For individuals, this translates into an unexpected cut in the rate of capital gains tax, a new Entrepreneurs’ Relief for investors and generous ISA incentives for the under 40s. Alongside increases to tax free allowances and tax bands, as well as new allowances for micro-entrepreneurs, this was a Budget to ‘light the fires of enterprise’
From 6 April 2017, the personal allowance will be increased to £11,500, and the basic rate limit increased to
£33,500, making the higher rate threshold £45,000. As previously announced, new dividend tax rates, a Dividend Allowance and a Personal Savings Allowance come into force from 6 April 2016. See Tax rates and allowances for more details.
A new £1,000 allowance will apply to both property and trading income from April 2017 aimed at helping the micro-entrepreneur. Those with income from property or trading income below this limit, will not have to declare this income or pay tax on it, easing the administrative burden. If income is in excess of this amount, individuals will have the option of calculating their taxable income in the normal way or simply deducting £1,000 from their total receipts.
The loans to participators tax rate will increase to 32.5% from April 2016. Historically, private companies could make a loan to a shareholder in preference to a dividend, which under the current tax rules could be advantageous, as the tax rate on such a loan is 25%, whilst a dividend would be taxed at up to 38.1%. This announcement brings the rate on these loans in line with the tax a higher rate taxpayer would pay on a dividend.
The total amount that can be saved each year into an ISA will be increased from £15,240 to £20,000 from 6 April 2017.
Also from 6 April 2017, any adult under 40 will be able to open a Lifetime ISA, see Lifetime ISA for more details. Up to £4,000 can be saved each year until the age of 50 and a 25% bonus will be received from the Government. This Lifetime ISA can be used to buy a first home or saved until age 60 and then used as retirement income, otherwise a 5% charge will apply and the bonus will be withdrawn if the funds are taken out for any other reason. Income and gains within the ISA are tax free in the usual way, making this a flexible savings vehicle.
The rules announced in 2015 regarding the restriction to the tax relief for loan interest paid by individual landlords to the basic rate are to be revised slightly. These proposed revisions put beyond doubt that individual beneficiaries of deceased persons’ estates are entitled to the basic rate tax reduction. It also clarifies the way the calculation of the restriction is made and the carry forward of excess relief in any subsequent year in which property income is received.
Families who hold assets of historic or national importance potentially face an increased inheritance tax bill. Since the introduction of inheritance tax in the 1980s, a relief has been available which protects assets of national importance from being sold off to meet inheritance tax liabilities. Generally, the inheritance tax liability is deferred provided that the asset is well maintained, available to the public to view and is not sold. When any of these conditions are no longer met, an inheritance tax liability arises, typically at 40%. From 16 March 2016, assets brought into charge can be taxed at the higher of the current rate of inheritance tax and the charge prevailing at the time of the first charge, which could be as much as 83% being the Estate Duty rate payable in the late 1970s.
As announced in 2015, a 3% stamp duty land tax (SDLT) surcharge is being introduced from 1 April 2016 on the purchase of additional residential properties, see SDLT surcharge on second homes and buy-to-lets for more details. Contrary to the draft proposals issued last year, there will be no exemption for significant investors holding 15 or more properties. Draft legislation has also been published that provides clarification on when and how the surcharge will apply to properties acquired through trusts.
SDLT is also being reformed in respect of commercial property, see Changes to SDLT on non-residential property for more details. The current ‘slab’ system will be replaced by a ‘slice’ system from 17 March 2016.
Capital Gains Tax (CGT)
For capital gains accruing on or after 6 April 2016, CGT rates will be reduced from 18% to 10% for basic rate taxpayers, and from 28% to 20% for higher rate taxpayers. These reduced rates will not apply to gains on the disposal of residential property (other than those qualifying for private residence relief) and the receipt of carried interest, see Reduction in capital gains tax (CGT) rates from 6 April 2016 for further details.
For those acquiring Employee Shareholder Shares after 16 March 2016, a lifetime limit of £100,000 of CGT exempt gains that a person can make on the disposal of those shares will apply. See Capital Gains Tax lifetime limit on Employee Shareholder Status exemption for further details.
Entrepreneurs’ Relief for investors applies to external investors in unlisted trading companies (or holding companies of trading groups), for newly issued ordinary shares acquired for new consideration on or after 17 March 2016 — see Extension of Entrepreneurs’ Relief to ‘Long Term Investors’ for further details. The investment must be held for at least three years from 6 April 2016 and a £10 million lifetime cap for this investors’ relief will apply in addition to the lifetime Entrepreneurs’ Relief allowance.
Restrictions on the availability of Entrepreneurs’ Relief where companies hold shares in a joint venture company or partnership, introduced as an anti-avoidance measure in the March 2015 Budget, will be relaxed so as not to adversely affect genuine commercial arrangements. See Entrepreneurs Relief changes for associated disposals and joint venture companies for more details.
The new prescribed circumstances under which non-UK residents disposing of UK residential property are not required to file a non-resident CGT return, have been confirmed as the disposal of a residential property on or after 6 April 2015 which takes place for no gain or loss, or on the grant of a lease for no premium to an unconnected person in a bargain at arm’s length.
Non-UK domiciled (non-dom) individuals
The Government is undertaking major reforms to non-UK domicile taxation, which will take effect from 6 April 2017, see new definition of domicile for tax purposes for further details. In this Budget, it has been announced that non doms who become deemed UK domiciled under the new rules can rebase their non-UK assets for CGT purposes to their market value on 6 April 2017, such that they should only be subject to UK CGT on future growth.
The Government is continuing to progress with and consult on the major transformation project towards digital tax accounts (which, when fully operational, will remove the need to file annual tax returns). The 2016 Budget includes further steps for businesses, landlords and the self-employed with continuing consideration of the options to simplify tax rules and reduce administrative burdens. For these taxpayers who are already keeping records digitally and updating HMRC regularly, from 2018 there will be the ability to adopt a ‘pay as you go’ method of tax payments. The Government’s intention appears to be to allow flexibility for taxpayers so that they can mould tax payment patterns to fit better with their actual cash flow.
Tackling tax avoidance
The Government will introduce (in Finance Bill 2017) a new legal requirement to correct past offshore non- compliance within a defined period of time and with new sanctions for those who fail to do so. There is currently no further detail on the definitions or sanctions and HMRC will be consulting on this shortly. This new requirement will be underpinned by the information to be provided to HMRC under the Common Reporting Standard, with the first territories supplying information from September 2017.