There are a number of tax and pension changes coming up in April 2016 which readers should make sure they are aware of, with yet more new rules slated to make an appearance in April 2017.
From 6 April 2016 the pension lifetime allowance will be reduced from £1.25m to £1m (increasing from 6 April 2018 in line with inflation). The annual allowance (currently £40,000) will be tapered for incomes over £150,000 by £1 for every £2 with the effect that people earning more than £210,000 will be able to contribute an annual maximum of £10,000.
From 1 April 2016 an extra 3% SDLT will be payable on purchases of additional residential properties. This will affect not just the “buy-to-let” market and second home owners, but may also catch life tenants of trusts owning residential property and spouses/civil partners who buy a second property before a formal divorce/dissolution has completed.
Dividend tax credit
As of 6 April 2016 dividend tax credits will be abolished, and replaced with a £5,000 tax-free “dividend allowance”. Dividend income over the allowance will be taxed at 7.5% for basic rate payers; 32.5% for higher rate payers’ and 38.1% for additional rate payers.
When the “Annual Tax on Enveloped Dwellings”, or “ATED”, was initially introduced in 2013, only dwellings worth over £2 million were affected. This threshold was reduced to £1 million in 2015, and on 1 April 2016 will be reduced again to £500,000. Companies owning properties worth between £500,000 and £1 million will now pay an annual charge of £3,500.
April 2017 will also see new rules which have the potential to change the tax landscape.
In addition to the Nil Rate Band of £325,000 (“NRB”), for deaths occurring from 6 April 2017 there will be a new Residence Nil Rate Band (the “RNRB”) available when the deceased’s residential property is inherited by a lineal descendant. The RNRB will be £100,000 for the 2017/18 tax year increasing to £175,000 by 2020/21; although tapering on estates valued over £2m means that there will be no RNRB available for estates valued over £2.2 million.
Also coming up on 6 April 2017 are significant changes to the non-dom tax regime, which were announced in the Summer Budget. The new rules mean that non-domiciled individuals who have been resident in the UK for 15 out of the last 20 tax years will become “deemed domiciled” for all taxes at the start of their 16th year and largely subject to the same tax rules as UK-domiciled individuals.
Additionally, individuals with a UK domicile of origin (born in the UK to UK-domiciled parents) who later acquire a domicile of choice elsewhere will become immediately deemed domiciled in the UK as soon as they become UK resident again.
Also from 6 April 2017, all UK residential property will become subject to UK inheritance tax, no matter how it is held.
Buy-to-let owners should also be aware that from 6 April 2017 mortgage interest relief will begin to be restricted, so that by 6 April 2020 only basic rate relief will be given
Anyone who is concerned that the prospective new rules may affect them should review their affairs now to see whether there is any action that they should take.