The chancellor of the exchequer, George Osborne, delivered his sixth and what he will certainly hope is not his final Budget on Wednesday 18 March 2015.
With just 50 days to go before the general election, this was always going to be a Budget heavy on political positioning and soundbites but relatively light on substantive, new, content. Indeed, most of what was included had already been pre-announced or leaked to the national press. Not only, as the chancellor had promised, did the Budget speech not include any gimmicks, it did not contain much of surprise. The more important Budget (or Budgets), from an economic and tax perspective, will come after the election.
Against further improving economic data – upwardly revised growth figures, evidence that living standards are rising again and falling unemployment, inflation and deficit – the chancellor was keen to hammer home the distinctly Conservative election themes of a ‘long-term economic plan’, ‘staying the course’ and ‘economic security’.
So far as tax measures were concerned, the major focus remains cracking down on aggressive tax avoidance: the introduction of a ‘Google tax’ was confirmed, measures to combat contrived loss arrangements were announced and, perhaps most importantly of all, this Budget marks a major step towards the automatic exchange of tax information on a global scale. The major beneficiaries included those in the creative arts industries, farmers and those within the oil and gas fiscal regime who saw new or expanded reliefs or relaxations. The main losers were, once again, probably the banks, which saw the rate of the bank levy rise to 0.21%, expected to raise an additional £900m each year.
Some will be disappointed that the boosted annual investment allowance was not renewed and that the proposal to introduce a new corporate rescue relief under the loan relationships rules for companies in financial distress will not be included in Finance Bill 2015. Perhaps understandably, however, the emphasis was on announcing measures that are more likely to attract votes in May including, in particular, the abolition of class 2 NICs and the annual tax return (perhaps heralding the first steps towards ‘real time information’ reporting for personal taxes), raising the basic, and higher rate, thresholds for income tax, and a proposal for a personal savings allowance.
Whether this was a Budget that will ensure Mr Osborne will still be chancellor after the election, or, indeed, whether it will ensure the Conservatives either form, or lead, a new government able to implement all of the proposals outlined in his speech, very much remains to be seen.
Entrepreneurs’ relief
Budget 2015 contains new measures that continue the government’s crackdown on the use of ER in circumstances where the relief was not intended to apply.
Associated disposals: Finance Bill 2015 will tighten the rules on ER for associated disposals. An associated disposal means the disposal of an asset that an individual owns personally, but is used in a business carried on by a partnership in which the individual is a partner, or a company in which the individual holds at least 5% of the ordinary shares and voting rights, then ER is available for associated disposals where certain conditions are met, including that the transaction must be part of a disposal by the individual of an interest in the partnership, or shares or securities in the company, that carries on the business. Finance Bill 2015 will increase this hurdle by providing that this disposal must be of at least a 5% partnership share, or a 5% shareholding in the company. The previous rules did not stipulate a minimum level and so it was relatively simple to contrive a small disposal in order to qualify for ER.
The draft legislation includes wording that is intended to prevent taxpayers entering into arrangements to sidestep the new rules, such as arrangements to reacquire the partnership share or shareholding at a later date. The measure takes effect from Budget day, i.e. 18 March 2015 (Budget 2015, para 2.96; Overview of Tax Legislation and Rates 2015 (OOTLAR 2015), para 1.38).
Joint ventures and partnerships: Finance Bill 2015 will also tighten the rules on ER for disposals of shares in companies that do not have their own trade, but that invest in other, joint venture (JV), companies, or are members of partnerships. For a disposal of shares to qualify for ER, the company must satisfy certain conditions relating to its trading status. Under the previous rules, the trading status of a company that held shares in a JV company was determined by treating a proportion of the JV company’s trade as carried on by the investing company. Finance Bill 2015 will change this by assessing a company’s trading status without taking account of activities carried on by JV companies which the company has invested in, or of partnerships of which the company is a member. The measure takes effect from Budget Day, i.e. 18 March 2015 (Budget 2015, para 2.96; OOTLAR 2015, para 1.39).
Goodwill and business incorporations: As announced in Autumn Statement 2014, Finance Bill 2015 will contain a measure denying ER where goodwill is disposed of to a company that is related to the selling individual. Following consultation the new rules have been changed to allow ER for partners in a partnership who do not hold or acquire a stake in the successor company. Denying ER in these circumstances would not have been within the original policy intention of the new measure, as the change was intended to apply to business incorporations in which the disposing individuals would have a continuing interest in the newly-incorporated business. This measure took effect on 3 December 2014 and this relaxation will be back-dated to apply from that date (Budget 2015, para 2.98; OOTLAR 2015, para 1.41).
Capital gains tax and wasting assets
The government will legislate in Finance Bill 2015 to reverse the effect of the Court of Appeal’s judgment in Henderskelfe [2014] STC 1100 concerning the CGT exemption for wasting assets. The exemption is in TCGA 1992 s 45 and applies to (among other things) ‘plant’, which is defined so that it can only apply to assets that have been used in a trade, profession or vocation. In Henderskelfe the court decided that the exemption can apply even if the disposal is by someone other than the trader which had used the plant.
The government was concerned that it would be relatively easy for taxpayers to exploit this situation by lending assets (such as the valuable work of art that was the subject of the litigation in Henderskelfe) to another party to use in their business for a short period before a disposal, in order to qualify for CGT exemption. As a result Finance Bill 2015 will introduce a specific provision that the wasting asset exemption (both for CGT and corporation tax on chargeable gains) will only apply if the person selling the asset has used it as plant in their own business. The change takes effect from 1 April 2015 for corporation tax, and 6 April 2015 for CGT (Budget 2015, para 2.103; OOTLAR 2015, para 1.40).
Oil and gas taxation
Budget 2015 contained some surprise measures that were not announced at Autumn Statement 2014, but will be included in Finance Bill 2015. The two biggest changes are:
The cut in PRT was unexpected because HM Treasury had previously played down this possibility. As PRT is only chargeable on oil fields established before 16 March 1993, the tax cut aims to extend these older fields’ economic lifespan. The new rate of PRT is 35% for chargeable periods ending after 31 December 2015.
The aim of the original 2% cut in SC was to encourage additional North Sea investment and incentivise increased production. This goal appears to be unchanged, with the larger 12% tax cut needed in response to the oil price being far lower than the government anticipated at the end of 2014. The new rate of SC is 20% and applies retrospectively from 1 January 2015.
The Budget 2015 also included details of the new Investment Allowance (IA), announced at Autumn Statement 2014 and consulted on earlier this year. The IA exempts an amount of profits equal to 62.5% of the investment expenditure incurred by a company, in relation to an oil field, from SC. Existing allowances in CTA 2010 ss 333–356JB (Chapter 7) will be abolished in Finance Bill 2015. The allowance will apply to the qualifying investment expenditure a company incurs in relation an oil field on or after 1 April 2015. Transitional arrangements will be put in place for companies currently using a Chapter 7 allowance, although these measures are as yet unspecified (Budget 2015, paras 2.139–2.144; OOTLAR 2015, paras 1.19–1.22).
Relief for television and films
Finance Bill 2015 will:
The measures will have effect from 1 April 2015, subject to state aid clearance (Budget 2015, paras 2.122–2.124; OOTLAR 2015, paras 1.15–1.17).
Measures pre-announced
The following business and enterprise measures were announced in Autumn Statement 2014 and will be included in Finance Bill 2015 unchanged, or with the minor changes described:
In addition, Finance Bill 2015 will include the capital allowances anti-avoidance measures that were announced on 26 February 2015 (and took effect from that date) in relation to connected party transactions and sales and leasebacks. See the draft legislation and tax impact information note (TIIN) published on 26 February 2015.
Bank levy
The bank levy rate for the 2015/16 tax year will rise to 0.21%, from its current rate of 0.156% (Budget 2015, para 2.131; OOTLAR 2015, para 1.47).
Measures pre-announced
The following finance measures were announced in Autumn Statement 2014 and will be included in Finance Bill 2015 unchanged, or with the minor changes described:
As confirmed in Autumn Statement 2014, the government has accepted the recommendations of the Office of Tax Simplification (OTS) in their report on employee benefits. The draft Finance Bill provisions published in December 2014 included provisions implementing these recommendations. The recommendations will be implemented in four parts as set out below (Budget 2015, para 2.190; OOTLAR 2015, paras 1.3 and 1.5):
Changes to EIS, SEIS and VCT rules and new industry forum
The government announced at Budget 2015 that legislation will be introduced to amend the rules for EIS and venture capital trusts (VCT) schemes to:
The government announced that Finance Bill 2015 will, from 6 April 2015, remove the requirement that 70% of seed enterprise investment scheme (SEIS) money must be spent before EIS or VCT funding can be raised. These amendments are subject to state aid clearance and will take effect from the date clearance is received. The government also announced that it intends to launch a new industry forum on the operation and use of venture capital schemes (Budget 2015, para 2.75 and 2.76; OOTLAR 2015, para 1.8).
Measures pre-announced
The following incentivised investment measures were announced in Autumn Statement 2014 and will be included in Finance Bill 2015 unchanged, or with the minor changes described:
SDLT
Treatment of shared ownership properties: As announced at Autumn Statement 2014, SDLT multiple dwellings relief will be extended to include superior interests in residential property, such as shared ownership. This will apply where the transaction is part of a lease and leaseback arrangement, if acquired from a qualifying body such as a housing association. The change will take effect from the date on which Finance Bill 2015 receives royal assent (Budget 2015, para 2.183).
Alternative property finance reliefs: As announced at Autumn Statement 2014, the government will amend the definition of a ‘financial institution’ for the purposes of the SDLT alternative property finance reliefs to include all persons authorised to provide home purchase plans. The change will take effect from the date on which Finance Bill 2015 receives royal assent (Budget 2015, para 2.185).
Annual tax on enveloped dwellings (ATED)
Increase in charges: As announced at Autumn Statement 2014, the annual rates of ATED will increase by 50% above the rate of inflation for residential properties worth over £2m with effect from 1 April 2015 (Budget 2015, para 2.186).
Reducing the administrative burden: As announced at Autumn Statement 2014, the government will introduce new ‘relief declaration returns’, which can be filed on an annual basis by any entity eligible for an ATED relief. This change will be included in Finance Bill 2015 and will take effect from 1 April 2015 (Budget 2015, para 2.195).
Capital gains tax
CGT for non-UK residents disposing of UK residential property: From 6 April 2015, non-UK resident individuals, trusts, personal representatives and narrowly controlled companies will be subject to CGT on gains accruing on the disposal of UK residential property on or after that date.
In Budget 2014, the government confirmed its plans to introduce CGT on future gains made by non-residents disposing of UK residential property from April 2015. A consultation, Implementing a capital gains tax charge on non-residents, on how best to introduce the charge was published on 28 March 2013 and closed on 20 June 2014. The government set out the framework for the extended charge in their summary of responses, which was published on 27 November 2014.
Non-resident individuals will be subject to tax at the same rates as UK taxpayers (28% or 18% on gains above the annual exempt amount). Non-resident companies will be subject to tax at the same rates as UK corporates (20%) and will have access to an indexation allowance (Budget 2015, para 2.100).
CGT: PPR on properties located in other jurisdictions: Under current rules, individuals are entitled to principal private residence relief (PPR) on their only or main residence. If an individual has more than one residence in any given period they can elect which of them is their main residence, and therefore qualify for PPR, for that period. That residence can be either a UK residence or an overseas residence. The government will restrict access to PRR in circumstances where a property is located in a jurisdiction in which a taxpayer is not tax resident. In those circumstances, the property will only be capable of being regarded as the person’s only or main residence for PRR purposes for a tax year where the person meets a 90-day test for time spent in the property over the year (Budget 2015, para 2.101).
VAT recovery and foreign branches
It was announced in Budget 2015 that changes are to be made to the VAT Regulations, SI 1995/2518, to prevent partly exempt businesses from taking account of supplies made by foreign branches when calculating how much UK VAT on their overheads can be recovered. This announcement is designed to implement the CJEU’s decision in Credit Lyonnais (C-388/11) that the VAT Directive could not be interpreted so as to allow a company to take into account the turnover of its EU or non-EU foreign branches when calculating how much input tax it can deduct in the member state where it has its principal establishment. In addition, by continuing to allow this type of VAT recovery, there is a risk that businesses could artificially increase the amount of input they are entitled to deduct by over-allocating overhead costs to non-EU foreign branches.
Implementing this change in the UK means that UK businesses will not be able to take into account supplies made by foreign branches when determining their partial exemption calculations irrespective of any special method agreed with HMRC. This measure is expected to impact financial institutions making exempt supplies with establishments both within and outside the UK. Draft regulations implementing these changes have been published, and it is intended these regulations will have effect on or after 1 August 2015, although there will be transitional provisions where 31 July 2015 falls within the VAT longer period of account for a business (Budget 2015, paras 1.249 and 2.153; OOTLAR 2015, para 1.25 and draft regulations).
Registration and deregistration thresholds
The VAT registration threshold for the 2015/16 tax year will be £82,000, while the VAT deregistration threshold for the 2015/16 tax year will be £80,000 (Budget 2015, para 2.154; OOTLAR 2015, para 1.24).
BEPS: automatic exchange of information
Laying of regulations to implement automatic exchange of information: Conspicuous by not being mentioned in Autumn Statement 2014, the chancellor confirmed in his speech that the government will now legislate for the new OECD common reporting standard (CRS). It will also invest £4m in data analytics resource to maximise the yield from information reported under the CRS.
The CRS is designed to enhance the automatic exchange of tax related information across the globe. How to implement agreements under the CRS was the subject of an HMRC consultation – Implementing agreements under the global standard on automatic exchange of information – during the late summer of 2014. The CRS, very broadly, is intended to implement the principles that underpin the US Foreign Account Tax Compliance Act (FATCA) across the globe. As a result it has sometimes been referred to as ‘GATCA’.
A statutory instrument setting out regulations will be made in March 2015 to implement the UK’s automatic exchange or information agreements with non-EU jurisdictions (including the Crown Dependencies and Gibraltar), and adopt the updated EU Revised Directive on Administration Cooperation (Council Directive 2014/107/EU) (the DAC) which effectively implements the CRS within the EU.
The regulations will:
In effect, the new regulations will consolidate the various requirements for the automatic exchange of tax information into a single regime.
The regulations will have effect on and after (Budget 2015, paras 2.196 and 2.201):
Common reporting standard – new disclosure facility: In advance of the receipt of data under the CRS the government will offer a new time limited disclosure facility. This will be on less generous terms than existing facilities with penalties of at least 30% and no guarantee around criminal investigation. The disclosure facility will be available from 2016 to mid-2017 (Budget 2015, para 2.197; OOTLAR 2015, para 2.27).
Liechtenstein disclosure facility: The government will close the disclosure period of the Liechtenstein disclosure facility (LDF) before the new disclosure facility referred to above becomes available. The LDF is a voluntary disclosure facility that extends to all main taxes. It opened in September 2009 and was originally scheduled to run until 2015 but it was subsequently extended to 5 April 2016. The LDF will now be closing at the end of 2015 (Budget 2015, para 2.198; OOTLAR 2015, para 2.29).
Crown Dependencies disclosure facilities: The government will also close the disclosure period of the Crown Dependencies disclosure facilities in advance of the new disclosure facility. In October 2013, the Isle of Man, Jersey and Guernsey each signed inter-governmental agreements (IGAs) with the UK to implement the automatic exchange of tax information. Under the IGAs, financial institutions in the Isle of Man, Jersey and Guernsey are required automatically to report financial information on UK resident individuals, partnerships and companies to HMRC from January 2015. Information for the 2014 and 2015 calendar years must be reported by 30 September 2016.
The Crown Dependencies disclosure facilities were introduced by HMRC to enable those with irregularities in their tax affairs to set their affairs in order prior to the automatic exchange of information. The disclosure facilities were scheduled to run from 6 April 2013 to 30 September 2016, when the first exchange of information will take place. The Crown Dependencies disclosure facilities will now be closing at the end of 2015 (Budget 2015, para 2.199; OOTLAR 2015, para 2.30).
Financial Intermediaries notifying their customers in advance of receipt of data under the CRS: Financial intermediaries and tax advisers will be required to notify their UK resident customers with UK or overseas accounts to explain the full impact of the CRS, the opportunities to disclose, and the penalties they could face for non-disclosure (Budget 2015, para 2.200; OOTLAR 2015, para 2.28).
BEPS: diverted profits tax
As announced at Autumn Statement 2014, the new diverted profits tax (DPT) will be included in Finance Bill 2015 albeit with a few modifications as a result of a period of informal consultation.
Broadly, the DPT intends to counter the use of complex, aggressive, tax planning techniques – including, for example, the ‘double Irish’ corporate structure adopted by Google – used by MNEs to artificially divert taxable profits away from the UK tax base, through the manipulation of international tax rules. The DPT will be charged at a rate of 25% (notably higher than the main rate of corporation tax – falling to 20% from 1 April 2016 – to enhance its deterrent effect) and will applied to ‘diverted profits’ (as defined).
Following the consultation, the rules will be slightly revised to:
It remains unclear how far the modification will ease the concerns of business but a number of questions remain unanswered, including, in particular:
The new DPT rules will be introduced in Finance Bill 2015 and take effect from 1 April 2015. The government anticipates the implementation of the DPT will yield £1.365bn in the period up to and including the 2019/20 tax year (Budget 2015, para 2.133 and OOTLAR 2015, para 1.46).
Corporation tax loss refresh prevention
At Budget 2015 it was announced that Finance Bill 2015 will add a new Part 14B to CTA 2010 to prevent corporate tax advantages resulting from contrived arrangements to effectively convert carried forward losses into in-year losses.
Various conditions must be satisfied before the provisions apply, including that obtaining a tax advantage involving both a deduction and the use of carried forward reliefs is a main purpose of entering the arrangement. When they apply, they deny certain tax reliefs (in the form of carried forward trading losses, carried forward non-trading loan relationship deficits, carried forward management expenses and/or management expenses arising on the cessation of a property business) from being set against profits arising from the arrangements.
This anti-avoidance provision has effect in calculating a company’s taxable profits for accounting periods beginning on or after 18 March 2015 or, for accounting periods straddling that date, the part of the accounting period falling on and after that date. It will apply to pre-commencement measures where those measures result in profits on or after 18 March 2015 (Budget 2015, para 2.210; OOTLAR 2015, para 1.13).
Enhanced civil penalties for offshore tax evasion
The government is set to introduce legislation on enhanced civil penalties for offshore tax evasion. Draft legislation was published on 10 December 2014. A tougher penalties regime already applies to liabilities arising from 6 April 2011, where non-compliance involves an offshore matter and the offshore territory in question is not considered to have the highest level of information-sharing arrangements. The increased penalties currently apply to income tax and CGT.
Under the new legislation, the existing regime will be extended to IHT and ‘offshore transfers’ and a new aggravated penalty for moving hidden funds to circumvent international tax transparency agreements (‘offshore asset moves’) will be introduced. In addition, the territory classification system will be updated to reflect the jurisdictions that adopt the CRS. The increased penalties for evasion involving IHT and offshore transfers will apply from 6 April 2016 whereas the new aggravated penalty relating to offshore asset moves will come into effect following royal assent in 2015 (Budget 2015, para 2.202).
Measures pre-announced
The following tax avoidance and administration measures were announced in Autumn Statement 2014 and will be included in Finance Bill 2015 unchanged, or with the minor changes described:
‘The end of the tax return’
In what will be a shock to many tax advisers, the chancellor announced the ‘end of the annual tax return’. Whilst many commentators have focused on the self-assessment tax return for individuals and sole trader businesses, the documents released on Budget day seem to suggest that this will apply to other returns as well.
The Budget 2015 report and the accompanying documentation provide the following details:
More details are to be published later in 2015. The precise scope of the proposals are unclear, but page 5 of Making tax easier makes it clear that those businesses with corporation tax, VAT and PAYE liabilities will also be included in this simplification measure (although there is nothing to suggest that VAT returns and RTI submissions would not continue as normal).
It is unclear how the legislative framework will be amended to support these changes, such as: whether taxpayers need to click to ‘approve’ the information or whether inaction (on the basis that all the information is correct) will be sufficient; the deadline for checking and ‘approving’ the information or advising HMRC of further tax to pay, and any penalties associated with failing to comply with obligations.
It will be interesting to see if, as appears to be case based on the information released, other taxpayers such as trusts, personal representatives and larger businesses are to continue to file tax returns as normal and whether there will be separate tax administration legislation, which will run in parallel with the existing rules.
The introduction of digital tax accounts also raises serious questions of digital exclusion. The Low Income Tax Reform Group has already issued a press release warning that alternatives must be found for those taxpayers who are unable (for various reasons) to access the internet.
However if this leads to the end of punitive penalties for late filing of returns where little or no tax is due (or even where a repayment arises) then this is to be welcomed (Budget 2015, para 2.187; OOTLAR 2015, para 2.26).
New payments process
The chancellor announced in Budget 2015 that the government will consult over the summer on a new payment process to support the use of digital tax accounts, which allow tax and NIC to be collected outside of PAYE and self-assessment. Currently, it is only possible to set up a regular weekly or monthly payment plan if the taxpayer has a direct debit payment plan set-up and files his tax return online using the free HMRC software. However, Making tax easier suggests that the digital account will open up a ‘pay as you go’ option for a much greater number of taxpayers. This has clear upsides for HMRC in facilitating more regular tax payments from taxpayers outside of the PAYE system (Budget 2015, para 2.188; OOTLAR 2015, para 2.26).
Income tax personal allowance
At Autumn Statement 2014, it was announced that the government will increase the income tax personal allowance to £10,600 for the 2015/16 tax year. At Budget 2015, it was announced that the income tax personal allowance will be increased to £10,800 for the 2016/17 tax year and to £11,000 for the 2017/18 tax year.
The basic rate limit for 2015/16 will be £31,785, as announced at Autumn Statement 2014. At Budget 2015 it was announced that the basic rate limits for 2016/17 and 2017/18 will increase by indexation, which means that most higher rate taxpayers will get the full benefit of the increases. Legislation will be introduced in Finance Bill 2015 to increase the basic rate limit to £31,900 for 2016/17 and to £32,300 for 2017/18.
The higher personal allowance for those born before 6 April 1938 will be removed with effect from 2016/17 so that everyone, regardless of their age, will be entitled to the same personal allowance (Budget 2015, paras 2.66–2.67).
Income tax rates and thresholds
* This table only includes the personal allowance applicable to those born on or after 6 April 1948. The personal allowance for those born between 6 April 1938 and 5 April 1948 will increase to £10,600 from 6 April 2015. The higher personal allowance for individuals born before 6 April 1938 will be removed from 2016 so that all are entitled to the same personal allowance (Budget 2015, paras 2.66–2.67; OOTLAR 2015, para 1.1).
Blind persons’ allowance, married couples’ allowance and income limit for 2015/16: As announced in Autumn Statement 2014, blind persons’ allowance, married couples’ allowance and the income limit for 2015/16 will be raised by amounts equivalent to the retail prices index. This will take the blind persons’ allowance to £2,290, and the maximum married couples’ allowance to £8,355, for 2015/16. Budget 2015 also announced a marriage allowance of £1,050, available to married couples and civil partners born after 5 April 1935. From 2016/17 the transferable amount will be 10% of the basic personal allowance (Budget 2015, para 2.70).
Extending the averaging period for farmers: Currently farmers are, for the purpose of income tax, able to average their profits over a two-year period. Bowing to external pressure, Budget 2015 announced that the government will extend the period over which self-employed farmers can average their profits from two to five years. A consultation process will commence later in 2015 on the detailed design and implementation of the extension. The measure will come into effect from 6 April 2016 and a future Finance Bill will include the appropriate legislation (Budget 2015, paras 2.68; Overview of Tax Legislation and Rates 2015, para 2.13).
Abolition of class 2 NIC
The government will abolish class 2 NICs in the next parliament as part of the planned reforms to tax administration. The government also intends to reform class 4 NICs to introduce a new contributory benefit test. The government will consult on the timing and details of these changes later in 2015 (Budget 2015, para 2.74).
Employment intermediaries: travel and subsistence (umbrella companies)
It was announced at Autumn Statement 2014 that the government would review the use of over-arching contracts of employment allowing temporary workers and their employers to benefit from tax relief for home-to-work travel expenses. Following the Employment Intermediaries: travel and subsistence expenses relief discussion document, it was announced at Budget 2015 that the government intends to consult on detailed proposals to restrict tax relief for travel and subsistence for workers engaged through an employment intermediary, such as an umbrella company or a personal service company (Budget 2015, para 2.79; OOTLAR 2015, para 2.37).
Social investment
The government will set the rate of income tax relief for investment in social venture capital trusts (social VCTs) at 30%, subject to state aid clearance. Social VCTs use the same principle as social investment tax relief (SITR), introduced last year, which allows investors to make equity or unsecured debt investments in charities, community interest companies, community benefit societies and social impact bond companies. Investors will pay no tax on dividends received from a social VCT or CGT on disposals of shares in social VCTs. Social VCTs will have the same excluded activities as SITR. The government will legislate for social VCTs in a future Finance Bill. The government will change the regulatory status of SITR funds so that they can be promoted on the same basis as EIS funds (Budget 2015, para 2.78; OOTLAR 2015, para 2.12).
The non-dom remittance basis charge
The government has confirmed that it will increase the remittance basis charge (RBC). The increase was first announced in Autumn Statement 2014 and draft legislation was published on 10 December 2014. As announced, the £50,000 charge payable by individuals who have been resident in the UK for at least 12 out of the last 14 tax years will be increased to £60,000. A new charge of £90,000 will be introduced for individuals who have been UK resident for at least 17 out of the last 20 tax years. These changes will take effect on 6 April 2015 (Budget 2015, para 2.73; OOTLAR 2015, page 12).
Savings
‘Help to buy’ ISA: In Budget 2015, the government announced the introduction of a new type of ISA aimed at assisting first time buyers in saving a deposit for their first home. This scheme is a response to rising house prices and increased deposit requirements combined with low returns on savings, all of which are making it difficult for first time buyers to get onto the housing ladder. Savers will be able to save up to £200 per month in a Help to Buy ISA and the government will then top-up this amount by 25%, so individuals who save the maximum of £200 each month will receive a monthly bonus of £50. The bonus will be capped at a total of £3,000 on £12,000 of savings. The bonus will apply to both the amount a person saves into their Help to Buy ISA and the interest that is built up during the period the account is open. The bonus will be tax free. The bonus will be calculated by the scheme administrator on the account balance at the point of claim. The bonus can only be put towards a first home worth up to £450,000 in London or £250,000 elsewhere in the UK. The bonus can only be used towards a property that is being used for the first time buyer to live in as their only residence and may not be put towards a buy-to-let property.
Accounts are limited to one per person rather than one per home so those buying together can both receive the bonus. Accounts can be opened for a period of four years from the start date of the scheme although once an account is opened there is no limit on how long a person can save into a Help to Buy ISA and no time limit on when they can use their government bonus. The Help to Buy ISA will be available through banks and building societies and will operate in a similar way to any other cash ISA account. Interest received on the account will be tax free and it will only be possible for a saver to subscribe to one cash ISA per year. Providers will be free to apply their normal ISA withdrawal rules to the account. The operational details of the scheme now need to be finalised further to discussions with the industry and the government intends the scheme to be available from Autumn 2015 (Budget 2015, para 2.80).
Extending ISA eligibility: The chancellor announced in Budget 2015 that it will extend the range of ISA qualifying investments to include listed bonds issued by co-operatives and community benefit societies and SME (small and medium enterprise) securities admitted to trading on a recognised stock exchange. These changes will be introduced by new regulations and will take effect from 1 July 2015. The government will also consult during summer 2015 on further extending this list of qualifying investments to include debt securities and equity securities offered via crowd funding platforms, as announced in Autumn Statement 2014 (Budget 2015, para 2.83; OOTLAR 2015, para 2.10).
Making ISAs more flexible: The chancellor also announced in Budget 2015 that ISAs are to be made much more flexible with savers able to withdraw and replace money from their cash ISA during any given tax year without it counting towards their annual ISA subscription limit. These changes will be introduced by regulations, to be introduced in Autumn 2015, following consultation with ISA providers on technical detail (Budget 2015, para 2.85; OOTLAR 2015, para 2.11).
Premium bond investment limit: The chancellor announced in Budget 2015 that the national savings and investment premium bond investment limit will be increased to £50,000 from the current limit of £30,000. This increase will take effect from 1 June 2015 (Budget 2015, 2.90).
Personal savings allowance: A new personal savings allowance will reduce the tax payable by basic and higher rate taxpayers on interest earned on savings. Basic rate taxpayers will not have to pay tax on the first £1,000 of interest received on savings while higher rate taxpayers will not have to pay tax on the first £500 of interest received. Additional rate taxpayers are not eligible for the allowance. The allowance, announced in Budget 2015 applies from April 2016 and builds on a previous allowance announced in Budget 2014. The allowance in Budget 2014 applies from April 2015 and provides that no tax is payable on interest on savings for those with a taxable income of less than £15,600 (Budget 2015, para 2.84; OOTLAR 2015, para 2.1).
Pensions
Flexibility of annuities: The government will legislate to allow flexibility of annuities so that those in receipt of income from an annuity can agree with their annuity provider to assign their income to a third party in exchange for a lump sum or an alternative retirement product. The proposed legislation in a future Finance Bill will take effect from April 2016 and a consultation has been published on how best to remove barriers in the market for secondary annuities; (Budget 2015, para 2.81).
Taxation of inherited annuities: Tax rules will be amended to allow beneficiaries of individuals who die under the age of 75 to receive annuity payments tax free. Beneficiaries of individuals who die under the age of 75 with a joint life or guaranteed term annuity will receive future payments tax free where no payments have been made to the beneficiary before 6 April 2015. If the individual was over 75 when they died, a marginal rate of Income Tax will be payable. The amended rules will also allow joint life annuities to be paid to any beneficiary. These changes will take effect in Finance Bill 2015 (Budget 2015, para 2.82).
Lifetime allowance for pension contributions: The government will reduce the lifetime allowance for pension contributions from £1.25m to £1m from 6 April 2016. Transitional protection for pension rights already over £1m will be introduced alongside this reduction to ensure the change is not retrospective. The lifetime allowance will be indexed annually in line with consumer prices index from 6 April 2018 (Budget 2015, para 2.86; OOTLAR 2015, para 2.35).
Accessing guidance and key information about pension benefits: Shortly after Budget 2014, HM Treasury issued the consultation Freedom and choice in pensions, seeking views on details of the government’s plans to offer greater flexibility in accessing defined contribution (DC) pension savings. The consultation ran from 19 March 2014 to 11 June 2014 and the government’s response to the consultation was issued on 21 July 2014.
In Budget 2015, the government announced that additional funding of £19.5m in 2015/16 will be provided to support the new pension freedoms and the new pensions guidance service, Pension Wise. This funding will extend the availability of state pension statement and pension tracing services. It will also provide for extra delivery capacity for Pension Wise. The government has put plans in place in case there is a need to draw on Department for Work and Pensions resources to help manage any initial spike in demand for the service (Budget 2015, para 2.88).
Bad debt relief on investments made through the peer-to-peer (P2P) lending industry: As announced in Autumn Statement 2014, Budget 2015 confirms that the government will introduce a new relief to allow individuals lending through P2P platforms to offset bad debts arising against the interest receiving from P2P loans when calculating their taxable income. The government is expected to publish a technical note on these measures shortly after Budget 2015. The government will then publish draft legislation later in 2015 (Budget 2015, para 2.89; OOTLAR 2015, para 2.7).
Inheritance tax
Deeds of variation: At Budget 2015, the chancellor announced that the government will review the use of deeds of variation for tax purposes. A deed of variation is an inter vivos transfer from a beneficiary of a deceased person to the recipient. Without the available relief from inheritance tax (IHT) and CGT, the beneficiary would be treated as making a transfer of value for IHT and CGT purposes. Presently, if the deed of variation is made within two years of the deceased’s death, IHT and CGT is calculated on the deceased’s estate as if the variation had been effected by the deceased.
Deeds of variation varying the will or intestacy of the deceased are often used to correct mistakes so as to avoid expensive litigation or to make legitimate use of available business and agricultural property reliefs or where a widow or other family members wish to change the devolution of the deceased’s estate. The deed of variation is not always used for tax reasons and is not viewed as a tax avoidance tool (Budget 2015, para 2.91).
IHT changes to support the new IHT digital service: As announced in Autumn Statement 2014, the government will amend existing legislation dealing with interest to support the introduction of the new IHT digital service as part of its new digital and online services strategy for agents and taxpayers. In Autumn Statement 2013 the government announced that, as part of the government’s digital strategy to improve the process for customers and the administration of IHT, an online service will be introduced in 2015/16 for the submission of IHT returns.
These changes will ensure that the relevant provisions relating to late payment interest are updated and apply consistently when the new online service becomes available in 2015/16. To support the introduction of the new online service, legislative changes will be made in Finance Bill 2015, to align the treatment of interest and penalties for IHT purposes, with that for other taxes to ensure that the relevant provisions will apply correctly when the new online service is launched. HMRC’s digital roadmap for 2015 estimates that the new online IHT digital service will be used by 600,000 customers. As part of the introduction of the new IHT digital service, HMRC will also shortly publish draft regulations to facilitate the use of electronic communications (Budget 2015, para 2.92; OOTLAR 2015, para 2.24, 2.37).
IHT exemption for medals and other awards: As announced in Autumn Statement 2014, the government will extend the existing IHT exemption for medals and other decorations that are awarded for valour or gallantry so that it will apply to all decorations and medals awarded to the armed services or emergency services personnel and to awards made by the Crown for achievements and service in public life.
The amendment will provide that a relevant decoration or other award is excluded property if it has never been the subject of a disposition for money or money’s worth. The amendment will mean that the exemption will also include orders, decorations or awards made by other countries and territories. Legislation will be introduced in Finance Bill 2015 with the amendment applying to transfers of value made, or treated as made, on or after 3 December 2014 (Budget 2015, para 2.93; OOTLAR 2015, para 1.48).
IHT exemption for emergency services personnel and humanitarian aid workers: As announced in Autumn Statement 2014, the government will extend the exemption from IHT for service personnel who die on active service or who later die from wounds received on active service, to all emergency services personnel who die in the line of duty or whose death is hastened from injury that occurs in the line of duty as well as to humanitarian aid workers responding to emergencies and police constables and armed service personnel who die as a result of being attacked due to their status. The amendment is intended to apply to all emergency service personnel in the UK whose death has been caused directly or hastened by an injury sustained while responding to emergency circumstances. The amendment will also apply to armed forces personnel who are supporting emergency service personnel. The amendment will provide that their estates will be exempt from IHT.
At Budget 2014, the government announced its intention to introduce IHT exemptions for members of the emergency services in line with the existing exemption for armed service personnel who die in the line of duty or whose death is hastened by an injury incurred in the line of duty.
In Autumn Statement 2014 the government announced the further intention for the amendment to apply to serving and former police officers and services personnel who are attacked and die because of their status. Following consultation since Budget 2014, legislation was published in draft on 10 December 2014 and following further consultation, the government has clarified that the amended legislation will extend to serving and former police officers and services personnel who are targeted because of their status. The revised legislation will be introduced in Finance Bill 2015 and the exemption apply to all deaths on or after 19 March 2014 (Budget 2015, para 2.94; OOTLAR 2015, para 1.42).
IHT and trusts: As announced in Autumn Statement 2014 and following a third consultation, the government will not now introduce a single settlement nil-rate band but will instead introduce new rules to target tax avoidance through the use of multiple trusts and simplify the calculation of IHT on trusts rules, with the new rules to be introduced in a future Finance Bill. The government had announced plans in Autumn Statement 2013 to allow just one nil rate band per individual, to be split across all relevant property trusts to simplify the calculation of IHT charges on relevant property trusts.
The value of property held in most forms of trust is subject to IHT at 6% every ten years on the amount above the nil rate band (currently £325,000) with a proportionate ‘exit’ charge when the value of the property leaves the trust between ten-year anniversaries. Where more than one trust is settled on the same day by the same person, they are ‘related settlements’ and the value comprised in them is aggregated when determining the rate at which IHT is charged. This rule can be avoided by creating multiple settlements on different days. The purpose of the government’s proposed amendment was to prevent the leakage of IHT through the use of multiple trusts by the same settlor. The value of property in trusts that were not related would be aggregated, together with the initial value of any property settled into those trusts, for the purpose of determining the rate at which IHT is charged when the value of property in those multiple trusts is increased on the same day. It also intended to exclude property that has never become relevant property and simplify some of the rules for calculating the rate of IHT for the purposes of the ten year anniversary and exit charges. There are no further proposed changes following the legislation that was published in draft on 10 December 2014 and the nil rate band will remain unchanged at £325,000 (Budget 2015, para 2.95; OOTLAR 2015, para 2.25).
Charities
Gift aid small donations scheme (GASDS): The chancellor has announced the introduction of an increase to the maximum annual donation amount which can be claimed by charities and community amateur sports clubs through the GASDS. GASDS enables charities to claim back 25p for every £1 that is donated to the charity or to a community amateur sports club (CASC). The claim enables charities to this top up payment where their small (£20 or less) cash donation income is up to £5000. Government guidance on the GASDS scheme can be found at www.bit.ly/1uYxAHl.
It has been announced in Budget 2015 that the amount that can be claimed through GASDS will increase to £8,000 allowing charities and community amateur sports clubs to claim Gift Aid top-up payments of up to £2,000 a year. The measure will be introduced in secondary legislation and take effect in April 2016 (Budget 2015, para 2.104).
Gift aid digital: In Autumn Statement 2014, it was announced that intermediaries will be given a greater role in administering gift aid. The government has confirmed that it will legislate to give effect to this announcement. There is no indication as to when the measure will be effective (Budget 2015, para 2.106).
Charity authorised investment funds (CAIFs): A new investment vehicle for charities has been announced in Budget 2015. The government will be working with the Charity Investors’ Group (CIG) and the Charity Commission to introduce a new CAIF structure. Existing common investment funds are unregulated, but the new CAIFs will be regulated by the Financial Conduct Authority and will be exempt from VAT. According to the CIG in their Budget release the new structure will have the charitable purpose of ‘promoting the efficiency and effectiveness of charities by enabling participating charities to carry out their purposes more economically and efficiently’. Existing common investment funds will be allowed to convert to the new status. There is no indication as to when these new structures will be operational (Budget 2015, para 2.108).
Help for hospices: In the Autumn Statement 2014 it was announced that hospice charities will be eligible for VAT refunds. Currently charities providing palliative care (hospice charities) do not receive any refund of the VAT they incur. The announcement in Budget 2015 will mean that those charities will be able to claim a refund of the VAT they incur on their non-business activities. The Finance Bill 2015 will include legislative measures to provide for VAT refunds on the non-business activities of these charities incurred after 1 April 2015 (Budget 2015, para 2.109; OOTLAR 2015, para 1.23).
VAT refunds for search and rescue charities: In Autumn Statement 2014 it was announced that search and rescue and air ambulance charities will be eligible for VAT refunds. Currently those charities that operate search and rescue vehicles and air ambulances do not receive refunds on the VAT that they incur in purchasing goods and services for their non-business activities. Finance Bill 2015 will include legislation to enable such charities to claim refunds of VAT. The measure will take effect from 1 April 2015 (Budget 2015, para 2.110).
Medical courier charities: The VAT refunds available to search and rescue and air ambulance charities will be extended to include blood bike charities. Medical courier charities transport urgently needed blood and other items of a medical nature. It is a free out of hours service that is not generally a business activity for VAT purposes as their expenses are mostly met by donations rather than fees charged. As such the charities operating the service are unable to recover the VAT charged on their non-business activities.
There is no specific VAT legislative provision that covers this situation. New legislation in Finance Bill 2015 will rectify this by providing that charities will be able to reclaim the VAT incurred on the purchase of goods and services, and the acquisition and importation of goods from outside the UK, used for their non-business activities. This measure will take effect from 1 April 2015 (Budget 2015, para 2.111).
Future changes
The following proposals (whether announced at Budget 2015 or earlier) will not be included in Finance Bill 2015 but may be enacted in future legislation:
This summary was provided by the Lexis®PSL Tax and Private Client teams. Lexis®PSL provides advisers with practice notes and precedents, with links to trusted sources.
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