Personal allowance and income tax threshold
The personal allowance for 2017/18 is set at £11,500 (£11,000 in 2016-17), and the basic rate limit will be increased to £33,500 (£32,000 in 2016-17). The additional rate threshold will remain at £150,000 in 2017/18. The government intends to increase the allowance to £12,500 by the end of Parliament.
The marriage allowance will rise from £1,100 in 2016/17 to £1,150 in 2017/18.
Blind person’s allowance will rise from £2,290 in 2016/17 to £2,320 in 2017/18.
Dividend allowance reduction
The tax-free allowance for dividend income is to be reduced from £5,000 to £2,000 from April 2018. The government states that this change is designed to reduce the tax differential between the employed and self-employed on one hand and those working through a company on the other, and raise revenue to invest in public services.
Dates for ‘making good’ on benefits-in-kind
Finance Bill 2017 will include provisions, effective from April 2017, to ensure an employee who wants to ‘make good’, on a non-payrolled benefit in kind will have to make the payment to their employer by 6 July in the following tax year. ‘Making good’ is where the employee makes a payment in return for the benefit-in-kind they receive. This reduces its taxable value.
Assets made available without transfer of ownership
Existing legislation is to be clarified, with effect from 6 April 2017, to ensure that employees will only be taxed on business assets for the period that the asset is made available for their private use. This will take effect from 6 April 2017.
Currently if an asset is made available for private use, the cash equivalent is set at 20% of the market value when the asset was first provided plus the amount of any additional expenses. This rule will remain. However, new supplementary rules will allow the cash equivalent to be reduced for days when the asset is not available for private use. There will also be provisions to allow a reduction in the level of the taxable benefit when the asset is made available to more than one employee for their private use in the same tax year.
This measure will also allow for the reduction in the level of the taxable benefit if the asset is first made available part way through the year or permanently ceases to be available part way through the year.
These rules will apply only to assets which do not currently have specific charging provisions elsewhere in the legislation.
Treatment of termination payments
The rules for tax and secondary NICs are to be aligned by making an employer liable to pay NICs on termination payments they make to their employees. The following changes will take effect from 6 April 2018:
An employer will be required to pay NICs on any part of a termination payment that exceeds the £30,000 threshold. It is anticipated that this will be collected in ‘real-time’, as part of the employer’s standard weekly or monthly payroll returns and remittances to HMRC.
In addition, the scope of the exemption for termination payments is to be clarified. Broadly, all payments in lieu of notice (PILONs) will be both taxable and subject to Class 1 NICs. The legislation requires the employer to identify the amount of basic pay that the employee would have received if they had worked their notice period, even if the employee leaves the employment part way through their notice period. The amount will be treated as earnings and will not be subject to the £30,000 income tax exemption. All other termination payments will be included within the scope of the £30,000 termination payments exemption.
Following consultation on the draft legislation, the government has now confirmed that Foreign Service Relief will be abolished from April 2018.
Changes to bands for ultra-low emission vehicles in company car tax
To provide stronger incentives for the purchase of ultra-low emissions vehicles (ULEVs), new, lower bands will be introduced for the lowest emitting cars. The appropriate percentage for cars emitting greater than 90g CO2/km will rise by 1 percentage point. The changes, which will take effect from 6 April 2020 are as follows:
– The graduated table of company car tax bands will include a differential for cars with emissions of 1 to 50 gCO2 per km based on the electric range of the car;
– For cars with an electric range of 130 miles or more, the appropriate percentage will be 2%; for cars with an electric range of between 70 to 129 miles, the appropriate percentage will be 5%; for 40 to 69 miles, the appropriate percentage will be 8%; for 30 to 39 miles, the appropriate percentage will be 12%, and for less than 30 miles, the appropriate percentage will be 14%;
– For cars that can only be driven in zero-emission mode, the appropriate percentage will be 2%.
– For all other bands with CO2 emissions of 51 gCO2 per km and above, the appropriate percentage will be based on the CO2 emissions only. For cars with emissions of 51 to 54 gCO2 per km the appropriate percentage will be 15%. For cars with emissions above 54 gCO2 per km, the bands will be graduated by 5g CO2 per km and the appropriate percentage will increase by 1% for each 5 gCO2 per km band, up to a maximum of 37%. For cars with emissions above 90 gCO2/km, the appropriate percentage will increase by 1% in comparison to 2019/20 levels.
Van benefit charge and the car and van fuel benefit charges
The following changes to company car and van benefits take affect from 6 April 2017:
– the car fuel benefit charge increases from £22,200 in 2016/17 to £22,600;
– the van benefit charge increases to £3,230 (from £3,170 in 2016/17); and
– the van fuel benefit charge increases from £598 in 2016/17 to £610.
For vans that do not emit CO2 when driven, the cash equivalent is calculated based on the tapered appropriate percentage rate, which is 20% for 2017/2018.
Deduction of income tax from savings income
The obligation on banks and building societies to deduct tax at source from payments of interest on accounts was generally removed from 6 April 2016. The provisions have now been extended so that, from 6 April 2017, the deduction of tax at source will also end for interest distributions from open-ended investment companies (OEICs), authorised unit trusts (AUTs) and investment trust companies (ITCs), and for interest on peer-to-peer lending.
NS&I Investment Bond
National Savings and Investments (NS&I), the government-backed investment organisation, will offer a new three-year Investment Bond with an indicative rate of 2.2% from April 2017. The bond will offer the flexibility for investors to save between £100 and £3,000 and will be available to those aged 16 or over.
Limitation of salary sacrifice
The tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, cycle to work and ultra-low emission cars. This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. The measure will fix the taxable value of those benefits-in-kind (BiK) provided through salary sacrifice at the higher of the amount of cash forgone or the amount calculated under the existing BiK rules.
The changes will have effect for all contracts for BiKs involving salary sacrifice arrangements entered into on or after 6 April 2017.
A transitional rule will protect employees who are in contractual arrangements before 6 April 2017 until the earlier of a variation or renewal of the contract or 6 April 2018, except for cars with emissions above 75g CO2 per kilometre, accommodation and school fees for which the final date is 6 April 2021. Employer-provided pensions and pension advice, childcare vouchers, employer-provided childcare and workplace nurseries, cycle to work schemes and ultra-low emissions cars, with emissions not exceeding 75g CO2 per kilometre will be excluded from this measure.
Individual Savings Accounts
As previously announced, the annual subscription limit for Individual Savings Accounts (ISAs) will rise to £20,000 for 2017/18 (from £15,240 in 2016/17). The limit for Junior ISAs and Child Trust Funds will also rise to £4,128 from 6 April 2017 (from £4,080 in 2016/17).
Other minor amendments will also be made to the regulations governing the way in which ISAs operate, for example to take account of changes to other legislation referred to in the ISA regulations concerning the regulation of certain financial institutions, child protection and terminal illness.
As announced at Budget 2016, the new Lifetime ISA will be launched from 6 April 2017 and will be available to most UK-resident adults under the age of 40. Account holders will be able to save up to £4,000 each tax year in their Lifetime ISA until they reach 50, and amounts they pay into their account will be eligible for a 25% government bonus. Account holders may withdraw their savings at any time, but from 6 April 2018, any withdrawals made other than in specified circumstances (such as when the account holder reaches 60, is withdrawing their savings for a first-time residential purchase, or is terminally ill) will be subject to a 25% charge.
Any amount held by a saver in a Help-to-Buy ISA on 5 April 2017 can be transferred to a Lifetime ISA during 2017/18, without this counting towards the £4,000 Lifetime ISA limit. Any type of investments which would currently qualify to be held in a cash ISA or a stocks and shares ISA can be held in a Lifetime ISA.
Child Trust Funds: ‘lifestyling’ of accounts, annual subscription limits and other updates
A number of changes are being made to the rules governing child trust funds (CTFs), which will take effect from 6 April 2017. The changes are:
– an increase in the annual investment limit to CTFs from £4,080 to £4,128;
– the requirement on account holders to apply a lifestyling investment strategy for stakeholder STFs will be removed; and
– other minor changes and updates to the CTF rules, such as in relation to the information that account providers are required to supply on the transfer of an account.
A consultation will be launched shortly covering proposals to bring the tax treatment of employer-provided living accommodation and board and lodgings up to date. This will include proposals for when accommodation should be exempt from tax and support taxpayers during any transition.
Streamlining the tax-advantaged venture capital schemes
As announced at Autumn Statement 2016, the government will amend the requirements of the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs). These amendments:
– clarify the EIS and SEIS rules for share conversion rights – the rights to convert shares from one class to another will be excluded from being an arrangement for the disposal of those shares within the no pre-arranged exits requirements for the EIS and SEIS for shares issued on or after 5 December 2016;
– provide additional flexibility for follow-on investments made by VCTs in companies with certain group structures, to align with EIS provisions, for investments made on or after 6 April 2017; and
– introduce a power to enable VCT regulations to be made in relation to certain share-for-share exchanges to provide greater certainty to VCTs, which will take effect from the date of Royal Assent to Finance Bill 2017.
Employer-arranged pensions advice exemption
A new income tax exemption is to be introduced with effect from 6 April 2017, to cover the first £500 worth of pensions advice provided to an employee in a tax year. It will allow advice not only on pensions, but also on the general financial and tax issues relating to pensions. The changes replace existing provisions which limited the exemption solely to pensions advice and were capped at £150 per employee per tax year.
Deemed domicile rule
From April 2017, non-domiciled individuals will be deemed UK-domiciled for income tax, capital gains tax, and inheritance tax purposes if they have been UK resident for 15 of the past 20 years, or if they were born in the UK with a UK domicile of origin and return to the UK having obtained a domicile of choice elsewhere. This means that anyone deemed UK domiciled by virtue of either condition will not be able to access the remittance basis.
Non-doms who set up a non-UK resident trust before becoming deemed domiciled in the UK will not be taxed on any income and gains retained in that trust.
As previously announced at Summer Budget 2015 and following further consultation on draft legislation published in December 2016 on charging inheritance tax on UK residential property, the limit below which minor interests in UK property are disregarded has been increased from 1% to 5% of an individual’s total property interests.
From April 2017 inheritance tax will be charged on all UK residential property even when indirectly held by a non-dom through an offshore structure.
Non-doms will be able to segregate amounts of income, gains and capital within their overseas mixed funds to provide certainty on how amounts remitted to the UK will be taxed. Following consultation on the draft legislation this will be extended by government amendment to income, gains and capital held in mixed funds from years before 2007/2008, as well as those from subsequent years.
Those who become deemed domicile in April 2017, excepting those who were born in the UK with a UK domicile of origin, will be able to treat the cost base of their non-UK based assets as the market value of that asset on 5 April 2017.
These changes will be introduced in Finance Bill 2017 and will take effect from 6 April 2017.
The tax treatment of foreign pensions is to be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones.
Legislation will take effect from 6 April 2017, so that:
– where a foreign pension or lump sum is paid to a UK resident, 100% of the pension arising will be chargeable to UK tax (to the same extent as if they had been paid from a registered pension scheme);
– no new pension schemes can be established under ICTA 1988, s 615 (specialist pension schemes for those employed abroad), and no further contributions can be made to existing schemes. Funds accrued in a section 615 scheme before 6 April 2017 will continue to be paid out using the existing rules;
– the tax treatment of funds in registered pension schemes (RPSs) based outside the UK will be more closely aligned with that of UK-based RPSs;
– UK tax charges can apply to a payment by a relevant non-UK schemes (RNUKS) to an individual who has been resident outside the UK for less than 10 tax years; and
– the 70% rule will be removed from the conditions that a pension scheme has to meet to be an ‘overseas pension scheme’ or a ‘recognised overseas pension scheme’ and the pension age test is revised so that additional payments may be made and the test still be met. As a result if a non-occupational pension scheme is not regulated and the provider of that scheme is not regulated, it will not be able to be a QOPS or QROPS.
Qualifying recognised overseas pension schemes (QROPS): introduction of a transfer charge
A 25% tax charge will be applied to pension transfers made to QROPS. Exceptions will be made to the charge, allowing transfers to be made tax-free where people have a genuine need to transfer their pension, where:
– both the individual and the pension scheme are in countries within the European Economic Area (EEA); or
– if outside the EEA, both the individual and the pension scheme are in the same country; or
– the QROPS is an occupational pension scheme provided by the individual’s employer.
If the individual’s circumstances change within 5 tax years of the transfer, the tax treatment of the transfer will be reconsidered. The changes will take effect for transfers requested on or after 9 March 2017.
The government will also legislate in Finance Bill 2017 to apply UK tax rules to payments from funds that have had UK tax relief and have been transferred, on or after 6 April 2017, to a qualifying recognised overseas pension scheme. UK tax rules will apply to any payments made in the first five full tax years following the transfer, regardless of whether the individual is or has been UK resident in that period.
Social Investment Tax Relief (SITR)
Certain changes are being made to enlarge the social investment tax relief (SITR) scheme, including an increase in the amount of money newer social enterprises may raise and provisions to better target the scheme on higher risk activities and deter abuse. The changes, which will apply retrospectively to qualifying investments made on or after 6 April 2017 will:
– increase the amount of investment a social investment may receive over its lifetime to £1.5 million for social enterprises that receive their initial risk finance investment no later than 7 years after their first commercial sale, the current limit will continue to apply to older social enterprises;
– reduce the limit on full-time equivalent employees to below 250 employees;
– exclude certain activities, including asset leasing and on-lending, to ensure the scheme is well targeted – investment in nursing homes and residential care homes will be excluded initially, however the government intends to introduce an accreditation system to allow such investment to qualify for SITR in the future;
– exclude the use of money raised under the SITR to pay off existing loans;
– clarify that individuals will be eligible to claim relief under the SITR only if they are independent from the social enterprise; and
– introduce a provision to exclude investments where arrangements are put in place with the main purpose of delivering a benefit to an individual or party connected to the social enterprise.
Life insurance policies
The rules governing the disproportionate tax charges that arise in certain circumstances from life insurance policy part-surrenders and part-assignments are to be amended. Broadly, this will allow applications to be made to HMRC to have the charge recalculated on a ‘just and reasonable’ basis. The changes take effect from 6 April 2017 and are designed to lead to fairer outcomes for policyholders.
Reducing the money purchase annual allowance
The pension flexibilities introduced in April 2015 gave savers the ability to access their pension savings flexibly, as best suits their needs. Once a person has accessed pension savings flexibly, if they wish to make any further contributions to a defined contribution pension, tax-relieved contributions are restricted to a special money purchase annual allowance (MPAA). It has now been confirmed that the money purchase annual allowance will be reduced to £4,000 from April 2017.
Personal Portfolio Bonds: reviewing the property categories
The government will legislate in Finance Bill 2017 to take a power to amend by regulations the list of assets that life insurance policyholders can invest in without triggering tax anti-avoidance rules. The changes will take effect on Royal Assent of Finance Bill 2017.
HMRC are to undertake a consultation on rent-a-room relief to ensure it is better targeted to support longer-term lettings. This will align the relief more closely with its intended purpose, to increase supply of affordable long-term lodgings.
Patient Capital review
A consultation is to be launched covering existing tax reliefs aimed at encouraging investment and entrepreneurship to make sure that they are effective, well targeted, and still provide value for money as part of the Patient Capital review.
Reduction in Universal Credit taper
Under the Universal Credit system, as a person’s income increases, their benefit payments are gradually reduced. The taper rate calculates the reduction in benefits as a person’s salary increases. Currently, for every £1 earned after tax above an income threshold, a person receiving Universal Credit has their benefit award reduced by 65p and keeps 35p. The 2017 Spring Budget confirmed that, from April 2017, the taper will be lowered to 63p in the pound, so the claimant will keep 37p for every £1 earned over the income threshold.
National Insurance contributions
As previously announced, from 6 April 2018 Class 2 contributions will be abolished and Class 4 contributions will be reformed to include a new threshold (to be called the Small Profits Limit).
Class 2 NICs currently give the self-employed access to certain contributory benefits. From April 2018, those with profits between the Small Profits Limit and Lower Profits Limit will not be liable to pay Class 4 contributions but will be treated as if they have paid Class 4 contributions for the purposes of gaining access to contributory benefits. Individuals with profits at or above the Class 4 Small Profits Limit will gain access to the new State Pension, contributory Employment and Support Allowance (ESA) and Bereavement Benefit. Those with profits above the Lower Profits Limit will continue to pay Class 4 contributions.
Class 2: For 2017/18, Class 2 NICs will be payable at the weekly rate of £2.85 (rising from £2.80) above the small profits threshold of £6,025 per year (rising from £5,965 in 2016/17).
Class 3: Class 3 voluntary contributions will rise from £14.10 to £14.25 per week for 2017/18.
Class 4: For 2017/18, the lower profits limit for Class 4 NICs will be £8,164 and the upper profits limit will be £45,000. Contributions remain at 9% between the two thresholds and at 2% above the upper profits limit.
Aligning the primary and secondary National Insurance Contributions thresholds
The primary (employee) threshold and the secondary (employer) thresholds for Class 1 National Insurance Contributions are to be aligned from April 2017. From that date, both the primary and secondary thresholds will be £157 per week, having been raised from £155 and £156 per week respectively for 2016/2017.
Increase the rate of Class 4 National Insurance contributions
The main rate of Class 4 NICs will be increased from 9% to 10% with effect from 6 April 2018 and from 10% to 11% with effect from 6 April 2019. Since April 2016, the self-employed also have access to the same State Pension as employees, worth £1,800 a year more to a self-employed individual than under the previous system.