With the Chancellor already having delivered two Budgets in 2015, one either side of the election, it is perhaps not too surprising that there was not much in the way of major changes in his Autumn Statement. In fact, the one measure that was certain to be addressed – the changes to tax credits – ended up being a straightforward reversal of most (but not all) of the changes announced in July.
It is also important to note that this will not be the only Budget that will affect Scottish Taxpayers. The Scottish Government’s version on 16th December 2015 will announce the initial rate of the Scottish Rate of Income Tax. However, if it is set at a rate of 10p there will be no difference on the tax position for taxpayers in Scotland as opposed to other UK taxpayers. Otherwise, the “S” PAYE tax codes in the first few months of next year will have even more importance.
Click here to read a full summary of the Chancellor's announcement.
Pensions, Savings and Investments
The starting rate of savings tax will remain at £5,000 in 2016-17, providing for a 0% tax rate for this amount of interest depending on the taxpayer’s tax position.
The ISA limits will also be frozen for 2016/17, at £15,240, with Junior ISAs and Child Trust Fund limits remaining at £4,080. The ISA tax reliefs will, however, be extended to the administration period following the subscriber’s death. This is in addition to the measure in the March Budget 2015 that the tax exemptions would continue where the ISA was inherited by their surviving spouse or civil partner. The Innovative Finance ISA will also be extended, with additional investments qualifying for the scheme.
The basic state pension will be increased in April 2016 by £3.35 to £119.30 as a result of the triple lock rules. This rate will apply to existing pensioners, while those qualifying for the state pension from April 2016 will receive a single tier state pension at a rate of £155.65.
The Government continues to support those wishing to sell annuities and will set out further details in December of how they will enable creation of a market for such sales. There will be simplification in the areas of Dependant Scheme Pensions and Bridging Pensions, while the scheduled increases in automatic enrolment minimum contribution rates will be delayed to coincide with the start of the tax year.
Although there were few new measures announced in the Autumn Statement, there has been further confirmation that the government will address two important areas:
- Firstly, in order to clarify the employment status rules (i.e. determining whether someone is employed or self-employed), the majority of recommendations in the Office of Tax Simplification’s review will be implemented. These recommendations centered around the ability to obtain guidance from HM Revenue and Customs (HMRC) and be able to rely on the outcome without fear of later challenge.
- Secondly, for salary sacrifice arrangements the Government is considering what action, if any, is necessary in view of its concern over the increase in the use of such measures.
Specific measures introduced that affect those in employment include the following:
- For diesel company cars, the 3% additional charge will continue until April 2021.
- Those employed through employment intermediaries will suffer restricted tax relief for travel and subsistence from 6th April 2016. This will apply to personal service companies where the employment intermediaries legislation applies.
- The taxation of employer provided living accommodation will be subject to further review.
- Those using disguised remuneration schemes will be targeted, with the possibility of further legislation to counter new schemes.
- Asset managers’ performance based rewards will be subjected to income tax rather than capital gains tax, unless the underlying fund undertakes long-term investment activity.
- Income from sporting testimonials for employed sportspersons will be liable to income tax in future, but an exemption of up to £50,000 will be available where they are not contractual or customary.
The key international announcements were:
- The tax treatment of internationally mobile workers who receive share-based incentives as part of their remuneration package can often be ambiguous. The Government proposes to introduce a number of legislative changes designed to provide greater consistency in the treatment of these incentives and to “put beyond doubt” the tax treatment for internationally mobile workers in particular.
- Individuals who are UK resident, but not UK domiciled, are able to elect to be taxed on the remittance basis. This means that their foreign income and gains are not subject to UK tax when they arise but, instead, are only subject to UK tax when, and to the extent that, they are remitted to the UK. This treatment can act as a disincentive to such individuals who might wish to bring funds to the UK to invest in UK businesses. Therefore, in April 2012, the government introduced a scheme known as “Business Investment Relief” whereby remittance basis users can bring funds to the UK if they are used to invest in qualifying trading companies within 45 days, without those sums becoming taxable remittances. It would seem that uptake of this relief has been disappointing and, therefore, the Government proposes to consult on how to change the rules to encourage greater use of the relief, with a view to increasing investment in UK companies.
- Since 6th April 2015, non-residents have come within the charge to Capital Gains Tax (CGT) when they sell, or otherwise dispose of, UK residential property. As the rules currently stand, every disposal requires the submission of a special Non-Resident Capital Gains Tax (NRCGT) return within 30 days of completion. This is the case even if no tax is actually due – and even where the sale gives rise to a loss. However, it has been announced that the Government is to give powers to HMRC to specify certain circumstances where an NRCGT return will not be required. Hopefully, this will reduce some of the administrative burden for taxpayers and their advisers.
Capital Gains Tax
For residential property, a major change to the rules on payment and reporting was announced, albeit one that will only apply from April 2019. From then, CGT due on such properties will be payable within 30 days of completion. This will not apply to sales fully covered by Principal Private Residence Relief (i.e. those properties that have been the taxpayer’s only or main home throughout their period of ownership). However, meeting such tight deadlines will be a concern for many, even setting aside the need to pay tax significantly earlier than is currently the case.
The rules on Entrepreneurs’ Relief will be revisited, with a relaxation of some of the measures brought in by the Finance Act 2015. This is to enable relief to apply to certain genuine commercial transactions where relief had been removed.
Deeds of Variation are an important tool that allows the families of deceased persons, and other beneficiaries, to alter the way their estate is divided. These measures have long been subject to scrutiny as a result of the tax benefits that can arise. The Government has now confirmed that it will not introduce any new restrictions at present.
Undrawn pension funds in drawdown pensions will now not be subjected to inheritance tax. This will be backdated to apply to deaths on or after 6th April 2011. Another change sees compensation and ex-gratia payments to victims of persecution during the World War II era being exempted from Inheritance Tax for deaths after 1st January 2015.
Unusually, there were very few headline-grabbing announcements affecting businesses in the statement. The main points of interest are:
- Following a consultation earlier this year in relation to extending the averaging rules for self-employed farmers, the Government has decided to give farmers the option to average their profits over either a two year or a five year period.
- The Government will introduce an Apprenticeship Levy in April 2017 to help fund more apprenticeships. The levy will be set at 0.5% of the employer’s salary bill with each employer receiving an allowance of £15,000 to offset against the levy. In effect, this will only affect larger employers with salary bills of more than £3 million.
- The Government will explore and consult on the possibility of introducing new corporate tax reliefs to encourage companies to support museums and galleries and to extend the support given by companies to grassroots sport.
- The Enterprise Zone programme in England will be extended with the announcement of 18 new sites and extensions to eight existing sites.
Venture Capital Schemes
Further changes have been made to the range of “excluded activities” which will prevent a company from raising finance through the Venture Capital Trusts scheme (VCTs), the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) and the Social Investment Tax Relief (SITR) as follows:
- With effect from 30th November 2015, the provision of reserve energy generating capacity and the generation of renewable energy benefiting from other government support by community energy organisations will no longer be qualifying activities.
- With effect from 6th April 2016, all other energy generation activities will be excluded from these schemes.
Stamp Duty Land Tax
It has been announced that, with effect from 1st April 2016, higher rates of Stamp Duty Land Tax (SDLT) will be charged on the purchase of “additional” residential properties for more than £40,000 – for example, buy-to-let properties and holiday homes. The intention is that the SDLT rates applicable to such properties will be set at three percentage points above the regular SDLT rates. The Government intends to consult on whether an exemption should be introduced for corporates or funds owning more than 15 residential properties. It should be noted that this change will not apply to properties in Scotland where SDLT was abolished from 31st March 2015 and replaced by a new Land and Buildings Transactions Tax (LBTT) from 1st April 2015. It will be interesting to see whether the Scottish Government responds with a similar measure for LBTT.
The government will consult in 2016 on possible changes to the filing and payment process for SDLT. In particular, it will consider a reduction in the filing deadline from 30 days to 14 days. Again, this measure will not apply in Scotland.
A new seeding relief will be introduced for Property Authorised Investment Funds and Co-ownership Authorised Contractual Schemes. This relief is expected to take effect from the date of Royal Assent to the Finance Bill 2016.
Annual Tax on Enveloped Dwellings (ATED)
The ATED regime (including the ATED-related capital gains tax charge) and the 15% rate of SDLT were introduced in 2013 to discourage the use of companies and other “non-natural persons” as vehicles for purchasing and holding certain UK residential properties. A number of reliefs from these taxes are currently available and the Government plans to extend these reliefs to include equity release schemes, property development activities and properties occupied by employees. The new reliefs are expected to take effect from 1st April 2016.
Tackling tax avoidance remains high on the Government’s agenda with a plethora of new anti-avoidance measures being announced including:
- The introduction of a new criminal offence of tax evasion which removes the requirement for HMRC to prove intent in serious cases of failure to declare offshore income and gains
- Measures aimed specifically at offshore tax evaders including increased civil penalties for deliberate offshore tax evasion, the imposition of civil penalties on people who enable offshore tax evasion and increased public naming of the worst offenders.
- A new criminal offence for corporates who fail to prevent their agents from criminally facilitating tax evasion.
- Tougher measures for serial tax avoiders who persistently enter into tax avoidance schemes which are subsequently defeated by HMRC. The range of measures will include special reporting requirements, the imposition of a surcharge for tax returns which are inaccurate due to the use of a defeated tax avoidance scheme and increased public naming of offenders.
- A new penalty of 60% of the tax due in cases where abusive tax arrangements are successfully tackled by the general anti-abuse rule. This may lead to more challenges under these rules by HMRC, given the penalty rate may be higher than under the existing penalty regime.
- Various targeted anti-avoidance measures aimed at, among other things, disguised remuneration, capital allowances and leasing, and certain company distributions.
HMRC and Administration
The Government intends to radically change the methods of collecting tax for those within the self-assessment who have “simple” tax affairs. This will involve affected taxpayers being sent a calculation for 2016/17, together with a demand for payment. It will be possible to challenge and appeal these calculations, which may well be required in many cases.
Major investment of £1.3 billion was announced to turn HMRC into “one of the most digitally advanced tax administrations in the world”. Digital tax accounts will be available for individuals and small businesses in 2016/17 and other free apps and software will be introduced, which will change how dealings with HMRC are carried out in future.
From April 2018, businesses, self-employed people and landlords will be subject to additional compliance requirements. This will take the form of electronic online record keeping and quarterly reporting to HMRC. It will require the use of software with features designed to prevent errors and promote compliance. These measures will not apply where a taxpayer has income from these sources of less than £10,000, provided they also have employment or pension income.