In what was the last budget of this Parliament, the Chancellor told us that the economy is in good shape and that the national debt is coming down. He had to tread a careful line between fiscal responsibility and the desire to offer some good news before the General Election in May. There were no headline-grabbing tax giveaways but, nevertheless, there are some interesting headline, including:
The personal allowance has been increased by £200 for each of the next two years. This will be set at £10,800 for 2016/17 and £11,000 for 2017/18. In order to pass on the benefit of the increased personal allowance to higher-rate taxpayers, the higher-rate threshold will also increase to £42,700 and £43,000 respectively.
The new marriage tax allowance, which comes into effect from April 2015, will be increased in line with the personal allowance, so that £1,080 of the personal allowance for 2016/17 can be transferred and £1,100 for 2017/18. The allowance continues to only apply where the transferee is a basic-rate taxpayer.
Having introduced major reform to allow people entering retirement greater choice over how the access their pension funds, the Government wants to allow people who have already purchased an annuity to enjoy similar flexibility. From April 2016 tax rules will allow annuitants to sell their annuity income to a third party, subject to agreement by the annuity provider. The sale proceeds, whether taken in full or drawn down over a number of years, and which may be used as the individual sees fit, would be taxed at the seller’s marginal income tax rate, in the same way as those drawing pension income for the first time from April 2015. In conjunction with the Financial Conduct Authority (FCA) the Government will consult on how best to protect the interests of those who will want to access the value of their annuity in this way.
Despite the wish to improve flexibility, the Government wants to ensure the pension tax system is fair and sustainable. To protect against the growing cost of tax relief for pension savings the lifetime allowance for tax relieved contributions will be reduced from April 2016 from £1.25m to £1m, although from April 2018 the allowance will be increased in line with the Consumer Price Index.
In the 2014 Budget, the Government announced that from April 2015 taxpayers with taxable income below £15,600 will not have to pay tax on interest income. As a further step, a Personal Savings Allowance was announced today meaning that from April 2016 no tax will be payable on the first £1,000 (or £500 for higher rate taxpayers) of savings interest. As many people will no longer pay tax on their savings, the automatic deduction of tax by banks and building societies will no longer be necessary.
Subject to consultation, from Autumn 2015 the Government will provide two new incentives to save via an Individual Savings Account (ISA). First time home buyers will be able to save up to £200 a month through a “Help to Buy” ISA with the Government paying a bonus of 25% of the amount saved up to a maximum of £3,000. The bonus will be paid when the individual buys their first home costing up to £450,000 in London and up to £250,000 elsewhere. Also, in a move to improve flexibility, ISA savers will be able to withdraw and replace funds in their cash ISA provided the replacement is made in the same tax year as the withdrawal.
Tax efficient investments
Some minor changes to the tax rules for Venture Capital Investments are being introduced. From April 2015 the requirement that 70% of funds raised under the Seed Enterprise Investment Scheme (SEIS) must be spent before EIS or Venture Capital Trust (VCT) funding can be raised, will be removed. This is a welcome relaxation. However, the Government wants to introduce some tightening which will:
- Require that all investments are made with the intention of growing and developing a business;
- Require that all investors are independent from the company at the time of the first share issue;
- Bring in new qualifying criteria designed to deny relief to companies that have been trading for more than 12 years, unless the total Venture Capital Investment represents more than 50% of the company’s average turnover in the previous five years; and
- Cap the amount of EIS/VCT funding a company may raise at £15m. (This cap is to be set at £20m for certain “knowledge intensive” companies. For such companies the employee limit will be increased to 499.)
These proposals are, however, subject to – and will be effective from – the date of state aid clearance given by the EU.
Although the introduction on 6th April 2015 of the capital gains tax charge on the disposal of UK residential property by non-UK residents has been known for some time, HMRC has produced a useful document containing Frequently Asked Questions (FAQs) which provides clarity on a number of issues. This charge arises only on the proportion of the overall gain relating to the period after 5th April 2015. It may therefore be necessary to value the property at 5th April 2015 if it was acquired before that date. However, the valuation will only have to be carried out when the property has been sold, although HMRC is advising that it would be sensible to record in April 2015 the condition of the property at that time to assist with a future valuation. Alternatively, the taxpayer may choose to calculate the taxable gain by a straight-line time apportionment of the whole gain over the period of ownership.
The FAQs also confirm that Private Residence Relief (PRR) will only be available in respect of the gain arising after 5th April 2015 if the individual has stayed overnight at the property on at least 90 occasions in a particular tax year (the “PRR occupancy test”). This could be difficult to achieve and still remain non-resident depending on the individual circumstances. However, the PRR occupancy test does not apply for any tax year in which the individual’s spouse or civil partner is UK resident. This had not been made clear in previous releases.
On a related matter, PRR will cease to be available on the disposal of residential property located in a jurisdiction in which the taxpayer is not tax resident unless they spend at least 90 days in the property in any tax year. This change will mean that it will not be possible for gains on the disposal of second homes abroad to be exempt from tax purely on the basis that an election has been made for the property to be treated as the individual’s main residence for UK tax purposes.
In addition, HMRC has confirmed that the previously announced changes to the Remittance Basis Charge for individuals not domiciled in the UK will be introduced as planned with effect from April 2015. These changes mean that for a non-domiciled individual to continue to claim the remittance basis they will have to pay a charge of £30,000 if they have been resident in the UK for at least seven out of the last nine years (no change to the current charge), £60,000 (currently £50,000) if they have been resident in the UK for at least 12 of the last 14 years or a new charge of £90,000 if they have been resident in the UK for at least 17 of the last 20 years. These increased charges are likely to mean that fewer non-domiciled taxpayers will continue to be assessed on the remittance basis.
HMRC has also announced that a new time limited disclosure facility will be introduced in advance of the receipt of data under the Common Reporting Standard in 2017. This new facility will be available from 2016 to mid-2017 but on less generous terms than existing facilities such as the Liechtenstein Disclosure Facility and the Crown Disclosure Facility which will close at the end of 2015 rather than in April 2016 as previously planned. These existing facilities were useful where overseas income had not been previously disclosed to HMRC and allowed a disclosure to be made on favourable terms without the possibility of prosecution. The new facility will impose penalties of 30% on top of the tax owed and the interest due and there will be no immunity from criminal prosecutions in appropriate cases.
There has been a further restriction of the rules governing capital gains tax entrepreneurs’ relief. This is a valuable relief which reduces the rate of capital gains tax on the disposal of certain business assets from 28% to 10%. In his Autumn Statement in December last year, the Chancellor announced that, with immediate effect, relief would no longer be available where an individual transfers goodwill to a related close company. Today, he announced two further changes:
- An individual will only be able to claim entrepreneurs’ relief where they directly hold at least 5% of the shares in a company which carries on a trade in its own right. Until now, it has been possible for a company to be regarded as trading company by virtue of investments made in joint venture companies or partnerships.
- Relief for “associated disposals”, which applies where an individual sells an asset which they own personally but use in their business, will be restricted to situations where that asset is sold in connection with a disposal of at least 5% of their interest in the partnership or company that carries on the business.
In addition, there is to be a review of the entrepreneurs’ relief treatment applying to academics who dispose of shares in spinout companies owning intellectual property to which they have contributed.
Following a discussion paper issued shortly after last year’s Autumn Statement, the Chancellor announced the Government’s intention to consult on measures to restrict tax relief for travel and subsistence payments made to workers engaged through certain employment intermediaries, including umbrella companies and personal service companies. It is intended that these changes will take effect from April 2016.
There was some good news for businesses:
- Class 2 National Insurance Contributions are to be abolished during the next Parliament.
- The annual investment allowance currently allows the first £500,000 of expenditure on most plant and machinery to qualify for an immediate 100% tax write-off. This limit was due to reduce to £25,000 from January 2016. The Chancellor has announced that this reduction would be too severe for businesses and, without committing himself to a figure, raised expectations that the AIA will be more generous than £25,000.
- Specifically for farmers, the period over which profits can be averaged will be increased from two years to five years.
In the corporate sphere, the headline measures included:
- The long-awaited reduction in the corporation tax rate to 20% will come into effect on 1st April;
- Anti-avoidance measures aimed at companies using schemes designed to “refresh” their tax losses to enable them to be used more flexibly;
- A package of cultural incentives aimed at providing support for the TV, film, orchestras and gaming industries; and
- A series of measures to support the North Sea Oil industry.
In an attempt to reduce the burden for the taxpayer and provide a simple, personalised and secure service, annual tax returns will be replaced by digital tax accounts which will allow individual taxpayers and small businesses to securely view and manage their tax information and details online through a chosen digital device such as computer, tablet or smartphone.
The taxpayer’s digital account will hold real time information consisting of information which HMRC hold together with other information from third parties, for example, bank interest and pension income and this will populate the digital account allowing the taxpayer to have a real time view of their tax affairs and liabilities.
Individual taxpayers and small businesses will have the ability to view their tax liabilities and their options for settling these liabilities securely. There will also be the option to “pay as you go” which will be an advantage when managing cash flow and all taxes can be paid together as one single tax thereby simplifying the tax payment process.
- By early 2016, all of the UK’s five million small businesses and ten million individual taxpayers will have access to their own digital account with every small business and individual taxpayer in the UK having access by 2020.
- For businesses the process to register a new company will be streamlined by May 2017 removing the need for companies to provide the same information on more than one occasion.
- By 2020, businesses will have the facility to link their business accounting software to their personalised digital tax account, allowing data to be fed into the digital tax account on a daily basis as part of the day to day running of the business rather than additional separate exercise at the end of the year.
Whilst the Government is committed to implementing a modern, user-friendly online tax system, there will still be the option, for those who wish, to complete an annual paper Tax Return.
- The planned fuel duty rise in September has been cancelled. There are reductions in the rate of duty on beer, cider and spirits.
- Company car benefit charges will increase by 3% for 2019/20, although rates for ultra-low emission cars will rise by a lower amount.
- An increase to the national minimum wage was announced. This will rise to £6.70 from October 2015.
- There will be further action taken to tackle serial tax avoiders and promoters of anti-avoidance schemes, together with an extension of the accelerated payments scheme, with a greater number of notices issued requiring tax relating to certain schemes to be paid up front.
- New penalties will be created in respect of tax that is payable as a result of arrangements that are caught by the General Anti-Abuse Rule.
- The Gift Aid Small Donations Scheme will be increased from £5,000 to £8,000, which will allow more charities to benefit from simplified administration for small donations.
- There will be a review of the impact of Deeds of Variation on inheritance tax liabilities, to be carried out by the autumn.