Chancellor George Osborne yesterday delivered his pre-election Budget Statement to Parliament. Below are some of the key announcements for individuals:
Reform of Entrepreneur’s Relief
The Chancellor has announced that loopholes will be closed in order to ensure that Entrepreneur’s Relief (“ER”) is not available on the disposal of shares made on and after 18 March 2015 in a company that is a non-trading company in its own right. The government will also prevent individuals from claiming ER on the disposal of personal assets used in a business carried on by a company or a partnership, unless they are disposed of in connection with a disposal of at least a 5% shareholding in the company, or a 5% share in the partnership assets. This affects disposals on or after 18 March 2015.
Review of inheritance tax and deeds of variation
A review will be carried out into the use of deeds of variation in order to avoid the payment of inheritance tax. The result of this review is due to be reported in the autumn and is part of the government’s broader objective to step up its efforts to tackle tax avoidance.
Tax evasion and avoidance
A large proportion of the Budget related to tax avoidance and evasion.
Disclosure facilities to close early
The existing Liechtenstein disclosure facility and the Crown Dependencies disclosure facilities will close early (at the end of 2015 instead of April 2016). This will come as a surprise to many advisers who thought they might be further extended. These will be replaced by a new, less favourable, time limited disclosure facility which will be offered between 2016 and 2017 with a 30% penalty rate, instead of 10%.
More accelerated payment notices
Accelerated payment notices are demands for upfront payments in disputed tax cases. The Chancellor stated that HMRC has continued to review tax avoidance cases and an additional 21,000 Accelerated Payment Notices over and above the original estimated number will be issued. In October 2014 it was announced that HMRC were on track to deliver 43,000 notices by the end of March 2016. This is despite the fact that the lawfulness of these notices is currently being challenged by way of judicial review.
New criminal offences for tax evasion
Chief Secretary to the Treasury Danny Alexander will be announcing new legislation which will create new criminal offences for tax evasion and new penalties for professionals who assist the tax evaders.
General Anti-Abuse Rule penalties
The government will introduce legislation, in a later Finance Bill, that will increase the deterrent effect of the General Anti-Abuse Rule (GAAR), by introducing a specific, tax-geared penalty that applies to cases tackled by the GAAR.
The higher rate threshold will rise taking it to £42,700 in 2016-17 and £43,300 in 2017-18.
The personal allowance which is due to increase to £10,600 in April 2015, will increase again to £10,800 in April 2016 and to £11,000 in April 2017.
Tax on savings income
A new Personal Savings Allowance will be created from April 2016, exempting the first £1,000 of savings income from any tax for basic rate taxpayers and the first £500 for higher rate taxpayers, saving up to £200 off an annual tax bill. The automatic deduction of 20% income tax by banks and building societies on non-ISA savings will cease from April 2016.
Access to ISAs
The government will allow ISA savers to withdraw and replace money from their cash ISA without counting it towards their annual ISA subscription limit for that year, as long as the repayment is made in the same tax year as the withdrawal.
Help to buy ISA
For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings. Savers will have access to their own money and will be able to withdraw funds from their account if they need them for another purpose but the bonus will only be made available for home purchase. The maximum monthly deposit for this account is £200.
Digital tax accounts
A move to digital tax accounts is to be implemented to remove the need to file annual returns. Further information regarding the changes will be announced later in 2015.
As expected, the changes were, on the whole fiscally neutral and only a few major changes were announced. As with previous pre-election budgets whether or not the changes announced come in to force will depend on the outcome of the election. A number of changes announced by Alistair Darling in the pre-election budget in 2010 were reversed through an “emergency budget” just 90 days after the previous one.