T e c h n i c a l S a l e s B r i e f i n g

Transcription

1 This briefing is directed at professional advisers only and it should not be distributed to, or relied upon by, retail clients. Utmost Wealth Solutions is the brand name used by a number of Utmost companies. This item is issued by Utmost Limited. T e c h n i c a l S a l e s B r i e f i n g U K B U D G E T S U M M A R Y N O T E S 8 M a r c h K e y P o i n t s As previously announced, the personal income tax allowance is to increase by 500, taking it from 11,000 to 11,500 for 2017/2018. The higher rate threshold will increase from 32,000 to 33,500 so that, in general, higher rate tax will be payable where income exceeds 45,000 in 2017/2018. The tax free dividend income allowance ( 5,000) and personal savings allowance ( 1,000 for basic rate taxpayers and 500 for higher rate taxpayers) will remain unchanged for the tax year 2017/2018. However, from 6 April 2018 the dividend allowance will reduce to 2,000. The rate of corporation tax is to reduce to 19% for the financial year commencing 1 April 2017 with further reductions planned over the rest of the Parliamentary term. As previously announced, the ISA contribution limit is to increase to 20,000 for 2017/2018. No major changes to the inheritance tax (IHT) regime have been announced, so that lump sum IHT solutions such as discounted gift schemes and loan trust arrangements remain attractive, particularly for those with larger estates. A 25% tax charge has been introduced for certain transfers to Qualifying Recognised Overseas Pension Schemes (QROPS). Any transfers after 9 March 2017 will be affected. I n t r o d u c t i o n The Chancellor of the Exchequer, Philip Hammond, presented his first Budget to Parliament on 8 March This year s statement was the first since both the Brexit vote and the US election and was against a backdrop of continued uncertainty in the financial markets. This technical briefing looks at the major changes announced as far as they impact on financial advisers and their clients, both individual and corporate. 1 5

2 The key points for 2017/18 are: T E C H N I C A L B R I E F I N G P e r s o n a l I n c o m e Ta x As previously indicated in the 2016 Budget, the income tax personal allowance is to increase by 500, taking it from 11,000 in 2016/2017 to 11,500 for 2017/2018. It is scheduled to rise further, to 12,500, by the end of the Parliamentary term. The basic rate limit is to increase to 33,500 for 2017/2018 (from 32,000 in 2016/2017) taking a further step towards the target of 50,000 of income before higher rate tax is paid. Individuals who have adjusted net income of 100,000 p.a. or more will lose their personal allowance completely where income exceeds 123,000 (allowance is reduced by 1 for every 2 of income over 100,000). These individuals will suffer an effective tax rate of 60% for income between 100,000 and 123,000. The Dividend Allowance, introduced in 2016/2017, whereby individuals will not have to pay tax on the first 5,000 of dividend income they receive will continue unchanged for the tax year 2017/2018. Above the Dividend Allowance, tax is levied at 7.5% (basic rate), 32.5% (higher rate) and 38.1% (additional and trust rate). The Personal Savings Allowance, also introduced in 2016/2017, will continue unchanged for 2017/2018 meaning that a basic rate taxpayer will not have to pay tax on the first 1,000 of savings income received, whilst a higher rate taxpayer will not have to pay tax on the first 500 of savings income received. The Married Couple s Allowance (only available where at least one of the parties was aged 65 or over before 6 April 2000) will rise to 8,445, and the minimum amount will be 3,260. This allowance is subject to a 28,000 income limit. The Blind Person s Allowance will increase to 2,320. The main rates of income tax will remain at 20% for basic rate taxpayers, 40% for higher rate taxpayers, and 45% for additional rate taxpayers with adjusted net income in excess of 150,000 p.a. For 2017/2018 the threshold for the starting rate for savings income will remain at 5,000 with a corresponding nil rate of tax. Should an individual s non-savings income exceed the starting rate limit for savings income, then this starting rate for savings income is not available. For 2017/2018, spouses and civil partners who are not able to claim Married Couple s Allowance and not liable to income tax, or not liable at the higher or additional rates, will be entitled to transfer 1,150 of their personal allowance to their spouse or civil partner. This is providing the recipient is not subject to income tax at the higher or additional rate. This will mean that the receiving spouse/ civil partner could benefit from a tax saving of 230 (i.e. 1,150 x 20%). For Scottish taxpayers the rates will be set by the Scottish Parliament from April HMRC will determine whether someone is deemed a Scottish taxpayer based on their main place of residence. The personal allowances for 2017/2018 will remain the same as the UK, but the threshold for when the higher rate is paid under Scottish tax has been frozen at 43,000 for 2017/2018. This means the Scottish higher rate threshold is 31,500 ( 2,000 less than the UK threshold). As tax on income generated from savings or dividends follows the UK rates of tax this could cause disparity for a Scottish taxpayer. Full details of the rates of tax and personal allowances etc. are set out in the Tax tables summary card which accompanies this technical briefing. The announced rises in the personal allowance, both for 2017/2018 and further into the future, are designed to lift many people on low incomes entirely out of the income tax net and ease the burden on basic rate taxpayers. For most people, higher rate tax will start at 45,000 for 2017/2018. The government have a set target to lift the figure for when higher rate tax becomes payable to 50,000 by the end of the current parliament. Today s Budget announced a reduction in the dividend allowance to 2,000 from 6 April Whilst the current 5,000 dividend rate is very generous, care should be taken if dividends are likely to exceed the current or future reduced threshold. The differentiation between the Scottish and UK regime has been raised by the Chartered Institute of Taxation (CIOT) as potentially causing unfairness for taxpayers and creating a tax system that could quickly become overly complicated. 2 5

3 N at i o n a l I n s u r a n c e C o n t r i b u t i o n s ( N I C s ) T E C H N I C A L B R I E F I N G The main rate of employees Class 1 NICs (between the primary threshold and the upper earnings limit) will remain at 12%, and the primary rate (above the upper earnings limit) will continue to be 2%. The employers secondary threshold will be 157 per week, and the employers rate will remain at 13.8%. The primary threshold for employees and self-employed NICs remains at 157 per week. The upper earnings limit for NICs will increase to 866 per week (from 827). For the self-employed, the rate of Class 2 contributions will be 2.85 per week. The rate of voluntary Class 3 contributions will be per week. The rate of Class 4 NICs between the lower profits limit ( 8,164) and the upper profits limit ( 45,000) will remain at 9%, and above the upper profits limit remains at 2%. Employers are no longer required to pay Class 1 secondary NICs on earnings paid up to the upper earnings limit in respect of any employee under the age of 21. The maintaining of the employer NIC rate at 13.8% for 2017/2018 should continue to encourage employees to forego salary for commensurate employer pension contributions, particularly where an employer is prepared to feed their NIC savings into the payment. However, care is needed regarding the level of the Annual Allowance ( 40,000 for 2017/2018) and its impact on salary sacrifice arrangements. Financial advisers are strongly placed to help business clients incorporate some imaginative pension planning to stretch the client benefits even further. C a p i ta l G a i n s Ta x ( C G T ) Changes to the rates of CGT were announced for 2016/2017, reducing to 10% (from 18%) for non, starting and basic rate taxpayers and to 20% (from 28%) for higher and additional rate taxpayers and most trusts. These rates remain unchanged for 2017/2018. These reductions do not apply to capital gains on disposals of residential property (that does not qualify for private residence relief) which will remain at 18% and 28% respectively. Again, this remains unchanged. Those individuals who are caught by the new UK deemed domicile rules will, subject to satisfying certain conditions, be able to rebase their overseas assets at their value on the 5 April 2017 for the purposes of any further CGT calculations. No changes were announced on Entrepreneurs Relief for 2017/2018. Continued lower rates of CGT compared to income tax, together with the current 5,000 Dividend Allowance, may make certain investment into collectives more attractive. However, much depends on the client s circumstances and the headline rates of tax should not be considered in isolation. Where dividends exceed the Dividend Allowance, or where regular switching of investments is likely to occur, the Dividend Allowance and capital gains tax annual exemption could be exhausted. This is especially true in light of the reduced Dividend Allowance from 6 April Here the use of products such as offshore bonds can still be very advantageous. 3 5

4 T E C H N I C A L B R I E F I N G I n h e r i ta n c e Ta x ( I H T ) As previously announced, the nil rate band will be frozen at its current figure of 325,000 up to and including the tax year 2020/2021. The changes announced in the 2016 Budget will now take effect and from the 6 April 2017 meaning that any UK resident that has been resident for 15 out of the last 20 years will be deemed domicile for all taxes not just IHT. The Resident Nil Rate Band (RNRB) legislation remains unchanged and, as announced previously, will be phased in for 2017/2018. The RNRB for 2017/18 will be 100,000. As previously announced in the Summer Budget 2015, the Government will legislate to ensure that the residence nil-rate band for IHT purposes will also be available in circumstances where a person downsizes or ceases to own a home on or after 8 July 2015 where assets are passed on death to direct descendants. There continues to be a need, particularly for those clients with larger estates, to consider the impact of IHT and the steps that can be taken to mitigate it. Whilst the RNRB will reduce the IHT exposure to some estates, others may not be able to claim this. We intend to write a technical briefing of the requirements in the coming months. Despite the changes, there will still be a need for tried and tested lump sum IHT solutions such as discounted gift schemes and loan trusts, as well as appropriate life cover for the potential liability. P e n s i o n s The Lifetime Allowance will remain at 1,000,000 for 2017/2018 and will increase in line with CPI from 2018/2019. Transitional Lifetime Allowance protection will be available to protect those whose pension funds exceed this figure. The Annual Allowance will remain at 40,000 for 2017/2018. Significant changes were announced in relation to Qualifying Recognised Overseas Pension Schemes (QROPS). Transfers to QROPS requested on or after 9 March 2017 will be taxable unless, from the point of transfer: (i) both the individual and the pension savings are in the same country (ii) both are within the EEA (iii) the QROPS is provided by the individual s employer. If this is not the case there will be a 25% tax charge on the transfer which will be deducted by the scheme administrator. C o r p o r at e C O R P O R AT I O N TA X R AT E S The main rate of corporation tax is to reduce to 19% for the financial year commencing 1 April Reductions in the rate of corporation tax will be phased over a period to reach 17% for the financial year commencing 1 April Corporate planning should continue to focus on the use of salary/bonus and pension contributions. Owner-managed companies should review their approach to remuneration to ensure maximum tax efficiency. 4 5

5 T E C H N I C A L B R I E F I N G V AT The standard rate of VAT remains at 20%. The VAT registration threshold will rise to 85,000 from 1 April The corresponding rate whereby a person may apply for deregistration will be 83,000. S a v i n g s I N D I V I D U A L S A V I N G S A C C O U N T S The overall contribution limit will increase to 20,000 for 2017/2018. It is possible for savers to contribute the full amount to a cash account and also to withdraw and replace money within their cash ISA without it counting towards their annual subscription limit. The maximum contribution under a Junior ISA has also increased to 4,128 as has the maximum contribution to a Child Trust Fund (CTF). It has been possible from 6 April 2015 to convert a Child Trust Fund to a Junior ISA. Help to Buy ISAs were introduced in 2015/2016, whereby a Government bonus of 25% of the ISA savings (subject to a maximum of 3,000) is available for first time buyers purchasing UK property. The new Lifetime ISA will be made available from 6 April 2017 allowing individuals aged between the ages of 18 and 40 to save up to 4,000 a year. Any contributions made prior to the individual s 50th birthday will benefit from a Government bonus of 25%, up to 1,000. Contributions beyond this date get no bonus uplift. The funds can be withdrawn early without losing the bonus if they are to be used as a deposit to buy a first home (worth up to 450,000), to plan for retirement or on the grounds of ill-health. After the individual s 60th birthday, all savings can be extracted tax-free. If funds are withdrawn prior to age 60 the Government bonus is lost, and a 5% charge will be levied. An individual with a Help to Buy ISA may transfer those savings into the Lifetime ISA in 2017/2018, or continue to save into both, although only the bonus from one can be used to buy a house. The changes to the LISA are perhaps the first step to a new type of savings vehicle to supplement a pension. Further restrictions to UK pensions perhaps show the direction the government is taking in relation to pension savings. N AT I O N A L S A V I N G As confirmed in the Autumn Statement a new NS&I investment bond will become available from 6 April The maximum investment is 3,000 and the rate will be fixed at 2.2% over a term of 3 years. L I F E A S S U R A N C E I S S U E S As of 6 April 2017, interest from Open-Ended Investment Companies, authorised unit trusts, investment trust companies and peer to peer loans may be paid without deduction of income tax. This technical briefing represents our current understanding of the major issues arising from the Budget. Inevitably some further details will emerge over the coming weeks and the impact of the changes can then be assessed. We will, of course, keep you informed of all major developments. T E C H N I C A L S E R V I C E S M a r c h Whilst every effort has been made to ensure the accuracy and completeness of the information, no representation or warranty, express or implied, is given in respect of the accuracy or completeness of the information. The information is based on Utmost Wealth Solutions understanding at the time of writing of current law and HM Revenue & Customs practice which may change. It does not constitute legal or tax advice and must not be treated as such. The companies in the Utmost Group can take no responsibility for any loss which may occur as a result of reliance on this information. Utmost Wealth Solutions is the trading name used by a number of Utmost companies. Utmost Trustee Solutions is the trading name used by Utmost Trustee Solutions Limited. This item has been issued by: Utmost Limited. The following companies are registered in the Isle of Man: Utmost Limited (No C), Utmost Administration Limited (No C) and Utmost Trustee Solutions Limited (No C), which are regulated or licenced by the Isle of Man Financial Services Authority. Utmost Services Limited (No C) is not regulated. Each of the above companies has its registered office at: Royalty House, Walpole Avenue, Douglas, Isle of Man, IM1 2SL British Isles. The following companies are registered in Ireland: Utmost Ireland dac, trading as Utmost Wealth Solutions, is regulated by the Central Bank of Ireland. Its registered number is and it has its registered office at: Ashford House, Tara Street, Dublin 2, D02 VX67, Ireland. Utmost PanEurope dac, trading as Utmost Wealth Solutions, is regulated by the Central Bank of Ireland. Its registration number is and it has its registered office at: Navan Business Park, Athlumney, Navan, Co. Meath C15 CCW8, Ireland. Its FCA number is Both companies are authorised by the Financial Conduct Authority in the UK for Conduct of Business Rules. UL PR 0054/