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The Chancellor, George Osborne, delivered his Autumn Statement on 29 November.

From a financial planning perspective it was perhaps not as exciting as some commentators predicted: for example no changes to pension tax relief for individuals were announced and we still have the 50% additional rate of income tax.

However, there were some points of note. Whilst much of the detail is still awaited, below is a summary of the main points together with what the changes mean.

High level main points:

• Tax incentives for small company investments - 50% tax relief for new Seed Investments
• Capital Gains Tax - annual exempt amount frozen at £10,600 for 2012/13
• Tax relief for Gifts of pre-eminent objects
• Agricultural buildings use and planning permission - possible increased availability of Inheritance Tax relief
• State & Public Sector Pensions - faster increase in State Pension age; a cap on Public Sector pay
• Employer Asset-Backed Pension Contributions - rules to limit tax relief
• Pension Scheme Investments - encouraging infrastructure investment by pension funds
• Other Points - statutory residence test; Inheritance Tax reductions on charitable gifts; changes to taxation of non-domiciles

Tax incentives for small company investments

What was announced?

Measures concerning Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCRs) and Seed Enterprise Investment Scheme (SEIS)

Government has been consulting, since Budget 2011, on options to provide support for seed investment, as well as to ensure EIS & VCTs are targeted at genuine risk capital investments.

As a result of that consultation a new SEIS will be introduced from April 2012 to encourage investment in new start-up companies. Tax reliefs and limits will be:

• Income tax relief of 50% for individuals who invest in shares in qualifying companies
• Annual investment limit for individuals of £100,000
• Cumulative investment limit for companies of £150,000
• Capital gains tax holiday for investments made into the new scheme. This will provide for a CGT exemption on gains realised on disposal of an asset in 2012-13 and invested through SEIS in the same year

EIS will be simplified by relaxing the connected person rules and the definition of shares that qualify for relief.

A new test will be introduced for EIS and VCT to exclude companies set up for the purpose of accessing relief, exclude acquisition of shares in another company and exclude investment in Feed-in-Tariffs businesses.

In addition the Government will remove the £1 million investment limit per company for VCTs to reduce administrative burdens. Government has already proposed an increase to £1m in the investment limit for EIS.

What does this mean?

No changes have yet been announced to the tax reliefs and investment limits which apply to EIS and VCT for 2012/13.

For 2011/12 the current rates are as follows:

The income tax relief is particularly worthy of consideration under the different schemes.

The SEIS is offering 50% tax relief on an investment up to £100,000 - i.e. a potential £50,000 reduction in an individual's tax liability.

To secure that same reduction under EIS or VCT an individual would need to invest £166,667 - a 2/3rds increase in the sum required.

For those with larger sums to invest EIS currently offers a maximum £150,000 reduction in an individual's income tax liability - triple that of the SEIS and two and a half times that available through a VCT.

Capital Gains Tax (CGT) - Annual Exempt Amount

What was announced?

The annual exempt amount for CGT will be frozen at £10,600 for 2012/13.

What does this mean?

The annual exempt amount is valuable - in 2011/12 and 2012/13 it could be worth a combined £5,936 (£2,968 in each year) to higher and additional rate taxpayers, who pay CGT at 28%. For basic rate taxpayers tax is paid at 18% on any part of the gain falling within the basic rate income tax band and 28% on the excess.

CGT is a tax made on the disposal of chargeable assets. This includes disposals by way of gift as well as by selling assets. Unlike an insurance bond, a gift of an asset subject to CGT (e.g. shares in an Open Ended Investment Company) to someone other than spouse/civil partner can trigger a tax charge.

Gifts to spouses/civil partners are exempt and the freezing of the annual exemption means simple planning strategies can be undertaken of gifting assets to a spouse/civil partner if (s)he:

• has any unused CGT exemption
• will pay a lower rate of CGT
• has losses that can be offset against a gain

A note of caution is needed, though:

• Beware crystallising (and wasting) losses where there are only a small amount of current year gains within the annual exemption
• Beware the 30 day anti-avoidance rule surrounding 'bed & breakfasting'. Consider a gap exceeding 30 days, or repurchasing via spouse, ISA or pension.

Gifts of pre-eminent objects

What was announced

At Budget 2011 the Government announced that it would be consulting on proposals to encourage donations of pre-eminent works of art or historic objects to the nation in return for a tax reduction. The aim was to provide an incentive for owners of pre-eminent objects to donate them to the nation during their lifetime by providing a tax reduction based on a proportion of the value of the object.

In addition, it was proposed that companies would receive a reduction in their corporation tax liabilities, in return for such donations.

This scheme will now be introduced, offering Income, Capital Gains and Corporation Tax reductions. The total tax reductions under the scheme, together with taxes offset under the existing IHT acceptance in lieu scheme, will be subject to an annual limit of £30 million a year.

It is envisaged that this scheme would complement the separate proposal of a reduced rate of IHT where at least 10% of a deceased's net estate is left to charity, each seeking to encourage philanthropy at different stages in a person's life.

What does this mean?

The scheme may encourage more tax efficient gifting of certain assets. However, perhaps of greater interest will be the outcome of the proposals to reduce the rate of IHT where at least 10% of a deceased's net estate is left to charity.

Agricultural buildings use and planning permission

What was announced?

The Government will consult on proposals to allow existing agricultural buildings to be used for other business purposes such as offices and retail space, to make it easier for rural businesses to find the premises they need to expand.

What does this mean?

We will need to see how these proposals progress in due course but they could have an important impact on increasing the availability of IHT reliefs for buildings in rural areas. For example, agricultural relief ceases to be allowable on the agricultural value of farm cottages when they are no longer occupied for agricultural purposes. These proposals may therefore increase the prospect of those same buildings qualifying under IHT business property relief rules.

State & Public Sector Pensions

What was announced?

The rise in the state pension age from 66 to 67 has been brought forward. It will now happen between 2026 & 2028 instead of 2034 & 2036 as previously planned.

The Basic State Pension will increase by the triple guarantee. A full basic State Pension will rise by £5.30 to £107.45 per week in April 2012. The rate for a couple where entitlement is based on a spouse/civil partner's record will rise by £8.50 to £171.85 per week.

Public sector pay increases capped at 1% average rise for two years after the end of the current pay freeze (until 2015).

What does this mean?

Lower increases in public sector salaries mean lower pensions income from final salary/career average schemes.

All of the changes increase the emphasis on individuals to make adequate supplemental provision for retirement - to ensure retirement can happen when they want and with the resources they need.

Additional retirement savings will be required to enhance, or even maintain, expected retirement incomes. This makes the tax relief available through pensions ever more important.

Employer Asset-Backed Pension Contributions

What was announced?

To prevent employers gaining excessive tax relief for asset-backed pension contributions to pension schemes, Finance Bill 2012 legislation, which will be effective from 29 November 2011, will ensure no excessive relief can arise for new arrangements.

Transitional rules will apply to existing asset-backed arrangements that have already received tax relief to ensure the correct amount is given by the end of an arrangement.

What does this mean?

The change will not directly affect individuals, it impacting mainly on occupational schemes, their trustees and administrators. This was expected as there had been a Government consultation.

Pension Scheme Investments

What was announced?

The Government has signed a Memorandum of Understanding with two groups of UK pension funds (including the National Association of Pension Funds, the Pension Protection Fund, and a separate group representing pension plans and infrastructure fund managers) to support additional investment in UK infrastructure. The Government will target up to £20 billion.

What does this mean?

This will not directly impact individual members of pension schemes but it shows that the Government is thinking of, and encouraging, alternative funding strategies. Pension funds are clearly being considered a useful resource for this moving forward.

Other Points

HMRC has, since Budget 2011, been consulting on a number of other issues:

• Statutory definition of tax residence;
• Reform to the taxation of non domiciled individuals;
• A new incentive for charitable legacies (a lower rate of IHT when leaving 10% of a net estate to charity).

All three consultations have closed. In addition other matters have occurred in the interim:

• The long running landmark residency case of Robert Gaines- Cooper finally concluded in the Supreme Court in favour of HMRC last month
• The independent legacy 10 campaign was launched with high profile backers supporting the principle of leaving 10% of your estate to charity to reduce IHT by 10% to 36% http://legacy10.com/

New rules following all 3 consultations are due to take effect on 6 April 2012 and although no announcements were made in the Autumn Statement, draft legislation is expected within the draft Finance Bill to be issued in December.