Summary
This was a
forward-looking Budget, with much of the content based on the assumption that
the current Government will pick up where it left off, after the General
Election on 7 May 2015.
The sweeteners for
voters include; a cut in duty on beer, cider and sprites, including whisky. The
tax on road fuel is frozen, but the tax and NI charges for having the private
use of a company car or van are set to increase above the levels which had already
been predicted.
There are two changes
to entrepreneurs' relief which take effect immediately, but those should not
affect people who are selling significant stakes in their businesses.
For the future the
Chancellor promised to increase the tax-free personal allowance up to £11,000
and introduce a new tax-free savings allowance of £1,000, but not until April
2016 at the earliest. Class 2 NIC is set to be combined with Class 4 NIC, which
will be a simplification for the self-employed.
The promised abolition
of annual tax returns to be replaced by an online tax account may sound
attractive, but HMRC's track-record of mixing up figures submitted under RTI
does not bode well for such an ambitious project.
We have organised the
coverage below into future promises, which can only happen after the General
Election, and immediate changes which take effect from 18 March 2015, or from
April 2015.
This newsletter is a
summary of the key tax points from the Budget, based on the documents released
on 18 March 2015. It is possible that a different position will be shown by the
draft legislation which is due to be published on 24 March 2015. We will keep
you informed of any significant developments.
Personal allowances
Immediate changes
ISA Savings
Immediate changes
Future promises
With effect from 1 July
2015 the types of investments that can be included with an ISA or child trust
fund account will be expanded to include; bonds issued by co-operative
societies and community benefit societies, and possibly investments made under
peer to peer lending arrangements.
The Government will
consult on changes that will allow investors to withdraw money from their ISA
and replace it within a tax year, without that replacement money counting
towards their annual ISA investment limit.
Another idea is to help
first time buyers save for a deposit to buy their first home. From late 2015
savers who do not own their own home will be able to open special "help to
buy ISA". For each £200 they save the Government will contribute into the
ISA a further £50, up to a maximum of £3000. The help to buy ISA can be kept
open for up to four years and can be used to buy a home for the saver to live
in (not let out) that costs up to £450,000 in London or up to £250,000 outside
London.
A third change to the
tax on savings will be to exempt from tax the first £1,000 of bank and building
society interest for basic rate taxpayers each year. Higher rate taxpayers will
be eligible to receive £500 of tax free bank interest per year. Additional rate
taxpayers will not benefit from this savings allowance. This allowance will
apply in addition to tax free savings in ISAs from 6 April 2016.
Pensions
Immediate changes
There are no immediate
changes to tax relief for pension contributions. The annual allowance remains
at £40,000 for 2014/15 and 2015/16. Although where the taxpayer has started to
draw their pension benefits from a defined contribution (money purchase) scheme
in excess of the tax-free amount, their annual allowance may be reduced to
£10,000.
The lifetime allowance,
which governs how much can be sheltered from tax within a taxpayer's pension
funds, is set at £1.25 million for 2014/15. This allowance is not changed for
2015/16.
Future promises
From 2016/17 it is
proposed that the lifetime allowance should be reduced to £1 million, but after
that the allowance will be increased with the rate of inflation. Taxpayers will
be able to protect their personal level of lifetime allowance by making an
election.
From 6 April 2016 it is
proposed that people who have already purchased pension annuities will be able
to cash-in those annuities when they choose.
Inheritance tax
Immediate changes
There is no immediate
change announced to the application or rates of inheritance tax for
individuals. The nil rate band has been frozen at £325,000 until 6 April 2018.
Future promises
Draft legislation to
prevent the use of multiple trusts to avoid inheritance tax was published on 10
December 2014. This legislation will not form part of the next Finance Bill but
will be consulted on further alongside rules to simplify the calculation of
10-year charges by trusts.
The Government will
review the use of deeds of variation for inheritance tax avoidance purposes.
This does not mean anything will change. There have been reviews of the use of
deeds of variation before and nothing has happened.
CGT on homes
People who are not
tax-resident in the UK do not pay UK capital gains tax when they sell a
property in the UK, although the gain may well be taxed in the country where
the individual is tax-resident.
From 6 April 2015 any
gain made on the disposal of a UK residential property will be taxable in the
UK, whether or not the owner is resident in the UK. Non-resident owners will
only be taxable on the amount of the gain that accrued from 6 April 2015
onwards, and will pay tax at the same rates as they would if a UK resident: 18%
or 28% for individuals or 20% for companies. A non-resident individual will be
eligible to claim a tax exemption for their main home in the UK if they spend
at least 90 midnights in that home in the UK during the tax year. Spending in
excess of 90 days in the UK could make the individual tax-resident in the UK
for the tax year in question.
Businesses
Immediate changes
Entrepreneurs' relief
Entrepreneurs' relief
(ER) applies a 10% rate of capital gains tax to gains made on the disposal of
all or part of a business, shares in the shareholder's personal company, and
from assets which were used in the business or company. This last category is
called an associated disposal if the disposal happens at around the same time
that the shareholder or business owner sells their shares in the company or
interest in their partnership.
Until now the law has
not specified what percentage of the company or partnership the person must
dispose of in order to get ER on the associated disposal of another business
asset. From 18 March 2015 the individual will have to sell (or give away) at
least 5% of the company's shares or at least a 5% interest in the partnership
for an associated disposal of a business asset to qualify for ER.
This change should not
affect people who are planning to sell their whole company or partnership, or a
significant stake (over 5%) in that business.
One of the conditions
for achieving ER on the sale of a company's shares is that the company must be
a trading company or the holding company of a trading group. From 18 March 2015
there is a minor change to the definition of what counts as a trading group:
the activities of joint venture companies are excluded. This is designed to
catch artificial arrangements where the shareholder holds their interest in the
business mostly through a joint venture and not directly in the trading
company.
Wasting assets
A wasting asset is an
item of moveable plant or machinery which generally decreases in value over
time. In very rare circumstances the value of such assets may appreciate over
time, examples could include high quality musical instruments, or fine art
pictures. If the item is used for a trade, the increase in its value may escape
CGT when it is sold.
The law is to be
changed to ensure that the item must be used in the owner's trade to qualify
for this potential tax exemption, and not lent briefly to another person in
order to attract the tax exemption.
Landlords
The Landlord's Energy
Saving Allowance worth up to £1,500 for the cost of insulation installed in let
properties will not be available beyond 31 March 2015 for corporate landlords.
This allowance will cease to be available on 5 April 2015 for unincorporated
landlords.
Capital allowances
Anti-avoidance
provisions will take effect from 26 February 2015 to restrict to nil the
expenditure qualifying for plant and machinery capital allowances in a sale and
leaseback or connected-party transaction. This rue will apply where the person
disposing of the asset, or a person connected with them, acquired the asset
without incurring capital expenditure or an arm's length amount of revenue
expenditure.
Future promises
Farmers
Certain farming
businesses have had a tough time recently. Currently farmers can average out
their income over two years for income tax purposes, so they pay tax on the
average result for two years. The Government will consult on changing this
averaging period to five years to take effect from 6 April 2016.
Capital allowances
The list of designated
energy-saving and water-efficient technologies qualifying for an Enhanced
Capital Allowance will be updated during the summer 2015, subject to state aid
approval.
Businesses can benefit
from 100% tax deduction in the year of purchase for the cost of capital items
which are covered by the Annual Investment Allowance (AIA). This allowance has
an annual limit per business or group of companies of £500,000, but is set to
reduce to £25,000 on 1 January 2016. The Government will review the level of
the AIA during the Autumn statement in 2015, and expects to keep the AIA limit
at a "generous level".
National insurance
Immediate changes
Rates for 2015/16:
Future changes
Class 2 and class 4
The Government will
consult on combining these two classes of national insurance which are both
paid by the self-employed. Currently paying class 4 NIC does not allow the
payer to qualify for any state benefits, such as the state pension or maternity
allowance. It is likely that the contributory attribute of class 2 will be
carried into the reformed class 4 NIC.
Corporation tax
Immediate changes
Corporation tax rates
All corporation tax
rates are harmonised at 20% with effect from 1 April 2015, with the exception
of rates for ring fence trades in the oil and gas industry. The corporation tax
rates for the financial year that begins on 1 April 2016 will also be set at
20%.
Corporate Losses
From 18 March 2015
companies will be prevented from using losses brought forward where those
losses have arisen due to an artificial or contrived arrangement. This could
affect some arrangements already in place, but it is unlikely to impact on
companies who have not used any form of tax avoidance scheme.
Diverted profits tax
This new corporate tax,
also known as "Google tax" is due to apply to international companies
who divert profits from the UK to jurisdictions where those profits are taxed
at a lower rate. It is due to come into effect from 1 April 2015 at a rate of
25%. However, the reporting requirements for this new tax have been narrowed so
that companies who are not due to pay the tax do not have to provide
information to HMRC.
Exclusions are also
introduced for companies operating in the oil and gas industries.
Children's TV tax relief
A new tax relief for
companies that make children's TV programmes will be introduced from 1 April
2015. This will cover programmes, including game shows and competitions, aimed
at children aged under 15.
High-end TV tax relief
This tax relief was
introduced from 1 April 2013 and includes relief for animation as well as drama
and documentaries. The cultural test for this tax relief is to be adjusted so
it aligns with the British Culture test for films tax relief. The minimum amount
of core expenditure which must be spent in the UK is reduced from 25% to 10%
for expenditure incurred on and after 1 April 2015.
Film tax relief
The tax relief
currently applies at the rate of 25% for the first £20 million of qualifying
core expenditure and at 20% for any excess expenditure. If the production
company makes a loss that loss can be surrendered for a payable tax credit
worth 20% or 25% of the loss. From 1 April 2015, or from the date when this
change gets state aid approval, the payable tax credit will be 25% for all
qualifying films.
Future changes
Orchestra relief
This new tax relief for
companies which run orchestras will apply from 1 April 2016. The details have
not been announced but it is likely to follow the structure of relief for
theatre companies.
VAT
Immediate changes
The VAT rates and
thresholds are as follows:
Tax administration
Future promises
Tax returns
The Chancellor promised
the end of the annual tax return for individuals and small businesses. In its
place the taxpayer will have an online tax account which will be pre-populated
by HMRC from figures received from other sources, such as from banks and employers.
This is a very
ambitious target, in view of the problems experienced by employers with
incorrect PAYE accounts populated by figures returned under RTI. However, if
the digital tax accounts can be completed with accurate figures from other
sources it could save a lot of automatic penalties for filing late tax returns.
Digital Tax Accounts Website
We have set up a
website dedicated to the new digital tax accounts and will keep this updated as
HMRC rolls out the initiative. You can visit the website at www.digitaltaxaccounts.uk.
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