Entrepreneurs’ relief and inheritance tax to come under Chancellor’s spotlight

CHANCELLOR George Osborne will deliver the Autumn Statement on Wednesday – here, Yorkshire accountancy firm Garbutt + Elliott outlines what it would like to see included this year.
 
Nick Scull, a partner specialising in tax at the York and Leeds-based practice, is expecting pain for some of those people benefitting from entrepreneurs’ relief.
He said: “Given the spiralling costs associated with ‘entrepreneurs relief’ – which went over budget by £2bn – I expect the Chancellor will address this in his Statement.  Many commentators wrongly presumed that this was coming in the June Budget, but we could well see it hit hard this time around. 
 
“In particular reforms may be introduced to remove the relief from around two-thirds of cases that qualify under current rules, bringing the cost back under control.  This is certainly something that I would advise owner-managed businesses to be planning for as they cannot expect to continue to be eligible for the lower 10% tax rate forever and may well end up paying the full 28% rate.”
Landlords, especially so-called “reluctant landlords”, are looking for changes to plans to restrict tax relief for interest costs that they hope will at least ease the transition over the coming years to the Chancellor’s previously-announced policy.
“Recently residential landlords have been a key focus for the government, and seem to be viewed as a lucrative sector to raise additional tax revenue,” said Mr Scull. “The proposed restriction on tax relief for interest costs will have a huge impact when introduced in 2017, with HMRC’s own calculations putting the tax rate on rental profits at 85 per cent in a typical example. 
 
“This seems to be aimed at the problems of the private rented sector by seeking to drive out the small landlord, but it will seem grossly unfair to ‘reluctant landlords’ – such as those who have had to let out a former home – and to many landlords outside of London.  The result of this will be to push private landlords to operate through companies.  While a complete rethink of this policy seems unlikely, I would hope to see the Autumn Statement include some measures to ease the transition to operating through a company.”
 
Partner Nigel Shaw, who specialises in private clients, wealth management and the charities and not-for-profit sector, will be keeping an eye out for more changes to the rules on inheritance tax and private pensions.
 
He said: “There is also a lot of speculation about inheritance tax, and it is a topic that I would expect the Chancellor to address. The changes due to inheritance tax thresholds in April 2017 remain unduly complicated with the small print causing many advisors headaches.
 
“Additional inheritance tax reliefs aimed at property owners in particular should be introduced immediately, and the government should avoid being needlessly prescriptive about who is eligible for such reliefs.
 
“Currently, the UK private pensions system is heavily skewed towards higher earners getting the most relief. I expect that the Autumn Statement will announce a move to a flat rate system in April 2016 which would give high earners plenty of time to ‘top-up’ their reliefs and even the playing field for those in a lower income bracket.”
Mr Shaw would like to see the social investment tax relief limit changed, to enable larger projects by charities to come under its terms.
 
He added: “Through my extensive work with charity clients, a large concern is the £300,000 limit placed on social investment tax relief which means that private sector funders cannot always use it.
 
“There are many charitable projects looking for finance which exceed the limit. The Chancellor needs to increase this limit or risk charities and community projects giving up on this new tax relief before it even gets started.”
Garbutt + Elliott employs more than 100 staff, including nine partners, and the firm works mainly with owner-managed businesses based throughout Yorkshire in a diverse range of sectors including retail, food and horse racing.

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