The Budget contained few surprises; this may be in line with expectations given how close we are to a general election, although perhaps most noticeable by its absence was the lack of cuts to help sway voters (save for freezing fuel duty and reducing the tax on a pint of beer by 1p). Readers will probably be looking forward more to the Finance Bill publication on Tuesday 24 March regarding changes already announced in the Autumn Statement, but which remain subject to final legislation.
A brief summary of the items most relevant to PE executives and portfolio companies is set out below.
Common Reporting Standard and FATCA
The Chancellor has commented that measures will come into effect which will broaden the scope of FATCA, and will mandate Financial Institutions to report on account holders resident in several additional countries. These rules are due to come into force from 1 January 2016, with the first reporting in 2017 or 2018.
In addition, the Budget commentary confirms that the new FATCA provisions will remove holding companies from the definition of reporting financial institution, consistent with the terms of the UK/US IGA. We await the publication of the provisions to confirm the exact scope of these changes.
Tax rates and National Insurance
The Chancellor announced that the income tax personal allowance will be increased to £10,800 for 2016-17 and £11,000 for 2017-18. The basic rate threshold will also be increased by indexation; legislation will be introduced in Finance Bill 2015 to increase the basic rate threshold to £31,900 for 2016-17 and £32,300 for 2017-18.
The Chancellor also announced that the Government intends to abolish Class 2 National Insurance contributions for the self-employed in the next Parliament. This measure may be seen as a relief, albeit slightly late, after dealing with HMRC’s change of view in relation to liability to pay Class 2 National Insurance due to being a partner in an investment partnership.
The Government will introduce an allowance from 6 April 2016 to remove tax on up to £1,000 of savings income for basic rate payers (£500 for higher rate payers).
The Government also announced that they will abolish the tax return for millions of individuals from 2016 in a bid to make the administration of taxes easier. We will need to await detail of the proposed revisions to establish the effect of the changes.
Legislation will be introduced in the new Parliament to reduce the pension lifetime allowance to £1million. Certain measures will be introduced alongside the reduction to protect savers to ensure the changes are not retrospective. This change will have effect from 6 April 2016.
The government has continued to affirm its intention to tackle tax avoidance and tax evasion. They intend to bring in measures to further penalise tax payers and potentially advisors who are involved in tax evasion. They also announced that tax payers who avoid tax under arrangements which fall within the General Anti-Abuse Rule will be subject to tax geared penalties.
Fund and partnership tax issues:
The Budget notes confirm that rules regarding Disguised Investment Management Fees will be included in Finance Bill 2015. They have also taken the opportunity to confirm that the legislation has been revised following the consultation to restrict the charge on non-UK residents to UK duties and to ensure that the rules apply to investment trust managers.
The Government also acknowledged their continued commitment to work with the Office of Tax Simplification in respect to their report on partnership taxation and its recommendations.
Portfolio company and other corporation tax considerations:
The Chancellor announced that measures will be introduced in Finance Bill 2015 to prevent the utilisation of brought forward losses through contrived arrangements. The measures are not intended to affect normal tax planning around commercial arrangements. The changes will apply from today.
The Budget notes also confirm that previously announced rules to tackle diverted profits will be included in Finance Bill 2015.
The Budget announced that the rates for Ultra Low Emission Vehicles will increase at a slower rate than previously announced and that rates for other cars will increase by three percentage points.
Legislation will be introduced in Finance Bill 2015 to provide an exemption from tax for qualifying trivial benefits in kind costing less than £50. This may simplify the administration in dealing with employee benefits.
Measures will be introduced, effective from today, which will prevent individuals obtaining entrepreneurs’ relief where they do not have a 5% direct interest in a trading company. This may affect the tax position of management who have entered into arrangements whereby they invest in a trading company using a joint venture company. The detail in relation to these rules should be available in Finance Bill 2015 when it is published.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.