Alternative investments were an exciting recurring feature in this year’s Autumn Statement. Numerous announcements made last week revealed the government’s commitment to the growth and expansion of the tax efficient and alternative finance sectors. However, not all announcements in the statement are beneficial for the investors and providers. Here are the key announcements from the Autumn Statement 2014.
Individual Savings Accounts (ISAs)
Spouses can now inherit their partners’ individual savings account (ISA) benefits after death. The transfer of ISA benefits is currently not available and leads to 150,000 people losing out each year. Effective December 3rd, 2014 individuals are now able to pass their ISAs without penalty to their partners.
The surviving spouse will be able to benefit from an additional ISA from April 6th, 2015. Spouses will be allowed to invest as much as their spouse used to have into their own ISAs. This is in addition to their normal annual ISA limit.
The annual limit will also be increased from £15,000 to £15,240 and those earning under £15,600 do not need to pay any tax on their savings income. Similar to passing on ISA benefits after death, the annual limit with enter into effect in April 2015.
EIS and SITR
To encourage growth in social investments, the government will now allow gains eligible through Entrepreneurs Relief (ER) to defer into investments under the Enterprise Investment Scheme (EIS) or Social Investment Tax Relief (SITR) to benefit from ER when the gain is realised. This new change will benefit qualifying gains on disposal that are eligible for ER but are deferred into EIS or SITR on or after December 3rd, 2014.
The government will also increase the annual investment limit for SITR from £5 million per year to £15 million per organisation. This new increase comes into effect in April 2015 and provides greater incentive to invest in social impact companies. Relief will also be extended to small-scale community farms and horticultural activities. The government also hopes to consult on introducing Social Venture Capital Trusts (VCT) in 2015.
Renewable Energy and Tax Efficient Schemes
On April 6th, 2015 renewable energy projects will be excluded from VCTs. All companies benefitting “substantially” from government support for generation of renewable energy who were also benefiting from VCT or EIS will no longer qualify.
Also all community energy generation undertaken by qualifying organisations will be eligible for SITR in April next year, but will no longer be eligible for the EIS, Seed Enterprise Investment Scheme (SEIS) or VCTs.
Alternative Finance
This year’s statement also looked at alternative finance with the government announcing its ongoing support of providers. To help the alternative finance sector, big banks will now be required to open up access to their credit data. They will also have to refer any small and medium sized enterprises (SMEs) that were turned down from finance. This announcement will help encourage growth in the alternative sector and provide more financing opportunities for SMEs.
P2P Lending
Peer-to-peer (P2P) lending also received attention in this year’s statement, as the government announces its support. The Government will present a package of measures to remove barriers to growth such as regulation and tax rules.
Bad debt relief for lending through P2P platforms will be introduced, meaning investors will only be taxed on their net interest instead of gross interest. These tax changes won’t come into effect until 2016, but investors will be able to claim these benefits on losses beginning in April 2015.
A consultation on extending ISA eligibility to lenders using crowdfunded, debt-based securities and a review of financial regulation that currently stands in the way of institutional lending through P2P platforms will also be carried out.
Conclusion
The Government is clearly continuing its support for UK small businesses. We’ve seen many advances to the tax efficient schemes and alternative finance in recent years and is encouraging to new industry innovations.