As anticipated, this was a low key Budget for individuals. Announcements made were about the detail rather than policy changes.
Rates, allowances and digitalisation of the tax system
The pre-announced personal allowances and tax thresholds to be introduced from 6 April 2017, including an increase in the higher rate threshold from £43,000 to £45,000, were confirmed. There was also reconfirmation of the Government’s commitment to increase the income tax personal allowance to £12,500 and the higher rate income tax band to £50,000 by 2020.
After just two tax years, the £5,000 tax free dividend allowance will be reduced to £2,000 from 6 April 2018. This was signposted as reducing an unfair advantage that director-shareholders obtain through incorporation of their business. In practice we will need to wait and see whether this has the desired impact upon behaviour.
The Government remains committed to the introduction of Making Tax Digital, with a relaxation announced for smaller businesses and landlords (with a turnover below the VAT threshold) who will have an additional year, until April 2019, to prepare for quarterly reporting.
Despite calls by the professions for a delay in the introduction of the new deemed domicile regime for long-term UK residents and those born in the UK (including rules for offshore trusts), the changes will go ahead from 6 April 2017. This represents a fundamental change in the compliance landscape for those who become deemed UK domiciled, who will have to report and pay UK tax upon worldwide income and capital gains. There remains much uncertainty around these new rules with clarification not expected until publication of the revised Finance Bill 2017 on 20 March. For further information, see www.kpmg.com/uk/nondoms.
As part of the domicile changes, the extension of inheritance tax to all UK residential property held indirectly by an offshore trust or company will go ahead from 6 April 2017, albeit clarification of a number of details remains outstanding.
Rent-a-room relief will be subject to a consultation with the aim of better supporting its intended purpose of increasing the supply of affordable long-term lodgings.
‘How we tax Work’
The difference in the overall tax rate suffered by the self-employed, those who incorporate their business and employees has been subject to various recent reviews. The Government’s objective is that people doing similar work for a similar wage should be taxed fairly. The Chancellor confirmed that a report can be expected in the summer. In the meantime those who are self-employed will see an increase in their National Insurance Contributions up to the existing threshold by 1% in both April 2018 and April 2019 and the tax free dividend allowance will (as above) be reduced to £2,000, the latter trailed as a disincentive to incorporation.
A response document and draft legislation to clarify and improve aspects of partnership taxation is still awaited. The Government intends to legislate in Finance Bill 2017/18.
The position for personal taxes often appears to be lacking a clear direction. There is no apparent overarching strategy or a planned approach to the wider structural questions around income generation and personal wealth. As such, we would welcome the introduction of a personal tax roadmap that sets out the direction of travel for the taxation of individuals.
Individuals would welcome some certainty around future changes, making it easier to plan for the longer term. Signposting policy direction is key in order that the UK remains an attractive and stable fiscal environment for business owners as well as the businesses themselves.
There are significant changes on the horizon for non-UK domiciled individuals in the UK
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