Further tax cuts predicted as Hammond becomes UK chancellor

Added 14th July 2016

Britain’s new prime minister Theresa May has appointed former foreign secretary Philip Hammond as chancellor of the exchequer with a leading expert predicting he may delay long-awaited reforms to non-UK domiciles.

Further tax cuts predicted as Hammond becomes UK chancellor

Hammond, 60, succeeds George Osborne, who during his six-year tenure introduced the pension freedoms last April giving people unrestricted access to their savings and removing the need to buy an annuity.

In an interview with a British broadcaster on Thursday, Hammond confirmed there were “no plans for an emergency budget”, revealing instead that there would be an autumn statement followed by a budget next year.

He added that he plans to meet with the Bank of England “to see where we are”.

Before entering politics, Hammond had a business career in small and medium-sized companies in manufacturing, consultancy, property and construction, and oil and gas, both in the UK and abroad.

His appointment comes after the resignation of former premier David Cameron following Britain’s unprecedented decision to leave the European Union last month.

Delay to non-dom reforms

Rachel Griffin, financial planning expert at Old Mutual Wealth, believes Hammond could delay introducing Osborne’s long-awaited reforms to tax system governing non-UK domiciles.

The rule changes, due to come into force in April next year, mean that non-UK domiciles who have resided in the country for more than 15 of the past 20 tax years will now automatically be deemed UK-domiciled.

“The rules were a big focus in the 2015 election, with some arguing that it is unfair to tax individuals at UK rates on money they have earned elsewhere, while others argue that non-doms benefit from living in the UK without contributing a fair amount of tax.

“In the current climate, however, it is possible that the new Chancellor may choose to delay the changes, deciding that it is not the time to be introducing complex measures that risk discouraging people from residing in the UK,” she said.

She previously told International Adviser the changes could mean that non-UK domiciles are thousands of pounds better off if they hold onto their overseas assets until after they change their status.

Corporation tax

In the aftermath of the Brexit vote, market volatility and a plummeting pound saw George Osborne propose a cut to corporation tax, bringing it down to 15% - the same level as popular offshore tax haven Mauritius – in bid to boost the economy.

Griffin predicts the new chancellor may slash corporation tax again to 12.5% to encourage large companies to keep their headquarters in the UK while the government negotiates an exit strategy.

“When the coalition government came into power in 2010, corporation tax stood at 28%. The rate is now 20% and George Osborne said in March he would continue cutting down to 17% by 2020.

“In light of the Brexit vote, the new chancellor could be more aggressive and take the UK below Ireland’s rate of 12.5%, tempting companies to stick with their British bases rather than move to the EU member state across the Irish Sea,” she said.

Capital gains tax (CGT)

In addition, Griffin said Hammond could build on cuts to capital gains tax (CGT) – which under Osborne fell from 28% to 20% for higher rate taxpayers and from 18% to 10% for basic rate taxpayers – by proposing further tax relief to Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs).

“He could choose to build on the reliefs afforded to EIS, Venture Capital Trusts (VCTs) and Seed Enterprise Investment Schemes (SEIS) or look to extend the annual investment limits in order to encourage savers to invest in innovative firms in need of growth capital,” she said.

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Monira Matin

Senior Reporter

Monira joined International Adviser in March 2016 from Informa Global Markets where she worked as a eurobond reporter for over two years, covering fixed income markets. She has previously held a number of editorial positions covering politics, insurance and technology. Monira has a degree in Journalism and Economics from City University.

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