The Budget in brief Date posted: 18.3.16 Income tax The personal allowance will increase to 11,000 in April 2016 with a further increase to 11,500 in April 2017. The higher rate threshold will increase to 43,000 in April 2016 with a further increase to 45,000 in April 2017. National insurance contributions Class 2 NICs to be abolished from 2018. Termination payments over 30,000, which are subject to income tax, will also be subject to NICs from 2018. Capital gains tax From April 2016 (and subject to some exceptions) the basic rate of capital gains tax (CGT) will reduce from 18% to 10% and the higher rate will reduce from 28% to 20%. The 18% and 28% rates will still apply to disposals of residential property, for eg, buy-to-lets. The government will extend entrepreneurs relief (ER) to external investors in unlisted trading companies. The government will allow ER to be claimed on a disposal of a privately held asset when the accompanying disposal of business assets is to a family member. The government will allow ER to be claimed in some cases involving joint ventures and partnerships where the disposal of business assets does not meet the existing 5% minimum holding conditions. The government will introduce an individual lifetime limit of 100,000 on gains eligible for CGT exemption through the Employee Shareholder Status for arrangements entered into on or after 17 March 2016. The government will review the definition of a trading company for ER purposes to ensure that it operates effectively. No change to the fundamental provisions of ER for SME owners. 1
Inheritance tax There was only one announcement in the Budget in relation to IHT and this concerns minor technical changes to legislation dealing with objects granted exemption from Estate Duty. Corporation and business tax Corporation tax reduced to 17% (previously 18%) from 1 April 2020. Reform of loss relief (primarily targeting larger companies) from 1 April 2017 Trading receipts in non-monetary format fully subject to tax. Asset manager s performance linked rewards to be taxed as income (not capital gains) unless the underlying funds undertake long term investment activity. VAT registration threshold to increase to 83,000 from 1 April 2016. Following the OTS review of small companies and the closer alignment of income tax and NIC, a further OTS review is to be commissioned by the government to review the impact of moving employee NICs to an annual cumulative aggregated basis and moving employer s NIC to a payroll basis. OTS to be commissioned to review options for simplifying the computation of corporation tax. Comprehensive package to be developed to take action against profit shifting, tax avoidance and aggressive tax planning by multi-nationals. Action to limit deductibility of interest for multi nationals. Business rates for all properties in England to fall. Action to prevent the use of intragroup royalty payments to shift profit around a group to ensure that profit falls in the lowest/nil tax zone. Substantial UK company loss relief reform. Class 2 NICS (for the self-employed) to be abolished from April 2018. Class 4 NICs to be reformed so self-employed individuals can build entitlement to the State Pension and other contributing benefits. Small business taxation Roadmap published. 2
The intermediaries legislation (IR35) will be further reformed for public sector engagements. Capital allowances There will be an extension to the period in which a business investing in plant and machinery in designated enhanced capital allowance sites in Enterprise Zones can qualify for a 100% capital allowance. Anti-avoidance provisions will be introduced to prevent tax avoidance involving capital allowances and leasing. Savings and investment Individual Savings Account (ISA), Lifetime ISA and Help to Buy ISA The overall annual ISA subscription limit for 2016/17 will remain at 15,240 but will be increased to 20,000 from 6 April 2017. A Lifetime ISA will be introduced from 6 April 2017 which will enable those who are under the age of 40 to save up to 4,000 in a tax year and receive an annual government bonus of 25%. The bonus is earned on savings made before age 50. The Lifetime ISA has been designed as an alternative or an additional retirement fund. To maximise benefits the fund should not be withdrawn until the saver reaches age 60, otherwise the government bonuses, together with any growth and interest will be lost. There will also be a 5% charge. There is however an exception where the withdrawal is to fund a deposit on a first home worth up to 450,000 at least 12 months after opening the account. VCT, EIS and SEIS With effect from 6 April 2016 the government will exclude all remaining energy generation activities from the Enterprise Investment Scheme, the Seed Enterprise Investment Scheme and Venture Capital Trusts. Help to save Individuals in low income working households will be able to save up to 50 a month into a Help to Save account and receive a 50% government bonus after two years, and will have the opportunity to continue to save for a further two years. Savings income From April 2017 the government will change the tax rules so that 3
interest from OEICs, authorised unit trusts, investment trusts and peerto-peer loans may be paid without deduction of income tax. Employee share schemes The government will make a number of technical changes to simplify the tax-advantaged and non-tax-advantaged employee share scheme rules. Tax avoidance and evasion The relentless onslaught on what the government perceives as aggressive tax avoidance continues. Tougher action and sanctions on tackling the hidden economy. A new criminal (strict liability) offence of tax evasion in relation to failing to declare offshore income and gains. New civil penalties for offshore tax evaders and those who enable tax evasion. Further consideration of options and clarification in relation to marketed tax avoidance. New tough measures in legislation to be introduced against serial avoiders and promoters of tax avoidance schemes. Legislation will be introduced to impose a new penalty of 60% of the tax due to be charged on cases successfully attacked by GAAR. The scope of the 30,000 exemption for termination payments to be tightened to prevent manipulation. Possible limitations of the range of benefits that attract income tax and NIC advantages when provided as part of salary sacrifice schemes pensions though appear to be excluded. Off-payroll engagement in the public sector to be seriously reviewed which will negatively impact on those providing services to the public sector through their own limited companies. A tougher regime to be imposed in relation to loans to participators ( LTP ): meaning loans from companies to shareholders in substitution for taxable salary or dividends. The LTP tax rate is to increase from 25% to 32.5% from April 2016 in relation to loans/advances made on or after 6 April 2016. Legislation to be introduced to combat disguised remuneration: a 4
Property tax 2.5bn target has been set for tax from those provisions. Draft legislation and guidance on the higher rates of SDLT for purchases of additional residential properties has been published alongside today s Budget. Notably, the proposed exemption for large scale investors has been dropped and the time limit in the replacement of a main residence test has been extended from 18 to 36 months. Disposals of residential property that do not qualify for private residence relief will continue to be charged at the 18% and 28% rates of capital gains tax despite the fact that the main rates of CGT will reduce to 10% and 20% (for basic and higher rate taxpayers respectively) from 6 April 2016. The SDLT rates and charging provisions for non-residential land transactions will change with immediate effect. Under the new rules SDLT will be charged on the portion of the purchase price which falls within each new rate band. From April 2017 individuals with property income below 1,000 will no longer need to declare or pay tax on that income. Life policy taxation Review of rules taxing part surrenders and part assignments. Review of the categories of assets permissible for personal portfolio bonds without giving rise to the annual tax charge under the PPB legislation. Trust taxation Other than the change of the CGT rate paid by the trustees, there were no announcements in the Budget in relation to trusts. From 6 April 2016 the rate of CGT paid by trustees reduces from 28% to 20% except for carried interest and for chargeable gains on residential property (which do not qualify for the private residence relief) and ATED related chargeable gains where it will remain at 28%. The annual CGT exemption for trusts will be 5,550 in 2016/17. This will be diluted according to the number of trusts created by the same settlor but will never be less than 1,110. Pensions Finance Bill 2016 will introduce legislation to amend Finance Act 2004 to permit... 5
o Dependants who cease to meet the dependants criteria on reaching age 23, will be able to continue to receive dependants flexi access drawdown or dependants annuity as an authorised payment, aligning the treatment with that of a nominee. o A serious ill health lump sum may be paid from crystallised funds and if paid post age 75, will be taxable at the recipient's marginal rate. o A charity lump sum death benefit will be tax free when paid on the death of a member pre age 75 and the two year rule for payments to a charity to be tax free is also removed. o A trivial commutation lump sum may be payable from a money purchase pension that is in payment. o On the death of a member of a cash balance scheme, the scheme may need to top up the funds to meet the promised level of death benefits payable to the beneficiaries and the full amount of the lump sum payable will be authorised. A pensions dashboard to be designed, funded and launched by the pensions industry by 2019. No change to salary sacrifice arrangements where the 'sacrificed' salary is used to fund pensions. Discount rate reduction for public service pension schemes which means an increase to employer contributions from 2019/20. Government to restructure Money Advice Service, The Pensions Advisory Service and Pension Wise to create a new pensions guidance body and a slimmed down money guidance body. A proposed increase in the tax and NIC relief available for employer arranged pension advice from 150 to 500 this will ensure that the first 500 of any advice is eligible for relief. The change is scheduled to take effect from April 2017. The government will consult on introducing a Pensions Advice Allowance which will allow those over age 55 to withdraw 500 from their defined contribution pension to redeem against the cost of financial advice. Consultation to take place on amending the definition of regulated financial advice in line with the recommendations made in the Financial Advice Market Review. Reponses to the consultation on pensions tax relief "Strengthening the 6
Incentive to Save" were published but with no indication of any preferred government strategy for relief in the future. Taxation of shareholding directors Corporation tax rates to reduce to 17% in 2020. The tax rate on loans to shareholders in close companies to increase to 32.5%. Employee benefits and taxable benefits in kind. From April 2018, termination payments over 30,000 which are subject to income tax will also be subject to employer National Insurance contributions. The current 150 income tax and National Insurance relief for employer-arranged pension advice will be increased to 500. A package of measures will be introduced to further simplify the tax administration of employee benefits and expenses. A series of measures aimed at preventing attempts to exploit the disguised remuneration legislation were announced. These include a new anti-avoidance rule that will apply from 16 March 2016; the withdrawal of transitional relief on investment returns after 30 November 2016 and a new charge on loans paid through disguised remuneration schemes which have not been taxed and are still outstanding on 5 April 2019. Measures have been introduced to simplify the share identification rules where shares acquired on exercise of an EMI option are subject to a rights issue. Domicile and residence The cost base of non-uk based assets belonging to those who become deemed domiciled in April 2017 will be the market value of that asset on 6 April 2017. Transitional provisions will be introduced with regard to offshore funds held by those who become deemed UK domiciled under the 15 out of 20 tax years rule. No details of these provisions are yet available. Childcare The government will consult in May 2016 on how to extend Shared Parental Leave and Pay to working grandparents. 7
Employer-Supported Childcare will remain open to new entrants until April 2018 to support transition to the new Tax-Free Childcare scheme. Tax simplification and administration The government is to respond in due course to the Office of Tax Simplification (OTS) report on income tax and NIC alignment. A system of simple assessment is to be consulted on to allow HMRC to assess a person s income tax and CGT liability without the completion of a self-assessment return. Further consultation on making tax digital from 2018. OTS to be made a permanent office of HMRC from April 2016. Government to accept or consider nearly of the OTS recommendations on small companies incorporating the adoption of a look through taxation system. OTS to be commissioned to undertake a review of employer and employee NIC. Legislation to amend the simplified expenses rules to permit partnerships to fully access the provisions in respect of the use of a home in a business and where business premises are also the partner s home. Pay as you go tax payments to be possible for the self-employed and landlords keeping their records digitally. VAT registration threshold to be increased to 83,000 from 1 April 2016. Following agreement with the Scottish government, the UK government will legislate to separate the income tax rates that apply to savings (the savings rates) from those that apply to non-savings, non-dividends income (the main rates). 8