Trowers & Hamlins

Sign up

Home » News » Press Releases » Budget 2014 comments and analysis

Budget 2014 comments and analysis

Budget 2014 comments and analysis

Partners from Trowers & Hamlins respond to the Chancellor's 2014 Budget, delivered on 19 March

Estate regeneration - Tonia Secker, Housing and Regeneration partner

"The Chancellor has referred to the establishment of a £150m fund to kick-start the regeneration of large housing estates through repayable loans from private sector developers.  It's unclear as to what aspects of estate regeneration the fund is intended to address, and we look forward to seeing the detailed proposals for this area of housing, which has struggled to receive investment in recent years."

Help to Buy - Tonia Secker, Housing and Regeneration partner

"Extending Help to Buy to 2020 is interesting.  Whilst some commentators have expressed concern over the impact of the scheme, it has been very successful in improving access to home ownership and boosting economic activity. 

"The question now is whether extending it will prejudice the Government's aspirations for the private rented sector.  If sales receipts are going to generate a quicker and greater return for developers, then what is the incentive to participate in PRS in the volume Government is looking for?"

Need for affordable housing in the regions - Mike Gaskell, Housing and Regeneration partner

"Whilst the Chancellor's announcement about new homes in the South East is very welcome, the need for housing is a national issue.  There is no indication of significant further help for the supply of affordable housing in other parts of the country, which is disappointing."

Social enterprises and Social Investment Tax Relief - Mike Gaskell, Housing and Regeneration partner

"The Budget has provided a little more detail on the government's plans to encourage new investors to put money into social enterprises through the Social Investment Tax Relief at a rate of 30%. This is the same as the rate of relief applicable under the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs). This rate will allow eligible social enterprises to receive a maximum of around £290,000 investment over 3 years. Whilst not a huge sum, this should assist small social enterprises attract the more philanthropic investor prepared to take a risk. It will be interesting to see how those interested in supporting social enterprise view this as against a conventional gift aided donation. The tax relief, as a deduction from actual tax payable, is potentially more valuable to the investor / tax payer than a comparable gift aid donation might be."

Increased SDLT, Annual Tax on Enveloped Dwellings and Capital Gains Tax - Andrew Sneddon, partner and Head of Tax

The Chancellor announced that there will be new bands for the Annual Tax on Enveloped Dwellings (ATED) to bring certain enveloped properties worth over £1 million and up to £2 million into the charge with effect from 1 April 2015 and properties worth over £500,000 and up to £1 million into the charge with effect from 1 April 2016.

But even more shockingly, the government will also extend the 15% Stamp Duty Land Tax (SDLT) rate applied to "enveloped" residential properties to such properties worth over £500,000 with effect from 20 March 2014.

The government will extend the related Capital Gains Tax (CGT) charge on disposals of properties liable to ATED to properties worth over £1 million with effect from 6 April 2015 and to properties worth over £500,000 with effect from 6 April 2016.

"These measures were completely unexpected. This is the third Budget in a row in which the Chancellor has increased taxes on companies acquiring residential properties and the goal posts have been moved again.  We now have an unbelievably draconian and complex taxation system for the residential property sector.  Non-residents who buy property in the UK provide significant benefits to the economy which do not seem to be appreciated, and one can only hope that the Chancellor has not killed off the mid-range residential property sector at a stroke."

New capital gains tax on non-resident investors in the UK residential real estate sector - Andrew Sneddon, partner and Head of Tax

The Chancellor announced that the long-awaited and overdue consultation on the taxation of future gains made by non-residents disposing of UK residential property from April 2015 will be published "shortly".

So far as we know, the change will affect disposals of all UK residential property by non-UK resident individuals. It is not clear whether this includes disposals by trustees or personal representatives, though this may be the case. These changes will apply from 6 April 2015.

"We have been waiting for this since the Autumn Statement last December so it is disappointing to not have more information.  At least we have a year or so to consider these proposals unlike last time round when the Government allowed just a matter of weeks.

"This is an extension of the revenue raising aimed at high value UK homes which began in the 2012 Budget with the introduction of the 15% rate of SDLT and continued last year with the introduction of the Annual Tax on Enveloped Dwellings (ATED) and CGT for many company-owned homes which were worth more than £2 million. 

"Whilst many people may be in favour of non-residents becoming subject to the same capital gains tax rules as UK resident individuals, it would be ironic if individuals selling residential property become subject to CGT in circumstances where no CGT would be payable if they held the property in an offshore company. This now looks like policy making on the fly.  It would obviously have been preferable if the Government had reviewed the taxation of residential property in the whole, allowing people to plan their affairs properly, rather than making piecemeal changes."

Surprise, surprise!  Good news for pensioners and surprise changes for Defined Contribution schemes - Diane Preston, pensions partner

"In a surprise move, the Chancellor has announced significant changes relating to Defined Contributions (DC) schemes.  In future DC members will not be required to buy an annuity with their saving pots.  The rules on flexible drawdown will be changed from 27 March.  The existing requirement to have £20,000 in guaranteed pension before qualifying for flexible drawdown will be reduced to £12,000, the annual drawdown allowance will be increased, and the possible lump sum will also be increased.

"Further significant changes to annuities will be introduced, provided that the legislation is passed by an Act of Parliament.  If the Chancellor's proposals are approved by Parliament, then all remaining tax restrictions on DC pension pots will be removed – there will be no caps, no drawdown limit and no-one will have to buy an annuity. 

"Another surprise is that there will be a requirement that every member retiring from a DC scheme will be offered free, impartial advice prior to buying an annuity and £20m will be set aside to develop this "right to advice".

"A further surprise is the Chancellor's Pensioner's bond, which will be available from next January and will give pensioners a savings investment vehicle.  This would seem to be much better than any comparable savings investment vehicle currently available."

Relief at pension allowances left untouched - Diane Preston, pensions partner

"After cuts to the annual and lifetime allowances in recent years it will be a relief to pension savers and the pensions industry that there have been no further cuts this year to either the annual allowance or the lifetime allowance.  However, the cuts announced in the budget last year – reducing the annual allowance to £40,000 and the lifetime allowance to £1.25 million – will take effect from April this year.

"There had also been speculation that tax relief on pension contributions would be limited to the basic rate of 20% rather than the 45% relief higher earners currently benefit from.  Again, there will be relief among pension savers that this has also been left untouched.

"There is speculation every year that the tax-free lump sum on pensions will be reduced from the current 25% limit.  Such a reduction would be a blow for millions of pension savers who plan to use the pension commencement tax-free lump sum to pay off debts or fund a specific purchase and would be a huge disincentive to pension saving.  Thankfully the 25% limit is staying – for the time being at least!"