Would-be annuity sellers should be wary of a buyers’ market
Malcolm Kerr, Senior Adviser to EY, comments on the 5m people who have already bought annuities who can now sell them for immediate cash:
“Freedom and flexibility to manage your money in retirement should be encouraged, but there is concern we could end up with more people relying on their state pension if personal financial decisions go sour. Given the efforts behind auto-enrolment, which was designed to further safeguard people in retirement, this would be ironic. Allowing current annuity holders to cash in their annuity will see the rise of a secondary market, and there’s little doubt it will be a buyers’ market. Advice and/or guidance will therefore be fundamental to help people make the best decisions for their personal circumstances and ensure a financially secure retirement.”
Reduction in the lifetime allowance could clash with pensions inheritance
Jason Whyte, Insurance Director at EY, comments on the further reduction in the lifetime allowance for pensions:
“The government has long been concerned with the proportion of pension tax relief that is claimed by higher rate taxpayers, and a further reduction in the lifetime limit is an obvious way to curb it. However, it could clash with the reforms announced in the Autumn Statement allowing dependents to inherit pension wealth tax free, and after the election we may see something more radical such as a flat rate of tax relief for all pension savers.”
Government has taken a decisive step towards a more competitive Oil Gas industry
The Chancellor’s Budget announcements today of the introduction of a new basin-wide Investment Allowance, a reduction in the rate of petroleum revenue tax (PRT) and a cut in the headline rate of corporate tax for oil and gas companies will be warmly welcomed by a beleaguered UK oil and gas sector.
Derek Leith, head of oil and gas taxation at EY, commented: “At last there is some positive news for the UK oil and gas sector with the reversal of the tax increase of 2011 and a move towards simplification of the regime with the introduction of a cost-based Investment allowance. The PRT rate reduction is an additional boost for the most mature North Sea fields which have been taxed at a marginal rate of 81% despite falling production and rising integrity costs. As these fields typically host key pieces of North Sea infrastructure lowering the overall tax rate for these fields is vital. Whilst some in industry may have hoped for a more significant cut in the headline rate there was little likelihood of that happening, particularly as the Investment Allowance will further reduce the effective corporate tax rate for those companies continuing to invest in the sector. The UKCS is a mature oil basin and, to remain capable of attracting international investment, it must have a very competitive tax regime. The Government has taken a significant step towards creating such a regime today and industry will hope that further change will be forthcoming in the months ahead as industry, HMT and the new Oil and Gas Authority work together to ensure the longevity of a vital sector of the UK economy.”
Pub co sector raises a glass to beer duty cut
Andy Fyffe, director in EY’s leisure sector team, comments on the cut in beer duty:
“The cut in beer duty of 1p off a pint will be welcomed by the pubs sector. Following the reductions in 2013 and 2014, volumes of beer sold in the UK increased year on year for the first time in a decade, helping to alleviate margin pressures experienced in recent years, boosting profits and ultimately protecting and growing employment. We expect that this latest beer duty cut will have a similar impact on the sector, and combined with the generally better outlook for pubs as the economy grows, acting as a stimulus for further capital investment and jobs growth within the industry.”
Plans for paper tax returns to be replaced by digital by 2020
Graeme Swan, EY Managed Services Partner, comments on plans for paper tax returns to be replaced by digital: “Plans to scrap paper tax returns are a necessity and a reality in the digital world we now live in. The move to an online individual tax account will make it much easier and simpler for customers, more accurate and less time consuming to update information. It will also protect tax payers by improving compliance and reducing fraud.
“The decision to start with small businesses is also a logical one and will ensure these firms can spend more time growing their businesses, which is vital to the continued growth of the UK economy, rather than spending valuable time dealing with an overly complex UK tax system.
“To implement this ambitious plan in five years will require many parts of government to work together, as well as widespread industry engagement from banks and other third parties, to deliver on the promise of a truly joined up digital service meeting the needs of citizens.”
Chancellor unflinching in his approach to DPT
Chris Sanger, EY’s Head of Tax Policy, comments on the Diverted Profits Tax:
“In confirming the introduction of the DPT on 1 April the chancellor has been unflinching in his timetable and in his approach. This continues to go beyond international norms and positions the Chancellor in the vanguard of reform well ahead of other nations who are waiting for the more structured reform of the OECD. Businesses will be hoping for greater clarity when the Finance Bill is published on Tuesday, but any hope of detailed debate will be false as the Bill will pass from the House of Commons on the very next day.
“As the EY budget survey showed, this has been one of the greatest causes of uncertainty in this parliament.”
Three-fold increase in bank levy in just 4 years is anti-competitive for UK banks
Anna Anthony, Head of EMEIA Tax for Financial Services, comments on the bank levy announcement in the Budget:
“This is a three-fold increase in the bank levy in just 4 years and once again is anti-competitive for our own UK banks. It will hit UK headquartered banks hardest as it’s a tax on their entire global balance sheets, whereas foreign banks in the UK are only taxed on their UK liabilities. The constant tinkering with the tax regime for banks in the UK is unhelpful, and in the long-term unsustainable - the industry will definitely be looking for a commitment to a more certain tax environment in the future”.
Would-be annuity sellers should be wary of a buyers’ market
Malcolm Kerr, Senior Adviser to EY, comments on the 5m people who have already bought annuities who can now sell them for immediate cash:
“Freedom and flexibility to manage your money in retirement should be encouraged, but there is concern we could end up with more people relying on their state pension if personal financial decisions go sour. Given the efforts behind auto-enrolment, which was designed to further safeguard people in retirement, this would be ironic. Allowing current annuity holders to cash in their annuity will see the rise of a secondary market, and there’s little doubt it will be a buyers’ market. Advice and/or guidance will therefore be fundamental to help people make the best decisions for their personal circumstances and ensure a financially secure retirement.”
This is a Paul Daniels Budget. You’ll like it…not a lot, but you’ll like it
Chris Sanger, EY’s Head of Tax Policy, comments:
“In his last Budget the Chancellor resisted pulling too many rabbits out of his hat. This was more of a Paul Daniels Budget (You’ll like this, but not a lot) than a Dynamo one.
“The oil industry will welcome the help with the cut in both the supplementary charge and the petroleum revenue tax, as well as the investment allowance. The banks again find themselves in the unhappy position of funding much of this otherwise revenue neutral Budget.
“On the personal tax side, the Chancellor had a few goodies for potential voters, covering ISAs and his usual favourite of Personal Allowance. He still left alignment of the jobs tax limit with personal allowances as a job for future inhabitants of Number 11.
“All in all, the Budget content seemed clearly focussed on the short term election plan.”
Inheritance tax – don’t cut the deed of variation lifeline
David Kilshaw, EY's head of private client tax, comments on potential inheritance tax changes: “The Chancellor has announced his intention to review deeds of variation to ensure they do not foster tax avoidance.
“However, deeds of variation are not just tax planning vehicles. They can ensure estates pass as families’ wish where there is no will or where circumstances have changed. When somebody dies without a will, for example, a deed of variation may ensure a widow/widower can stay in their home.
“Over two thirds of people don’t have a will - a deed of variation can be a lifeline for their heirs and it’s vital that any anti-avoidance measures don’t remove this.”
VAT boost to public sector bodies
Audrey Fearing, EY’s Government and Public Sector Tax Partner comments on the extension of VAT relief to the public sector:
“The shared services sector received an unexpected boost as Public Sector outsourcing was re-incentivised today.
“The outsourcing and sharing of services by a large number of Public Sector bodies has historically been hampered by the imposition of VAT resulting in the “in-house” delivery model almost always being cheaper. This cost has now been removed as going forward eligible Public Sector bodies will be able to reclaim the VAT incurred on outsourced/shared service from HMRC.
“This opens the way for Public Sector bodies to explore innovative ways for reducing the cost of delivery, by sharing back office functions, or indeed outsourcing to third parties who can drive greater economies of scale.
Bjorn Conway EY Government and Public Sector Leader added: “This is to be welcomed given that Government has been tasked with delivering £13bn of savings.”
Chancellor pops the cork on alcohol duty
John Hopes, Economic Advisory Partner at EY, comments:
“The Chancellor’s announcement opens the tap for industry investment in an industry that already supports over half a million jobs in the UK. A freeze on wine duty is a welcome move for an industry which supports nearly 500 vineyards across the UK, and a 2% cut on spirits duty will help support industry investment in over 200 distilleries across the UK.”
Chancellor riding the wave of tidal energy
Ben Warren, Environmental Finance Partner at EY, comments on today’s announcements for a tidal lagoon in Wales:
“At a time when other forms of renewable energy, such as solar, have become affordable and quick to deploy, it is interesting to see the Chancellor focusing on an ambitious, but costly new project.
“What we have seen in the market is that the very slow passage of market reform and the late introduction of the CfD (Contract for Difference) regime has made it very difficult for developers to sanction investment in new projects. It would be hugely beneficial for the UK renewables sector to see the same level of support for already proven and cost effective renewables."
It’s a tax return, Jim, but not as we know it
David Kilshaw, EY’s head of private client tax, comments on the introduction of new digital tax accounts:
“The Chancellor is trying to take the ‘self’ out of self-assessment by announcing the abolition of tax returns and the introduction of new digital tax accounts.
“A road map setting out the administrative changes is promised and we have to see what direction that will take. There is a danger that if these changes are introduced at ‘warp speed’, without time for proper consultation, there could be a crash landing.
“The pre-population of tax returns for 12 million taxpayers may save a few clicks on the keyboard but taxpayers will still need to ensure that the numbers they file are correct. For many, the tax return will still remain an annual chore.”
Three-fold increase in bank levy in just 4 years is anti-competitive for UK banks
Anna Anthony, Head of EMEIA Tax for Financial Services, comments on the bank levy announcement in the Budget:
“This is a three-fold increase in the bank levy in just 4 years and once again is anti-competitive for our own UK banks. It will hit UK headquartered banks hardest as it’s a tax on their entire global balance sheets, whereas foreign banks in the UK are only taxed on their UK liabilities. The constant tinkering with the tax regime for banks in the UK is unhelpful, and in the long-term unsustainable - the industry will definitely be looking for a commitment to a more certain tax environment in the future”.
Entrepreneurs relief – still a major attraction
David Kilshaw, EY’s head of private client tax, comments on the changes to entrepreneurs relief:
“The Chancellor has only tinkered at the edges: Entrepreneurs Relief remains a powerful help to genuine entrepreneurs.
“Entrepreneurs relief is, broadly, available to those who own more than 5% of the shares in a trading company by which they are employed, subject to a lifetime limit of £10 million. Capital gains which qualify for the relief are taxed at the lower rate of 10%, rather than the 28% rate for higher rate taxpayers.
“The Chancellor has introduced anti-avoidance provisions to prevent some individuals from short-circuiting the 5% rule.”