“The sun is starting to shine and we are fixing the roof”, the Chancellor told us in his 2015 Budget. No unfunded spending, no irresponsible borrowing, no gimmicks, no giveaways! The measures introduced by the Chancellor included changes already announced, changes to come in future years and a small number of changes to take effect immediately or on 6 April 2015.
Here are some highlights:
- The personal allowance will be increased by £600 to £10,600, and the higher-rate threshold proportionately increased.
- A new allowance will be introduced with effect from 6 April 2016 which applies to savings income: £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers.
- A new “Help to Buy ISA” will be introduced for first-time buyers in autumn 2015 until the end of 2019, permitting an initial deposit of up to £1,000 and monthly deposits thereafter up to £200 per month. The ISA will receive a bonus of 25% (with a minimum of £400 and maximum of £3,000) if used towards the purchase of property worth up to £450,000 in London and £250,000 outside London.
- The Pension Lifetime Allowance will be reduced from £1.25 million to £1 million from 6 April 2016.
- Legislation is to be introduced to allow individuals to assign their pension annuity contracts to a third party in exchange for a cash lump sum taxable at relevant marginal income tax rates.
- The annual tax return is being “abolished” from next year – definitely a gimmick – and replaced by Digital Tax Accounts to be “populated” with data held by HMRC and by the tax payer and then submitted. This will be introduced in parallel with a “pay as you go” system to help taxpayers to manage their cash flow. Details are still to be announced.
- In the wake of the publicity attracted by Ed Miliband, review of the use of deeds of variation to reduce inheritance tax is to be undertaken.
- For entrepreneur’s relief, the sale of goodwill by an unincorporated trader to a related company will no longer qualify for the relief, and the activities of the company must not include substantial non-trading activities and assets.
- Wasting assets are exempt from capital gains tax, but only if they have been used in the business of the person disposing of them and not used in a third party’s business, so reversing the decision in the Lord Howard of Henderskelfe case, in which the executors were successful in avoiding capital gains tax on a valuable picture.
- Diverted Profits Tax (DPT) – This tax is designed to counteract arrangements by multinational companies to prevent their diversion of profits from the UK. There are two basic rules, the first designed to counteract arrangements whereby foreign companies exploit the permanent establishment rules and the second to prevent companies from creating tax advantages by using transactions or entities that lack economic substance. To the extent diverted those profits will be subject to a 25% tax charge. Small and medium-size enterprises are exempt from DPT.
- Film tax relief – This has been increased to 25% of all qualifying core expenditure for eligible film productions with effect from 1 April 2015, subject to state-aid clearance from the European Commission.
- Television reliefs – The minimum UK expenditure requirement to qualify for all television reliefs is to be reduced from 25% to 10% with effect from 1 April 2015, and the “cultural test” for the high-end-television tax relief to be modernised, subject to state-aid clearance.
- Tax reliefs for orchestras – From 1 April 2016 a new tax relief is to be introduced for orchestras, but only where they are run through companies and where the live orchestral performances produced involve 14 or more players covering string, woodwind, brass and percussion. The relief is to take the form of a payable tax credit equal to 25% of qualifying expenditure.
- NICs – Class 2 NICs are to be abolished for the self-employed in the next Parliament and class 4 NICs to be reformed. Consultation will take place as to detail and timing in 2015.
- Loss “refreshing” prevention – A new rule is to be introduced aimed at countering certain tax-motivated arrangements where companies seek to “refresh” accumulated tax losses by effectively converting them into current-year deductions.
- Taxation of banks – The bank levy is to be increased from 0.156% to 0.210% from 1 April 2015. Compensation relating to financial misconduct (e.g. PPI mis-selling) will not be deductible. From 1 April 2015 banks will only be able to offset carried-forward losses against 50% of their profits.
- VCTs – Certain amendments have been announced to Venture Capital Trust schemes to remove restrictions that impede their operation. A cap of £15 million (or £20 million for “knowledge-intensive” companies) is to be introduced on the total investment that a company may receive under SEIS, EIS and VCT schemes. See here for further details.
- Serial avoiders – Tougher measures are to be introduced targeted at “serial avoiders” who persistently enter into tax avoidance schemes that fail. The definition of a “serial avoider” is still to be published.
- Direct recovery of tax debts – There has been much debate about the safeguards that should be available to prevent hardship to taxpayers, but the extent to which such protection will be given will become apparent when the Finance Bill 2015 is published. HMRC is still to be granted access to bank accounts of UK tax payers to settle liabilities.
- Accelerated payment notices – HMRC will continue to review cases, but anticipates that an additional 21,000 accelerated payment notices will be issued over and above HMRC’s original estimated number.
For further information on the planned tax changes, please contact Paddy Grafton Green.