Darren Anton of Accountants KPMG assesses new UK Chancellor Philip Hammond’s first UK Budget
New UK Chancellor Philip Hammond’s first Budget may not quite have broken Benjamin Disraeli’s record for the shortest speech but it probably contained more gags than those of any of his predecessors.
Needless to say, it was the Labour Party – and an increasingly beleaguered Jeremy Corbyn – who bore the brunt of the Chancellor’s stand-up routine as he wisecracked his way through a smash and grab raid on the usual suspects.
First, those living off investment income, who will see their dividend allowance slashed by £3,000 per annum, a potential cost of £1,143 for an additional rate taxpayer. There seems no particular tax logic to this swingeing reduction, other than “You have the money, and we want it!”
Secondly, property developers transferring assets from capital to trading stock will no longer be able to carry a loss on the asset against future trading profits. This is especially relevant for Gibraltar owners of UK commercial property who decide to trade out an otherwise loss-making investment.
In one sense, this change neatly complements (from the Treasury’s perspective) the wholesale extension of UK corporation tax to offshore property developers which was introduced in July last year. But a cynic might simply observe that offshore developers are a soft target who don’t have a vote.
Thirdly, he proposed (but, after a Tory backbench outcry about broken election promises, has subsequently withdrawn) targeting the self-employed by increasing their National Insurance Contributions (NIC) by 2% over the next two years. This change was said to be in the interests of fairness between employees and the self-employed, since the latter have traditionally paid lower NIC than the former. It seems reducing employee NIC rates to the same level as the self-employed was not an option!
Truth be told, whilst in some quarters this was heralded as an assault on the self-employed, it is hardly an event worth reporting in real terms: the extra cost to a self-employed worker in the UK would have been £220 at most in the first year. This may be partly why a U-turn has been so prompt.
Back to Budget Day and, as the jokes continued to pour forth, some of us (and not simply those in the Labour Party) stopped chuckling. The Chancellor has announced a significant shake-up to the previously lucrative Qualifying Recognised Overseas Pension Scheme (QROPS) market.
A QROPS is an offshore pension scheme which satisfies HMRC rules. It is used to take transfers from UK pension schemes so as to facilitate future flexibility for the member. Gibraltar is but one of a number of offshore financial centres which offer QROPS.
The Chancellor has introduced a 25% tax charge on pension funds transferred to a QROPS, unless both the client and the QROPS are in the same country or both are otherwise in the EEA. This will deprive many QROPS providers of the majority of new business, since clients typically will relocate to non-EEA countries, and will be a blow for QROPS administrators in Gibraltar.
It is unlikely an outraged outcry from offshore pension providers will have the same impact in repealing this particular item from the Budget as the Tory MPs did in protesting again NIC charges – it seems it is the Chancellor who had the last laugh on this one.