The Summer Budget was delivered by the Chancellor of the Exchequer on 8 July 2015. The tax proposals announced in the Budget together with the announcements in the Autumn 2014 statement will be made into law in the Finance Bill 2015 or in secondary legislation. The Finance Bill is currently being debated in Parliament and will become law on receiving Royal Assent in due course.
The notes below provide a summary of the main changes and key points.
Pensions and Savings
Personal Savings Allowance
from 6 April 2016, an allowance will be introduced to remove tax on up to £1,000 of savings income for basic rate taxpayers and up to £500 for higher rate taxpayers. Additional rate taxpayers will not receive an allowance. Banks and building societies will no longer make the automatic 20% income tax deduction on non-ISA savings when paying interest.
Pensions – Reduction in Lifetime Allowance
From 6 April 2016, the lifetime allowance will be reduced from £1.25 million to £1 million. Transitional protection for pension rights that are already over £1 million will be introduced to ensure the change is not retrospective. The lifetime allowance will be indexed annually in line with the consumer prices index from 6 April 2018.
Pensions – Reduced Annual Allowance
The annual allowance remains at £40,000 but a tapered reduction will be made from 6 April 2016 for taxpayers with adjusted income in excess of £150,000. The rate of reduction will be £1 for every £2 that the individual’s income exceeds £150,000 up to a maximum reduction of £30,000. Therefore a minimum allowance of £10,000 will apply where the adjusted income is £210,000 or more.
Pension Tax Relief
There will be consultation on whether and how to undertake a wider reform of pensions’ tax relief.
Venture Capital Scheme Rules
The government will be implementing changes to venture capital scheme rules. This applies to venture capital trusts (VCTs), the enterprise investment scheme (EIS) and the seed enterprise investment scheme (SEIS). The changes are subject to state aid approval and are intended to take effect from Royal Assent to the Finance Bill.
Please contact us if you require details of the changes to the rules.
Inheritance Tax (IHT)
The inheritance tax nil rate band will remain frozen at £325,000 until 5 April 2021 (2020/21).
Main Residence Nil Rate Band
A new relief will be introduced in April 2017, for deaths on or after this date. The Budget describes the new relief as the “main residence nil rate band”.
There will be consultation in September 2015 with legislation in the Finance Bill 2016.
The nil rate band will be available when a residence is passed on death to lineal descendants: children, grandchildren, great-grandchildren, etc. Children include stepchildren and adopted children.
The band will be transferable where the second spouse or civil partner dies after 5 April 2017, regardless of when the first of the couple died.
The extra nil-rate band will also be available when a person downsizes or ceases to own a home after 7 July 2015 and assets of equivalent value up to the additional rate band are passed on death to their lineal descendants. For estates with a net value of more than £2 million, the additional nil rate band will be withdrawn at £1 for every £2 over this threshold.
UK Residential Property of Non-domiciles
From April 2017, IHT will be payable on all UK residential property owned by non-domiciles whether held directly or indirectly by an individual or a trust, including property owned through an indirect structure such as an offshore company or partnership. A full consultation will follow later this year.
New rules will target avoidance through the use of multiple trusts. The IHT calculation rules for trusts will also be simplified.
Corporation Tax Rates
Corporation tax rates will be reduced from 20% to 19% in the financial year 2017, and to 18% in the financial year 2020.
Corporation Tax Payment Dates
For companies with annual taxable profits of £20 million or more, there will be new payment dates for periods starting after 31 March 2017. They will have to pay quarterly instalments in the third, sixth, ninth and twelfth months of their accounting period. The £20 million threshold will be divided by the number of companies in a group.
Annual Investment Allowance (AIA)
The AIA, currently at £500,000, will be set at £200,000 for qualifying expenditure made on or after 1 January 2016.
Simplified Expenses – Partnerships
Finance Bill 2016 will include legislation to ensure that partnerships can fully access the provisions in respect of the use of home and where business premises are also a home.
If the rules mirror those already in place for other incorporated businesses, a set of fixed rates could replace actual expenditure for use of home or personal use of business premises.
Business Goodwill Amortisation
Corporation tax relief will be restricted for the cost of goodwill for acquisitions and disposals from 8 July 2015. Relief will still be available if the goodwill is sold.
Corporate Debt and Derivative Contracts
Wide ranging changes will be made to loan relationship and derivative contract rules to include a clearer link between commercial accounting profits and taxation, which will include basing taxable amounts on items appearing in the profit and loss accounts. The changes will generally take effect for accounting periods commencing on or after 1 January 2016.
There will a new relief for refinancing distressed companies and a new regime-wide anti-avoidance rule which will take effect from the date of the Royal Assent.
Business Tax Future Changes
The government will publish a business tax roadmap by April 2016 setting out its plans for business taxes over the rest of the parliament.
Controlled Foreign Companies (CFC) Loss Relief Restriction
The government will remove the ability for companies to use UK losses and reliefs against a CFC charge from 8 July 2015.
Company Car Tax Rates
The appropriate percentage of list price subject to tax will increase by three percentage points for cars emitting more than 75g/km of CO2 to a maximum of 37% on 2019/20. There will be a three percentage point differential between 0-50g/km and 51-75g/km bands and between the 51-75g/km and 76-94g/km bands.
VAT on Services Used and Enjoyed in the UK
The government will apply the VAT “use and enjoyment” provisions so that, from next year, it will be clear that all UK repairs made under UK insurance contracts will be subject to VAT in the UK.
A wider review of offshore based avoidance in VAT exempt sectors will be considered with a view to introducing additional use and enjoyment measures for services such as advertising in the following year.
Insurance Premium Tax (IPT)
The standard rate of IPT will increase from 6% to 9.5% from 1 November 2015 for insurers using the IPT cash accounting scheme. For insurers using the special accounting scheme, premiums relating to policies entered into before 1 November 2015 will continue to be liable to IPT at 6% until
29 February 2016, after which all premiums received by insurers will be taxed at 9.5%.
Vehicle Excise Duty (VED)
A new VED banding system will be introduced for cars registered after 31 March 2017. First year rates will depend on the carbon dioxide emissions of the vehicle, ranging from £NIL for cars with zero CO2 emissions to £2,000 for CO2 emissions over 255g/km.
After the first year, there will be a flat standard rate of £140 for all cars except those with zero emissions, which will continue to pay £NIL. Cars with a list price above £40,000 will attract a supplement of £310 a year for the first five years in which the standard rate is paid.
This article is based on current legislation and practice and is for guidance only. Specific professional advice should be taken before acting on matters mentioned here.
Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene LLP. He can be contacted on 020 7383 3200 or email@example.com