In his 2015 Spending Review (the first to be delivered since 2010) and Autumn Statement speech, Chancellor George Osborne said that the government is delivering on its commitment to put both economic and national security first. He referred to this as being a ‘big Spending Review by a government that does big things’.
The main headlining announcement concerned tax credits. As confirmed in the Summer Budget, the Chancellor said that the £12 billion of welfare savings the government has committed to will be delivered in full in a way that helps families during the transition to the new National Living Wage. However, in a huge U-turn, the Chancellor went on to say that after listening to recent representations made concerning controversial cuts to tax credits, improvements in public finances mean that the proposed changes will not be phased in as planned but ‘avoided altogether’. Note though that the tax credits system is being gradually phased out in conjunction with the current phasing in of the universal credit. The announcement does, however, mean that the tax credit taper rate and thresholds will remain unchanged from 2016. The income fall disregard will be retained at its current level of £2,500. The Chancellor also said that there will be no further changes to the universal credit taper, or to the work allowances beyond those that passed through Parliament last week.
In the Summer Budget, the government announced that revenue of some £5 billion would come from measures on tax avoidance, evasion and imbalances. Building on this, the Chancellor announced new penalties for the General Anti-Abuse Rule (GAAR), action on disguised remuneration schemes and stamp duty avoidance, and he said there would measures to stop abuse of the intangible fixed assets regime and capital allowances. Energy generation is to be excluded from the venture capital schemes, to ensure that they remain well-targeted at higher risk companies.
In accordance with recent announcements concerning HMRC’s 10-year modernisation plans, the Chancellor confirmed that HMRC will make savings of 18% in the departmental budget through efficiencies which include the restructure of 170 separate offices into thirteen regional centres, and the development of digital tax accounts to be managed online. Some of the savings are to be reinvested, with an extra £800 million, in the fight against tax evasion – an investment with an anticipated return of almost ten times in additional tax collected.
With regards to local and national finances, the Chancellor said that local councils will be given wider powers to control their own spending; Northern Ireland needs to deliver sustainable budgets so that the government can take forward its plans for a cut in the rate of corporation tax to 12.5%; and the devolution of income tax to Wales will take place without the need for a referendum.
This newsletter provides a summary of the key tax points from the Spending Review and Autumn Statement, based on the documents released on 25 November 2015. It is possible that changes will be made between now and the publication of the draft legislation. We will keep you informed of any significant developments.
Starting rate of savings tax
The band of savings income that is subject to the 0% starting rate will be kept at its current level of £5,000 for 2016-17.
Employment intermediaries and tax relief for travel and subsistence
As announced at Summer Budget 2015, the government is to legislate to restrict tax relief for travel and subsistence expenses for workers engaged through employment intermediaries, such as umbrella companies or personal service companies, and working under supervision, direction or control. Relief will be restricted for individuals working through personal service companies where the intermediaries’ legislation applies. This change will take effect from 6 April 2016.
Company car tax diesel supplement
The three percentage point differential between diesel and petrol cars, which was due to be abolished from 6 April 2016, will be retained until April 2021 when EU-wide testing procedures will ensure new diesel cars meet air quality standards even under strict real world driving conditions.
Employer-provided living accommodation
Following recommendations from the Office of Tax Simplification report on simplifying the administration of employee benefits and expenses, the government is to consult on the current tax treatment of employer provided living accommodation.
Following a recent consultation the government will legislate to simplify the tax treatment of income from sporting testimonials. Broadly, from 6 April 2017, all income from sporting testimonials and benefit matches for employed sportspersons will be liable to income tax and NICs. In addition, an exemption of up to £50,000 will be available for employed sportspersons with income from sporting testimonials that are not contractual or customary. The legislation will apply where the sporting testimonial is granted or awarded on or after 25 November 2015, and only to events taking place after 5 April 2017.
London Anniversary Games and World Athletics and Paralympics Championships
Non-resident competitors in the 2017 World Athletics and Paralympics Championships and the 2016 London Anniversary Games will be exempt from income tax on earnings from the events. This will be the last year that the exemption applies to the London Anniversary Games as the Olympic torch is passed to Rio de Janeiro.
Business investment relief
The government is to consult on revisions to the business investment relief provisions to encourage greater use of the relief to increase investment in UK. Broadly, the relief allows individuals eligible to use the remittance basis, to bring foreign income and gains to the UK tax-free for the purposes of making a qualifying investment.
VCTs: eligible investments
From 30 November 2015, the provision of reserve energy generating capacity and the generation of renewable energy benefiting from other government support by community energy organisations (as introduced in Finance (No. 2) Act 2015) will no longer be treated as qualifying activities. In addition, these activities will not be eligible for Social Investment Tax Relief (SITR). From 6 April 2016 all remaining energy generation activities will be excluded from VCTs as well as from the enlarged SITR. The government will also introduce increased flexibility for replacement capital within EIS and VCT, subject to state aids approval.
Employee share schemes: simplification of the rules
A number of technical changes to simplify aspects of the tax rules for tax-advantaged and non-tax-advantaged employee share schemes are to be introduced. The changes are aimed at providing more consistency, including putting beyond doubt the tax treatment for internationally mobile employees of certain employment-related securities (ERS) and ERS options. Any charge to tax will arise under the rules that deal with ERS options, rather than earnings. These simplification measures are to be included in the Finance Bill 2016.
Income tax exemption for certain World War II victims
Certain pension and annuity payments made by the Netherlands government payable to victims of national-socialist and Japanese aggression during World War II (under the Netherlands Benefit Act for Victims of Persecution 1940-1945) will be exempt from income tax with effect from April 2016.
Dependant scheme pensions
Legislation will be introduced in Finance Bill 2016 to simplify the test that takes place when a dependant’s scheme pension is payable.
Following the introduction of a single-tier pension from 6 April 2016, legislation will be introduced to enable the pension tax rules on bridging pensions to be aligned with Department for Work and Pensions legislation. This measure will be included in Finance Bill 2016.
Individual savings accounts
There will be no change to the Individual Savings Account (ISA), Junior ISA or Child Trust Fund (CTF) annual subscription limits for 2016-17. The ISA limit will remain at £15,240, and the Junior ISA and CTF annual limits will remain at £4,080. The list of qualifying investments for the new Innovative Finance ISA, which will be introduced from 6 April 2016 for loans arranged via a P2P platform, will be extended in Autumn 2016 to include debt securities offered via crowdfunding platforms. The Government will continue to review the case for extending the list to include equity crowdfunding. Legislation will be included in Finance Bill 2016 to allow the ISA savings of a deceased person to continue to benefit from tax advantages during the administration of their estate.
CGT payment window
From April 2019, a payment on account of any capital gains tax (CGT) due on the disposal of residential property will be required to be made within 30 days of the completion of the disposal. This will not affect gains on properties which are not liable for CGT due to private residence relief. The government will publish draft legislation for consultation in 2016.
CGT on residential property gains
The legislation governing capital gains tax computations required by non-residents who dispose of UK residential property is to be amended so that a double charge that occurs in some circumstances will be removed. This change will apply with retrospective effect from 6 April 2015. Revised legislation will also correct an omission with effect from 25 November 2015. HMRC are to be given new powers to prescribe the circumstances in which a CGT return is not required by non-residents. CGT is to be added to the list of taxes that the government may collect on a provisional basis.
IHT exemption for compensation and ex-gratia payments to victims of persecution during the World War II era
Legislation will be included in Finance Bill 2016 to enact the provisions of the current extra statutory concession F20 (ESC F20), which gives an inheritance tax exemption in respect of certain compensation and ex-gratia payments for World War II claims. The legislation will include payments made under a recently created compensation scheme known as the Child Survivor Fund. The change will apply to deaths on or after 1 January 2015.
IHT and undrawn pension funds in drawdown pensions
The legislation will be included in Finance Bill 2016 to ensure a charge to inheritance tax will not arise when a pension scheme member designates funds for drawdown but does not draw all of the funds before death. This measure will be backdated to apply to deaths on or after 6 April 2011.
Extension of farmers’ averaging provisions
As previously announced, the averaging period for self-employed farmers is to be extended from two to five years from 6 April 2016, with farmers having the option of using either averaging period.
RTI relaxation for micro-employers to end
The two year temporary relaxation, allowing existing micro-employers (those with nine or fewer employees) using Real-Time PAYE to report all payments they make in a tax month on or before the last payday in the tax month rather than on or before each and every payday, will end on 5 April 2016.
The apprenticeship levy will be introduced from April 2017 and will be set at a rate of 0.5% of an employer’s pay bill. It will be collected through PAYE. Employers will each receive an allowance of £15,000 to offset against their levy payment such that the levy will only be paid on pay bills in excess of £3 million.
Loans to participators, trustees of charitable trusts
Legislation will be introduced in Finance Bill 2016 to provide for an exemption from the tax charge on loans or advances to participators under Corporation Tax Act 2010, s. 455. The exemption will apply to some loans or advances made by close companies to trustees (corporate or individual) of charitable trusts which are currently liable to pay the tax charge because those trustees are participators or associates of participators in the close company. The exemption will apply where such a trustee receives a loan or advance, and it is applied wholly to the purposes of the charitable trust. CTA 2010, s. 455 will continue to apply to charities where loans or advances are made in any other relevant circumstances as will the charge to tax under CTA 2010, s. 464A.
Capital allowances and leasing
A policy document entitled Corporation Tax and Income Tax: capital allowances and leasing – anti-avoidance sets out proposals to prevent businesses obtaining tax advantages by either manipulating disposal values leading to excess capital allowances, or receiving a consideration in a non-taxable form in return for agreeing to take over tax deductible lease payments. The proposed measure is two parts:
– firstly, it prevents a person using an artificially low disposal value for capital allowances purposes on the disposal of plant or machinery where tax advantage is one of the main purposes of the arrangements which include that disposal; and
– it brings into tax as income, if not already so taxed, any consideration receivable by a person, or a connected person, for agreeing to take over payments under a lease for which that person can claim tax deductions.
For both parts the measure will apply to appropriate transactions that take place on or after 25 November 2015.
Changes are to be made to the rules governing intangible fixed assets include specific provisions that will apply the commencement rules to partnerships and will confirm how these rules have effect with regard to intangible fixed assets that are acquired or disposed of by a partnership. The changes make it clear that transfers of intangible assets to a partnership with companies as members will not circumvent the intangible fixed assets commencement rules that would otherwise apply to those corporate members. The measure applies to transactions taking place on or after 25 November 2015.
Loan relationships and derivative contracts – interaction with accounting standards
The tax rules for loan relationships and derivative contracts are to be updated to ensure that they interact correctly with new accounting standards in three specific circumstances.
Close company loans to participators: partial exemption for charities
Following consultation, the government will legislate so that a tax charge will not apply to loans or advances made by close companies to charity trustees for charitable purposes. The legislation, which will be included in Finance Bill 2016, will apply to qualifying loans or advances that are made on or after 25 November 2015.
Support for women’s charities
EU rules currently prevent the government from removing all VAT on sanitary products. A new fund will be created to make available £15m a year, equivalent to the annual VAT raised on such products, to support women’s charities over the course of this Parliament, or until EU law is amended to enable the UK to zero-rate supplies of sanitary products.
SDLT on acquisition of additional properties
From 1 April 2016, higher rates of stamp duty land tax (SDLT) will be charged on purchases of additional residential properties (above £40,000), such as buy to let properties and second homes. The higher rates will be 3 percentage points above the current SDLT rates.
The higher rates will not apply to purchases of caravans, mobile homes or houseboats, or to corporates or funds making significant investments in residential property given the role of this investment in supporting the government’s housing agenda.
The government will consult on whether an exemption for corporates and funds owning more than 15 residential properties is appropriate.
A consultation is to be undertaken on possible changes to the SDLT filing and payment process, including a reduction in the filing and payment window from 30 days to 14 days. It is expected that any changes would take effect from 2017-18.
ATED and 15% higher rate SDLT
From 1 April 2016 the reliefs available from Annual Tax on Enveloped Dwellings (ATED) and from the 15% higher rate of SDLT will be extended to equity release schemes (home reversion plans), property development activities and properties occupied by employees.
SDLT and Authorised property funds
A seeding relief will be introduced for Property Authorised Investment Funds (PAIFs) and Co-ownership Authorised Contractual Schemes (CoACSs) and changes made to the SDLT treatment of CoACSs investing in property so that SDLT does not arise on the transactions in units.
There will be a defined seeding period of 18 months, a 3 year clawback mechanism, and a portfolio test of 100 residential properties and £100 million value or 10 non-residential properties and £100 million value.
These changes will take effect from the date of Royal Assent to Finance Bill 2016.
Deep in the Money Options
Shares transferred to a clearance service or depositary receipt issuer as a result of the exercise of an option will be charged at the 1.5% higher rate of stamp duty based on either their market value or the option strike price, whichever is higher.
HMRC will prevent avoidance using ‘Deep in the Money Options’, which are options with a strike price significantly below (for call options) or above (for put options) market value. Share transfers made other than to a clearance service or depositary receipt system as a result of exercising an option will be unaffected.
This change will apply to options entered into on or after 25 November 2015 and exercised on or after Budget 2016.
New method of assessment
A new, simpler process for paying tax will take effect from 2016-17. The new system will be used for self-assessment taxpayers who have simple tax affairs where HMRC already hold all the data needed to calculate the tax liability, and where existing payment processes are not available. Taxpayers will be sent a calculation which will be a legally enforceable demand for payment, although taxpayers will be able to challenge and appeal the calculations.
Digital tax accounts
At the Spring Budget 2015 the government announced proposals for the introduction of personalised digital tax accounts to replace the current annualsystem. The government has now announced that companies, unincorporated businesses, self-employed people and landlords will all be required to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account. HMRC will ensure the availability of free apps and software that link securely to HMRC systems and provide support to those who need help using digital technology and will include features which will prevent errors and promote compliance. The measure will not apply to employees, or pensioners, with a secondary income source from self-employment or property and whose gross income from this secondary source is under £10,000 per year.
The measure will be implemented for income tax and NICs from April 2018, VAT from April 2019 and corporation tax from April 2020. The roll out will be staggered and there will be testing before the reporting becomes mandatory.
Self-assessment time limit clarification
The government is to publish draft legislation clarifying the time allowed for making a self-assessment, making it clear that the time limit is four years from the end of the relevant tax year. (This will be legislated in Finance Bill 2016).