Key announcements that were new for Budget 2016 include:
New measures that come into effect in the immediate future:
Surprisingly, no further announcements were made on:
The chancellor of the exchequer, George Osborne, delivered his second all-Conservative Budget (Budget 2016) on Wednesday 16 March 2016.
The chancellor of the exchequer, George Osborne, delivered his second all-Conservative Budget (Budget 2016) on Wednesday 16 March 2016.
In the context of a worsening global financial outlook and reduction in productivity growth, the chancellor focused on stability and producing 'long term solutions for long term problems'. Key announcements were made relating to our education system, including making all schools academies and considering teaching maths to all pupils up to age 18, and infrastructure projects such as HS3 and Crossrail 2 to 'keep Britain moving'.
From a tax perspective there was the, now customary, focus on tackling avoidance and evasion. This includes a new target to raise £12bn over the course of the parliament, however it is interesting to note that this target includes 'tackling imbalances' in the system which would seem to include some of the less avoidance driven changes.
There were, as usual, some winners, including:
· higher rate tax payers – or at least the thousands who will cease to be higher rate income tax payers as a result of increases in thresholds;
· the oil and gas industry; and
· small businesses, who took most of the benefits of the much anticipated business rates reform.
And there were some losers:
· large property owners, who will not get their hoped for carve-out from the higher rate SDLT charge on additional residential properties;
· manufacturers (and consumers) of sugary drinks; and
· private equity managers (again) who do not benefit from the reduction in capital gains tax rates.
Those for whom the result is a bit of a mixed bag, particularly large corporates, for whom clearly the additional reduction in the main corporation tax rate will be welcome albeit they have to wait for 2020 for that, whereas the more negative changes such as restrictions on interest deductions and loss reliefs come in sooner.
The chancellor could not resist throwing in a reference to the EU referendum and, against much heckling from Brexit supporters, quoted the OBR's prediction that the UK would be 'safer, stronger and more secure' if it remains in the EU. Perhaps keeping in mind the added uncertainty that the looming EU referendum has brought, there were not a great deal of radical announcements from a private client tax perspective and many of the measures were simply confirmation of those previously announced.
The theme of putting the next generation first was supported by the introduction of a sugar tax on soft drinks, increased funding for schools, a new lifetime ISA aimed at the under 40s and the confirmation of various pre-announced measures aimed at slowing the growth in house prices at the expense of buy-to-let landlords and second home owners.
Hard working tax payers were rewarded with various measures including increases in the personal allowance and higher rate threshold for income tax, an increased annual ISA allowance and reduced CGT rates. For the first time in several years there were no new nasty surprises for non-UK domiciliaries.
The Overview of Tax Legislation and Rates (OOTLAR 2016) contains useful tables in Annex B showing all the tax rates.
Finance Bill 2016 (FB 2016) is expected to be published on 24 March 2016.
The information below gives details of the key announcements and includes a number of measures previously announced.
The government has announced that it will apply a 10% top-up to monthly funds entering apprenticeship levy payers' digital accounts in England when the levy is introduced in April 2017. This top-up will be available for those employers to spend on apprenticeship training.
The legislation implementing the levy will be contained in FB 2016; minor amendments have been made to the previously published draft legislation.
See: Budget 2016 (paras 1.99, 2.243) and OOTLAR 2016 (para 1.56).
Following the publication of draft clauses on 9 December 2015, legislation will be included in FB 2016 determining when asset managers can pay capital gains tax rather than income tax on carried interest received from a fund. The rules ensure that carried interest will be subject to income tax unless the fund undertakes long term investment activity (with investment horizons longer than three years). Some changes to the draft legislation have been highlighted, including that capital gains tax treatment will apply where the average hold period is 40 months or more (rather than 48 months as specified in the draft legislation). Additional bespoke calculation rules will also be introduced for additional asset classes, including venture capital and real estate, alongside a number of other minor technical changes. The rules will apply to relevant sums arising on or after 6 April 2016.
See: Budget 2016 (paras 1.225, 2.104) and OOTLAR 2016 (para 1.26).
The government has announced its intention to consult during 2016 on measures affecting authorised contractual schemes (CoACs). The proposed amendments will include measures to streamline the tax rules for investors and simplify reporting requirements. Any necessary legislation will be introduced in a FB 2017 or secondary legislation as appropriate.
See: Budget 2016 (para 2.105) and OOTLAR 2016 (para 1.89).
As announced at AS 2014, FB 2016 will include tax relief on bad debts incurred on or after 6 April 2016 on P2P loans against other P2P income.
See: Budget 2016 (para 2.31).
FB 2016 will, with effect from 1 April 2016, reduce from 50% to 25% the proportion of a banking company's annual taxable profit that can be offset by pre-April 2015 carried-forward losses.
FB 2016 will also amend the excluded entities test to ensure that the bank related taxes (bank loss restriction legislation, bank compensation payments, surcharge legislation and the code of practice on taxation for banks) only apply to banks. This amendment will be backdated to apply with effect from when the relevant bank related tax took effect.
See: Budget 2016 (paras 2.111, 2.112), OOTLAR 2016 (paras 1.36, 1.35), TIIN Corporation Tax: update to bank loss relief restriction, TIIN Banking companies: excluded entities.
The government has announced, as part of the Business tax road map published alongside Budget 2016, that in response to the Final BEPS Reports in October 2015 it intends to implement a comprehensive package of measures to modernise the UK's tax rules in order to ensure they are applied effectively to multinationals. Three announcements (not covered elsewhere) are worthy of particular note:
· Action 3 (CFC rules): The government has confirmed that it is not considering making any amendments to the UK's CFC regime as a result of the BEPS project;
· Action 12 (disclosure of BEPS): Although the UK already has a mandatory disclosure regime (the DOTAS rules), the government has announced that it will continue to contribute to international work that will, among other things, consider how mandatory disclosure regimes, such as DOTAS could be extended to apply to cross border arrangements; and
· Action 13 (country by country reporting (CbCR): Although the government has already legislated to require companies to report information on a country by country basis to HMRC, the government has stated that it 'believes there is an opportunity to go beyond the outcomes of the BEPS project' by requiring companies to publicly disclose the details of tax paid, on a country by country basis. This accords with similar developments within Europe as part of the EC Anti-Tax Avoidance Package (announced in January 2016). The government has announced that the UK will now 'press the case' for multilateral public CbCR.
See: HMT Business tax road map (March 2016) (paras 2.28–2.29, Box 2.B).
Business premises renovation allowance (BPRA) will cease as expected on 5 April 2017 (31 March 2017 for companies). Any owner of qualifying business premises looking to bring this back into business use should ensure this work is undertaken prior to this date in order to receive 100% allowances for the capital expenditure.
See: Budget 2016 (para 2.91).
A number of changes have been announced to business rates to help businesses. From April 2017, small businesses occupying property with a rateable value of £12,000 or less will pay no business rates. This rep-resents a doubling of the current rateable value amount on which 100% relief is available of £6,000 or less. In addition, for properties worth up to £15,000, tapered relief from business rates will be available.
See: Budget 2016 (paras 2.121–2.130).
The 100% first year allowance (FYA) for low emission cars will be extended for a further three years to April 2021. The carbon dioxide emission threshold below which cars qualify for the 100% FYA will be reduced from 75 grams / kilometre to 50 grams / kilometre from April 2018. The carbon dioxide emission threshold for the main rate of capital allowances for business cars will also be reduced from April 2018 from 130 grams / kilometre to 110 grams / kilometre. The legislation in this area to apply from 2021 will be reviewed again at Budget 2019.
See: Budget 2016 (para 2.90).
FB 2016 will include two anti-avoidance measures that were announced in AS 2015 and that came into effect on 25 November 2015. The first measure broadens the existing anti-avoidance rule in CAA 2001 s 215, so that it applies to the seller's disposal value as well as the buyer's qualifying expenditure. The second measure makes any payment for taking over another person's tax deductible payment obligations under a lease subject to tax as income. Draft legislation was published with AS 2015.
See: Budget 2016 (para 2.107).
Following consultation and subsequent representations, the government has again indicated that it will legislate in FB 2016 so that a tax charge is not applied to loans or advances made by close companies to charity trustees for charitable purposes. As previously indicated the measure will apply qualifying loans or advances that are made on or after 25 November 2015.
This measure applies to loans from a charitable trust's (not charitable company's) subsidiary. It is customary for non-charitable subsidiaries of a charity to donate most or all of their profits to the parent charity. Where the subsidiary has a large sum of unused cash it is common for it to lend the surplus to the parent charity until the actual profits that are available for donation has been confirmed.
After FA 2013, a loan by a subsidiary to the trustees of the charitable trust would be liable to tax because the legislation did not distinguish between receipt of the loan by the trustees for their own benefit and receipt in as trustees with a fiduciary duty to apply the money for the purposes of the charity. This was recognised as inconsistent with the intention of the legislation to impose a tax charge where a benefit is conferred on an individual participator.
See: Budget 2016 (para 2.43).
The government's 'tax-free' childcare scheme which will provide working parents with financial support to-wards childcare costs for the under-12s will begin to be phased-in early in 2017. The chancellor has confirmed that the existing employer-supported limited exemption childcare schemes will remain open to new entrants until 5 April 2018. Workplace crèches and nurseries which qualify for the complete exemption will continue unaffected.
See Budget 2016 (para 2.77).
FB 2016 will amend the CGT computations required when calculating the non-resident CGT charge to remove a double charge that occurs in some circumstances. The amendment will have retrospective effect from 6 April 2015. Following consultation on the draft legislation, the government will also prescribe with effect from 6 April 2015 two circumstances where a return is not required and give HM Treasury, rather than HMRC, powers to add, amend or remove circumstances and make consequential provision.
See: Budget 2016 (para 2.194), OOTLAR 2016 (para 1.51).
CGT is currently charged at 28% for higher and additional rate taxpayers, trustees and personal representatives as well as being the rate applicable to ATED-related chargeable gains. For a basic rate taxpayer whose income and gains are below the income tax basic rate band, the rate of CGT is 18%. Gains which qualify for entrepreneurs' relief are charged at 10%.
The government has announced that, for gains accruing on or after 6 April 2016, the rate of CGT will be reduced to 20% for higher and additional rate taxpayers, trustees and personal representatives. For basic rate taxpayers (provided the income and gains are still below the individual's income tax basic rate band), the rate will be reduced to 10% and it will be made clear that an individual can use any unused income tax basic rate band in a way which is most beneficial to them.
The rate reductions will not apply to disposals of residential property that do not qualify for private residence relief, or to carried interest.
See: Budget 2016 (para 2.187), OOTLAR 2016 (para 1.46) and TIIN Changes to CGT rates.
There will be a consultation on the reform of the CO2 emissions bands for ultra-low emission cars, with a view to incentivising the use of the least polluting cars. Budget 2016 report, para 1.193.
Electric-only vans produce no CO2 emissions and are now termed 'zero emission' vans. For the tax years 2010/11 to 2014/15 inclusive the benefit was nil.
There is a taxable benefit on zero emission vans from 2015/16, however the charge has been reintroduced on a tapered basis. In Budget 2016, the chancellor announced a delay in the introduction of the full van benefit charge as follows:
|
Tax year |
Percentage of full van benefit charge (pre-Budget 2016) |
Percentage of full van benefit charge (Budget-2016) |
|
2015/16 |
20% |
20% |
|
2016/17 |
40% |
20% |
|
2017/18 |
60% |
20% |
|
2018/19 |
80% |
40% |
|
2019/20 |
90% |
60% |
|
2020/21 |
100% |
80% |
|
2021/22 |
|
90% |
|
2022/23 |
|
100% |
See TIIN Van benefit charge for zero emission vans.
The government announced that it will reform the loss relief rules on when corporate losses can be carried forward. Following a consultation, legislation will be included in FB 2017 that will:
· provide more flexibility on how losses can be used: businesses will be able to use carried forward losses arising on or after 1 April 2017 against profits from other types of income and from other companies in the group; and
· restrict the amount of losses than can be carried forward: from 1 April 2017, businesses will only be able to use carried forward losses against up to 50% of their (or their group's) profits above £5m.
These changes will not apply to the North Sea ring-fenced corporation tax regime or to banks that are subject to the separate bank losses restriction.
See: Budget 2016 (paras 1.174–1.177, 2.102) and OOTLAR 2016 (para 2.29).
Legislation will be introduced in FB 2016 to reduce the main rate of corporation tax to 17% for financial year 2020 (down from the previously announced 18%). It will follow the reduction to 19% for the financial years 2017 to 2019.
The government will also delay the introduction of the new corporation tax payment rules for large companies, previously announced at Summer Budget 2015, by two years, so that they will apply to accounting periods starting on or after 1 April 2019. The new rules will bring forward the instalment payment dates for companies with annual taxable profits in excess of £20m (divided between group members). The government intends to introduce legislation containing the new rules later this year.
The government has announced that it will commission the OTS to review the options to simplify the computation of corporation tax and will publish the terms of reference for the review shortly.
See: Budget 2016 (paras 1.158, 1.159, 1.189, 2.83, 2.84, 2.215), TIIN Corporation Tax to 17% in 2020, and Business tax roadmap (paras 2.78–2.79).
A package of changes will be introduced to tackle the use of disguised remuneration (DR) avoidance schemes, with legislation in FB 2016 and further legislation following a technical consultation over the summer.
With effect from 16 March 2016, an additional targeted anti-avoidance rule will prevent the relief under ITEPA 2003 s 554Z8 (which reduces the amount subject to tax when certain conditions are met) from being available where there is a connection with a tax avoidance arrangement.
There will also be a withdrawal of the transitional relief on investment returns (under which the amount treated as earnings, and any investment returns accruing on that amount, are not taxed under ITEPA 2003 Part 7A when distributed to the employee by the third party). The relief will not apply if the original earnings charge on the DR has not been paid on or before 30 November 2016.
There will also be a new tax charge on all DR loans which have not been taxed and are still outstanding on 5 April 2019.
There are to be additional technical amendments in order to prevent double taxation in certain circumstances, to address the interaction with the accelerated payment rules, and to allow, where appropriate, for the tax and NICs to be collected from the employee where it cannot reasonably be collected from the employer. These issues will form part of the wider consultation over the summer.
The government also intends to tackle similar avoidance schemes that have the same objective of avoiding tax and NICs on earned income, or disguising remuneration, that do not currently fall within ITEPA 2003 Part 7A, such as those which do not involve a third party or claim not to involve an employee.
See: Budget 2016 (para 2.49), OOTLAR 2016 (para 1.12) and Tackling disguised remuneration avoidance schemes overview of changes and technical note.
As announced in AS 2015, the government will introduce rules in FB 2016 to prevent the conversion of income into capital using company distributions. The new legislation will amend the transactions in securities rules and introduce a new TAAR.
See: Budget 2016 (para 2.107) and OOTLAR 2016 (para 1.25).
From April 2016, the dividend tax credit will be abolished and replaced with a £5,000 tax free allowance and an increase for dividend tax rates to 7.5% for basic rate, 32.5% for higher rate and 38.1% for additional rate taxpayers.
See: Budget 2016 (para 2.41) and fraft FB 2016 clauses 2–3.
The government has announced its intention to consult during 2016 to ensure the double taxation treaty passport scheme (DTTP) still meets the needs of UK borrowers and foreign investors. As part of the review, and in accordance with the 2013 UK investment management strategy, the government will consider extending the scheme to other types of foreign investor, including sovereign wealth funds, pension funds and partnerships to encourage them to establish more of their investment activity in the UK.
See: HM Treasury: Business tax road map (March 2016) (paras 2.66–2.68).
The government will introduce a package of measures to simplify various aspects of the administration of the tax on employee benefits and expenses (see: Budget 2016, para 2.36), namely:
· extending the voluntary payrolling framework (which commences on 6 April 2016) to allow employers to account for tax on non-cash vouchers and credit tokens in real time from April 2017. These benefits, along with living accommodation and beneficial loans, were excluded from the initial framework. The legislation will be included in FB 2016. See: OOTLAR 2016 (para 1.9) and Policy paper: Extending the real time collection of tax on benefits in kind: voluntary payrolling.
· the government will hold a consultation during summer 2016 on proposals to simplify the process for applying for and agreeing PAYE settlement agreements. This is in response to the OTS's 2014 review of employee benefits and expenses. See: OOTLAR 2016 (para 2.58).
· during summer 2016, the government will consult on proposals to align the dates by which an employee has to ‘make good’ (i.e. make payment to their employer) the cost of their benefit-in-kind in order to reduce their tax liability. The aim of the proposals is to simplify and clarify the current range of dates for ‘making good’ payments. See: OOTLAR 2016 (para 2.3).
· introducing a technical change to the wording of ITEPA 2003 to ensure that, from 6 April 2016, where the calculation of the tax on a benefit in kind is specified in the statute, that charging method must be used. This is not a change in policy. The clarification aims to ensure that 'fair bargain' (which applies where an employee receives goods or services from their employer at exactly the same cost, terms and conditions as a member of the public or other independent third party dealing with the employer on arms-length terms, and results in there being no benefit in kind) does not apply to benefits-in-kind which have specific charging rules. The change to the legislation will be included in FB 2016. See: OOTLAR 2016 (paras 1.7) and Policy paper: Income Tax: preventing liability to charge being removed from certain taxable benefits in kind.
The OTS will be commissioned to review the impacts of moving employee NICs to an annual, cumulative and aggregated basis and moving employer NICs to a payroll basis. The terms of reference for the review will be published shortly.
See: Budget 2016 (paras 1.188, 2.215) and OOTLAR 2016 (para 2.63).
There will be a lifetime limit of £100,000 CGT exempt gains for employee shareholder status (ESS) shares issued under ESS agreements entered into from 17 March 2016. This limit will not apply to any past or future gains relating to ESS agreements made on or before 16 March 2016.
See: Budget 2016 (para 2.193) and OOTLAR 2016 (para 1.52).
FB 2016 will repeal TCGA 1992 Sch 7D Part 4 as it no longer fulfils its original purpose since business asset taper relief ended in 2008. This will have the effect that a rights issue which takes place on or after 6 April 2016 in respect of shares received on exercise of an enterprise management incentives option will be treated in the same way for share identification purposes as other rights issues.
As announced in AS 2015, FB 2016 will also make a number of technical changes to simplify the tax-advantaged and non-tax-advantaged employee share scheme rules. These were originally published on 9 December 2015 and will appear in FB 2016 unamended.
See: Budget 2016 (para 2.48) and OOTLAR 2016 (para 1.10).
FB 2016 will extend entrepreneurs' relief through the introduction of a new 'investors' relief' for subscriptions of new shares in unlisted companies.
Entrepreneurs' relief will be available for disposals of ordinary shares in unlisted trading companies held by individuals, where the shares were newly issued to the disposing taxpayer. The relief will apply to shares that are acquired on or after 17 March 2016, and are held for a period of at least three years starting from 6 April 2016.
The extension of entrepreneurs' relief to external investors is intended to provide a financial incentive for individuals to invest in unlisted trading companies over the long term.
See: Budget 2016 (para 2.188) and TIIN Capital gains tax: Entrepreneurs' relief: extension to long-term investors.
FA 2015 introduced a number of restrictions to the availability of entrepreneurs' relief. These were widely criticised for unfairly penalising taxpayers who were not the intended targets of the measures. The government has responded to these concerns with provisions in FB 2016 that will, in some cases, restore the pre-FA 2015 position. The amendments are backdated to the date on which the relevant FA 2015 measure came into effect (18 March 2015 or 3 December 2014).
The changes are as follows:
Associated disposals: Entrepreneurs’ relief will be available on an ‘associated disposal’ of a privately-held asset when the accompanying disposal of business assets is to a family member. The FA 2015 changes were interfering with normal arrangements for passing on a family business to a younger generation, and FB 2016 is intended to alleviate this. In addition, the requirement that the disposal must be of a minimum 5% stake in the company or partnership does not apply where the taxpayer disposes of their whole interest and they previously held a larger stake. See: Budget 2016 (para 2.189) and TIIN Capital gains tax: changes to rules to extend availability of entrepreneurs' relief on associated disposals.
Goodwill on incorporation: Entrepreneurs’ relief will be available, subject to conditions, on disposals of business goodwill where the business is transferred to a close company in which the disposing taxpayer is or becomes a participator. FA 2015 had the effect of denying relief for a transfer of goodwill to a company in which the taxpayer held any shares at all; FB 2016 will amend this to allow relief provided that the taxpayer has no more than a 5% stake in the acquiring company. See: Budget 2016 (para 2.190) and TIIN Capital gains tax: changes to rules to extend availability of entrepreneurs' relief on goodwill on incorporation.
Joint ventures and partnerships: This change affects the entrepreneurs' relief definitions of a trading company and trading group. Prior to FA 2015, a company holding shares in a joint venture company was treated as carrying on a proportion of the activities of the joint venture company for the purposes of the trading test. FA 2015 removed this provision; FB 2016 will restore it, but only where the disposing taxpayer has a minimum 5% stake (directly or indirectly) in the joint venture company. Similarly, prior to FA 2015, a company that was a member of a partnership was treated as carrying on a proportion of the partnership's activities for the purposes of the trading test. FA 2015 treated all activities carried on by a company as a member of a partnership as non-trading activities; FB 2016 will restore the pre-FA 2015 position, but again only where the disposing taxpayer has a minimum 5% stake (directly or indirectly) in both the company and the underlying partnership. See: Budget 2016 (para 2.191) and TIIN Capital gains tax: Entrepreneurs' relief – changes to the treatment of joint ventures and partnerships.
‘Trading company’: The government will review the definition of a trading company to ensure it operates effectively (no time scale is given for this review).
See: Budget 2016 (para 2.192).
The government announced a number of measures following the conclusion of the business energy efficiency tax review (see: Consultation: reforming the business energy efficiency tax landscape), including:
· abolishing the carbon reduction commitment (CRC) energy efficiency scheme from the end of the 2018/19 compliance year;
· increasing the main rates of the climate change levy (CCL) from 1 April 2019, with the intention of making a compensatory equivalent increase in the CCL discounts for sectors with climate change agreements; and
· consulting later in 2016 on a simplified energy and carbon reporting framework for introduction by April 2019.
In addition, the government will consult on potential legislation for FB 2017:
· to clarify the scope of landfill tax, by changing the definition of a taxable landfill disposal; and
· to introduce a new exemption from aggregates levy for aggregate that is a by-product of laying pipes for utilities.
See: Budget 2016 (paras 1.190, 2.170–2.178), TIIN Climate change levy: main and reduced rates, and HMT Business tax road map (March 2016) (paras 2.45-2.50).
As announced at AS 2015, the government confirmed that, from April 2016, farmers will have the choice of averaging their profits for income tax purposes over two years or five years.
See: Budget 2016 (para 2.32).
As announced at Summer Budget 2015, FB 2016 will include a penalty of 60% of the tax counteracted under the GAAR and make changes to strengthen the impact of the GAAR in tackling marketed avoidance schemes, which should take effect on the date of royal assent of FA 2016.
See: Budget 2016 (para 2.206).
At AS 2014 and March Budget 2015, the government confirmed that intermediaries will be given a greater role in administering gift aid. The legislation will be introduced in FB 2016.
See: Budget 2016 (para 2.45).
The government has announced that it will consult on expanding support for grassroots sports through the corporation tax system.
See: Budget 2016 (para 2.89).
At Budget 2016, the government announced that it will introduce a new 'help to save' scheme no later than April 2018 to help individuals in low income working households.
The scheme will be available to adults in receipt of universal credit with minimum weekly household earnings equivalent to 16 hours at the national living wage, or those in receipt of working tax credit.
Eligible individuals will be able to save up to £50 per month into a help to save account and will receive a 50% government bonus on these savings after two years. After the expiry of this two year period, account holders may opt to continue saving under the scheme for a further two years, meaning that people can save up to £2,400 and benefit from government bonuses worth up to £1,200. Account holders will be able to use the funds in any way they wish.
See: Budget 2016 (para 2.52).
Owners of heritage property may claim conditional exemption from IHT if the property qualifies on the grounds of national, historic or cultural importance. The property is brought back into charge if the conditions relating to retention, maintenance, accessibility etc are breached. The current exemption was preceded by a similar concession under estate duty.
Where heritage property gained exemption under estate duty and subsequently gained conditional IHT ex-emption on a later transfer on death, a breach of the conditions invokes a charge to IHT, even though the estate duty charge may be higher. This contrasts with the position where the later transfer under IHT is a lifetime transfer. In that case, HMRC may choose which tax to apply if the conditions are breached.
A measure was announced in today's Budget, to align the treatment of lifetime and death transfers and allow HMRC to elect for either IHT or estate duty to be paid, whichever produces the higher tax liability.
A further refinement relates to objects which have been lost. Under IHT, a charge can be made if an item, which has been granted conditional exemption, is lost due to negligence. Legislation will be introduced to apply a similar charge when an object exempt under estate duty has been lost.
See: Budget 2016 (para 2.62).
The government is investing £71m to make it quicker and easier for individuals and small businesses to deal with HMRC. The investment covers:
· improved call waiting times, a new secure email service, and phone lines and Webchat open seven days a week from April 2017; and
· help and support for businesses, including a dedicated phone service and online forum for new businesses and self-employed individuals.
See: Budget 2016 (para 2.209).
As announced in Summer Budget 2015, FB 2016 will extend HMRC's data-gathering powers to enable HMRC to require data from electronic payment providers (such as operators of digital wallets) and online intermediaries. See: Budget 2016 (para 2.199).
The government will consult over summer 2016 on a further extension to HMRC's data-gathering powers in FA 2008 Sch 36 to enable it to collect data from money services businesses. This is ahead of potential legislation in FB 2017. See: Budget 2016 (para 2.198) and OOTLAR 2016 (para 2.62).
As previously announced at AS 2015, following HM Treasury consultation (originally published in December 2014), the government has confirmed that FB 2016 will include legislation to combat abusive hybrid mismatch arrangements (broadly those involving hybrid entities or hybrid financial instruments), within a multinational group, that result in either:
· double deductions for the same expense; or
· deductions for an expense without any corresponding receipt being taxable.
Draft legislation and explanatory notes, along with a series of examples illustrating the application of the proposed new rules, were published in December 2015.
The new UK rules are consistent with the recommendations of the OECD in its 2015 Final Report on Action 2 of the OECD/G20 BEPS Project and address mismatches in two ways:
· a ‘primary response’, which will, broadly, deny a UK deduction; and
· a ‘secondary response’, which will, broadly, bring an amount into charge in the UK.
In a new development, the government has announced that the new measures will be extended to neutralise the tax effect of hybrid mismatch arrangements involving PEs. This is on the basis that PEs are often used as an alternative to hybrid entities in tax planning arrangements and so provide for similar mismatch planning opportunities.
As a result of the introduction of these new measures, the existing anti-arbitrage legislation in Part 6 of TIOPA 2010 will be repealed.
The new provisions will be included in FB 2016 and will take effect from 1 January 2017. The extended scope of the hybrid mismatch rules is anticipated to raise approximately £950m by the end 2020/21.
See: Budget 2016 (paras 1.212, 2.98), OOTLAR 2016 (para 1.29), TIIN Corporation Tax—anti-hybrids rules, Tackling aggressive tax planning: implementing the agreed G20-OECD approach for addressing hybrid mismatch arrangements (December 2014), HM Treasury: Business tax road map (March 2016) (paras 2.38–2.37), and OECD/G20: Neutralising the effects of hybrid mismatch arrangements, Action 2 – 2015 final report (October 2015).
Employers are able to reduce the class 1 NICs they pay on their employees' earnings by up to £2,000 a year. Generally speaking, the allowance cannot be claimed for employing a person for household, domestic or personal work. The government has announced that, from 2018, this employment allowance will be withdrawn for one year if the employer receives a civil penalty from the Home Office for hiring an illegal worker.
See: Budget 2016 (para 2.24) and OOTLAR 2016 (para 2.66).
It was previously announced at Summer Budget 2015 that the personal allowance for 2017/18 would be £11,200 and the basic rate limit for the same tax year would be £32,400. At Budget 2016, the chancellor announced that these rates will be increased through legislation in FB 2016 in accordance with the table below.
|
|
2016/17 |
2017/18 |
|
Personal allowance |
£11,000 |
£11,500 |
|
Basic rate limit |
£32,000 |
£33,500 |
|
Higher rate threshold |
£43,000 |
£45,000 |
The NICs upper earnings/profit limits is aligned to the higher rate threshold and will therefore also increase for 2017/18.
See: Budget 2016 (paras 2.20 and 2.21) and OOTLAR 2016 (para 1.1).
The government has welcomed the OTS's report on the issue of aligning income tax and NICs, and will respond 'in due course'.
See: Budget 2016 (paras 1.188, 2.207) and OOTLAR 2016 (para 2.64).
Following agreement of the fiscal framework with the Scottish government, the government will introduce legislation in FB 2016 to separate the income tax rates that apply to savings from those that apply to non-savings, non-dividends income.
This will enable the 'English votes for English laws' procedure to apply to the UK main rates of income tax. The rates for savings will apply across the UK and be renamed as 'savings basic', ‘savings additional’ and, 'savings higher', while the rates for non-savings, non-dividends income will be devolved to Scotland from April 2017. The main rates of income tax will then apply to the non-savings, non-dividend income of any individual taxpayer who is resident in the UK and is not subject to the Scottish rate of income tax.
It will also create a default rate of income tax for the rates for non-savings, non-dividends income of taxpayers who are not subject to either the UK main rates of income tax or the Scottish rates of income tax that will apply to, but is not limited to, trustees and non-residents. These include trustees, non-UK resident companies and non-UK resident individuals.
See: Budget 2016 (para 2.22) and OOTLAR 2016 (para 1.3).
Legislation is to be introduced in FB 2016 to ensure the residence nil-rate band will still be available where a person has downsized or ceased to own a home on or after 8 July 2015 and that person leaves their estate to their direct descendants (for deaths on or after 6 April 2017). This measure was originally announced at Summer Budget 2015. Draft legislation was released for consultation on 9 December 2015.
The government confirmed that, taking into account the comments received during the consultation, the draft legislation will be revised as follows:
· it will clarify when a disposal has occurred;
· it will ensure that certain disposals by trustees will also be taken into account (the legislation as currently drafted seems only to apply to disposals by individuals rather than trustees, so this revision may address these concerns); and
· it will ensure that the provisions relating to conditionally exempt assets work as intended.
See: Budget 2016 (para 2.64) and OOTLAR 2016 (para 1.53).
A personal portfolio bond (PBB) is a type of life insurance policy where the policyholder is plays an important role in selecting the investments held within the bond. To discourage the use of PPBs, the government introduced rules in 1998 under which the policyholder is deemed to make an annual gain equal to 15% of premiums paid. Furthermore, the premiums are also deemed to have increased annually by 15%, on a compound basis.
The government will consult later this year on changes to the categories of assets that life insurance policyholders can choose to invest in without giving rise to an annual tax charge under the PBB legislation set out in ITTOIA 2005 ss 515–527. If appropriate, legislation will be introduced in FB 2017.
See: Budget 2016 (para 2.115) and OOTLAR 2016 (para 2.22).
Offshore life insurance policies are commonly used for tax and wealth planning purposes. The part surrender or assignment of an offshore life insurance policy can give rise to an income tax charge in the hands of the policy holder under the chargeable events regime set out in ITTOIA 2005 Part 4 Chapter 9. In the case of Joost Lobler v HMRC [2013] UKFTT 141 (TC), withdrawals from life policies that he had taken out with Zurich Life had resulted in an effective tax rate of 779%. Fortunately for the taxpayer, the Upper Tribunal allowed his appeal on the ground of rectification (Joost Lobler v HMRC [2015] UKUT 152).
As announced at Budget 2016, the government will change the current tax rules for part surrenders and part assignments of life insurance policies to prevent excessive tax charges arising on these products. The government will consult later this year on alternatives to the current rules with a view to legislating in FB 2017.
See Budget 2016 (para 2.113) and OOTLAR 2016 (para 2.21).
The standard rate of IPT will be increased from 9.5% to 10% with effect from 1st October 2016.
See Budget 2016 (para 1.205).
As announced at AS 2015, the intangible fixed asset rules will be amended to clarify the tax treatment on transfers of assets to partnerships. This measure is effective from 25 November 2015.
See: Budget 2016 (para 2.118) and TIIN, draft legislation and explanatory notes: Corporation tax: related party rules, partnerships and transfers of intangible assets.
As widely expected, following HM Treasury consultation (published in October 2015), the government has confirmed that it will introduce new measures to restrict the tax deductibility of interest expenses for large multinational enterprises.
The aim of the new measures is to address arrangements that shift profits out of the UK, and erode the UK tax base, by aligning the level of allowable UK deductions with the level of borrowing a corporate needs to fund its activities in the UK, i.e. to align the relief (and so taxable profits) with the economic activity.
Subject to a de minimis group threshold of £2m (net of UK interest expense), the measures will include:
· a fixed ratio rule limiting corporation tax deductions for net interest expense to 30% of a group’s UK EBITDA; and
· a group ratio rule based on the net interest to EBITDA ratio for the worldwide group (on the basis that some multinational groups may have high external gearing for genuine commercial purposes).
As anticipated, the world-wide debt cap legislation will, as a result of these measures, become obsolete and will be repealed although the new restrictions will, reflecting one of the purposes of the world-wide debt cap, incorporate measures to ensure a group’s net UK interest deductions cannot exceed the global net third party expense of the group.
Further consultation is expected during 2016 on the detailed provisions and to ensure the new restrictions do not inadvertently adversely impact commercial financing transactions (including, in particular, for public benefit infrastructure and the oil and gas ring-fence) or lead to unintended volatility. Refinements are also possible in the way the new rules will impact the banking and insurance sectors.
The new UK rules are consistent with the recommendations of the OECD in its 2015 final report on Action 4 of the OECD/G20 BEPS project.
The new measures are expected to be included in FB 2017 and will take effect from 1 April 2017. The government anticipate the new rules will raise in excess of £3.9bn by the end of 2020/21.
See: Budget 2016 (paras 1.209–1.210, 2.136, 2.97), OOTLAR 2016 (para 1.28), HMT Business tax road map (March 2016) (paras 2.30–2.37), HMT Consultation: Tax deductibility of corporate interest expense (October 2015) and OECD/G20: Limiting base erosion involving interest deductions and other financial payments, Action 4 – 2015 Final Report (October 2015).
Just a year after the government announced the introduction of the ‘help to buy ISA’ at Budget 2015, the government announced today the introduction of another new type of ISA – the ‘lifetime ISA’.
The key aim of the lifetime ISA is to encourage young people to save flexibly throughout their lives, both for their retirement and for their first home. The lifetime ISA will work similarly to existing ISA products, with contributions being made out of post-tax income but investment growth and future withdrawals being tax-free.
The lifetime ISA will be available from April 2017 to anyone between the age of 18 and 40. Annual contributions will be capped at £4,000 and the government will provide a bonus of 25% of these contributions at the end of each tax year. Savers may continue to contribute to their lifetime ISA and to receive the annual government bonus up to the age of 50. This means that, an individual who opened a Lifetime ISA during the tax year in which they turned 18 and contributed the maximum £4,000 per year until the age of 50, would make contributions totalling £128,000 matched by a government bonus of £32,000.
Savers will be able to contribute to one lifetime ISA in each tax year, as well as a cash ISA, a stocks and shares ISA and an innovative finance ISA, within the overall ISA contribution limit of £20,000, which applies from April 2017.
If the saver wishes to retain the government bonus then withdrawals may only be made in the following circumstances:
· Purchase of a first home: withdrawals may be put towards a deposit for a first home located in the UK with a purchase value of up to £450,000 and to be used as a main residence rather than a buy-to-let. There is an initial minimum holding period of 12 months from account opening before withdrawals can be made for a home purchase. Where the saver is purchasing the home jointly with someone else, the joint purchasers may each use a Lifetime ISA and each benefit from their government bonus;
· Retirement: full withdrawals may be made for any purpose from the age of 60. Funds may however remain invested after the age of 60 and interest and investment growth will remain tax-free; and
· Terminal ill health: where an individual is diagnosed with a terminal illness (based on the same definition that applies for pensions), they will be able to withdraw all of the funds, including the bonus, tax-free, regardless of their age.
The government has indicated that it will explore whether savers should be permitted to access contributions and the government bonus for other specific life events.
In order to retain some flexibility in the lifetime ISA, the government proposes that savers will be permitted to make withdrawals at any time for purposes other than those listed above but, in such circumstances, the government bonus element of the fund will be lost (including any interest and growth on that bonus) and a 5% charge applied.
The lifetime ISA will not immediately replace the help to buy ISA. The help to buy ISA will be open to new savers until 30 November 2019 and open to new contributions until 2029. Savers will be able to save into both a help to buy ISA and a lifetime ISA, but will only be able to use the government bonus from one of their accounts to purchase their first home. During the 2017/18 tax year only, savers who already have a help to buy ISA will be able to transfer these funds into a lifetime ISA and receive the government bonus on these savings.
Lifetime ISAs will behave in the same way as existing ISA products on death, i.e. the funds within a lifetime ISA will form part of the deceased saver's estate for IHT purposes and the surviving spouse or civil partner will be granted an additional ISA allowance equivalent to the value of the deceased’s lifetime ISA(s).
Further details as to how these new rules will work will be announced after the government has consulted with the industry. Legislation enacting the lifetime ISA is expected in the Autumn.
See: Budget 2016 (para 2.50) and policy paper Lifetime ISA explained.
As a further boost to ISA savers, the government announced at Budget 2016 that the overall annual ISA subscription limit will be increased from £15,240 to £20,000 from 6 April 2017.
See: Budget 2016 (para 2.50).
At Budget 2016, the government announced that it intends to legislate to allow the ISA savings of a deceased person to continue to benefit from the ISA-related tax advantages during the administration period.
These provisions make particular sense where a surviving spouse or civil partner inherits the ISA savings of their deceased partner. Under these rules, which were introduced from 6 April 2015, the personal representatives of the deceased are taxed on any income that they receive from, or gains from realisation of, ISA assets during the administration period and the ISA assets only become exempt again once they have been reinvested into the surviving spouse or civil partner's ISA.
The government will set out further plans for introducing this measure during 2016, following technical consultation with ISA providers.
See: Budget 2016 (para 2.57).
As announced at Summer Budget 2015 and legislated for in F(No. 2)A 2015, relief for finance costs on residential properties will be restricted to the basic rate of income tax, gradually introduced from April 2017. The landlords finance cost restriction legislation is amended by FB 2016, to clarify that beneficiaries of deceased persons' estates are entitled to the basic rate tax reduction and to ensure that the basic rate reduction is applied and calculated as intended. See: Budget 2016 (para 2.27).
See also ‘wear and tear allowance’ below.
As announced at Summer Budget 2015 and following consultation on the draft clauses published on 9 December 2015, FB 2016 will:
· require large businesses to publish their tax strategy as it relates to UK tax; and
· include a special measures process to tackle large businesses that engage in aggressive tax planning and/or refuse to engage or collaborate with HMRC.
The revised legislation will be amended to clarify the entities that are within the scope of the legislation.
See: Budget 2016 (para 2.93), OOTLAR 2016 (para 1.76), Business tax roadmap (para 2.41), TIIN, draft legislation and explanatory note (9 December 2015) Tax administration: large businesses transparency strategy, TIIN, draft legislation and explanatory note (9 December 2015): Tax administration: large business special measures regime.
The government has confirmed FB 2016 will include measures to complete the updated tax regime for company debt and derivative contracts (in order to ensure they interact correctly with new accounting standards). The three measures amend the debt and derivatives, regime specific, transfer pricing rules to:
· restrict deductions for notional finance costs arising on interest‐free loans and other loans on non‐market terms;
· ensure that credits arising on the reversal of debits (previously denied) are not taxed; and
· limit the amount excluded from tax in cases where the loan (or derivative) is part of a hedging relationship intended to mitigate foreign currency risk.
The changes will have effect from 1 April 2016.
See: Budget 2016 (para 2.119) and TIIN Corporation Tax: update of the taxation of corporate debt and derivative contracts (9 December 2015).
FB 2016 will include legislation increasing the loans to participators tax rate from 25% to 32.5% so that it remains aligned with the higher rate of tax charged on dividends (following the changes to dividend taxation from April 2016). The loans to participators rules aim to prevent owner of close companies from remunerating themselves through loans or advances (which remain unpaid) instead of dividends or salary which would attract income tax and NICs. The new rate will apply to loans, advances and arrangements made on or after 6 April 2016.
See: Budget 2016 (paras 1.151, 2.42), OOTLAR 2016 (para 1.34) and TIIN Corporation tax: rate of tax for the loans to participators charge.
From 2018, businesses, the self-employed and landlords who are making quarterly reports to HMRC under the measures announced in AS 2015 will be able to make 'pay as you go' tax payments on a voluntary basis. However, there is nothing to stop taxpayers from making such payments now – either they or their agent would just need to contact HMRC to ensure a 'no repayment signal' is set on their account.
The government will also explore options to simplify the administration burdens to facilitate the introduction of quarterly reporting. Measures will be included in FB 2017.
See: Budget 2016 (para 1.184).
The government is considering the following to tackle marketed tax avoidance:
· clarifying the meaning of a reasonable excuse in avoidance penalty cases, so that avoiders cannot rely on generic third party legal advice obtained from the promoter (no time scale is given). See: Budget 2016 (para 2.204) and OOTLAR 2016 (para 2.51);
· introducing new measures aimed at those who 'enable' tax avoidance schemes (again, there is no timescale). See: Budget 2016 (para 2.204) and OOTLAR 2016 (para 2.52); and
· consulting over summer 2016 on reforming the rules on the disclosure of VAT avoidance schemes, by aligning them with the (direct tax) rules on DOTAS and extending coverage to other indirect taxes. The idea of aligning the VAT disclosure rules with DOTAS was initially consulted on in 2014 but did not progress beyond consultation at that time. See: Budget 2016 (para 2.204) and OOTLAR 2016 (para 2.53).
There will, from April 2017, be two new £1,000 allowances for property and trading income for individuals meaning that:
· for those with income under £1,000 there will be no need to declare the income or pay the tax; and
· for those with income over £1,000 they have the choice to calculate their profit as usual or to deduct the allowance from their gross income’.
The provisions are designed to encourage micro-entrepreneurs in the context of the rapid growth in the 'digital and sharing economy'.
Although not explicitly branded as a 'making tax digital' measure, these allowances would remove reporting obligations for those with low levels of second income, which is a welcome simplification. It would also mean that those who are accidentally non-compliant would no longer face penalties. It may be that the outcome of the e-marketplaces campaign in 2012, which reportedly led to enquiries into traders who made as little as £100 in profit, played a part in the thinking behind these allowances.
These allowances will be legislated in FB 2017.
See: Budget 2016 (paras 2.25, 4.6) and OOTLAR 2016 (para 2.14).
Following consultation over summer 2016 the government will introduce a new tax relief for museums and galleries in FB 2017, effective from 1 April 2017. The relief will be available for temporary and touring exhibition costs.
See: Budget 2016 (para 2.87).
Class 2 NICs (which are payable at a flat weekly rate by self-employed persons) are to be abolished from April 2018. This abolition will be accompanied by changes to class 4 NICs (payable by self-employed persons based on their profits) so that the self-employed can continue to build entitlement to contributory benefits such as state pensions (which currently accumulates from the payment of class 2 NICs). The legislation will be included in a future NICs bill.
The government will also shortly publish its response to the consultation which closed on 24 February 2016.
See: Budget 2016 (paras 1.167, 2.23) and OOTLAR 2016 (para 2.65).
The chancellor previously announced that provisions would be introduced from 2017/18 to deem long-term UK resident non-domiciliaries as deemed UK domiciled for income tax and capital gains tax purposes, with the rules applying after the individual had been UK resident for 15 out of the previous 20 years. The existing 17 out of the last 20 years IHT rules would be harmonised with the new rules. There would also be deeming provisions for UK-born domiciliaries who left the UK, acquired a domicile of choice and later returned to the UK.
Further changes were announced in Budget 2016 as a result of the responses to the consultation:
· all the changes will be legislated in FB 2017, rather than partly in FB 2016 and partly in FB 2017, a point which was suggested by the CIOT;
· those who become deemed domiciled in April 2017 will be able to rebase their non-UK assets for capital gains tax at market value as at 6 April 2017; and
· there will be transitional provisions for individuals with existing offshore funds, which was an area identified as an issue in the consultation document but was not covered by the draft clauses published on 2 February 2016.
It is hoped that more detail on these points will be available when the summary of responses is published.
See: Budget 2016 (para 2.44).
It was previously announced that from April 2016, the government will establish the OTS on a statutory basis as a permanent office of HM Treasury.
The OTS published its small company taxation review on 3 March 2016. At Budget 2016, the government confirmed it will accept or consider nearly all of the OTS's recommendations which include the potential development of a transparent taxation system for certain small companies and a new business model that protects the assets of the self-employed.
The government will commission further work from the OTS. It will carry out a review of the impacts of moving employee NICs to an annual, cumulative and aggregated basis and moving employer NICs to a payroll basis. The government will also commission the OTS to review options for simpler computation of corporation tax.
See: Budget 2016 (para 2.215).
Budget 2016 contained numerous oil and gas tax measures, namely:
· a permanent reduction in the rate of petroleum revenue tax from 35% (which was announced at Budget 2015) to 0%. This zero-rating will be contained in FB 2016 and takes effect for periods ending after 31 December 2015. In addition, there will be a reduction in the rate of supplementary charge from 20% to 10%. This reduction will be contained in FB 2016 and takes effect for periods starting on or after 1 January 2016. See OOTLAR 2016 (para 1.40, 1.37) and policy paper Oil and gas taxation: reduction in PRT and supplementary charge;
· amendments to the anti-avoidance provisions in the onshore, cluster area and investment allowances will be included in FB 2016. These changes will update the conditions which disqualify expenditure, incurred on the acquisition of an asset in certain circumstances, from generating allowance. These amendments ensure the legislation works as intended. See OOTLAR 2016 (para 1.39) and policy paper Oil and gas taxation: minor amendments to onshore, cluster area and investment allowances;
· the granting of a new power, through FB 2016, to HMRC to extend the definition of ‘relevant income’ for the cluster area and investment allowances by secondary legislation. The government intends to allow tariff income to activate the allowance in order to encourage investment in infrastructure. See OOTLAR 2016 (para 1.38); and
· confirmation that, when a company retains decommissioning liability for an asset after sale, it will be able to access tax relief on its costs. HMRC has issued a technical note to clarify its interpretation of CAA 2001, Part 2, Chapter 13. See OOTLAR 2016 (para 2.27) and policy paper Oil and gas companies: tax relief for decommissioning expenditure.
See: Budget 2016 (paras 2.131–2.136).
The government will publish a consultation on partnership tax, covering a number of areas where the current rules are uncertain, including an issue highlighted by the OTS.
See: Budget 2016 (para 2.109) and OOTLAR 2016 (para 2.13).
As announced in Budget 2015, the simplified expenses regime will be amended in FB 2016 to ensure that partnerships can use the flat rate expenses for use of a home and where the business premises are also a home.
See: Budget 2016 (para 2.216).
Legislation will be included in FB 2016 to modify the patent box computation rules so that they comply with the new international framework set out by the OECD. In particular it will remove the ‘proportional profit split’ option so that ‘streaming’ applies in all cases at the level of an IP asset, a product or a product family. Draft legislation was first published on 9 December 2015.
See: Budget 2016 (para 2.99), OOTLAR 2016 (para 1.31) and TIIN, draft legislation and explanatory notes Corporation tax: Patent box – compliance with new international rules.
Tax and NICs relief on employer-arranged pension advice will rise from £150 to £500. The new exemption will be available from 6 April 2017.
See: Budget 2016 (paras 1.115, 2.34, 2.49 and 2.227) and OOTLAR 2016 (para 2.7).
As announced at AS 2015, FB 2016 will provide that there will be no charge to IHT when a pension scheme member designates funds for drawdown but does not draw all of the funds before death. This measure will be backdated to apply to deaths on or after 6 April 2011.
See: Budget 2016 (para 2.63).
In line with the recommendations of the Financial Advice Market Review (FAMR), the government will consult on introducing a Pensions Advice Allowance. This will allow people before the age of 55 to withdraw up to £500 tax free from their defined contribution pension to redeem against the cost of financial advice. The exact age at which people can do this will be determined through consultation. This means that a basic rate taxpayer could save £100 on the cost of financial advice.
See: Budget 2016 (paras 1.115, 2.227).
To help the next generation to clearly view their pensions savings, the government will ensure the industry designs, funds and launches a pensions dashboard (i.e. a digital interface) by 2019 so that an individual can view all their retirement savings in one place.
See: Budget 2016 (paras 1.114, 2.61).
At Budget 2014, the government announced the introduction of pension flexibility. This allowed individuals aged 55 and above to access their money purchase pension savings as they wished, subject to their marginal rate of tax. In September 2014 the government made a further announcement in relation to the taxation of pension death benefits. These changes were set out in the Taxation of Pensions Act 2014 which took effect from 6 April 2015.
The government announced at Budget 2016 that it will now make a number of minor changes to the pensions tax rules to ensure that they operate as intended following the introduction of pension flexibility in April 2015. The changes will:
· remove the requirement that a serious ill-health lump sum can only be paid from an arrangement that has never been accessed;
· replace the 45% tax charge on serious ill-health lump sums paid to individuals who have reached age 75 with tax at the individual’s marginal rate;
· enable dependants with drawdown or flexi-access drawdown pension who would currently have to use all of this fund before age 23 or pay tax charges of up to 70% on any lump sum payment, to continue to access their funds as they wish after their 23rd birthday;
· remove the rule on paying a charity lump sum death benefit out of drawdown pension funds and flexi-access drawdown funds where the member dies under the age of 75 because the equivalent tax-free payment may be made as another type of lump sum death benefit; and
· enable money purchase pensions in payment to be paid as a trivial commutation lump sum
· enable the full amount of dependants' benefits to be paid as authorised payments where there are insufficient funds in a cash balance arrangement when the member dies.
Legislation to implement the above changes will be introduced in FB 2016 to amend FA 2004.
See: Budget 2016 (paras 2.53–2.61), OOTLAR 2016 (paras 1.13–1.19) and TIIN Pension flexibility 2016.
The government originally announced at Summer Budget 2015 (para 2.80) that it would consult on tackling the use of unfunded employer financed retirement benefit schemes (EFRBS) to obtain a tax advantage in relation to remuneration. It has now announced that it will continue to keep this issue under review.
See: Budget 2016 (para 2.54) and OOTLAR 2016 (para 2.23).
The following measures were announced at either March Budget 2015 or AS 2015 and will be included in FB 2016 to take effect on 6 April 2016:
· reduction of pensions lifetime allowance from £1.25m to £1m (see: March Budget 2015, para 2.86);
· new personal savings allowance of £1000 for basic rate taxpayers and £500 for higher rate taxpayers (see: March Budget 2015, para 2.84);
· dependant scheme pensions: simplification of calculations to determine whether the authorised limit has been exceeded (see AS 2015, para 3.27); and
· bridging pensions: alignment with DWP legislation (see AS 2015, para 3.28).
To prevent property developers using offshore structures to avoid UK tax on their profits, legislation will be included in FB 2016 to tax trading profits from land in the UK, which will apply regardless of whether the developer is resident or non-resident and will not depend on non-residents having a permanent establishment (PE) in the UK. The legislation will have no effect on the taxation of UK resident property developers. It will effect non-resident property developers, who under current rules can structure their development so as to avoid a PE (and a charge to CT).
DTT changes are required with Guernsey, the Isle of Man and Jersey to ensure that the UK has the right to tax UK land. The governments of these countries and the UK have agreed protocols to amend the relevant DTTs with effect from 16 March 2016.
The new rules will apply from the date the legislation is introduced into Parliament. A TAAR will apply from 16 March 2016 to prevent structuring around the new charge. HMRC is inviting comments on the new rules and the issues raised in its technical note by 29 April 2016.
HMRC will create a new non-resident UK property development taskforce to ensure tax on these profits is collected effectively.
See: Budget 2016 (para 2.94 and 2.95), OOTLAR 2016 (para 1.27) and technical note Profits from trading in and developing UK land.
From April 2017, where a public sector body engages a worker through a personal service company, that body (or the recruiting agency, if used by the body) will be responsible for determining whether IR35 applies and, if IR35 does apply, for collecting the relevant tax and NICs. The government will consult on a simpler set of tests and online tools that 'will provide a clear answer' as to whether IR35 applies before the summer.
The application of IR35 to private sector engagements is unaffected. However, businesses and agencies working outside of the public sector will be able to make use of the new online tools.
Legislation will be introduced in FB 2017, and follows HMRC's discussion document on IR35.
See: Budget 2016 (paras 1.148–1.150, 2.40), OOTLAR 2016 (para 2.9) and Technical note: Off-payroll working in the public sector: reforming the intermediaries legislation.
The chancellor made two announcements in respect of R&D.
He announced that the legislation which governs the SME regime for R&D tax relief will be amended by FB 2016. This is to ensure that relief continues to be available for SMEs as originally intended, once the old large company scheme is replaced by the R&D expenditure credit on 31 March 2016 (sometimes known as the 'above the line' credit). Without these changes, the amount of relief available under the SME would be reduced unintentionally.
Second, the chancellor confirmed that vaccine research relief will no longer be available after 31 March 2017 (see ‘vaccine research relief’ below).
See: Budget 2016 (para 2.86).
FB 2016 will include legislation to, with effect for payments made on or after 17 March 2016, deny the benefit of a double tax treaty (DTT) as it applies to royalty payments between connected parties where arrangement have a main purpose of securing a benefit that is contrary to the purpose of the DTT. This is aimed at conduit arrangements such as where the ultimate beneficial owner is resident in a jurisdiction with which the UK has a DTT, but the owner pays the royalty on to an affiliate in another jurisdiction.
FB 2016 will also include legislation, with effect for payments made on or after royal assent to FB 2016, to:
· widen the types of royalties in respect of which a payer must withhold UK income tax by aligning the withholding requirement to the same class of royalties that are subject to an underlying charge to UK income tax: this will encompass payments for rights to use trade names and trademarks (currently, such payments are only subject to withholding tax if they constitute 'annual payments'); and
· provide that a royalty has a UK source for the purposes of the royalty withholding rules if the royalty is connected with a UK PE or an avoided PE even if the payment is not made from the UK: the application of this rule to an avoided PE will require amendments to the diverted profits rules (DPT) to include within the calculation of the notional profits of an avoided PE an amount equal to the royalties that would have had a UK source under the royalty withholding tax legislation had the avoided PE been an actual PE.
See: Budget 2016 (paras 1.211, 2.96), OOTLAR 2016 (para 1.30), TIIN, draft legislation, explanatory note and technical note: Income Tax: royalty withholding tax, business tax roadmap (para 2.40).
The government will consider limiting the range of benefits that attract income tax and NICs advantages when provided as part of a salary sacrifice scheme. However, the government’s intention is that pension saving, childcare and health-related benefits (such as cycle to work) will not fall within any limitations, and will therefore continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements. This development follows the government's previously announced (at Summer Budget 2015 and AS 2015) concerns as to the increased use of salary sacrifice schemes.
See: Budget 2016 (paras 1.147, 2.35) and OOTLAR 2016 (para 2.4).
A personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers will be introduced. Minor changes are being made to the draft legislation.
See: Budget 2016 (para 2.58), OOTLAR 2016 (para 1.2) and draft FB 2016, clause 1.
The government has announced that the rules requiring tax at the basic rate of income tax to be deducted at source from payment of interest will be amended to provide an exemption for payments:
· from certain authorised investment funds (i.e. OEICs and AUTs);
· from investment trust companies; and
· in respect of peer-to-peer loans.
This simplification measure will allow such payments to be paid gross (i.e. without deduction of income tax) and, following the introduction of the personal savings allowance, will bring the tax treatment of income from these types of savings into line with the treatment of interest paid on bank and building society accounts.
The new measures are expected to be included in FB 2017 to take effect from 6 April 2017.
See: Budget 2016 (para 2.56) and OOTLAR 2016 (para 2.11).
As previously announced in AS 2015, the government will introduce higher rates of SDLT that will be 3% higher than the standard rates. The higher rates will apply to buy to let properties and second homes where a main residence is not being replaced and the consideration is £40,000 or more. The higher rates are:
· £0–£125,000: 3%
· £125,000–£250,000: 5%
· £250,000–£925,000: 8%
· £925,000–£1,500,000: 13%
· £1,500,000 plus: 15%
The higher rates will apply from 1 April 2016, subject to transitional provisions.
The government consulted on the policy design of the higher rates for additional residential properties between 28 December 2015 and 1 February 2016. As a result of the consultation the following changes were made to the policy design of the provisions:
· where a purchaser pays the higher rate because they have not sold their previous main residence, the purchaser may reclaim a refund of the higher rate if they sell their previous main residence within 36 months (the consultation suggested an 18 month time period);
· where a purchaser with more than one property disposes of a main residence they have 36 months to buy a new main residence before the higher rates apply (again the consultation suggested an 18 month time period);
· there will be no exemption for large scale investors (the consultation suggested a portfolio test or bulk purchase test would be introduced to exempt large scale investors from the higher rates);
· married couples who are living separately in certain circumstances will not be treated as one unit for the purpose of the rules; and
· where 50% or less of a single property has been inherited within 36 months of the purchase of a residential property this will not be considered as an additional property (and the higher rates will not apply).
The higher rates will apply to claims for multiple dwellings relief. Where six or more dwellings are purchased in a single transaction the purchaser can choose whether to apply the residential or non-residential rates.
See: Budget 2016 (para 2.183), OOTLAR 2016 (para 1.59), TIIN SDLT: reform of charging provisions for non-residential property, and TIIN, draft legislation, explanatory note and technical note SDLT: higher rates on purchases of additional residential properties.
The government will extend the reliefs available from ATED and the 15% higher rate of SDLT to equity release schemes, property development activities and properties occupied by employees from 1 April 2016. Some minor changes have been made to the draft legislation published on 9 December 2015.
See: Budget 2016 (paras 2.184–2.185), OOTLAR 2016 (para 1.61).
FB 2016 will introduce a seeding relief for PAIFs and co-ownership authorised contractual schemes (CoACSs) and will change the SDLT treatment of CoACSs investing in property so that SDLT does not arise on transactions in units. Some minor changes have been made to the draft legislation published on 9 December 2015.
See: Budget 2016 (para 2.184), OOTLAR 2016 (para 1.60).
The rates of SDLT on non-residential and mixed use properties will be changed with effect from and including 17 March 2016. Instead of the current slab system, the rates of SDLT for non-residential and mixed use properties will follow a progressive slice system similar to residential property but with different rates and bands. The new rates for non-residential freehold purchases and lease premiums are as follows:
· £0–£150,000: 0%
· £150,001–£250,000: 2%
· £250,000 plus: 5%
A new 2% rate will be introduced for leasehold transactions (from and including 17 March 2016) where the net present value (NPV) of the rent is above £5m. Rent with an NPV of £150,001 to £5m will continue to be charged at 1%.
These provisions are subject to transitional provisions. Purchasers can elect to apply the old or new rates for contracts which have been exchanged but not completed before 17 March 2016.
See: Budget 2016 (para 2.186), OOTLAR 2016 (para 1.58), TIIN, draft legislation, explanatory note and technical note SDLT: reform of charging provisions for non-residential property and guidance SDLT: reform of structure, rates and thresholds for non-residential land transactions.
FB 2016 will include legislation to enable regulations to be amended to clarify that residual payments made by a securitisation company will not be treated as annual payments so they can be paid without deduction of UK income tax. Currently, the tax treatment of residual payments is uncertain, requiring companies to write to HMRC to obtain confirmation that they do not constitute annual payments before making payments gross.
See: Budget 2016 (para 2.110), OOTLAR 2016 (para 1.41), TIIN Corporation tax: securitisation and annual payments.
Provisions in FB 2016 will clarify the time allowed for making a self-assessment return. The time limit is four years from the end of the relevant tax year with transitional arrangements for 2013/14, 2014/15 and 2015/16. The draft legislation was published on 9 December 2016.
See: Budget 2016 (para 2.210).
FB 2016 will include new sanctions for those who persistently enter into tax avoidance schemes that are defeated by HMRC. This has a different emphasis from the DOTAS rules, which are aimed at promoters rather than scheme users. The sanctions include special reporting rules, penalties, naming and shaming, and restriction of access to reliefs. The rules on promoters of tax avoidance schemes (POTAS) are also being strengthened.
See: Budget 2016 (para 2.205).
The government will legislate to provide a new power to allow HMRC to make an assessment of the income tax and CGT liability of an individual or trustee without them first being required to complete a self-assessment return and where it has sufficient information about the person to make the assessment.
Following consultation on the draft legislation as published on 9 December 2015, HMRC has increased the time limit for customers to dispute the amount due in their assessment from 60 days and have clarified the arrangements for interest and late payment penalties to bring these in line with interest and late payment penalties for self-assessment.
This measure will have effect on and after the date of royal assent to FB 2016.
See: Budget 2016 (para 2.211) and OOTLAR 2016 (para 1.78).
The government will introduce a new soft drinks industry levy that will be paid by producers and importers of soft drinks that contain added sugar. The levy will be charged on volumes according to total sugar content, with a main rate charge for drink above 5 grams of sugar per 100 millilitres and a higher rate for drinks with more than 8 grams of sugar per 100 millilitres. There will be an exclusion for small operators. The government has stated that it will be consulting on the details over the summer, for legislation in FB 2017 and implementation from April 2018 onwards (FB 2017).
See: Budget 2016 (paras 1.90-1.196).
As announced at Summer Budget 2015 and AS 2015, the government confirmed that from April 2017, all income from sporting testimonials and benefit matches for employed sports persons will be liable to income tax. An exemption of up to £100,000 will be available for employed sports persons with income from sporting testimonials that are not contractual or customary.
See: Budget 2016 (para 2.30).
As announced at AS 2015, shares transferred to a clearance service or a depositary receipt issuer as a result of the exercise of an option will be charged the 1.5% higher rate of stamp duty or SDRT based on the higher of the market value or the exercise price (i.e. strike price). While the measure has been previously announced, the date on which it takes effect has been slightly delayed. It will apply to any exercise on or after 23 March 2016 (the earlier draft legislation had referred to the date of Budget 2016), provided that the option was entered into on or after 25 November 2015.
See: Budget 2016 (para 2.117), OOTLAR 2016 (para 1.62), TIIN, draft legislation and explanatory notes: Stamp duty and SDRT: deep in the money options (DITMOs).
The government will consult later in 2016 on a possible modernisation of the SSE. The consultation will cover the extent to which the SSE is still meeting its original policy objective and whether it could be changed to increase its 'simplicity, coherence and international competitiveness'.
See: Budget 2016 (para 2.120) , OOTLAR 2016 (para 2.31) and HM Treasury: Business tax road map (March 2016).
Following the consultation on the simplification of the tax and NICs treatment of termination payments, the government has announced that it will introduce legislation to 'clarify and tighten' the rules on the taxation of termination payments.
Legislation will be introduced to clarify that all payments in lieu of notice (PILONs) are taxable as earnings, thereby abolishing the current tax distinction between contractual and non-contractual PILONs. The legislation will also confirm that certain damages payments will be taxable. In addition, the foreign service relief will be removed. From April 2018, the rules will be aligned so employer NICs will be due on any termination payments above £30,000.
A technical consultation will be published over the summer, with the changes legislated in FB 2017 and a future NICs bill to take effect from April 2018.
See: Budget 2016 (paras 1.145–1.146, 2.26) and OOTLAR 2016 (para 2.10).
Legislation has been published to ensure that trading or property income that is received in non-monetary form is fully taxable on an amount equal to the value of whatever is received. According to HMRC, this does not change the current law, but the position has been challenged so it is being put beyond doubt.
The legislation will be in FB 2016 and comes into effect immediately (applying to trading and property business transactions occurring on or after 16 March 2016).
See: Budget 2016 (para 2.106), OOTLAR 2016 (para 1.44) and TIIN, draft legislation and explanatory note: Income and corporation tax: trading income received in non-monetary form.
As previously announced at Budget 2015, the government will introduce legislation in FB 2016 to restrict tax relief for home to work travel and subsistence expenses for workers who are engaged through an employment intermediary. FB 2016 will contain some amendments to the previously published draft legislation in order to allow grouped companies to second workers within the group, and to prevent the organised misuse of PSCs in order to avoid the restrictions.
See: Budget 2016 (para 2.39) and OOTLAR 2016 (para 1.11).
The government has announced that, following an OTS review and a subsequent discussion paper, it will not be consulting further on the travel and subsistence rules. As a result, the rules will remain as they are.
The responses to the discussion paper (a summary of which will be published shortly) made clear that, although complex in parts, the current rules are generally well understood and work effectively for the majority of employees.
See: Budget 2016 (para 2.38) and OOTLAR 2016 (para 2.5).
The government has proposed a potentially important consultation on the administration of transfer pricing and also plans to legislate on transfer pricing guidelines.
Some overseas countries apply both primary transfer pricing adjustments (where the accounts do not reflect an arm's length price) and secondary adjustments to adjust for the fact that real movements of cash are not reflecting the adjusted tax position. Secondary adjustments may take the form of constructive loans, con-structive equity contributions or constructive dividends.
The UK will consider giving interest relief for constructive loans deemed to be made by a treaty partner to the UK under the terms of SP1/11, as discussed in HMRC’s International Tax Manual at INTM423110. However, the UK does not currently impose secondary adjustments of its own. This may be about to change. The government will consult on whether to introduce secondary adjustments to address the underlying cash benefit from incorrect transfer pricing. Companies and their advisers will need to monitor developments and, if necessary, consider strategies to mitigate the possible impact of secondary adjustments.
It was announced today that the transfer pricing guidelines will be amended by creating updated links between the UK legislation at TIOPA 2010 s 164(4) and CTA 2010 s 357GE and the revisions to the OECD transfer pricing guidelines included within the OECD's final recommendations on base erosion and profit shifting (BEPS). This change will apply for accounting periods beginning on or after 1 April 2016.
See: Budget 2016 (paras 2.100, 2.101), OOTLAR 2016 (para 1.45) and TIIN Income and Corporation Tax: updating the transfer pricing guidelines.
The previously announced measures, namely the introduction of a statutory exemption from income tax from 6 April 2016 for certain trivial benefits-in-kind costing £50 or less, remain unchanged. The exemption will also remove the charge to class 1A NICs from the same date, with a corresponding disregard for class 1 NICs taking effect later in the year.
See: Budget 2016 (para 2.37).
The government announced that it will include legislation in FB 2016 to end vaccine research relief in respect of expenditure incurred on or after 1 April 2017. This is because only a handful of large companies claim the relief and state aid approval runs out on 31 March 2017.
See: Budget 2016 (para 2.85), OOTLAR 2016 (para 1.32) and TIIN Vaccine research relief: expiry in 2017.
The government will broaden the eligibility criteria for the VAT refund scheme for museums and galleries. DCMS has published guidance on the new criteria, which will enable support to a wider range of free museums from across the UK.
See: Budget 2016 (para 2.151).
The government has published a consultation on the ‘fit and proper’ standards that fulfilment houses will need to meet in order to operate. Fulfilment houses will have an obligation to register and maintain accurate records once online registration opens in 2018. They will also have to provide evidence of the due diligence they have undertaken to ensure overseas clients are following VAT rules. The consultation will be used to minimise as far as possible any costs for legitimate businesses.
See: Budget 2016 (para 2.147).
The government will continue to engage with international bodies in order to explore international solutions to VAT fraud, including looking at alternative mechanisms for the collection of VAT.
See: Budget 2016 (para 2.147).
The government will legislate (in FB 2016) to ensure charities subject to the jurisdiction of the High Court of the Isle of Man are capable of qualifying for UK VAT charity reliefs.
See: Budget 2016 (para 2.153).
The government will consult on a new penalty for participating in VAT fraud in spring 2016. Subject to the consultation, the intention is to legislate in FB 2017.
See: Budget 2016 (para 2.145).
From 1 April 2016, the VAT registration threshold will increase from £82,000 to £83,000 and the deregistration threshold from £80,000 to £81,000, in line with inflation.
See: Budget 2016 (paras 1.187, 2.149) and OOTLAR 2016 (para 2.37) and TIIN VAT: revalorisation of registration and deregistration thresholds.
With effect from 1 February 2016, the government introduced an anti-fraud measure to prevent missing trader intra-community fraud on wholesale supplies of electronic communications services. This was done by Treasury Order which was laid before the House on 11 January 2016.
See: Budget 2016 (para 2.150).
As announced at AS 2014, the government will legislate (in FB 2016) to enable named non-departmental and similar bodies to claim a refund of the VAT they incur as part of a shared service arrangement used to support their non-Budget 2016 business activities, to encourage public bodies to share back-office services, where this results in efficiencies of scale.
See: Budget 2016 (para 2.152).
HMRC will be given stronger powers to tackle non-compliance by overseas businesses that avoid paying UK VAT on sales to UK consumers via online marketplaces. The first part of this measure will strengthen the existing rules that allow HMRC to direct an overseas business to appoint a VAT representative. Secondly, and in more serious cases of non-compliance, HMRC will be able to make the online marketplace jointly and severally liable for the unpaid VAT on goods sold through its online marketplace. The measure will have effect from royal assent to FA 2016.
See: Budget 2016 (para 2.146), OOTLAR 2016 (para 1.57) and TIIN VAT: representatives for overseas businesses and joint and several liability for online marketplaces.
Following the wholesale changes to the EIS and VCT regimes in F(No. 2)A 2015 technical clarification will be made in FB 2016 to ensure the earlier changes work as intended. There are two proposed changes.
First, with effect from 18 November 2015 (when the previous changes were introduced, but with the option to apply the old rules for investments received up to 5 April 2016), amendments will be made to ensure that the most recently filed accounts of a company are generally used to determine the end date of:
· the five year period (for calculating the average turnover for the purposes of condition B of the permitted maximum age requirement; and
· the three year period for the operating profit condition for knowledge intensive.
The description of this change sounds remarkably similar to the wording in the legislation already, but there is presumably a point to the changes, so we will have to await the draft legislation.
Second, with effect from 6 April 2016 a new condition will be included in the list of conditions that a VCT must meet in order to obtain HMRC approval that specifies the investments that a VCT can make for liquidity management purposes, i.e. AIF or UCITS units that can be redeemed or repurchased on seven days’ notice or shares or securities acquired on a regulated market.
The government also confirmed its AS 2015 plan to exclude all remaining energy generation activities from being qualifying trades for the purposes of EIS, SEIS, VCT and SITR.
See: Budget 2016 (paras 2.46, 2.47), OOTLAR 2016 (para 1.24), Draft FB 2016, clause 6 and TIIN Enterprise investment scheme and venture capital trusts.
As announced at AS 2015, the government confirmed that it will legislate in FB 2016 to exempt from income tax, certain pension and annuity payments made by the Netherlands government, payable to victims of national-socialist and Japanese aggression during World War II. The measure will take effect from April 2016. See: Budget 2016 (para 2.33).
As also announced previously at AS 2015, the government has confirmed that extra statutory concession F20 will be given a legislative footing in FB 2016 so that certain payments (including payments made under the child survivor fund) to claimants who suffered persecution during World War II will be left out of the claimant's estate for IHT purposes. See: Budget 2016 (para 2.65).
FB 2016 will replace the wear and tear allowance with a new relief that allows residential landlords to deduct the cost of replacing certain domestic items. Some minor changes have been made to the draft legislation previously published.
See: Budget 2016 (para 2.28), OOTLAR 2016 (para 1.23).
The above commentary was derived from Lexis®PSL Tax and Private Client services, with additional material from Tolley Guidance. The Lexis®PSL Tax and Private Client services provide advisers with practice notes and precedents, with links to trusted sources. Tolley Guidance is an online service that combines tax technical commentary with practical guidance.
Key announcements that were new for Budget 2016 include:
New measures that come into effect in the immediate future:
Surprisingly, no further announcements were made on:
The chancellor of the exchequer, George Osborne, delivered his second all-Conservative Budget (Budget 2016) on Wednesday 16 March 2016.
The chancellor of the exchequer, George Osborne, delivered his second all-Conservative Budget (Budget 2016) on Wednesday 16 March 2016.
In the context of a worsening global financial outlook and reduction in productivity growth, the chancellor focused on stability and producing 'long term solutions for long term problems'. Key announcements were made relating to our education system, including making all schools academies and considering teaching maths to all pupils up to age 18, and infrastructure projects such as HS3 and Crossrail 2 to 'keep Britain moving'.
From a tax perspective there was the, now customary, focus on tackling avoidance and evasion. This includes a new target to raise £12bn over the course of the parliament, however it is interesting to note that this target includes 'tackling imbalances' in the system which would seem to include some of the less avoidance driven changes.
There were, as usual, some winners, including:
· higher rate tax payers – or at least the thousands who will cease to be higher rate income tax payers as a result of increases in thresholds;
· the oil and gas industry; and
· small businesses, who took most of the benefits of the much anticipated business rates reform.
And there were some losers:
· large property owners, who will not get their hoped for carve-out from the higher rate SDLT charge on additional residential properties;
· manufacturers (and consumers) of sugary drinks; and
· private equity managers (again) who do not benefit from the reduction in capital gains tax rates.
Those for whom the result is a bit of a mixed bag, particularly large corporates, for whom clearly the additional reduction in the main corporation tax rate will be welcome albeit they have to wait for 2020 for that, whereas the more negative changes such as restrictions on interest deductions and loss reliefs come in sooner.
The chancellor could not resist throwing in a reference to the EU referendum and, against much heckling from Brexit supporters, quoted the OBR's prediction that the UK would be 'safer, stronger and more secure' if it remains in the EU. Perhaps keeping in mind the added uncertainty that the looming EU referendum has brought, there were not a great deal of radical announcements from a private client tax perspective and many of the measures were simply confirmation of those previously announced.
The theme of putting the next generation first was supported by the introduction of a sugar tax on soft drinks, increased funding for schools, a new lifetime ISA aimed at the under 40s and the confirmation of various pre-announced measures aimed at slowing the growth in house prices at the expense of buy-to-let landlords and second home owners.
Hard working tax payers were rewarded with various measures including increases in the personal allowance and higher rate threshold for income tax, an increased annual ISA allowance and reduced CGT rates. For the first time in several years there were no new nasty surprises for non-UK domiciliaries.
The Overview of Tax Legislation and Rates (OOTLAR 2016) contains useful tables in Annex B showing all the tax rates.
Finance Bill 2016 (FB 2016) is expected to be published on 24 March 2016.
The information below gives details of the key announcements and includes a number of measures previously announced.
The government has announced that it will apply a 10% top-up to monthly funds entering apprenticeship levy payers' digital accounts in England when the levy is introduced in April 2017. This top-up will be available for those employers to spend on apprenticeship training.
The legislation implementing the levy will be contained in FB 2016; minor amendments have been made to the previously published draft legislation.
See: Budget 2016 (paras 1.99, 2.243) and OOTLAR 2016 (para 1.56).
Following the publication of draft clauses on 9 December 2015, legislation will be included in FB 2016 determining when asset managers can pay capital gains tax rather than income tax on carried interest received from a fund. The rules ensure that carried interest will be subject to income tax unless the fund undertakes long term investment activity (with investment horizons longer than three years). Some changes to the draft legislation have been highlighted, including that capital gains tax treatment will apply where the average hold period is 40 months or more (rather than 48 months as specified in the draft legislation). Additional bespoke calculation rules will also be introduced for additional asset classes, including venture capital and real estate, alongside a number of other minor technical changes. The rules will apply to relevant sums arising on or after 6 April 2016.
See: Budget 2016 (paras 1.225, 2.104) and OOTLAR 2016 (para 1.26).
The government has announced its intention to consult during 2016 on measures affecting authorised contractual schemes (CoACs). The proposed amendments will include measures to streamline the tax rules for investors and simplify reporting requirements. Any necessary legislation will be introduced in a FB 2017 or secondary legislation as appropriate.
See: Budget 2016 (para 2.105) and OOTLAR 2016 (para 1.89).
As announced at AS 2014, FB 2016 will include tax relief on bad debts incurred on or after 6 April 2016 on P2P loans against other P2P income.
See: Budget 2016 (para 2.31).
FB 2016 will, with effect from 1 April 2016, reduce from 50% to 25% the proportion of a banking company's annual taxable profit that can be offset by pre-April 2015 carried-forward losses.
FB 2016 will also amend the excluded entities test to ensure that the bank related taxes (bank loss restriction legislation, bank compensation payments, surcharge legislation and the code of practice on taxation for banks) only apply to banks. This amendment will be backdated to apply with effect from when the relevant bank related tax took effect.
See: Budget 2016 (paras 2.111, 2.112), OOTLAR 2016 (paras 1.36, 1.35), TIIN Corporation Tax: update to bank loss relief restriction, TIIN Banking companies: excluded entities.
The government has announced, as part of the Business tax road map published alongside Budget 2016, that in response to the Final BEPS Reports in October 2015 it intends to implement a comprehensive package of measures to modernise the UK's tax rules in order to ensure they are applied effectively to multinationals. Three announcements (not covered elsewhere) are worthy of particular note:
· Action 3 (CFC rules): The government has confirmed that it is not considering making any amendments to the UK's CFC regime as a result of the BEPS project;
· Action 12 (disclosure of BEPS): Although the UK already has a mandatory disclosure regime (the DOTAS rules), the government has announced that it will continue to contribute to international work that will, among other things, consider how mandatory disclosure regimes, such as DOTAS could be extended to apply to cross border arrangements; and
· Action 13 (country by country reporting (CbCR): Although the government has already legislated to require companies to report information on a country by country basis to HMRC, the government has stated that it 'believes there is an opportunity to go beyond the outcomes of the BEPS project' by requiring companies to publicly disclose the details of tax paid, on a country by country basis. This accords with similar developments within Europe as part of the EC Anti-Tax Avoidance Package (announced in January 2016). The government has announced that the UK will now 'press the case' for multilateral public CbCR.
See: HMT Business tax road map (March 2016) (paras 2.28–2.29, Box 2.B).
Business premises renovation allowance (BPRA) will cease as expected on 5 April 2017 (31 March 2017 for companies). Any owner of qualifying business premises looking to bring this back into business use should ensure this work is undertaken prior to this date in order to receive 100% allowances for the capital expenditure.
See: Budget 2016 (para 2.91).
A number of changes have been announced to business rates to help businesses. From April 2017, small businesses occupying property with a rateable value of £12,000 or less will pay no business rates. This rep-resents a doubling of the current rateable value amount on which 100% relief is available of £6,000 or less. In addition, for properties worth up to £15,000, tapered relief from business rates will be available.
See: Budget 2016 (paras 2.121–2.130).
The 100% first year allowance (FYA) for low emission cars will be extended for a further three years to April 2021. The carbon dioxide emission threshold below which cars qualify for the 100% FYA will be reduced from 75 grams / kilometre to 50 grams / kilometre from April 2018. The carbon dioxide emission threshold for the main rate of capital allowances for business cars will also be reduced from April 2018 from 130 grams / kilometre to 110 grams / kilometre. The legislation in this area to apply from 2021 will be reviewed again at Budget 2019.
See: Budget 2016 (para 2.90).
FB 2016 will include two anti-avoidance measures that were announced in AS 2015 and that came into effect on 25 November 2015. The first measure broadens the existing anti-avoidance rule in CAA 2001 s 215, so that it applies to the seller's disposal value as well as the buyer's qualifying expenditure. The second measure makes any payment for taking over another person's tax deductible payment obligations under a lease subject to tax as income. Draft legislation was published with AS 2015.
See: Budget 2016 (para 2.107).
Following consultation and subsequent representations, the government has again indicated that it will legislate in FB 2016 so that a tax charge is not applied to loans or advances made by close companies to charity trustees for charitable purposes. As previously indicated the measure will apply qualifying loans or advances that are made on or after 25 November 2015.
This measure applies to loans from a charitable trust's (not charitable company's) subsidiary. It is customary for non-charitable subsidiaries of a charity to donate most or all of their profits to the parent charity. Where the subsidiary has a large sum of unused cash it is common for it to lend the surplus to the parent charity until the actual profits that are available for donation has been confirmed.
After FA 2013, a loan by a subsidiary to the trustees of the charitable trust would be liable to tax because the legislation did not distinguish between receipt of the loan by the trustees for their own benefit and receipt in as trustees with a fiduciary duty to apply the money for the purposes of the charity. This was recognised as inconsistent with the intention of the legislation to impose a tax charge where a benefit is conferred on an individual participator.
See: Budget 2016 (para 2.43).
The government's 'tax-free' childcare scheme which will provide working parents with financial support to-wards childcare costs for the under-12s will begin to be phased-in early in 2017. The chancellor has confirmed that the existing employer-supported limited exemption childcare schemes will remain open to new entrants until 5 April 2018. Workplace crèches and nurseries which qualify for the complete exemption will continue unaffected.
See Budget 2016 (para 2.77).
FB 2016 will amend the CGT computations required when calculating the non-resident CGT charge to remove a double charge that occurs in some circumstances. The amendment will have retrospective effect from 6 April 2015. Following consultation on the draft legislation, the government will also prescribe with effect from 6 April 2015 two circumstances where a return is not required and give HM Treasury, rather than HMRC, powers to add, amend or remove circumstances and make consequential provision.
See: Budget 2016 (para 2.194), OOTLAR 2016 (para 1.51).
CGT is currently charged at 28% for higher and additional rate taxpayers, trustees and personal representatives as well as being the rate applicable to ATED-related chargeable gains. For a basic rate taxpayer whose income and gains are below the income tax basic rate band, the rate of CGT is 18%. Gains which qualify for entrepreneurs' relief are charged at 10%.
The government has announced that, for gains accruing on or after 6 April 2016, the rate of CGT will be reduced to 20% for higher and additional rate taxpayers, trustees and personal representatives. For basic rate taxpayers (provided the income and gains are still below the individual's income tax basic rate band), the rate will be reduced to 10% and it will be made clear that an individual can use any unused income tax basic rate band in a way which is most beneficial to them.
The rate reductions will not apply to disposals of residential property that do not qualify for private residence relief, or to carried interest.
See: Budget 2016 (para 2.187), OOTLAR 2016 (para 1.46) and TIIN Changes to CGT rates.
There will be a consultation on the reform of the CO2 emissions bands for ultra-low emission cars, with a view to incentivising the use of the least polluting cars. Budget 2016 report, para 1.193.
Electric-only vans produce no CO2 emissions and are now termed 'zero emission' vans. For the tax years 2010/11 to 2014/15 inclusive the benefit was nil.
There is a taxable benefit on zero emission vans from 2015/16, however the charge has been reintroduced on a tapered basis. In Budget 2016, the chancellor announced a delay in the introduction of the full van benefit charge as follows:
|
Tax year |
Percentage of full van benefit charge (pre-Budget 2016) |
Percentage of full van benefit charge (Budget-2016) |
|
2015/16 |
20% |
20% |
|
2016/17 |
40% |
20% |
|
2017/18 |
60% |
20% |
|
2018/19 |
80% |
40% |
|
2019/20 |
90% |
60% |
|
2020/21 |
100% |
80% |
|
2021/22 |
|
90% |
|
2022/23 |
|
100% |
See TIIN Van benefit charge for zero emission vans.
The government announced that it will reform the loss relief rules on when corporate losses can be carried forward. Following a consultation, legislation will be included in FB 2017 that will:
· provide more flexibility on how losses can be used: businesses will be able to use carried forward losses arising on or after 1 April 2017 against profits from other types of income and from other companies in the group; and
· restrict the amount of losses than can be carried forward: from 1 April 2017, businesses will only be able to use carried forward losses against up to 50% of their (or their group's) profits above £5m.
These changes will not apply to the North Sea ring-fenced corporation tax regime or to banks that are subject to the separate bank losses restriction.
See: Budget 2016 (paras 1.174–1.177, 2.102) and OOTLAR 2016 (para 2.29).
Legislation will be introduced in FB 2016 to reduce the main rate of corporation tax to 17% for financial year 2020 (down from the previously announced 18%). It will follow the reduction to 19% for the financial years 2017 to 2019.
The government will also delay the introduction of the new corporation tax payment rules for large companies, previously announced at Summer Budget 2015, by two years, so that they will apply to accounting periods starting on or after 1 April 2019. The new rules will bring forward the instalment payment dates for companies with annual taxable profits in excess of £20m (divided between group members). The government intends to introduce legislation containing the new rules later this year.
The government has announced that it will commission the OTS to review the options to simplify the computation of corporation tax and will publish the terms of reference for the review shortly.
See: Budget 2016 (paras 1.158, 1.159, 1.189, 2.83, 2.84, 2.215), TIIN Corporation Tax to 17% in 2020, and Business tax roadmap (paras 2.78–2.79).
A package of changes will be introduced to tackle the use of disguised remuneration (DR) avoidance schemes, with legislation in FB 2016 and further legislation following a technical consultation over the summer.
With effect from 16 March 2016, an additional targeted anti-avoidance rule will prevent the relief under ITEPA 2003 s 554Z8 (which reduces the amount subject to tax when certain conditions are met) from being available where there is a connection with a tax avoidance arrangement.
There will also be a withdrawal of the transitional relief on investment returns (under which the amount treated as earnings, and any investment returns accruing on that amount, are not taxed under ITEPA 2003 Part 7A when distributed to the employee by the third party). The relief will not apply if the original earnings charge on the DR has not been paid on or before 30 November 2016.
There will also be a new tax charge on all DR loans which have not been taxed and are still outstanding on 5 April 2019.
There are to be additional technical amendments in order to prevent double taxation in certain circumstances, to address the interaction with the accelerated payment rules, and to allow, where appropriate, for the tax and NICs to be collected from the employee where it cannot reasonably be collected from the employer. These issues will form part of the wider consultation over the summer.
The government also intends to tackle similar avoidance schemes that have the same objective of avoiding tax and NICs on earned income, or disguising remuneration, that do not currently fall within ITEPA 2003 Part 7A, such as those which do not involve a third party or claim not to involve an employee.
See: Budget 2016 (para 2.49), OOTLAR 2016 (para 1.12) and Tackling disguised remuneration avoidance schemes overview of changes and technical note.
As announced in AS 2015, the government will introduce rules in FB 2016 to prevent the conversion of income into capital using company distributions. The new legislation will amend the transactions in securities rules and introduce a new TAAR.
See: Budget 2016 (para 2.107) and OOTLAR 2016 (para 1.25).
From April 2016, the dividend tax credit will be abolished and replaced with a £5,000 tax free allowance and an increase for dividend tax rates to 7.5% for basic rate, 32.5% for higher rate and 38.1% for additional rate taxpayers.
See: Budget 2016 (para 2.41) and fraft FB 2016 clauses 2–3.
The government has announced its intention to consult during 2016 to ensure the double taxation treaty passport scheme (DTTP) still meets the needs of UK borrowers and foreign investors. As part of the review, and in accordance with the 2013 UK investment management strategy, the government will consider extending the scheme to other types of foreign investor, including sovereign wealth funds, pension funds and partnerships to encourage them to establish more of their investment activity in the UK.
See: HM Treasury: Business tax road map (March 2016) (paras 2.66–2.68).
The government will introduce a package of measures to simplify various aspects of the administration of the tax on employee benefits and expenses (see: Budget 2016, para 2.36), namely:
· extending the voluntary payrolling framework (which commences on 6 April 2016) to allow employers to account for tax on non-cash vouchers and credit tokens in real time from April 2017. These benefits, along with living accommodation and beneficial loans, were excluded from the initial framework. The legislation will be included in FB 2016. See: OOTLAR 2016 (para 1.9) and Policy paper: Extending the real time collection of tax on benefits in kind: voluntary payrolling.
· the government will hold a consultation during summer 2016 on proposals to simplify the process for applying for and agreeing PAYE settlement agreements. This is in response to the OTS's 2014 review of employee benefits and expenses. See: OOTLAR 2016 (para 2.58).
· during summer 2016, the government will consult on proposals to align the dates by which an employee has to ‘make good’ (i.e. make payment to their employer) the cost of their benefit-in-kind in order to reduce their tax liability. The aim of the proposals is to simplify and clarify the current range of dates for ‘making good’ payments. See: OOTLAR 2016 (para 2.3).
· introducing a technical change to the wording of ITEPA 2003 to ensure that, from 6 April 2016, where the calculation of the tax on a benefit in kind is specified in the statute, that charging method must be used. This is not a change in policy. The clarification aims to ensure that 'fair bargain' (which applies where an employee receives goods or services from their employer at exactly the same cost, terms and conditions as a member of the public or other independent third party dealing with the employer on arms-length terms, and results in there being no benefit in kind) does not apply to benefits-in-kind which have specific charging rules. The change to the legislation will be included in FB 2016. See: OOTLAR 2016 (paras 1.7) and Policy paper: Income Tax: preventing liability to charge being removed from certain taxable benefits in kind.
The OTS will be commissioned to review the impacts of moving employee NICs to an annual, cumulative and aggregated basis and moving employer NICs to a payroll basis. The terms of reference for the review will be published shortly.
See: Budget 2016 (paras 1.188, 2.215) and OOTLAR 2016 (para 2.63).
There will be a lifetime limit of £100,000 CGT exempt gains for employee shareholder status (ESS) shares issued under ESS agreements entered into from 17 March 2016. This limit will not apply to any past or future gains relating to ESS agreements made on or before 16 March 2016.
See: Budget 2016 (para 2.193) and OOTLAR 2016 (para 1.52).
FB 2016 will repeal TCGA 1992 Sch 7D Part 4 as it no longer fulfils its original purpose since business asset taper relief ended in 2008. This will have the effect that a rights issue which takes place on or after 6 April 2016 in respect of shares received on exercise of an enterprise management incentives option will be treated in the same way for share identification purposes as other rights issues.
As announced in AS 2015, FB 2016 will also make a number of technical changes to simplify the tax-advantaged and non-tax-advantaged employee share scheme rules. These were originally published on 9 December 2015 and will appear in FB 2016 unamended.
See: Budget 2016 (para 2.48) and OOTLAR 2016 (para 1.10).
FB 2016 will extend entrepreneurs' relief through the introduction of a new 'investors' relief' for subscriptions of new shares in unlisted companies.
Entrepreneurs' relief will be available for disposals of ordinary shares in unlisted trading companies held by individuals, where the shares were newly issued to the disposing taxpayer. The relief will apply to shares that are acquired on or after 17 March 2016, and are held for a period of at least three years starting from 6 April 2016.
The extension of entrepreneurs' relief to external investors is intended to provide a financial incentive for individuals to invest in unlisted trading companies over the long term.
See: Budget 2016 (para 2.188) and TIIN Capital gains tax: Entrepreneurs' relief: extension to long-term investors.
FA 2015 introduced a number of restrictions to the availability of entrepreneurs' relief. These were widely criticised for unfairly penalising taxpayers who were not the intended targets of the measures. The government has responded to these concerns with provisions in FB 2016 that will, in some cases, restore the pre-FA 2015 position. The amendments are backdated to the date on which the relevant FA 2015 measure came into effect (18 March 2015 or 3 December 2014).
The changes are as follows:
Associated disposals: Entrepreneurs’ relief will be available on an ‘associated disposal’ of a privately-held asset when the accompanying disposal of business assets is to a family member. The FA 2015 changes were interfering with normal arrangements for passing on a family business to a younger generation, and FB 2016 is intended to alleviate this. In addition, the requirement that the disposal must be of a minimum 5% stake in the company or partnership does not apply where the taxpayer disposes of their whole interest and they previously held a larger stake. See: Budget 2016 (para 2.189) and TIIN Capital gains tax: changes to rules to extend availability of entrepreneurs' relief on associated disposals.
Goodwill on incorporation: Entrepreneurs’ relief will be available, subject to conditions, on disposals of business goodwill where the business is transferred to a close company in which the disposing taxpayer is or becomes a participator. FA 2015 had the effect of denying relief for a transfer of goodwill to a company in which the taxpayer held any shares at all; FB 2016 will amend this to allow relief provided that the taxpayer has no more than a 5% stake in the acquiring company. See: Budget 2016 (para 2.190) and TIIN Capital gains tax: changes to rules to extend availability of entrepreneurs' relief on goodwill on incorporation.
Joint ventures and partnerships: This change affects the entrepreneurs' relief definitions of a trading company and trading group. Prior to FA 2015, a company holding shares in a joint venture company was treated as carrying on a proportion of the activities of the joint venture company for the purposes of the trading test. FA 2015 removed this provision; FB 2016 will restore it, but only where the disposing taxpayer has a minimum 5% stake (directly or indirectly) in the joint venture company. Similarly, prior to FA 2015, a company that was a member of a partnership was treated as carrying on a proportion of the partnership's activities for the purposes of the trading test. FA 2015 treated all activities carried on by a company as a member of a partnership as non-trading activities; FB 2016 will restore the pre-FA 2015 position, but again only where the disposing taxpayer has a minimum 5% stake (directly or indirectly) in both the company and the underlying partnership. See: Budget 2016 (para 2.191) and TIIN Capital gains tax: Entrepreneurs' relief – changes to the treatment of joint ventures and partnerships.
‘Trading company’: The government will review the definition of a trading company to ensure it operates effectively (no time scale is given for this review).
See: Budget 2016 (para 2.192).
The government announced a number of measures following the conclusion of the business energy efficiency tax review (see: Consultation: reforming the business energy efficiency tax landscape), including:
· abolishing the carbon reduction commitment (CRC) energy efficiency scheme from the end of the 2018/19 compliance year;
· increasing the main rates of the climate change levy (CCL) from 1 April 2019, with the intention of making a compensatory equivalent increase in the CCL discounts for sectors with climate change agreements; and
· consulting later in 2016 on a simplified energy and carbon reporting framework for introduction by April 2019.
In addition, the government will consult on potential legislation for FB 2017:
· to clarify the scope of landfill tax, by changing the definition of a taxable landfill disposal; and
· to introduce a new exemption from aggregates levy for aggregate that is a by-product of laying pipes for utilities.
See: Budget 2016 (paras 1.190, 2.170–2.178), TIIN Climate change levy: main and reduced rates, and HMT Business tax road map (March 2016) (paras 2.45-2.50).
As announced at AS 2015, the government confirmed that, from April 2016, farmers will have the choice of averaging their profits for income tax purposes over two years or five years.
See: Budget 2016 (para 2.32).
As announced at Summer Budget 2015, FB 2016 will include a penalty of 60% of the tax counteracted under the GAAR and make changes to strengthen the impact of the GAAR in tackling marketed avoidance schemes, which should take effect on the date of royal assent of FA 2016.
See: Budget 2016 (para 2.206).
At AS 2014 and March Budget 2015, the government confirmed that intermediaries will be given a greater role in administering gift aid. The legislation will be introduced in FB 2016.
See: Budget 2016 (para 2.45).
The government has announced that it will consult on expanding support for grassroots sports through the corporation tax system.
See: Budget 2016 (para 2.89).
At Budget 2016, the government announced that it will introduce a new 'help to save' scheme no later than April 2018 to help individuals in low income working households.
The scheme will be available to adults in receipt of universal credit with minimum weekly household earnings equivalent to 16 hours at the national living wage, or those in receipt of working tax credit.
Eligible individuals will be able to save up to £50 per month into a help to save account and will receive a 50% government bonus on these savings after two years. After the expiry of this two year period, account holders may opt to continue saving under the scheme for a further two years, meaning that people can save up to £2,400 and benefit from government bonuses worth up to £1,200. Account holders will be able to use the funds in any way they wish.
See: Budget 2016 (para 2.52).
Owners of heritage property may claim conditional exemption from IHT if the property qualifies on the grounds of national, historic or cultural importance. The property is brought back into charge if the conditions relating to retention, maintenance, accessibility etc are breached. The current exemption was preceded by a similar concession under estate duty.
Where heritage property gained exemption under estate duty and subsequently gained conditional IHT ex-emption on a later transfer on death, a breach of the conditions invokes a charge to IHT, even though the estate duty charge may be higher. This contrasts with the position where the later transfer under IHT is a lifetime transfer. In that case, HMRC may choose which tax to apply if the conditions are breached.
A measure was announced in today's Budget, to align the treatment of lifetime and death transfers and allow HMRC to elect for either IHT or estate duty to be paid, whichever produces the higher tax liability.
A further refinement relates to objects which have been lost. Under IHT, a charge can be made if an item, which has been granted conditional exemption, is lost due to negligence. Legislation will be introduced to apply a similar charge when an object exempt under estate duty has been lost.
See: Budget 2016 (para 2.62).
The government is investing £71m to make it quicker and easier for individuals and small businesses to deal with HMRC. The investment covers:
· improved call waiting times, a new secure email service, and phone lines and Webchat open seven days a week from April 2017; and
· help and support for businesses, including a dedicated phone service and online forum for new businesses and self-employed individuals.
See: Budget 2016 (para 2.209).
As announced in Summer Budget 2015, FB 2016 will extend HMRC's data-gathering powers to enable HMRC to require data from electronic payment providers (such as operators of digital wallets) and online intermediaries. See: Budget 2016 (para 2.199).
The government will consult over summer 2016 on a further extension to HMRC's data-gathering powers in FA 2008 Sch 36 to enable it to collect data from money services businesses. This is ahead of potential legislation in FB 2017. See: Budget 2016 (para 2.198) and OOTLAR 2016 (para 2.62).
As previously announced at AS 2015, following HM Treasury consultation (originally published in December 2014), the government has confirmed that FB 2016 will include legislation to combat abusive hybrid mismatch arrangements (broadly those involving hybrid entities or hybrid financial instruments), within a multinational group, that result in either:
· double deductions for the same expense; or
· deductions for an expense without any corresponding receipt being taxable.
Draft legislation and explanatory notes, along with a series of examples illustrating the application of the proposed new rules, were published in December 2015.
The new UK rules are consistent with the recommendations of the OECD in its 2015 Final Report on Action 2 of the OECD/G20 BEPS Project and address mismatches in two ways:
· a ‘primary response’, which will, broadly, deny a UK deduction; and
· a ‘secondary response’, which will, broadly, bring an amount into charge in the UK.
In a new development, the government has announced that the new measures will be extended to neutralise the tax effect of hybrid mismatch arrangements involving PEs. This is on the basis that PEs are often used as an alternative to hybrid entities in tax planning arrangements and so provide for similar mismatch planning opportunities.
As a result of the introduction of these new measures, the existing anti-arbitrage legislation in Part 6 of TIOPA 2010 will be repealed.
The new provisions will be included in FB 2016 and will take effect from 1 January 2017. The extended scope of the hybrid mismatch rules is anticipated to raise approximately £950m by the end 2020/21.
See: Budget 2016 (paras 1.212, 2.98), OOTLAR 2016 (para 1.29), TIIN Corporation Tax—anti-hybrids rules, Tackling aggressive tax planning: implementing the agreed G20-OECD approach for addressing hybrid mismatch arrangements (December 2014), HM Treasury: Business tax road map (March 2016) (paras 2.38–2.37), and OECD/G20: Neutralising the effects of hybrid mismatch arrangements, Action 2 – 2015 final report (October 2015).
Employers are able to reduce the class 1 NICs they pay on their employees' earnings by up to £2,000 a year. Generally speaking, the allowance cannot be claimed for employing a person for household, domestic or personal work. The government has announced that, from 2018, this employment allowance will be withdrawn for one year if the employer receives a civil penalty from the Home Office for hiring an illegal worker.
See: Budget 2016 (para 2.24) and OOTLAR 2016 (para 2.66).
It was previously announced at Summer Budget 2015 that the personal allowance for 2017/18 would be £11,200 and the basic rate limit for the same tax year would be £32,400. At Budget 2016, the chancellor announced that these rates will be increased through legislation in FB 2016 in accordance with the table below.
|
|
2016/17 |
2017/18 |
|
Personal allowance |
£11,000 |
£11,500 |
|
Basic rate limit |
£32,000 |
£33,500 |
|
Higher rate threshold |
£43,000 |
£45,000 |
The NICs upper earnings/profit limits is aligned to the higher rate threshold and will therefore also increase for 2017/18.
See: Budget 2016 (paras 2.20 and 2.21) and OOTLAR 2016 (para 1.1).
The government has welcomed the OTS's report on the issue of aligning income tax and NICs, and will respond 'in due course'.
See: Budget 2016 (paras 1.188, 2.207) and OOTLAR 2016 (para 2.64).
Following agreement of the fiscal framework with the Scottish government, the government will introduce legislation in FB 2016 to separate the income tax rates that apply to savings from those that apply to non-savings, non-dividends income.
This will enable the 'English votes for English laws' procedure to apply to the UK main rates of income tax. The rates for savings will apply across the UK and be renamed as 'savings basic', ‘savings additional’ and, 'savings higher', while the rates for non-savings, non-dividends income will be devolved to Scotland from April 2017. The main rates of income tax will then apply to the non-savings, non-dividend income of any individual taxpayer who is resident in the UK and is not subject to the Scottish rate of income tax.
It will also create a default rate of income tax for the rates for non-savings, non-dividends income of taxpayers who are not subject to either the UK main rates of income tax or the Scottish rates of income tax that will apply to, but is not limited to, trustees and non-residents. These include trustees, non-UK resident companies and non-UK resident individuals.
See: Budget 2016 (para 2.22) and OOTLAR 2016 (para 1.3).
Legislation is to be introduced in FB 2016 to ensure the residence nil-rate band will still be available where a person has downsized or ceased to own a home on or after 8 July 2015 and that person leaves their estate to their direct descendants (for deaths on or after 6 April 2017). This measure was originally announced at Summer Budget 2015. Draft legislation was released for consultation on 9 December 2015.
The government confirmed that, taking into account the comments received during the consultation, the draft legislation will be revised as follows:
· it will clarify when a disposal has occurred;
· it will ensure that certain disposals by trustees will also be taken into account (the legislation as currently drafted seems only to apply to disposals by individuals rather than trustees, so this revision may address these concerns); and
· it will ensure that the provisions relating to conditionally exempt assets work as intended.
See: Budget 2016 (para 2.64) and OOTLAR 2016 (para 1.53).
A personal portfolio bond (PBB) is a type of life insurance policy where the policyholder is plays an important role in selecting the investments held within the bond. To discourage the use of PPBs, the government introduced rules in 1998 under which the policyholder is deemed to make an annual gain equal to 15% of premiums paid. Furthermore, the premiums are also deemed to have increased annually by 15%, on a compound basis.
The government will consult later this year on changes to the categories of assets that life insurance policyholders can choose to invest in without giving rise to an annual tax charge under the PBB legislation set out in ITTOIA 2005 ss 515–527. If appropriate, legislation will be introduced in FB 2017.
See: Budget 2016 (para 2.115) and OOTLAR 2016 (para 2.22).
Offshore life insurance policies are commonly used for tax and wealth planning purposes. The part surrender or assignment of an offshore life insurance policy can give rise to an income tax charge in the hands of the policy holder under the chargeable events regime set out in ITTOIA 2005 Part 4 Chapter 9. In the case of Joost Lobler v HMRC [2013] UKFTT 141 (TC), withdrawals from life policies that he had taken out with Zurich Life had resulted in an effective tax rate of 779%. Fortunately for the taxpayer, the Upper Tribunal allowed his appeal on the ground of rectification (Joost Lobler v HMRC [2015] UKUT 152).
As announced at Budget 2016, the government will change the current tax rules for part surrenders and part assignments of life insurance policies to prevent excessive tax charges arising on these products. The government will consult later this year on alternatives to the current rules with a view to legislating in FB 2017.
See Budget 2016 (para 2.113) and OOTLAR 2016 (para 2.21).
The standard rate of IPT will be increased from 9.5% to 10% with effect from 1st October 2016.
See Budget 2016 (para 1.205).
As announced at AS 2015, the intangible fixed asset rules will be amended to clarify the tax treatment on transfers of assets to partnerships. This measure is effective from 25 November 2015.
See: Budget 2016 (para 2.118) and TIIN, draft legislation and explanatory notes: Corporation tax: related party rules, partnerships and transfers of intangible assets.
As widely expected, following HM Treasury consultation (published in October 2015), the government has confirmed that it will introduce new measures to restrict the tax deductibility of interest expenses for large multinational enterprises.
The aim of the new measures is to address arrangements that shift profits out of the UK, and erode the UK tax base, by aligning the level of allowable UK deductions with the level of borrowing a corporate needs to fund its activities in the UK, i.e. to align the relief (and so taxable profits) with the economic activity.
Subject to a de minimis group threshold of £2m (net of UK interest expense), the measures will include:
· a fixed ratio rule limiting corporation tax deductions for net interest expense to 30% of a group’s UK EBITDA; and
· a group ratio rule based on the net interest to EBITDA ratio for the worldwide group (on the basis that some multinational groups may have high external gearing for genuine commercial purposes).
As anticipated, the world-wide debt cap legislation will, as a result of these measures, become obsolete and will be repealed although the new restrictions will, reflecting one of the purposes of the world-wide debt cap, incorporate measures to ensure a group’s net UK interest deductions cannot exceed the global net third party expense of the group.
Further consultation is expected during 2016 on the detailed provisions and to ensure the new restrictions do not inadvertently adversely impact commercial financing transactions (including, in particular, for public benefit infrastructure and the oil and gas ring-fence) or lead to unintended volatility. Refinements are also possible in the way the new rules will impact the banking and insurance sectors.
The new UK rules are consistent with the recommendations of the OECD in its 2015 final report on Action 4 of the OECD/G20 BEPS project.
The new measures are expected to be included in FB 2017 and will take effect from 1 April 2017. The government anticipate the new rules will raise in excess of £3.9bn by the end of 2020/21.
See: Budget 2016 (paras 1.209–1.210, 2.136, 2.97), OOTLAR 2016 (para 1.28), HMT Business tax road map (March 2016) (paras 2.30–2.37), HMT Consultation: Tax deductibility of corporate interest expense (October 2015) and OECD/G20: Limiting base erosion involving interest deductions and other financial payments, Action 4 – 2015 Final Report (October 2015).
Just a year after the government announced the introduction of the ‘help to buy ISA’ at Budget 2015, the government announced today the introduction of another new type of ISA – the ‘lifetime ISA’.
The key aim of the lifetime ISA is to encourage young people to save flexibly throughout their lives, both for their retirement and for their first home. The lifetime ISA will work similarly to existing ISA products, with contributions being made out of post-tax income but investment growth and future withdrawals being tax-free.
The lifetime ISA will be available from April 2017 to anyone between the age of 18 and 40. Annual contributions will be capped at £4,000 and the government will provide a bonus of 25% of these contributions at the end of each tax year. Savers may continue to contribute to their lifetime ISA and to receive the annual government bonus up to the age of 50. This means that, an individual who opened a Lifetime ISA during the tax year in which they turned 18 and contributed the maximum £4,000 per year until the age of 50, would make contributions totalling £128,000 matched by a government bonus of £32,000.
Savers will be able to contribute to one lifetime ISA in each tax year, as well as a cash ISA, a stocks and shares ISA and an innovative finance ISA, within the overall ISA contribution limit of £20,000, which applies from April 2017.
If the saver wishes to retain the government bonus then withdrawals may only be made in the following circumstances:
· Purchase of a first home: withdrawals may be put towards a deposit for a first home located in the UK with a purchase value of up to £450,000 and to be used as a main residence rather than a buy-to-let. There is an initial minimum holding period of 12 months from account opening before withdrawals can be made for a home purchase. Where the saver is purchasing the home jointly with someone else, the joint purchasers may each use a Lifetime ISA and each benefit from their government bonus;
· Retirement: full withdrawals may be made for any purpose from the age of 60. Funds may however remain invested after the age of 60 and interest and investment growth will remain tax-free; and
· Terminal ill health: where an individual is diagnosed with a terminal illness (based on the same definition that applies for pensions), they will be able to withdraw all of the funds, including the bonus, tax-free, regardless of their age.
The government has indicated that it will explore whether savers should be permitted to access contributions and the government bonus for other specific life events.
In order to retain some flexibility in the lifetime ISA, the government proposes that savers will be permitted to make withdrawals at any time for purposes other than those listed above but, in such circumstances, the government bonus element of the fund will be lost (including any interest and growth on that bonus) and a 5% charge applied.
The lifetime ISA will not immediately replace the help to buy ISA. The help to buy ISA will be open to new savers until 30 November 2019 and open to new contributions until 2029. Savers will be able to save into both a help to buy ISA and a lifetime ISA, but will only be able to use the government bonus from one of their accounts to purchase their first home. During the 2017/18 tax year only, savers who already have a help to buy ISA will be able to transfer these funds into a lifetime ISA and receive the government bonus on these savings.
Lifetime ISAs will behave in the same way as existing ISA products on death, i.e. the funds within a lifetime ISA will form part of the deceased saver's estate for IHT purposes and the surviving spouse or civil partner will be granted an additional ISA allowance equivalent to the value of the deceased’s lifetime ISA(s).
Further details as to how these new rules will work will be announced after the government has consulted with the industry. Legislation enacting the lifetime ISA is expected in the Autumn.
See: Budget 2016 (para 2.50) and policy paper Lifetime ISA explained.
As a further boost to ISA savers, the government announced at Budget 2016 that the overall annual ISA subscription limit will be increased from £15,240 to £20,000 from 6 April 2017.
See: Budget 2016 (para 2.50).
At Budget 2016, the government announced that it intends to legislate to allow the ISA savings of a deceased person to continue to benefit from the ISA-related tax advantages during the administration period.
These provisions make particular sense where a surviving spouse or civil partner inherits the ISA savings of their deceased partner. Under these rules, which were introduced from 6 April 2015, the personal representatives of the deceased are taxed on any income that they receive from, or gains from realisation of, ISA assets during the administration period and the ISA assets only become exempt again once they have been reinvested into the surviving spouse or civil partner's ISA.
The government will set out further plans for introducing this measure during 2016, following technical consultation with ISA providers.
See: Budget 2016 (para 2.57).
As announced at Summer Budget 2015 and legislated for in F(No. 2)A 2015, relief for finance costs on residential properties will be restricted to the basic rate of income tax, gradually introduced from April 2017. The landlords finance cost restriction legislation is amended by FB 2016, to clarify that beneficiaries of deceased persons' estates are entitled to the basic rate tax reduction and to ensure that the basic rate reduction is applied and calculated as intended. See: Budget 2016 (para 2.27).
See also ‘wear and tear allowance’ below.
As announced at Summer Budget 2015 and following consultation on the draft clauses published on 9 December 2015, FB 2016 will:
· require large businesses to publish their tax strategy as it relates to UK tax; and
· include a special measures process to tackle large businesses that engage in aggressive tax planning and/or refuse to engage or collaborate with HMRC.
The revised legislation will be amended to clarify the entities that are within the scope of the legislation.
See: Budget 2016 (para 2.93), OOTLAR 2016 (para 1.76), Business tax roadmap (para 2.41), TIIN, draft legislation and explanatory note (9 December 2015) Tax administration: large businesses transparency strategy, TIIN, draft legislation and explanatory note (9 December 2015): Tax administration: large business special measures regime.
The government has confirmed FB 2016 will include measures to complete the updated tax regime for company debt and derivative contracts (in order to ensure they interact correctly with new accounting standards). The three measures amend the debt and derivatives, regime specific, transfer pricing rules to:
· restrict deductions for notional finance costs arising on interest‐free loans and other loans on non‐market terms;
· ensure that credits arising on the reversal of debits (previously denied) are not taxed; and
· limit the amount excluded from tax in cases where the loan (or derivative) is part of a hedging relationship intended to mitigate foreign currency risk.
The changes will have effect from 1 April 2016.
See: Budget 2016 (para 2.119) and TIIN Corporation Tax: update of the taxation of corporate debt and derivative contracts (9 December 2015).
FB 2016 will include legislation increasing the loans to participators tax rate from 25% to 32.5% so that it remains aligned with the higher rate of tax charged on dividends (following the changes to dividend taxation from April 2016). The loans to participators rules aim to prevent owner of close companies from remunerating themselves through loans or advances (which remain unpaid) instead of dividends or salary which would attract income tax and NICs. The new rate will apply to loans, advances and arrangements made on or after 6 April 2016.
See: Budget 2016 (paras 1.151, 2.42), OOTLAR 2016 (para 1.34) and TIIN Corporation tax: rate of tax for the loans to participators charge.
From 2018, businesses, the self-employed and landlords who are making quarterly reports to HMRC under the measures announced in AS 2015 will be able to make 'pay as you go' tax payments on a voluntary basis. However, there is nothing to stop taxpayers from making such payments now – either they or their agent would just need to contact HMRC to ensure a 'no repayment signal' is set on their account.
The government will also explore options to simplify the administration burdens to facilitate the introduction of quarterly reporting. Measures will be included in FB 2017.
See: Budget 2016 (para 1.184).
The government is considering the following to tackle marketed tax avoidance:
· clarifying the meaning of a reasonable excuse in avoidance penalty cases, so that avoiders cannot rely on generic third party legal advice obtained from the promoter (no time scale is given). See: Budget 2016 (para 2.204) and OOTLAR 2016 (para 2.51);
· introducing new measures aimed at those who 'enable' tax avoidance schemes (again, there is no timescale). See: Budget 2016 (para 2.204) and OOTLAR 2016 (para 2.52); and
· consulting over summer 2016 on reforming the rules on the disclosure of VAT avoidance schemes, by aligning them with the (direct tax) rules on DOTAS and extending coverage to other indirect taxes. The idea of aligning the VAT disclosure rules with DOTAS was initially consulted on in 2014 but did not progress beyond consultation at that time. See: Budget 2016 (para 2.204) and OOTLAR 2016 (para 2.53).
There will, from April 2017, be two new £1,000 allowances for property and trading income for individuals meaning that:
· for those with income under £1,000 there will be no need to declare the income or pay the tax; and
· for those with income over £1,000 they have the choice to calculate their profit as usual or to deduct the allowance from their gross income’.
The provisions are designed to encourage micro-entrepreneurs in the context of the rapid growth in the 'digital and sharing economy'.
Although not explicitly branded as a 'making tax digital' measure, these allowances would remove reporting obligations for those with low levels of second income, which is a welcome simplification. It would also mean that those who are accidentally non-compliant would no longer face penalties. It may be that the outcome of the e-marketplaces campaign in 2012, which reportedly led to enquiries into traders who made as little as £100 in profit, played a part in the thinking behind these allowances.
These allowances will be legislated in FB 2017.
See: Budget 2016 (paras 2.25, 4.6) and OOTLAR 2016 (para 2.14).
Following consultation over summer 2016 the government will introduce a new tax relief for museums and galleries in FB 2017, effective from 1 April 2017. The relief will be available for temporary and touring exhibition costs.
See: Budget 2016 (para 2.87).
Class 2 NICs (which are payable at a flat weekly rate by self-employed persons) are to be abolished from April 2018. This abolition will be accompanied by changes to class 4 NICs (payable by self-employed persons based on their profits) so that the self-employed can continue to build entitlement to contributory benefits such as state pensions (which currently accumulates from the payment of class 2 NICs). The legislation will be included in a future NICs bill.
The government will also shortly publish its response to the consultation which closed on 24 February 2016.
See: Budget 2016 (paras 1.167, 2.23) and OOTLAR 2016 (para 2.65).
The chancellor previously announced that provisions would be introduced from 2017/18 to deem long-term UK resident non-domiciliaries as deemed UK domiciled for income tax and capital gains tax purposes, with the rules applying after the individual had been UK resident for 15 out of the previous 20 years. The existing 17 out of the last 20 years IHT rules would be harmonised with the new rules. There would also be deeming provisions for UK-born domiciliaries who left the UK, acquired a domicile of choice and later returned to the UK.
Further changes were announced in Budget 2016 as a result of the responses to the consultation:
· all the changes will be legislated in FB 2017, rather than partly in FB 2016 and partly in FB 2017, a point which was suggested by the CIOT;
· those who become deemed domiciled in April 2017 will be able to rebase their non-UK assets for capital gains tax at market value as at 6 April 2017; and
· there will be transitional provisions for individuals with existing offshore funds, which was an area identified as an issue in the consultation document but was not covered by the draft clauses published on 2 February 2016.
It is hoped that more detail on these points will be available when the summary of responses is published.
See: Budget 2016 (para 2.44).
It was previously announced that from April 2016, the government will establish the OTS on a statutory basis as a permanent office of HM Treasury.
The OTS published its small company taxation review on 3 March 2016. At Budget 2016, the government confirmed it will accept or consider nearly all of the OTS's recommendations which include the potential development of a transparent taxation system for certain small companies and a new business model that protects the assets of the self-employed.
The government will commission further work from the OTS. It will carry out a review of the impacts of moving employee NICs to an annual, cumulative and aggregated basis and moving employer NICs to a payroll basis. The government will also commission the OTS to review options for simpler computation of corporation tax.
See: Budget 2016 (para 2.215).
Budget 2016 contained numerous oil and gas tax measures, namely:
· a permanent reduction in the rate of petroleum revenue tax from 35% (which was announced at Budget 2015) to 0%. This zero-rating will be contained in FB 2016 and takes effect for periods ending after 31 December 2015. In addition, there will be a reduction in the rate of supplementary charge from 20% to 10%. This reduction will be contained in FB 2016 and takes effect for periods starting on or after 1 January 2016. See OOTLAR 2016 (para 1.40, 1.37) and policy paper Oil and gas taxation: reduction in PRT and supplementary charge;
· amendments to the anti-avoidance provisions in the onshore, cluster area and investment allowances will be included in FB 2016. These changes will update the conditions which disqualify expenditure, incurred on the acquisition of an asset in certain circumstances, from generating allowance. These amendments ensure the legislation works as intended. See OOTLAR 2016 (para 1.39) and policy paper Oil and gas taxation: minor amendments to onshore, cluster area and investment allowances;
· the granting of a new power, through FB 2016, to HMRC to extend the definition of ‘relevant income’ for the cluster area and investment allowances by secondary legislation. The government intends to allow tariff income to activate the allowance in order to encourage investment in infrastructure. See OOTLAR 2016 (para 1.38); and
· confirmation that, when a company retains decommissioning liability for an asset after sale, it will be able to access tax relief on its costs. HMRC has issued a technical note to clarify its interpretation of CAA 2001, Part 2, Chapter 13. See OOTLAR 2016 (para 2.27) and policy paper Oil and gas companies: tax relief for decommissioning expenditure.
See: Budget 2016 (paras 2.131–2.136).
The government will publish a consultation on partnership tax, covering a number of areas where the current rules are uncertain, including an issue highlighted by the OTS.
See: Budget 2016 (para 2.109) and OOTLAR 2016 (para 2.13).
As announced in Budget 2015, the simplified expenses regime will be amended in FB 2016 to ensure that partnerships can use the flat rate expenses for use of a home and where the business premises are also a home.
See: Budget 2016 (para 2.216).
Legislation will be included in FB 2016 to modify the patent box computation rules so that they comply with the new international framework set out by the OECD. In particular it will remove the ‘proportional profit split’ option so that ‘streaming’ applies in all cases at the level of an IP asset, a product or a product family. Draft legislation was first published on 9 December 2015.
See: Budget 2016 (para 2.99), OOTLAR 2016 (para 1.31) and TIIN, draft legislation and explanatory notes Corporation tax: Patent box – compliance with new international rules.
Tax and NICs relief on employer-arranged pension advice will rise from £150 to £500. The new exemption will be available from 6 April 2017.
See: Budget 2016 (paras 1.115, 2.34, 2.49 and 2.227) and OOTLAR 2016 (para 2.7).
As announced at AS 2015, FB 2016 will provide that there will be no charge to IHT when a pension scheme member designates funds for drawdown but does not draw all of the funds before death. This measure will be backdated to apply to deaths on or after 6 April 2011.
See: Budget 2016 (para 2.63).
In line with the recommendations of the Financial Advice Market Review (FAMR), the government will consult on introducing a Pensions Advice Allowance. This will allow people before the age of 55 to withdraw up to £500 tax free from their defined contribution pension to redeem against the cost of financial advice. The exact age at which people can do this will be determined through consultation. This means that a basic rate taxpayer could save £100 on the cost of financial advice.
See: Budget 2016 (paras 1.115, 2.227).
To help the next generation to clearly view their pensions savings, the government will ensure the industry designs, funds and launches a pensions dashboard (i.e. a digital interface) by 2019 so that an individual can view all their retirement savings in one place.
See: Budget 2016 (paras 1.114, 2.61).
At Budget 2014, the government announced the introduction of pension flexibility. This allowed individuals aged 55 and above to access their money purchase pension savings as they wished, subject to their marginal rate of tax. In September 2014 the government made a further announcement in relation to the taxation of pension death benefits. These changes were set out in the Taxation of Pensions Act 2014 which took effect from 6 April 2015.
The government announced at Budget 2016 that it will now make a number of minor changes to the pensions tax rules to ensure that they operate as intended following the introduction of pension flexibility in April 2015. The changes will:
· remove the requirement that a serious ill-health lump sum can only be paid from an arrangement that has never been accessed;
· replace the 45% tax charge on serious ill-health lump sums paid to individuals who have reached age 75 with tax at the individual’s marginal rate;
· enable dependants with drawdown or flexi-access drawdown pension who would currently have to use all of this fund before age 23 or pay tax charges of up to 70% on any lump sum payment, to continue to access their funds as they wish after their 23rd birthday;
· remove the rule on paying a charity lump sum death benefit out of drawdown pension funds and flexi-access drawdown funds where the member dies under the age of 75 because the equivalent tax-free payment may be made as another type of lump sum death benefit; and
· enable money purchase pensions in payment to be paid as a trivial commutation lump sum
· enable the full amount of dependants' benefits to be paid as authorised payments where there are insufficient funds in a cash balance arrangement when the member dies.
Legislation to implement the above changes will be introduced in FB 2016 to amend FA 2004.
See: Budget 2016 (paras 2.53–2.61), OOTLAR 2016 (paras 1.13–1.19) and TIIN Pension flexibility 2016.
The government originally announced at Summer Budget 2015 (para 2.80) that it would consult on tackling the use of unfunded employer financed retirement benefit schemes (EFRBS) to obtain a tax advantage in relation to remuneration. It has now announced that it will continue to keep this issue under review.
See: Budget 2016 (para 2.54) and OOTLAR 2016 (para 2.23).
The following measures were announced at either March Budget 2015 or AS 2015 and will be included in FB 2016 to take effect on 6 April 2016:
· reduction of pensions lifetime allowance from £1.25m to £1m (see: March Budget 2015, para 2.86);
· new personal savings allowance of £1000 for basic rate taxpayers and £500 for higher rate taxpayers (see: March Budget 2015, para 2.84);
· dependant scheme pensions: simplification of calculations to determine whether the authorised limit has been exceeded (see AS 2015, para 3.27); and
· bridging pensions: alignment with DWP legislation (see AS 2015, para 3.28).
To prevent property developers using offshore structures to avoid UK tax on their profits, legislation will be included in FB 2016 to tax trading profits from land in the UK, which will apply regardless of whether the developer is resident or non-resident and will not depend on non-residents having a permanent establishment (PE) in the UK. The legislation will have no effect on the taxation of UK resident property developers. It will effect non-resident property developers, who under current rules can structure their development so as to avoid a PE (and a charge to CT).
DTT changes are required with Guernsey, the Isle of Man and Jersey to ensure that the UK has the right to tax UK land. The governments of these countries and the UK have agreed protocols to amend the relevant DTTs with effect from 16 March 2016.
The new rules will apply from the date the legislation is introduced into Parliament. A TAAR will apply from 16 March 2016 to prevent structuring around the new charge. HMRC is inviting comments on the new rules and the issues raised in its technical note by 29 April 2016.
HMRC will create a new non-resident UK property development taskforce to ensure tax on these profits is collected effectively.
See: Budget 2016 (para 2.94 and 2.95), OOTLAR 2016 (para 1.27) and technical note Profits from trading in and developing UK land.
From April 2017, where a public sector body engages a worker through a personal service company, that body (or the recruiting agency, if used by the body) will be responsible for determining whether IR35 applies and, if IR35 does apply, for collecting the relevant tax and NICs. The government will consult on a simpler set of tests and online tools that 'will provide a clear answer' as to whether IR35 applies before the summer.
The application of IR35 to private sector engagements is unaffected. However, businesses and agencies working outside of the public sector will be able to make use of the new online tools.
Legislation will be introduced in FB 2017, and follows HMRC's discussion document on IR35.
See: Budget 2016 (paras 1.148–1.150, 2.40), OOTLAR 2016 (para 2.9) and Technical note: Off-payroll working in the public sector: reforming the intermediaries legislation.
The chancellor made two announcements in respect of R&D.
He announced that the legislation which governs the SME regime for R&D tax relief will be amended by FB 2016. This is to ensure that relief continues to be available for SMEs as originally intended, once the old large company scheme is replaced by the R&D expenditure credit on 31 March 2016 (sometimes known as the 'above the line' credit). Without these changes, the amount of relief available under the SME would be reduced unintentionally.
Second, the chancellor confirmed that vaccine research relief will no longer be available after 31 March 2017 (see ‘vaccine research relief’ below).
See: Budget 2016 (para 2.86).
FB 2016 will include legislation to, with effect for payments made on or after 17 March 2016, deny the benefit of a double tax treaty (DTT) as it applies to royalty payments between connected parties where arrangement have a main purpose of securing a benefit that is contrary to the purpose of the DTT. This is aimed at conduit arrangements such as where the ultimate beneficial owner is resident in a jurisdiction with which the UK has a DTT, but the owner pays the royalty on to an affiliate in another jurisdiction.
FB 2016 will also include legislation, with effect for payments made on or after royal assent to FB 2016, to:
· widen the types of royalties in respect of which a payer must withhold UK income tax by aligning the withholding requirement to the same class of royalties that are subject to an underlying charge to UK income tax: this will encompass payments for rights to use trade names and trademarks (currently, such payments are only subject to withholding tax if they constitute 'annual payments'); and
· provide that a royalty has a UK source for the purposes of the royalty withholding rules if the royalty is connected with a UK PE or an avoided PE even if the payment is not made from the UK: the application of this rule to an avoided PE will require amendments to the diverted profits rules (DPT) to include within the calculation of the notional profits of an avoided PE an amount equal to the royalties that would have had a UK source under the royalty withholding tax legislation had the avoided PE been an actual PE.
See: Budget 2016 (paras 1.211, 2.96), OOTLAR 2016 (para 1.30), TIIN, draft legislation, explanatory note and technical note: Income Tax: royalty withholding tax, business tax roadmap (para 2.40).
The government will consider limiting the range of benefits that attract income tax and NICs advantages when provided as part of a salary sacrifice scheme. However, the government’s intention is that pension saving, childcare and health-related benefits (such as cycle to work) will not fall within any limitations, and will therefore continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements. This development follows the government's previously announced (at Summer Budget 2015 and AS 2015) concerns as to the increased use of salary sacrifice schemes.
See: Budget 2016 (paras 1.147, 2.35) and OOTLAR 2016 (para 2.4).
A personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers will be introduced. Minor changes are being made to the draft legislation.
See: Budget 2016 (para 2.58), OOTLAR 2016 (para 1.2) and draft FB 2016, clause 1.
The government has announced that the rules requiring tax at the basic rate of income tax to be deducted at source from payment of interest will be amended to provide an exemption for payments:
· from certain authorised investment funds (i.e. OEICs and AUTs);
· from investment trust companies; and
· in respect of peer-to-peer loans.
This simplification measure will allow such payments to be paid gross (i.e. without deduction of income tax) and, following the introduction of the personal savings allowance, will bring the tax treatment of income from these types of savings into line with the treatment of interest paid on bank and building society accounts.
The new measures are expected to be included in FB 2017 to take effect from 6 April 2017.
See: Budget 2016 (para 2.56) and OOTLAR 2016 (para 2.11).
As previously announced in AS 2015, the government will introduce higher rates of SDLT that will be 3% higher than the standard rates. The higher rates will apply to buy to let properties and second homes where a main residence is not being replaced and the consideration is £40,000 or more. The higher rates are:
· £0–£125,000: 3%
· £125,000–£250,000: 5%
· £250,000–£925,000: 8%
· £925,000–£1,500,000: 13%
· £1,500,000 plus: 15%
The higher rates will apply from 1 April 2016, subject to transitional provisions.
The government consulted on the policy design of the higher rates for additional residential properties between 28 December 2015 and 1 February 2016. As a result of the consultation the following changes were made to the policy design of the provisions:
· where a purchaser pays the higher rate because they have not sold their previous main residence, the purchaser may reclaim a refund of the higher rate if they sell their previous main residence within 36 months (the consultation suggested an 18 month time period);
· where a purchaser with more than one property disposes of a main residence they have 36 months to buy a new main residence before the higher rates apply (again the consultation suggested an 18 month time period);
· there will be no exemption for large scale investors (the consultation suggested a portfolio test or bulk purchase test would be introduced to exempt large scale investors from the higher rates);
· married couples who are living separately in certain circumstances will not be treated as one unit for the purpose of the rules; and
· where 50% or less of a single property has been inherited within 36 months of the purchase of a residential property this will not be considered as an additional property (and the higher rates will not apply).
The higher rates will apply to claims for multiple dwellings relief. Where six or more dwellings are purchased in a single transaction the purchaser can choose whether to apply the residential or non-residential rates.
See: Budget 2016 (para 2.183), OOTLAR 2016 (para 1.59), TIIN SDLT: reform of charging provisions for non-residential property, and TIIN, draft legislation, explanatory note and technical note SDLT: higher rates on purchases of additional residential properties.
The government will extend the reliefs available from ATED and the 15% higher rate of SDLT to equity release schemes, property development activities and properties occupied by employees from 1 April 2016. Some minor changes have been made to the draft legislation published on 9 December 2015.
See: Budget 2016 (paras 2.184–2.185), OOTLAR 2016 (para 1.61).
FB 2016 will introduce a seeding relief for PAIFs and co-ownership authorised contractual schemes (CoACSs) and will change the SDLT treatment of CoACSs investing in property so that SDLT does not arise on transactions in units. Some minor changes have been made to the draft legislation published on 9 December 2015.
See: Budget 2016 (para 2.184), OOTLAR 2016 (para 1.60).
The rates of SDLT on non-residential and mixed use properties will be changed with effect from and including 17 March 2016. Instead of the current slab system, the rates of SDLT for non-residential and mixed use properties will follow a progressive slice system similar to residential property but with different rates and bands. The new rates for non-residential freehold purchases and lease premiums are as follows:
· £0–£150,000: 0%
· £150,001–£250,000: 2%
· £250,000 plus: 5%
A new 2% rate will be introduced for leasehold transactions (from and including 17 March 2016) where the net present value (NPV) of the rent is above £5m. Rent with an NPV of £150,001 to £5m will continue to be charged at 1%.
These provisions are subject to transitional provisions. Purchasers can elect to apply the old or new rates for contracts which have been exchanged but not completed before 17 March 2016.
See: Budget 2016 (para 2.186), OOTLAR 2016 (para 1.58), TIIN, draft legislation, explanatory note and technical note SDLT: reform of charging provisions for non-residential property and guidance SDLT: reform of structure, rates and thresholds for non-residential land transactions.
FB 2016 will include legislation to enable regulations to be amended to clarify that residual payments made by a securitisation company will not be treated as annual payments so they can be paid without deduction of UK income tax. Currently, the tax treatment of residual payments is uncertain, requiring companies to write to HMRC to obtain confirmation that they do not constitute annual payments before making payments gross.
See: Budget 2016 (para 2.110), OOTLAR 2016 (para 1.41), TIIN Corporation tax: securitisation and annual payments.
Provisions in FB 2016 will clarify the time allowed for making a self-assessment return. The time limit is four years from the end of the relevant tax year with transitional arrangements for 2013/14, 2014/15 and 2015/16. The draft legislation was published on 9 December 2016.
See: Budget 2016 (para 2.210).
FB 2016 will include new sanctions for those who persistently enter into tax avoidance schemes that are defeated by HMRC. This has a different emphasis from the DOTAS rules, which are aimed at promoters rather than scheme users. The sanctions include special reporting rules, penalties, naming and shaming, and restriction of access to reliefs. The rules on promoters of tax avoidance schemes (POTAS) are also being strengthened.
See: Budget 2016 (para 2.205).
The government will legislate to provide a new power to allow HMRC to make an assessment of the income tax and CGT liability of an individual or trustee without them first being required to complete a self-assessment return and where it has sufficient information about the person to make the assessment.
Following consultation on the draft legislation as published on 9 December 2015, HMRC has increased the time limit for customers to dispute the amount due in their assessment from 60 days and have clarified the arrangements for interest and late payment penalties to bring these in line with interest and late payment penalties for self-assessment.
This measure will have effect on and after the date of royal assent to FB 2016.
See: Budget 2016 (para 2.211) and OOTLAR 2016 (para 1.78).
The government will introduce a new soft drinks industry levy that will be paid by producers and importers of soft drinks that contain added sugar. The levy will be charged on volumes according to total sugar content, with a main rate charge for drink above 5 grams of sugar per 100 millilitres and a higher rate for drinks with more than 8 grams of sugar per 100 millilitres. There will be an exclusion for small operators. The government has stated that it will be consulting on the details over the summer, for legislation in FB 2017 and implementation from April 2018 onwards (FB 2017).
See: Budget 2016 (paras 1.90-1.196).
As announced at Summer Budget 2015 and AS 2015, the government confirmed that from April 2017, all income from sporting testimonials and benefit matches for employed sports persons will be liable to income tax. An exemption of up to £100,000 will be available for employed sports persons with income from sporting testimonials that are not contractual or customary.
See: Budget 2016 (para 2.30).
As announced at AS 2015, shares transferred to a clearance service or a depositary receipt issuer as a result of the exercise of an option will be charged the 1.5% higher rate of stamp duty or SDRT based on the higher of the market value or the exercise price (i.e. strike price). While the measure has been previously announced, the date on which it takes effect has been slightly delayed. It will apply to any exercise on or after 23 March 2016 (the earlier draft legislation had referred to the date of Budget 2016), provided that the option was entered into on or after 25 November 2015.
See: Budget 2016 (para 2.117), OOTLAR 2016 (para 1.62), TIIN, draft legislation and explanatory notes: Stamp duty and SDRT: deep in the money options (DITMOs).
The government will consult later in 2016 on a possible modernisation of the SSE. The consultation will cover the extent to which the SSE is still meeting its original policy objective and whether it could be changed to increase its 'simplicity, coherence and international competitiveness'.
See: Budget 2016 (para 2.120) , OOTLAR 2016 (para 2.31) and HM Treasury: Business tax road map (March 2016).
Following the consultation on the simplification of the tax and NICs treatment of termination payments, the government has announced that it will introduce legislation to 'clarify and tighten' the rules on the taxation of termination payments.
Legislation will be introduced to clarify that all payments in lieu of notice (PILONs) are taxable as earnings, thereby abolishing the current tax distinction between contractual and non-contractual PILONs. The legislation will also confirm that certain damages payments will be taxable. In addition, the foreign service relief will be removed. From April 2018, the rules will be aligned so employer NICs will be due on any termination payments above £30,000.
A technical consultation will be published over the summer, with the changes legislated in FB 2017 and a future NICs bill to take effect from April 2018.
See: Budget 2016 (paras 1.145–1.146, 2.26) and OOTLAR 2016 (para 2.10).
Legislation has been published to ensure that trading or property income that is received in non-monetary form is fully taxable on an amount equal to the value of whatever is received. According to HMRC, this does not change the current law, but the position has been challenged so it is being put beyond doubt.
The legislation will be in FB 2016 and comes into effect immediately (applying to trading and property business transactions occurring on or after 16 March 2016).
See: Budget 2016 (para 2.106), OOTLAR 2016 (para 1.44) and TIIN, draft legislation and explanatory note: Income and corporation tax: trading income received in non-monetary form.
As previously announced at Budget 2015, the government will introduce legislation in FB 2016 to restrict tax relief for home to work travel and subsistence expenses for workers who are engaged through an employment intermediary. FB 2016 will contain some amendments to the previously published draft legislation in order to allow grouped companies to second workers within the group, and to prevent the organised misuse of PSCs in order to avoid the restrictions.
See: Budget 2016 (para 2.39) and OOTLAR 2016 (para 1.11).
The government has announced that, following an OTS review and a subsequent discussion paper, it will not be consulting further on the travel and subsistence rules. As a result, the rules will remain as they are.
The responses to the discussion paper (a summary of which will be published shortly) made clear that, although complex in parts, the current rules are generally well understood and work effectively for the majority of employees.
See: Budget 2016 (para 2.38) and OOTLAR 2016 (para 2.5).
The government has proposed a potentially important consultation on the administration of transfer pricing and also plans to legislate on transfer pricing guidelines.
Some overseas countries apply both primary transfer pricing adjustments (where the accounts do not reflect an arm's length price) and secondary adjustments to adjust for the fact that real movements of cash are not reflecting the adjusted tax position. Secondary adjustments may take the form of constructive loans, con-structive equity contributions or constructive dividends.
The UK will consider giving interest relief for constructive loans deemed to be made by a treaty partner to the UK under the terms of SP1/11, as discussed in HMRC’s International Tax Manual at INTM423110. However, the UK does not currently impose secondary adjustments of its own. This may be about to change. The government will consult on whether to introduce secondary adjustments to address the underlying cash benefit from incorrect transfer pricing. Companies and their advisers will need to monitor developments and, if necessary, consider strategies to mitigate the possible impact of secondary adjustments.
It was announced today that the transfer pricing guidelines will be amended by creating updated links between the UK legislation at TIOPA 2010 s 164(4) and CTA 2010 s 357GE and the revisions to the OECD transfer pricing guidelines included within the OECD's final recommendations on base erosion and profit shifting (BEPS). This change will apply for accounting periods beginning on or after 1 April 2016.
See: Budget 2016 (paras 2.100, 2.101), OOTLAR 2016 (para 1.45) and TIIN Income and Corporation Tax: updating the transfer pricing guidelines.
The previously announced measures, namely the introduction of a statutory exemption from income tax from 6 April 2016 for certain trivial benefits-in-kind costing £50 or less, remain unchanged. The exemption will also remove the charge to class 1A NICs from the same date, with a corresponding disregard for class 1 NICs taking effect later in the year.
See: Budget 2016 (para 2.37).
The government announced that it will include legislation in FB 2016 to end vaccine research relief in respect of expenditure incurred on or after 1 April 2017. This is because only a handful of large companies claim the relief and state aid approval runs out on 31 March 2017.
See: Budget 2016 (para 2.85), OOTLAR 2016 (para 1.32) and TIIN Vaccine research relief: expiry in 2017.
The government will broaden the eligibility criteria for the VAT refund scheme for museums and galleries. DCMS has published guidance on the new criteria, which will enable support to a wider range of free museums from across the UK.
See: Budget 2016 (para 2.151).
The government has published a consultation on the ‘fit and proper’ standards that fulfilment houses will need to meet in order to operate. Fulfilment houses will have an obligation to register and maintain accurate records once online registration opens in 2018. They will also have to provide evidence of the due diligence they have undertaken to ensure overseas clients are following VAT rules. The consultation will be used to minimise as far as possible any costs for legitimate businesses.
See: Budget 2016 (para 2.147).
The government will continue to engage with international bodies in order to explore international solutions to VAT fraud, including looking at alternative mechanisms for the collection of VAT.
See: Budget 2016 (para 2.147).
The government will legislate (in FB 2016) to ensure charities subject to the jurisdiction of the High Court of the Isle of Man are capable of qualifying for UK VAT charity reliefs.
See: Budget 2016 (para 2.153).
The government will consult on a new penalty for participating in VAT fraud in spring 2016. Subject to the consultation, the intention is to legislate in FB 2017.
See: Budget 2016 (para 2.145).
From 1 April 2016, the VAT registration threshold will increase from £82,000 to £83,000 and the deregistration threshold from £80,000 to £81,000, in line with inflation.
See: Budget 2016 (paras 1.187, 2.149) and OOTLAR 2016 (para 2.37) and TIIN VAT: revalorisation of registration and deregistration thresholds.
With effect from 1 February 2016, the government introduced an anti-fraud measure to prevent missing trader intra-community fraud on wholesale supplies of electronic communications services. This was done by Treasury Order which was laid before the House on 11 January 2016.
See: Budget 2016 (para 2.150).
As announced at AS 2014, the government will legislate (in FB 2016) to enable named non-departmental and similar bodies to claim a refund of the VAT they incur as part of a shared service arrangement used to support their non-Budget 2016 business activities, to encourage public bodies to share back-office services, where this results in efficiencies of scale.
See: Budget 2016 (para 2.152).
HMRC will be given stronger powers to tackle non-compliance by overseas businesses that avoid paying UK VAT on sales to UK consumers via online marketplaces. The first part of this measure will strengthen the existing rules that allow HMRC to direct an overseas business to appoint a VAT representative. Secondly, and in more serious cases of non-compliance, HMRC will be able to make the online marketplace jointly and severally liable for the unpaid VAT on goods sold through its online marketplace. The measure will have effect from royal assent to FA 2016.
See: Budget 2016 (para 2.146), OOTLAR 2016 (para 1.57) and TIIN VAT: representatives for overseas businesses and joint and several liability for online marketplaces.
Following the wholesale changes to the EIS and VCT regimes in F(No. 2)A 2015 technical clarification will be made in FB 2016 to ensure the earlier changes work as intended. There are two proposed changes.
First, with effect from 18 November 2015 (when the previous changes were introduced, but with the option to apply the old rules for investments received up to 5 April 2016), amendments will be made to ensure that the most recently filed accounts of a company are generally used to determine the end date of:
· the five year period (for calculating the average turnover for the purposes of condition B of the permitted maximum age requirement; and
· the three year period for the operating profit condition for knowledge intensive.
The description of this change sounds remarkably similar to the wording in the legislation already, but there is presumably a point to the changes, so we will have to await the draft legislation.
Second, with effect from 6 April 2016 a new condition will be included in the list of conditions that a VCT must meet in order to obtain HMRC approval that specifies the investments that a VCT can make for liquidity management purposes, i.e. AIF or UCITS units that can be redeemed or repurchased on seven days’ notice or shares or securities acquired on a regulated market.
The government also confirmed its AS 2015 plan to exclude all remaining energy generation activities from being qualifying trades for the purposes of EIS, SEIS, VCT and SITR.
See: Budget 2016 (paras 2.46, 2.47), OOTLAR 2016 (para 1.24), Draft FB 2016, clause 6 and TIIN Enterprise investment scheme and venture capital trusts.
As announced at AS 2015, the government confirmed that it will legislate in FB 2016 to exempt from income tax, certain pension and annuity payments made by the Netherlands government, payable to victims of national-socialist and Japanese aggression during World War II. The measure will take effect from April 2016. See: Budget 2016 (para 2.33).
As also announced previously at AS 2015, the government has confirmed that extra statutory concession F20 will be given a legislative footing in FB 2016 so that certain payments (including payments made under the child survivor fund) to claimants who suffered persecution during World War II will be left out of the claimant's estate for IHT purposes. See: Budget 2016 (para 2.65).
FB 2016 will replace the wear and tear allowance with a new relief that allows residential landlords to deduct the cost of replacing certain domestic items. Some minor changes have been made to the draft legislation previously published.
See: Budget 2016 (para 2.28), OOTLAR 2016 (para 1.23).
The above commentary was derived from Lexis®PSL Tax and Private Client services, with additional material from Tolley Guidance. The Lexis®PSL Tax and Private Client services provide advisers with practice notes and precedents, with links to trusted sources. Tolley Guidance is an online service that combines tax technical commentary with practical guidance.
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