Personal allowance and basic rate limit for 2017-18
The personal allowance for 2017-18 will be increased to £11,500, and the basic rate limit will be increased to £33,500. The higher rate threshold will be £45,000 in 2017-18.
Personal savings allowance
The previously announced tax-free personal savings allowance (PSA) will take effect from 6 April 2016, for savings income paid to individuals. This means that basic rate taxpayers will be able to receive up to £1,000 a year of savings income, and higher rate taxpayers up to £500 a year, tax-free. The PSA will not be available to additional rate taxpayers. Also from this date, banks, building societies and NS&I will cease to deduct tax from account interest they pay to customers.
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.
Changes to dividend taxation
From 6 April 2016, the dividend tax credit will be replaced by a new dividend allowance in the form of a 0% tax rate on the first £5,000 of dividend income per tax year. UK residents will pay tax on any dividends received over the £5,000 allowance at the following rates: – 7.5% on dividend income within the basic rate band;
– 32.5% on dividend income within the higher rate band; and
– 38.1% on dividend income within the additional rate band.
In calculating into which tax band any dividend income over the £5,000 allowance falls, savings and dividend income are treated as the highest part of an individual’s income. Where an individual has both savings and dividend income, the dividend income is treated as the top slice.
Dividends received on shares held in an individual savings account (ISA) will continue to be tax-free. The dividend allowance will apply to dividends received from UK resident and non-UK resident companies.
Preventing liability to charge being removed from certain taxable benefits in kind
Legislation will be included in Finance Bill 2016 to clarify that the concept of ‘fair bargain’ applies only to general taxable benefits where the taxable amount is based on the cost to the employer of providing the benefit. The legislation will specifically exclude employees who work for an employer where the employer trades in the provision of hire cars to the public. In the circumstances where the employee hires a car from the employer at the same cost and under the same terms and conditions as any member of the public, there will not be a benefit in kind charge. The measure will have effect on and after 6 April 2016.
Royalty withholding tax
Legislation will be introduced to provide additional obligations to deduct income tax at source from royalties paid to certain non-resident persons where either: – arrangements have been entered into which exploit the UK’s double taxation agreements (DTAs) in order to ensure that little or no tax is paid on royalties either in the UK or anywhere in the world;
– the category of royalty is not currently one of those in respect of which there is an obligation to deduct tax under UK law; or
– royalties which do not otherwise have a source in the UK are connected with the business that a non-UK resident person carries on in the UK through a permanent establishment in the UK
The measure will have effect for payments made under tax avoidance arrangements from 17 March 2016. The change to the definition of royalties to which deduction of tax applies and the change to the source rules in respect of royalties paid under obligations which are connected with a permanent establishment in the UK will have effect for payments made on or after the date Royal Assent to the Finance Bill 2016.
Bad debt relief for peer-to-peer investments
Individuals investing in certain peer-to-peer (P2P) loans will be allowed to set the losses they incur, from loans which default, against income that they receive from other P2P loans. An individual’s personal savings allowance will apply to interest they receive from P2P lending after any relief for bad debts.
The relief will apply to losses incurred on all P2P eligible loans on or after 6 April 2016. It will also allow individuals to make a claim for relief on losses arising on eligible P2P loans between 6 April 2015 and 5 April 2016.
Exclusion of energy generation from the tax advantaged venture capital schemes
The venture capital schemes excluded activities list is to be amended so that any company whose trade consists substantially of energy generation activities (including the production of gas or other fuel) will be unable to use such schemes.
This change has effect from 6 April 2016, and applies to the seed enterprise investment scheme (SEIS), enterprise investment scheme (EIS) and venture capital trusts (VCTs). These activities will also be excluded from social investment tax relief (SITR) when this scheme is enlarged (expected within six to twelve months).
EIS and VCT revisions
Changes are being made to ensure that the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) legislation introduced by F(No2)A 2015 works as intended. The changes include: – clarification of the method for determining the 5 year period for the average turnover amount and the relevant 3 preceding years for the operating costs conditions for both EIS and VCTs to ensure that the most recently filed accounts of a company are generally used to determine the end date of the relevant period.
– a new condition to clarify the non-qualifying investments a VCT may make for liquidity management purposes. The legislation will be introduced in Finance Bill 2016 and will have effect from 18 November 2015 for shares issued under EIS and for investments made by VCTs for determining the relevant accounting period of a company, although an investee company may elect to apply the existing legislation for investments received between 18 November 2015 and 5 April 2016 inclusive, and from 6 April 2016 for non-qualifying investments made by a VCT.
Treatment of income from sporting testimonials
Legislation will be included in Finance Bill 2016 to confirm that all income from sporting testimonials and benefit matches for an employed sportsperson will be chargeable to tax, and liable to employee and employers’ National Insurance contributions. This treatment will, however, be subject to an exemption of £100,000 of the income received during the testimonial year, except where there is a contractual entitlement or customary right to the sporting testimonial or benefit match.
Independent testimonial committees will need to operate PAYE where the total proceeds from a non-contractual sporting testimonial or benefit match for a sportsperson exceed £100,000.
These provisions will have effect for the income from non-contractual or non-customary sporting testimonial events held on or after 6 April 2017, where the testimonial has been awarded on or after 25 November 2015. Income from sporting testimonial events held on or after 6 April 2017, where the testimonial or benefit match was awarded before 25 November 2015, will be subject to existing arrangements.
Retention of the three percentage point supplement for diesel cars
The three percent supplement for diesel company cars, which was due to be abolished with effect from 6 April 2016, is to 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. The appropriate percentage for a diesel company car will therefore continue to be three percentage points higher than the petrol car equivalent, up to a maximum of 37%.
Setting company car tax rates for the 3 years to 2019 to 2020
Legislation will be introduced in Finance Bill 2016 to make the following changes: – the appropriate percentage which is applied to the list price of company cars subject to tax will increase by 3 percentage points to a maximum of 37% in 2019 to 2020.
– there will be a 3 percentage point differential between the 0-50 and 51-75g CO2/km bands and between the 51-75 and 76-94g CO2/km bands.
The legislation will also set the level of the appropriate percentage for the years 2017 to 2018 and 2018 to 2019 for cars which do not have a registered CO2 emissions figure and which cannot produce CO2.
Van benefit charge for zero emissions vans
Legislation will be introduced in Finance Bill 2016 to apply the level of the van benefit charge for zero-emissions vans at 20% of the charge for conventionally fuelled vans for the tax years 2016-2017 and 2017-2018. This defers the planned increase to 40% of the van benefit charge for conventionally-fuelled vans to 2018-2019.
The van benefit charge for zero emission vans will be 60% of the van benefit charge for conventionally fuelled vans in 2019-2020, 80% in 2020-2021 and 90% in 2021-2022. From 2022-2023, the van benefit charge for zero emission vans is 100% of the van benefit charge for conventionally-fuelled vans.
Statutory exemption for trivial benefits-in-kind
A statutory exemption will apply from 6 April 2016, which will exempt from income tax and National Insurance contributions low-value benefits-in-kind which meet certain qualifying conditions, including a £50 limit per individual benefit. Qualifying ‘trivial’ benefits-in-kind provided to directors or other office holders of close companies, or to members of their families or households, will be subject to an annual cap of £300.
Employment intermediaries and relief for travel and subsistence
From 6 April 2016, certain temporary workers will not be able to claim tax relief or a disregard for National Insurance contributions (NICs) on the travel and subsistence expenses they incur on an ordinary commute from home to work. The restrictions will apply to workers who are employed through an employment intermediary, such as an umbrella company, or a recruitment agency/employment business, and who are supplying personal services (largely supplying their skills or labour) under the supervision, direction or control, of any person, in the manner in which they undertake their role.
Those individuals who supply their services through small limited companies, generally known as personal service companies, will no longer be able to claim tax relief or a NICs disregard for those contracts where they are required to operate the intermediaries legislation (commonly known as IR35), or they would otherwise be operating IR35 if they were not receiving all their remuneration as employment income.
Employee share schemes: simplification of the rules
Following recommendations from the Office of Tax Simplification (OTS), a number of changes are being made to the rules for employment-related securities (ERS) and ERS options. Broadly, the changes will: – for non-tax advantaged schemes, clarify the tax treatment for internationally mobile employees (IMEs) of certain ERS and ERS options;
– reinstate rules for share incentive plans (SIPs) previously repealed, to enforce the principle that shares with preferential rights cannot be issued to selected employees only; and
– permit late registration of tax-advantaged share schemes where the taxpayer had a reasonable excuse. The changes will generally take effect from Royal Assent to Finance Bill 2016. An amendment allowing a company controlled by an employee ownership trust to operate an enterprise management incentives (EMI) scheme will be backdated to 1 October 2014. A further change will provide that, following a company takeover, minority shareholders holding qualifying share options in an EMI will have the right for their share options to be acquired by the offeror without losing their tax advantage. This change will be backdated to 17 July 2013. (TIIN 9 December 2015)
Netherlands Benefit Act for victims of persecution 1940 to 1945
Payments made by the Netherlands government through the ‘Wet uitkeringen vervolgingsslachtoffers 1940 to 1945’ scheme for victims of national-socialist and Japanese aggression during World War 2 are exempt from income tax, with effect from 6 April 2016. (TIIN 9 December 2015)
Extension of averaging period for farmers
The period over which an individual who carries on a qualifying trade of farming, market gardening or the intensive rearing of livestock or fish, is allowed to average their profits for income tax purposes is to be extended from two years to five years. The option to average over two years will, however, continue. The measure will have effect for averaging claims made for 2016/17 and subsequent tax years.
Finance Bill 2016 will also include provisions to simplify the rules for farmers and creative artists who can benefit from two-year averaging, by removing marginal relief so that full averaging relief will be available where the profits of one year are 75% or less of the profits of the other year. (TIIN 9 December 2015)
Deductions at a fixed rate
Legislation will be introduced in Finance Bill 2016 to amend the simplified expenses legislation in ITTOIA 2005 to clarify how the provisions in respect of business use of home and premises used both for business and as a home apply to partnerships. This change, which is designed to ensure that partnerships and individuals are treated in the same way, applies from 6 April 2016.
The amended provisions will make it clear that the fixed rate deduction for use of home for business can be claimed by individual partners where appropriate, and also that partnerships can use the fixed rate non-business use adjustment where premises are used mainly for business but are also used as a home by a partner or partners. Extending ISA tax advantages after the death of an account holder
The individual savings account (ISA) savings of deceased individuals will continue to benefit from income tax and capital gains tax advantages, where those savings are retained in an ISA.
The change is expected to take effect during 2016/17, following Royal Assent to Finance Bill 2016, consultation on further detail of the change and amendment of the ISA rules by secondary legislation.
Investment managers: performance linked rewards
A statutory test is being introduced to determine whether carried interest should be taxed as capital gains or income. This will be determined by testing the average period for which the fund holds assets. All returns which are not subject to capital gains tax (CGT) will be chargeable to income tax and Class 4 National Insurance contributions (NICs) as trading profits. This change is designed to ensure that a carried interest structure only attracts CGT treatment in relation to funds which carry on long-term investment activity, and will apply to sums of carried interest arising on or after 6 April 2016, whenever the arrangements giving rise to those sums were entered into.
Broadly, where an individual performs investment management services for a collective investment scheme, then any sum of carried interest arising from that fund will only be eligible for CGT treatment if the fund holds investments, on average, for at least four years. Partial CGT treatment will be available where the average holding period is between three and four years. Where the average hold period is below three years all sums of carried interest arising to the individual, however structured, will be charged to tax and NICs as trading profits.
This change will not affect the taxation of performance-linked rewards which are already charged to income tax, and it will not impact on co-investments made in the fund by fund managers or an arm’s length return on such a co-investment.
Reform to the wear and tear allowance
In relation to expenditure incurred on or after 1 April 2016 (for corporation tax) and 6 April 2016 (for income tax), the existing wear and tear allowance for fully furnished properties will be replaced with a relief enabling all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property.
The new relief given will be for the cost of a like-for-like, or nearest modern equivalent, replacement asset, plus any costs incurred in disposing of, less any proceeds received for, the asset being replaced.
The amount of the deduction will be: – the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent); plus
– the incidental costs of disposing of the old item or acquiring the replacement; less
– any amounts received on disposal of the old item.
This deduction will not be available for furnished holiday lettings, as capital allowances continue to be available for them.
The renewals allowance for tools (ITTOIA 2005, s 68; CTA 2009, s 68) will no longer be available for property businesses.
Tackling disguised remuneration avoidance schemes overview of changes and technical note
The Government is to bring forward a package of changes designed to tackle the use of disguised remuneration avoidance schemes. Initial legislation will be included in Finance Bill 2016 and further legislation will follow in future Finance Bills following a technical consultation. The first measure aims to prevent attempts to exploit the disguised remuneration legislation by inserting an additional targeted anti-avoidance rule (TAAR) with effect from 16 March 2016. The transitional relief on investment returns will also be withdrawn after 30 November 2016. The relief was intended to work alongside the EBT Settlement Opportunity, which closed on 31 July 2015. Anyone who has not settled with HMRC on or before 30 November 2016 will not qualify for the relief.
Applying ‘English Votes for English Laws’ to income tax
Changes to the current law will ensure that the Government meets its commitment that the ‘English Votes for English Laws’ (EVEL) procedure can apply to the main rates of income tax. From 6 April 2017, to coincide with the further devolution of income tax powers to the Scottish government, the government will legislate to separate the income tax rates that apply to savings (the savings rates), from those that apply to non-savings, non-dividends income (the main rates).
HMRC are to be given new powers which will enable them to make income tax or capital gains tax assessments without the taxpayer first being required to complete a self-assessment tax return. The new provisions will allow HMRC to assess a person’s tax liability on the basis of information held by them. For example, they will be used where it is not possible to collect the whole of a person’s annual income tax liability through PAYE, and HMRC have sufficient information about the individual to make the assessment. This change will have effect on and after the date of Royal Assent to Finance Bill 2016.
Time limits for self-assessment
The time allowed for making a self-assessment is to be clarified by Finance Bill 2016. The time limit is four years from the end of the tax year to which the self-assessment relates. This is the same time limit as for assessments by HMRC. This measure will have effect on and after 5 April 2017, although there are transitional arrangements for years previous to this, as follows: – for tax years prior to 2012/13, taxpayers have until 5 April 2017 to submit a self- assessment;
– for 2013/14, the deadline is 5 April 2018;
– for 2014/15, the deadline is 5 April 2019; and
– for 2015/16, the deadline is 5 April 2020.
The four year time limit applies to everyone and those that are currently outside the time limit have notice to put in their self-assessment by 5 April 2017. (TIIN 9 December 2015)
Gift Aid intermediaries
HMRC are to be given power to impose penalties on the intermediary sector if they fail to comply with requirements set out in secondary legislation. This change means that if intermediaries are fully compliant with HMRC requirements, donors and charities will be protected – currently, if the intermediary fails to comply, the donor or the charity would be liable to pay the shortfall.
The primary legislation (amendment to ITA 2007, s 428) will take effect on the date detailed regulations are laid. These regulations will set out the detailed operating models for intermediaries.
Lifetime ISA and ISA limit
The overall annual ISA subscription limit will be increased to £20,000 from 6 April 2017.
From April 2017, a new Lifetime ISA will be available for adults under the age of 40. The Lifetime ISA is aimed at helping young people save flexibly for the long-term, allowing them to save for a first home and for their retirement, without having to choose one over the other.
A person can open a Lifetime ISA account between the ages of 18 and 40 and they will be able to contribute up to £4,000 per year, and anything put in before their 50th birthday will receive a 25% bonus from the government. This means that over a lifetime, a saver will be able to have contributions of £128,000 matched by the government for a maximum bonus of £32,000. Funds, including the government bonus, from the Lifetime ISA can be used to buy a first home in the UK worth up to £450,000 at any time from 12 months after the account opening, and be withdrawn from age 60. If a person withdraws their money before they are 60 (unless they have a terminal illness) they will lose the government bonus (and any interest or growth on it) and will also have to pay a 5% charge.
Individuals will be able to transfer savings from other ISAs as one way of funding their Lifetime ISA. During the 2017/18 tax year only, those who already have a Help to Buy: ISA will be able to transfer those funds into a Lifetime ISA and receive the government bonus on those savings.