A predictably political Budget contained very few new announcements. However, the Budget documents do reveal which of the previously announced measures will make it into the pre-election Finance Bill. These measures will, therefore, almost certainly be law by the end of the month and regardless of who occupies 11 Downing Street after 7 May.
The Budget announcements of interest to private clients were:
- Deeds of variation – to be reviewed – currently, it is possible to change the way in which a person’s estate is distributed following their death and for the varied gifts to be treated, for inheritance tax purposes, as if they had been made by the deceased. This allows the deceased’s beneficiaries to re-arrange the estate, which they may wish to do for a number of reasons, including to mitigate inheritance tax by re-directing assets to ensure any available inheritance tax (IHT) nil rate band, or IHT exemptions or reliefs are used fully. The variation must be made within 2 years of the deceased’s death. The Government will launch a review into the use of deeds of variation to mitigate IHT in the Autumn. In reality, the tax impact for the Treasury is likely to be minimal.
- Disclosure facilities – to close early – the existing Liechtenstein Disclosure Facility and the UK’s existing disclosure facilities with Jersey, Guernsey and the Isle of Man, provide individuals who have undeclared UK tax liabilities with an opportunity to disclose those to the UK Revenue on favourable terms. These facilities will now be closed at the end of 2015 (instead of, in the case of the LDF, on 5 April 2016 and, in the case of the facilities with Jersey, Guernsey and the Isle of Man, September 2016). A new “last-chance” disclosure facility will be offered between 2016 and mid-2017 with penalties of at least 30% on top of the tax owed and interest, and with no immunity from criminal prosecution. These terms are less generous than the terms available under the current disclosure facilities.
- ISAs – increased flexibility – savers will be able to withdraw and replace money from their cash ISAs without it counting towards their annual ISA subscription limit for that year as long as the repayment is made in the same tax year as the withdrawal. The current cash ISA limit is £15,000. Currently, if you place £10,000 in a cash ISA and then withdraw it you can only place a further £5,000 in that ISA in the same tax year. This change will allow savers to access their ISA savings more flexibly without losing the benefits they have built up.
- Entrepreneurs’ Relief – new restrictions – entrepreneurs’ relief reduces the charge to CGT when a person disposes of certain business assets. The relief is being restricted with immediate effect as follows: (i) vendors who do not have a direct 5% interest in a trading company or trading group will no longer be able to claim the relief. This is designed to counteract structures where taxpayers took a 5%+ interest in an SPV (special purpose vehicle) which only had a small economic interest in a trading company/group; and (ii) individuals will not be able to benefit from entrepreneurs’ relief when they sell personal assets used in a business but do not dispose of a 5% or more share of that business at the same time.
- Pensions – there is to be no further cut in the annual allowance (the amount of pension contributions on which you can claim tax relief each year) which will remain at £40,000. Nor has the rate of relief for higher or additional rate taxpayers been limited. However, the lifetime allowance for pension contributions will be further reduced from £1.25m to £1m from 6 April 2016, but will be index-linked from 6 April 2018.
- Non-domiciled individuals – despite the recent media interest, the Government has, as promised, not introduced any further changes to the tax regime for UK resident, non-UK domiciled individuals.
The following measures will be included in the pre-election Finance Bill (rather than being held over until after the election).
Non-UK domiciled remittance basis users (non-doms)
Once a non-dom has been resident in the UK for 12 out of the last 14 tax years if he wishes to claim the remittance basis he currently has to pay an annual remittance basis charge (RBC) of £50,000. This will increase to £60,000 from April 2015. A new higher RBC of £90,000 will also apply to remittance basis users who have been resident for 17 out of the last 20 tax years. The RBC of £30,000 for remittance basis users who have been resident for seven out of the previous nine tax years will remain unchanged.
The increase in the RBC, particularly to £90,000 for non-doms who have been resident for 17 out of the last 20 years, coupled with the proposal to introduce a minimum claim period of 3 years, means that non-doms will need significantly higher levels of offshore income and/or gains to make claiming the remittance basis worthwhile.
Annual Tax on Enveloped Dwellings (ATED)
UK residential properties which were worth more than £1m on 1 April 2012 will come within the ATED charge for the first time on 1 April 2015. The rate of the ATED for properties worth more than £2m will increase by 50% above inflation from 1 April 2015. This means that the rates for 1 April 2015 to 31 March 2016 will be:
Click here to view table.
The ATED applies to UK residential properties owned by companies, partnerships (with a corporate member) or collective investment schemes (UK or non-UK). There are a number of reliefs from the ATED, including where a property is held as part of a property development business or is let to third parties on a commercial basis.
Capital gains tax (CGT) on non-residents
From 6 April 2015, a new CGT charge will apply to gains accruing post 5 April 2015 to non-UK resident individuals, trustees, closely-held funds and some non-UK resident close companies on the disposal of UK residential property of any value (including let property). CGT will be charged at 28% for non-resident individuals and trustees and at 20% for non-resident companies that are within the charge. This charge will only apply to the post-5 April 2015 gain. Although it is not essential to obtain a formal valuation of your property in April 2015 it may be sensible for non-residents who are likely to be subject to the non-resident CGT charge on a future sale. If you do not intend to get a formal valuation, you should make a contemporaneous record of the condition of your property and any unusual features as this will help in obtaining a valuation at a later date.
ATED-related CGT charge
The CGT charge at 28% on disposals of properties which have been subject to the ATED at some point during their period of ownership is extended, with effect from 6 April 2015, to properties which were worth more than £1m on 1 April 2012.
Capital gains tax: principal private residence relief (PPR relief)
Owner occupied UK residential property held personally is exempt from CGT where the property is the individual’s only or main residence. PPR relief is also available to trustees holding UK residential property where the property is the only or main residence of a beneficiary of the trust.
From April 2015, new restrictions will apply to PPR relief. From April 2015, a person’s residence will not be eligible for PPR relief for a tax year unless the person:
- was resident in the country in which the property is located in that tax year; or
- spent at least 90 midnights in that property (or properties in the same country) in the tax year.
This means that non-UK residents will only qualify for PPR relief on their UK home if they spend 90 midnights at that home (or another UK home) each tax year. However, doing so may adversely impact the person’s non-UK resident status.
IHT treatment of trusts
The proposed changes to the IHT treatment of trusts are being held over until after the election.