Following yesterday's Summer Budget, we have set out below a summary of some of the main announcements. The majority of the measures will be implemented in the Summer Finance Bill 2015 ("SFB 2015"), due to be published on 15 July 2015.
If you would like to discuss the impact of any of the changes, please get in touch.
- Business Taxes
- Private Wealth
- Personal Taxes
- Venture Capital
- Anti-Avoidance and BEPS
- Real Estate
- The corporation tax rate will be cut from 20% to 19% in April 2017 and 18% in April 2020. Corporation tax payment dates will be brought forward for companies with profits over £20 million (the threshold is split between groups of companies by dividing it by the number of companies in the group). From April 2017, such companies will be required to make corporation tax payments in the third, sixth, ninth and twelfth months of their accounting period. Draft legislation will be published in autumn 2015.
- The SFB 2015 will include legislation to modernise the corporation tax rules governing the taxation of corporate debt, loan relationships and derivative contracts. The changes include:
- clarifying the relationship between tax and accounting;
- basing taxable loan relationship profits on accounting and profit and loss entries;
- a new corporate rescue rule to provide tax relief where loans are released or modified in cases of debtor companies in financial distress; and
- a new regime-wide anti-avoidance rule for both loan relationships and derivative contracts.
With the exception of the corporate rescue rule and the new anti-avoidance rule, which will apply from Royal Assent to the SFB 2015, these changes will apply for accounting periods commencing on or after 1 January 2016.
- The annual investment allowance will be set at a permanent level of £200,000 for qualifying investment in plant and machinery made on or after 1 January 2016, cancelling the scheduled reduction from the temporary £250,000 level to £25,000. This change will be included in the SFB 2015.
- Legislation needed to remove the requirements relating to the location of the link company for consortium claims to group relief will be included in SFB 2015.
- A new Apprenticeships Levy will be applied to large employers to fund 3 million new apprenticeships in the current Parliament.
- The corporation tax rules will be changed with immediate effect (in relation to future purchases) to stop companies claiming an annual deduction from their taxable profits for amortising the cost of purchased goodwill.
- The existing national insurance contributions ("NICs") Employment Allowance will be increased from £2,000 to £3,000 from April 2016. However, from April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance.
- The standard rate of insurance premium tax will increase from 6% to 9.5% from 1 November 2015. VAT provisions will also be introduced to level the playing field for insurers by deterring the routing of costs via offshore associates and ensuring that UK VAT is accounted for on all repair services on UK insurance contracts.
- Significant changes to the non-dom regime were announced in outline, with consultations to follow. The changes are likely to take effect from 6 April 2017:
- long-term UK resident non-doms (defined as those resident for more than 15 out of the past 20 tax years) will no longer be able to access the remittance basis of taxation and will be treated as deemed UK domiciled for all UK tax purposes;
- individuals born with a UK domicile who leave the UK and become non-UK domiciled will not be able to claim non-dom status for tax purposes if they become resident in the UK again; and
- all UK residential property held by non-doms (whether resident in the UK or elsewhere) will be brought into charge for inheritance tax purposes, even (as is common) where the property is owned through an indirect structure such as an offshore company or partnership.
- The inheritance tax 'nil rate band' will remain frozen at £325,000 for a further three years until 5 April 2021.
- As had been announced in outline prior to the Budget, the Government will introduce an 'additional nil rate band' for inheritance tax purposes, which will be available when a residence is passed on death to direct descendants. The amount of this allowance will start at £100,000 per person from 6 April 2017 and will increase annually, reaching £175,000 per person from 6 April 2020 (and subsequently rising in line with CPI). The allowance will be transferable to a surviving spouse or civil partner and provisions will be included for those downsizing or selling their residence during their lifetime. There will be a tapered withdrawal of this additional band for estates over £2 million.
- The rules announced at Autumn Statement 2014 to target avoidance through the use of multiple trusts will go ahead. The rules on the calculation of trust charges will also be simplified.
- The Government has pledged to raise the personal allowance to £12,500 by the end of this Parliament. As a first step towards that pledge, the personal allowance will increase by £400 to £11,000 from April 2016 and then to £11,200 in April 2017. Legislation will be introduced to ensure that, once the personal allowance has reached £12,500, it will always be at least equivalent to working 30 hours a week on the national minimum wage. These changes will be included in the SFB 2015.
- The higher rate threshold for income tax will increase from £42,385 to £43,000 from April 2016, as part of the Government's commitment to raise it to £50,000 by the end of this Parliament. The NICs upper earnings limit will increase to remain aligned with the higher rate threshold. These changes will also be included in the SFB 2015.
- In April 2016, the dividend tax credit is to be replaced by a new tax-free dividend allowance of £5,000 for all taxpayers. New dividend tax rates will also be introduced:
- 7.5% for basic rate taxpayers;
- 32.5% for higher rate taxpayers; and
- 38.1% for additional rate taxpayers.
These changes will be included in next year's Finance Bill. Investments held in ISAs and pensions will continue to be protected.
- As previously announced, legislation will be included in the SFB 2015 and the National Insurance Contributions Bill to rule out increases in the main rates of income tax, the standard and reduced rates of VAT and the Class 1 employer and employee NICs rates over the course of this Parliament (the so-called 'tax lock').
- The Government will consult on simplifying the tax and NICs treatment of termination payments and has published a consultation on the tax treatment of travel and subsistence. A consultation will be published in autumn 2015 on the abolition of class 2 NICs and the reform of class 4 NICs.
- As previously announced, the ISA rules will be amended to allow the withdrawal and replacement of money within a cash ISA in-year without the replacement counting towards the annual ISA subscription limit. This change will also cover cash held in stocks and shares ISAs. The changes will apply from April 2016.
- The Government will publish a roadmap by the end of 2015 setting out how it will transform tax administration for individuals and small businesses over this Parliament.
- The Government announced that it will start a dialogue with business on how to improve the effectiveness of the IR35 legislation (which targets individuals working through limited companies) and will publish a discussion document after Summer Budget 2015.
- Legislation will be included in the SFB 2015 to restrict relief for mortgage interest for landlords of residential property to the basic rate of income tax. This change will be phased in over 4 years from April 2017. The current 10% wear and tear allowance for landlords of furnished residential properties will be abolished from April 2016, although landlords will still be able to deduct costs that they actually incur.
- As previously announced, from April 2016 a new Personal Savings Allowance will be introduced exempting the first £1,000 of savings income from tax for basic rate taxpayers and the first £500 for higher rate taxpayers. Additional rate taxpayers will not benefit. At the same time, the automatic deduction of basic rate income tax from bank and building society interest will cease. A consultation will be published shortly on whether changes are required to the deduction arrangements for other non-saving income.
- From April 2016, the rent-a-room relief will increase from £4,250 to £7,500.
- The launch of Help to Buy ISAs will be on 1 December 2015. Help to Buy ISAs will allow first time buyers to save £200 per month and receive a maximum Government bonus of £3,000. An additional one off deposit of £1,000 will also be allowed effectively allowing first time buyers to start saving now.
- The following previously announced changes will, subject to State aid approval, be made with effect from Royal Assent to the SFB 2015:
- a requirement that all investments are made with the intention to grow and develop a business;
- a requirement that, for EIS relief, an investor with an existing shareholding must (broadly) have obtained SEIS or EIS relief for all the shares previously acquired;
- new qualifying criteria to limit relief for investments in 'knowledge intensive' companies to investments within 10 years of their first commercial sale and for other qualifying companies to investments within 7 years of their first commercial sale (except where the investment represents more than 50% of turnover averaged over the preceding 5 years);
- introduction of a cap on the total investment that a company may receive under EIS, the VCT scheme and any other risk finance investment of £20 million for knowledge intensive companies and £12 million for other qualifying companies;
- an increase in the employee limit for knowledge intensive companies to 499 employees; and
- introduction of new rules to prevent EIS and VCT funds being used to acquire existing businesses, including extending the prohibition on management buyouts and share acquisitions to VCT non-qualifying holdings and VCT funds raised pre-2012 and preventing money raised through EIS and VCT from being used to make acquisitions of existing business regardless of whether it is through share purchase or asset purchase.
- The Government also confirmed that it will remove the requirement that 70% of SEIS money must be spent before EIS or VCT funding can be raised for qualifying investments made on or after 6 April 2015. The necessary legislation will be included in the SFB 2015.
- A consultation will be published on technical changes to limited partnership legislation to enable private equity and venture capital investment funds to use limited partnership structures more effectively.
Anti-Avoidance and BEPS
- The Government aims to raise at least £5 billion by 2019/20 from tackling tax avoidance and tax planning, evasion, non-compliance and imbalances in the tax system.
- With immediate effect, measures will be introduced to ensure that investment fund managers pay full 28% capital gains tax ("CGT") on the profits of the fund payable to them ('carried interest'), subject only to deductions for amounts actually invested by them. In addition, a consultation will be launched on the circumstances in which fund managers' performance-related returns can benefit from CGT treatment.
- With immediate effect, measures will be introduced to block the use of losses and reliefs against a controlled foreign companies ('CFC') charge.
- The Government will amend existing legislation (with immediate effect) in relation to trading stock and intangible assets to ensure that disposals made other than in the normal course of business are brought into account for tax purposes at full open market value. The aim of this measure is to prevent the use of a transfer pricing override to manipulate the value of assets in intergroup transfers.
- In relation to large businesses, the Government will introduce legislation to improve transparency of tax strategies and give HMRC new powers to tackle those businesses who persistently engage in aggressive tax planning.
- In relation to small businesses, HMRC will be given the power to acquire data from online business intermediaries and electronic payment providers to help identify businesses that are trading but not declaring or paying tax. A consultation on these proposals will be launched later this month.
- New measures will be introduced in the Finance Bill 2016 targeting those who persistently enter into tax avoidance schemes that fail, including a surcharge on those whose latest tax return is inaccurate as a result of using a failed scheme and publishing the names of such avoiders. As previously announced, a new general anti-abuse rule ('GAAR') penalty will be introduced and a consultation will be held on the details of the measures required.
- The previously announced provisions to grant HMRC powers to recover tax debts directly from debtors' bank and building society accounts will be included in the SFB 2015.
- A new tax on banking sector profits will be introduced from 1 January 2016, set at a permanent rate of 8%. The new tax will apply to a bank's corporation tax profits before the use of carried forward losses and will not apply to the first £25 million of profit within a group.
- There will be a phased reduction of the bank levy rate, from the existing rate of 0.21% to 0.18% from January 2016, 0.17% from January 2017, 0.16% from January 2018, 0.15% from January 2019, 0.14% from January 2020 and 0.10% from January 2021. There will also be a change in the bank levy's scope from 1 January 2021 so that UK headquartered banks will only be levied on their UK balance sheet liabilities. These rates will be published in the SFB 2015.
- As announced at Budget 2015, legislation will be introduced (with immediate effect) to make compensation payments paid by banks in relation to misconduct in the sector non-deductible for corporation tax purposes.
- The Government confirmed that it will include measures in Finance Bill 2016 to allow tax relief on bad debts incurred on peer to peer ("P2P") loans against P2P income from April 2015.
- The Government will consult over summer 2015 on previously announced proposals on how withholding tax on P2P loans will apply from April 2017.
- A new Innovative Finance ISA will be introduced from April 2016 for loans arranged via a P2P platform. A consultation was launched on 8 July 2015 on whether to extend the list of ISA eligible investments to include debt securities and equity offered via a crowd funding platform.
- Contributions to pension schemes by additional rate tax payers will be subject to a lower annual allowance, falling by £1 for each £2 earned above £150,000, from a standard annual allowance of £40,000 to a floor of £10,000. Contributions above this will be subject to the annual allowance charge in the normal way. The annual allowance taper will have effect on and after 6 April 2016.
- The Government will "actively monitor" salary sacrifice arrangements – the strongest indication yet that these schemes may be attacked at the next Budget.
- The Government is consulting on radically changing the pension taxation structure, possibly to one where contributions are taxed rather than receipts, to more closely mirror ISAs.
- The Chancellor confirmed that a seeding relief from SDLT will be introduced for Property Authorised Investment Funds and Co-ownership Authorised Contractual Schemes ("CoACSs") and that changes will be made to the SDLT treatment of CoACSs investing in property to ensure that SDLT does not arise on transactions in units, subject to the resolution of potential avoidance issues. The changes will be made in Finance Bill 2016.