated, and to secure the valuable benefits, planning should be undertaken well in advance of any potential sale so that all of the appropriate criteria is met and the valuable relief is secured.

At the time of writing, in late 2016, capital gains tax applies at the rates of 20 percent for higher rate tax payers or 10 percent if the capital gain falls within and keeps the disposer in basic rate tax. However, as you would imagine, due to the potential size of most business sales, many clients who are unaware of entrepreneurs relief may incorrectly believe they have a 20 percent tax liability based on the current capital gain levels. However, entrepreneurs relief effectively reduces the capital gains tax liability down to a 10 percent level, and this can apply up to a potential gain of £10 million, which came into effect on 6th April 2011. Please note care should be taken here because different levels have applied historically, and if you have sold previous interests in a business, you may have used a part of your available allowance. I would strongly recommend you seek appropriate taxation advice.

As you can anticipate, with this new £10 million limit, a potential tax charge of only 10 percent is highly attractive. So, if somebody was fortunate to sell their business for £5 million and they met all of the criteria, the tax liability would be £500,000, leaving them with net proceeds of £4.5 million. I’m sure you are now considering how much tax you pay within the business via income tax, national insurance, and corporation tax. Many of those are charged at far higher rates than 10 percent. You can begin to see the importance of securing entrepreneurs relief, being aware of its very existence becomes crucial for business owners when they include the potential sales of the business in their overall strategy.

So how do you go about qualifying for entrepreneurs relief? Well, thankfully, the rules are relatively straightforward. However, I would always urge you to seek appropriate taxation advice for your own particular circumstances, and the guidance here can only be generic. You need to make sure that if any changes are to be undertaken, they are made in good time prior to any potential sale.

Looking at the main qualifying conditions, it is important that the asset in question is a whole or part of a business. This can include a partnership or sole trader or shares in the company that is a trading company. Obviously, one of the key factors that the business must include is some form of trade. Usually, a company will be classed as a trading company provided it does not carry on any other activities to a substantial extent.  For example, any investment activities or something that should not be classed as trading. The term “substantially” is usually applied to mean around 20 percent of the overall activity. This can be relevant where a company holds substantial cash amounts which are disproportionate to their overall trading. Again, specialist advice should be sought in this area to avoid any potential issues. When the business is a sole trader or partnership, the disposer must be the sole trader or the partner. Whenever the company is a trading company, the disposer must be an officer or an employee of the company and have held at least five percent of the ordinary share capital of the company and be able to exercise at least five percent of the vote.

It is also important to know that to obtain entrepreneurs relief the individual tax payer has to meet all of the qualifying conditions above throughout a period of one year prior to the disposal. So the tax relief results in a capital gains tax charge of only 10 percent, and if you have your annual capital gains exemptions, which at the time of writing is £11,100 per person, these would also be offset before the remaining gain is then taxed at the 10% tax rate.

So being aware of entrepreneurs relief and making sure the relief is secured prior to the sale of the business is the next crucial factor we recommend business owners seek advice about. When we look at our survey and reviewed the commercial reasons why most business owners decided to sell their business, it was because they felt it was the right time to sell. They may have experienced recent downturns, such as the credit crisis in 2008. Indeed, a number of our longest serving clients had seen significant recessions and downturns right through the 1980s and the 1990s. So they may have experienced various times when the company has struggled, and after a substantial recovery, they feel it’s the right time to capitalize on the value within the business and to secure their future for themselves and their family.

We’ve also noticed that with the current low interest rates and companies tending to have rebuilt their cash balances, the potential take-over of a competitor has become a sensible way to spend this surplus cash, particularly when the companies are earning such a poor return in the company bank account.

From our survey we also noted, not surprisingly, that the bulk of sales (more than 50 percent) were trade sales and 30 percent were management buy-outs. These will usually form the bulk of potential buyers out there for your business. Obviously alternatives such as private equity companies, do exist.

In my experience, most businesses do have a potential resale value. This is where it is key to seek appropriate guidance and advice when you have a realistic price in mind so that the correct buyer for the business can be sought and you can achieve your goals.

Chart showing who bought businesses - Entrepreneurs Relief

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. It is taken from my book ‘Sell Your Business & Retire Happy’. This article contains the opinions of the author but not necessarily Donald Wealth Management (the Firm) and does not represent a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. It is not a promotion of Donald Wealth Management’s services. You are strongly cautioned not to rely on the information you find here to inform your decisions – rather, use it as a starting point for doing your own independent research and consult your professional advisers. Proceed with caution – you remain responsible for your own actions.

 

Past performance is not indicative of future results and no representation is made that the stated results will be replicated. The value of a unit linked investment is not guaranteed and on encashment you may not get back the full amount invested. Errors and omissions excepted.

 

Donald Wealth Management is a trading style of Donald Asset Management Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom (FRN: 223784). Donald Asset Management Limited is registered in England and Wales under Company No. 4675082. The registered office address of the Firm is: Stable End, 12 Heather Court Gardens, Four Oaks, West Midlands, B74 2ST.

Autumn Statement 2015

Red Budget CaseCompared to previous Budgets and Autumn Statements there was little to report of significance for our clients from this year’s Autumn Statement.

We have out-lined the most relevant areas as we see them below.

If you should have specific queries please just contact us.

 

Capital Gains Tax – Entrepreneurs’ Relief

The only comment relating to entrepreneurs’ relief concerned changes which the Government will consider making to the legislation introduced in the March Budget.  Those changes concerned partnerships and joint ventures and they were going to be very difficult for planners, so the acknowledgement that change may be needed is to be welcomed.

Buy to let property changes

  • Stamp duty land tax (SDLT)

From 1 April 2016 SDLT rates will be increased by 3% for the purchasers of buy-to-let and second homes.

  • Capital gains tax

From April 2019, any capital gains tax due on the disposal of residential property will have to be made as a payment on account within 30 days of the disposal.

Apprenticeship levy

The rate of the new apprenticeship levy, due to begin in April 2017, will be 0.5% of the employer’s payroll. Every employer will receive an offsetting allowance of £15,000, so that only employers with a payroll of over £3m will pay anything.

Tax credits

The proposed changes to tax credits, rejected by the House of Lords in October, have been scrapped at a cost of £3.4bn in 2016/17.

Inheritance Tax

The welcome news that the government will not introduce any new restrictions on how deeds of variation can be used for tax planning although they have said they will continue to monitor their use.

Pensions

The dates for the contribution rate increases under auto-enrolment will be pushed back six months to align them with tax years. The rate for the new single tier state pension, due to start next April, was set at £155.65 a week.

The review of Pension Tax Relief is likely to be published in the Budget (March 2016).

ISAs

In the absence of inflation, the ISA limits will remain at their 2015/16 levels (a maximum of £15,240 per person). A consultation on including equity crowdfunding as an eligible investment was launched.

Company car tax

A planned change to the tax treatment of diesel company cars, which would have removed the 3% surcharge from April 2016, will be deferred until April 2021.

Tax avoidance and evasion

Several measures to counter tax avoidance and evasion were announced, including a number targeted at offshore activities.

 

Other notes and risk warnings

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily Donald Wealth Management (the Firm) and does not represent a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. It is not a promotion of Donald Wealth Management’s services.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated. The value of a unit linked investment is not guaranteed and on encashment you may not get back the full amount invested. Errors and omissions excepted.

Donald Wealth Management is a trading style of Donald Asset Management Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom (FRN: 223784). Donald Asset Management Limited is registered in England and Wales under Company No. 4675082. The registered office address of the Firm is: Stable End, 12 Heather Court Gardens, Four Oaks, West Midlands, B74 2ST.

 

2015 Budget

Red Budget CaseOur thoughts on the 2015 Budget with some highlights that we believe may be relevant for our clients:

INCOME TAX

From April 2016 a tax-free personal savings allowance will be introduced which will remove tax on savings income of up to £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. This will be in addition to the £5,000 zero starting rate band for savings income.

The personal allowance will be £10,600 for the 2015/16 tax year.

The basic rate tax limit will be £31,785 for 2015/16.

The zero starting rate band for the first £5,000 of savings income will be held for the 2016/17 tax year. This will be in addition to the tax free personal savings allowance.

From 6 April 2015, a zero starting rate band will apply for the first £5,000 of savings income, thereby replacing the 10% starting rate band for savings income.

CAPITAL GAINS TAX

From 6 April 2015 the annual capital gains exempt amount increases to £11,100 (from £11,000).

Some measures will be introduced in Finance Bill 2015 to restrict the availability of Entrepreneurs’ Relief (ER) in certain circumstances. These measures will have immediate effect (i.e. for disposals on or after 18 March 2015).

The new measures will aim to ensure a disposal of a privately owned asset will not qualify for ER, unless the asset is disposed of in connection with a disposal of at least a 5% shareholding in the company, or a 5% share in the partnership assets;

Relief is only available to those individuals who have a directly held stake of at least 5% in a company carrying on a trade;

Deny ER on a disposal of shares in joint venture structures that are not trading companies in their own right.

Entrepreneurs’ relief remains at 10% on cumulative lifetime capital gains of up to £10 million.

INHERITANCE TAX

The use of deeds of variation for tax purposes will be reviewed.

The inheritance ‘nil-rate band’ is frozen at £325,000 until 2017/18.

CORPORATION TAX AND OTHER BUSINESS CHANGES

The main rate of corporation tax cut from 21% to 20% for financial year 2015. It is intended that it should remain at 20% for 2016.

TAX SIMPLIFICATION

The government will transform the tax system over the lifetime of the next Parliament by introducing digital accounts to remove the need for individuals and small businesses to complete annual tax returns.

Consultation on a new payment process to collect tax and National Insurance through digital accounts instead of self-assessment.

The automatic deduction of 20% income tax at source by banks and building societies is intended to cease from April 2016.

SAVINGS AND INVESTMENTS

From autumn 2015 a ‘Help to Buy ISA’ will become available to boost savings for first time home buyers. The government will pay £50 for every £200 saved subject to a maximum of £3,000 which will be paid at the time the property is bought.

From autumn 2015 the government will allow ISA savers to withdraw and replace money from their cash ISA without this counting towards their annual ISA subscription, provided they make a repayment in the same tax year as the withdrawal.

The government confirmed the National Savings and Investment bonds for pensioners (you have to be aged over 65 to qualify) would remain on sale until 15 May 2015.

From 1 June 2015 the National Savings and Investment Premium Bond investment limit will increase to £50,000.

From 6 April 2015 the ISA limit will increase to £15,240 (from £15,000) and the revised limit for the Junior ISA and Child Trust Fund will be £4,080.

Where a spouse or member of a civil partnership dies on or after 3 December 2014, the surviving spouse / partner will inherit an additional ISA allowance equal to the value of the deceased spouses’ ISA on the date of death. A further investment can be made on or after 6 April 2015.

PENSIONS

The pension lifetime allowance to be reduced from £1,250,000 to £1,000,000 from 6 April 2016.

New transitional Fixed and Individual protection will be introduced.

The Lifetime Allowance will be indexed annually in line with CPI from 6 April 2018.

Consultation published on the development of a secondary annuity market.

 

Here are some of the highlights from the recent press coverage of the Budget:

Small rabbits, big promises

A Budget just a few weeks before a general election was sure to be highly political. So it was, for though George Osborne had little to give away, he made big promises.

Higher rate taxpayers got a smidgeon of an increase in the higher rate tax threshold this year but a promise of more increases in future years. Basic rate taxpayers got a promise of further rises in the income tax personal allowance. People with annuities got the promise of a consultation that would finish in the autumn, leaving the next government to decide whether this government’s plan to allow people to sell their annuities would ever be implemented. Savers who are basic rate taxpayers got the promise that from April 2016 they would not have to pay income tax on the first £1,000 of interest from their savings – another item for the next Chancellor’s in-tray. Would-be first-time home buyers got the promise of government help – a £3,000 top-up to £12,000 of savings – but would have to save for four and a half years to get it from when the scheme starts this Autumn.

No tax on savings. Simples!

George Osborne has proposed a measure that would give most savers tax-free interest from April 2016.

The idea is that for basic rate taxpayers, the first £1,000 of interest in a year would be free of tax; for higher rate taxpayers, the limit would be £500, so that individuals in each group would benefit by saving the same amount of tax (£200). The Treasury says 95% of savers, or 17 million people, would not pay any tax on their interest. This is a good idea that could save a vast amount of form filling, tax reclaims and so forth.

Gains tax relief for business owners is restricted

The Budget included measures to prevent the exploitation of entrepreneurs’ relief by artificial schemes.

From April 6th 2015, the relief – which reduces the rate of gains tax to 10% – will only be given if a stake of over 5% in a business is sold. Entrepreneurs’ relief is quite tricky and those intending to make use of it will need to talk to their accountant a year or two in advance.

Pension restriction is wrong

A new restriction on pensions in the Budget is plain wrong, said a Financial Times columnist.

Most people will think the reduction from £1.25 million to £1 million in the maximum you can have in a pension fund will not apply to them, but they are wrong. A pension fund of £1 million will produce an index-linked pension for life of under £30,000, and many people will be aiming for more than that. Under these rules, how close they are to their target will depend not just on what they save but on the return they get on their money, over which they have little control. So they could end up paying the penal tax rate of 55% on exceeding the £1 million threshold by accident. The columnist urged readers to write to their MPs asking that the limit should instead be applied to contributions, a system that would enable people to plan sensibly. The new £1 million limit from April 2016 will affect many more people, who will need to review their plans and savings.

The death of the tax return?

In his last Budget, George Osborne announced that pilot schemes will begin next year for digital tax returns, with the aim of eliminating the conventional forms by 2020.

By then, taxpayers will have digital tax accounts which they will be able to view at any time and make tax payments when they like. Tax experts said the timescale was very optimistic, and that most people with complex affairs would in any case still have to file a normal return – they expected digital accounts to work only for people with relatively simple circumstances. A form like this can never die…

 
Other notes and risk warnings

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily Donald Wealth Management (the Firm) and does not represent a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. It is not a promotion of Donald Wealth Management’s services.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated. The value of a unit linked investment is not guaranteed and on encashment you may not get back the full amount invested. Errors and omissions excepted.

Donald Wealth Management is a trading style of Donald Asset Management Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom (FRN: 223784). Donald Asset Management Limited is registered in England and Wales under Company No. 4675082. The registered office address of the Firm is: Stable End, 12 Heather Court Gardens, Four Oaks, West Midlands, B74 2ST.

 

Autumn Statement 2014 – our thoughts & entrepreneurs’ relief changes

Red Budget CaseWith the recent Autumn Statement now being fully digested and analysed we thought it would be useful to share our insights into the relevant information for our clients.

George Osborne’s Autumn Statement – the last major set of financial measures to be announced before next year’s general election – got a mixed verdict from the media. At one extreme, the Guardian called it ‘lean, mean and extreme’, echoed by the Mirror’s claim that all it offered was five more years of austerity. At the other extreme, the Telegraph said the prize of a smaller state was within reach and the Mail hailed the stamp duty changes as a bonanza boost to the property market, though the Times said he had staked the election on a consumer boom fuelled by rising house prices. More forensically, the Financial Times pointed out that it was only the assumption of lower interest rates on still-rising government debt that enabled the Treasury to forecast lower government spending in 2018-19. The Independent said Osborne’s targets to reduce government spending included £30 billion of unspecified cuts. Most commentators said the proposed scale of cuts over the next five years would be extremely hard to deliver.

Gains tax saving for business owners

The Autumn Statement included a modest benefit for business owners. In future, they will be able to defer any capital gains tax liability that is eligible for the lower entrepreneurs’ relief rate of 10% by ‘rolling over’ investment into an Enterprise Investment Scheme or Seed EIS. If you are a business owner and you would like more information please contact us on 0121 308 8034.

Get ready for Pensioners Bond

The Chancellor had been expected to confirm the interest rates to be offered on Pensioners Bonds in the Autumn Statement – instead the rates will be announced on Friday 12th December. In the Budget, he had suggested market-beating rates of 2.8% for one year and 4% for three years. The overall allocation for the bonds is only £10 billion with a maximum of £10,000 per person in each bond, and demand is expected to be high. We suggest everyone interested in these bonds registers their interest now at the National Savings & Investments website so that they can obtain an application form as soon as this becomes available.

Small relief on taxes

The tax changes announced in the Autumn Statement, to take effect from next April, are modest in scope. The Treasury claimed that 24 million people will pay on average £120 less income tax over the year as a result in the rise in the income tax threshold to £10,600. But accountants pointed out that the National Insurance threshold is unchanged at £7,956 so millions of people who pay no income tax still pay NI. Others said that the higher rate income tax threshold, which will rise to £42,385 next April, will still be below the level it was prior to the coalition government in 2010, and that if it had risen in line with inflation it would be over £53,000.

Inherit an ISA

The Autumn Statement included a small giveaway for older investors. With effect from December 3rd, a husband, wife or civil partner can inherit their partner’s ISA on their death and keep the tax exemptions. Previously, those tax benefits ceased at death. On a £100,000 ISA, the annual tax savings in an ISA for a basic rate taxpayer could be over £500.

First-time buyers win from Stamp Duty changes

The switch from the old ‘slab’ system of Stamp Duty to a tiered system means 98% of home buyers will pay less on property purchases with effect from 3rd December. Under the old system, someone buying at £260,000 paid the 3% rate on the full amount, but now they pay 2% on the band between £125,000 and £250,000 and 5% on the amount above £250,000. The losers are buyers of property worth over £937,500, and the top rate of stamp duty rises to 12% on purchases over £1.5 million.

 

If you would like a second opinion on your wealth management needs please contact the office on 0121 308 8034.

 

This article contains the opinions of the authors but not necessarily Donald Wealth Management (the Firm) and does not represent a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. It is not a promotion of Donald Wealth Management’s services. Donald Wealth Management strongly suggests that no investor should act on any of these ideas without first seeking financial advice. Past performance is not indicative of future results and no representation is made that the stated results will be replicated. The value of an investment is not guaranteed and on encashment you may not get back the full amount invested. Errors and omissions excepted. Donald Wealth Management is a trading style of Donald Asset Management Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom (FRN: 223784). Donald Asset Management Limited is registered in England and Wales under Company No. 4675082. The registered office address of the Firm is: Stable End, 12 Heather Court Gardens, Four Oaks, West Midlands, B74 2ST.