While the markets are still waiting for the dust to settle over the announcements made by the chancellor in his annual Budget update, investors can spot the sectors that are clear winners and losers from the headline points of the statement.
Regardless of where they are invested, ISA investors benefitted directly in two ways from the Autumn Statement.
Osborne announced that if an ISA saver in a marriage or civil partnership dies, their spouse or civil partner will inherit their ISA tax advantages. Under the previous rules, ISA tax advantages died with the saver. Figures from HM Treasury show that around 150,000 married ISA savers pass away each year.
Stephen Ford, head of investment management at Brewin Dolphin, said: “We really welcome the ability to pass ISAs intact to a spouse on death, a strategy we recommended to the Treasury.”
“If you are drawing income from an ISA in retirement, suddenly discovering that income is no longer tax-free when your spouse dies is a huge blow. This allows people to plan properly and fairly for their old age.”
The second ISA change was a small lift to the annual allowance, which will rise from £15,000 to £15,240 from April next year. This follows the overhaul to ISA made at the 2014 Budget, when cash and stocks & shares products when combined into the New ISA.
One of the sectors that enjoyed an immediate bounce from the speech was housebuilders, where investors welcomed news that the stamp duty ‘slab’ on house purchases will be scrapped.
The changes, which the chancellor claims will leave 98 per cent of homebuyers better off, overhauls the stamp duty system by bringing in a graduated rate, similar to how income tax is calculated. The current ‘slab structure’ system means the amount owed jumps at each threshold, which had the effect of distorting the housing market.
UK housebuilders rallied at the news, reflecting the prospect of transactions further down the property ladder attracting less in the way of stamp duty. The new system means that anyone buying a house under £937,000 will pay less duty.
Guy Ellison, head of UK equities at Investec Wealth & Investment, said: “The introduction of marginal rates of stamp duty changes will benefit the majority, though those at the top-end of the market will see a higher tax burden. From a market perspective this could weigh on the London-centric house builders and estate agents, for example Berkeley and Foxtons, whilst potentially favouring the more regional developers.”
Bovis Homes Group was up 1.69 per cent when the market closed, while Persimmon had gained 0.98 per cent and Barratt Developments advanced 1.75 per cent. Taylor Wimpey rose 0.50 per cent.
The airline industry also walked away from the Autumn Statement with a small win. From 1 May next year air passenger duty for children under 12 will be abolish and this will be extended to those under 16 in the following year.
According to the Treasury, this move will help to reduce the cost of holidays for families by up to £71 per child, which could lead to an uptick in demand.
Ellison said: “The abolition of air passenger duty for under 12’s, moving to under 16’s in due course should provide a modest fillip for the airline industry.”
The news saw shares in easyJet close 2.46 per cent higher and British Airways parent International Consolidated Airlines rose 2.87 per cent.
Of course, not all businesses benefitted from Osborne’s plans with the banking industry and some multinationals coming under fire.
The chancellor said he was taking action to ensure banks “pay their fair share too”. Banks are able to offset their losses from the financial crisis against tax on profits for years to come, which Osborne sees as unfair.
“Some banks wouldn’t be paying tax for 15 or 20 years. That’s totally unacceptable. The banks got public support in the crisis and they should now support the public in the recovery,” he said.
“I am today limiting the amount of profit in established banks that can be offset by losses carried forward to 50 per cent and delaying relief on bad debts. Together that means banks will contribute almost £4bn more in tax over the next five years.”
Shares in the UK’s banks dipped when the news broke. Royal Bank of Scotland managed to get the session 0.05 per cent up by Lloyds was down 0.95 per cent, Barclays shed 0.63 per cent and HSBC fell 0.42 per cent.
Jonathan Richards, executive director in financial services at EY, said: “This is unexpected and significant news for banks. It is likely to represent a significant additional cash tax cost for the banking sector over the next few years. If it results in banks being required to revalue their deferred tax assets, banks’ capital position and reported earnings could be affected.”
Meanwhile, Institute of Economic Affairs director general Mark Littlewood added: “Changes to bank tax profits are both retrospective and dangerous.”
Multinational companies that generate money in the UK then shift it out of the country to avoid paying tax here were also hit by Osborne, who announced a new diverted profits tax to clamp down on this practice.
“Some of the largest companies in the world, including those in the tech sector, use elaborate structures to avoid paying taxes. Today I am introducing a 25 per cent tax on profits generated by multinationals from economic activity here in the UK which they then artificially shift out of the country,” the chancellor said.
“That’s not fair to other British firms. It’s not fair to the British people either. Today we’re putting a stop to it. My message is consistent and clear. Low taxes; but taxes that will be paid.”
At 25 per cent, the diverted profits tax is four percentage points higher than the current UK corporation tax rate of 21 per cent, which suggests Osborne hopes firms will move to dismantle tax structures that divert profits to low-tax nations and pay HM Revenue and Customs instead.
Tech companies such as Google, Amazon and Apple have been the target of outrage in recent years after it emerged they were paying minimal tax to European governments on the huge profits they generate from their citizens. Coffee giant Starbucks has also been criticised for the same behaviour.
The tax will be introduced in April 2014 but has yet to be set out in detail. However, early critics have expressed concern that the chancellor seems to be operating in isolation from the international community.
John Cridland, director-general at the CBI, said: “International tax rules are in urgent need of updating, but the decision for the UK to go it alone, outside the OECD process, will be a concern for global businesses, and moving the goalposts on offsetting losses risks creating a worrying precedent.”
Littlewood added: “It’s hard to see how the proposed tax changes on multinational companies could work.”
