On Wednesday 3 December the Office for Budget Responsibility
published its updated forecast for the UK economy. Chancellor George
Osborne responded to that forecast in a statement to the House of
Commons later on that day.
In the period since the Budget in March a number of consultation
papers and discussion documents have been published by HMRC and some of
these proposals are summarised here. Draft legislation relating to many
of these areas will be published on 10 December and some of the
details in this summary may change as a result.
Our summary also provides a reminder of other significant developments which are to take place from April 2015.
The Chancellor's statement
His speech and the subsequent documentation announced tax measures in addition to the normal economic measures.
Our summary concentrates on the tax measures which include:
- improvements to the starting rate of tax for savings income
- new rules for accessing pension funds
- removal of corporation tax relief for goodwill on incorporation
- changes to the Construction Industry Scheme
- the introduction of new CGT rules for non-residents and UK residential property
- changes to the remittance basis charge for resident non-domiciles
- changes to the tax treatment of pensions on death
- changes to the IHT treatment of trusts
- changes to Stamp Duty Land Tax for residential property
Personal Tax
The personal allowance for 2015/16
For those born after 5 April 1948 the personal allowance will be increased from £10,000 to £10,600.
Comment
The reduction in the personal allowance for those with 'adjusted
net income' over £100,000 will continue. The reduction is £1 for
every £2 of income above £100,000. So for 2014/15 there is no
allowance when adjusted net income exceeds £120,000. In 2015/16 the
allowance ceases when adjusted net income exceeds £121,200.
Tax bands and rates for 2015/16
The basic rate of tax is currently 20%. The band of income taxable
at this rate is being decreased from £31,865 to £31,785 so that the
threshold at which the 40% band applies will rise from £41,865 to
£42,385 for those who are entitled to the full basic personal
allowance.
The additional rate of tax of 45% is payable on taxable income above £150,000.
Dividend income is taxed at 10% where it falls within the basic rate
band and 32.5% where liable at the higher rate of tax. Where income
exceeds £150,000, dividends are taxed at 37.5%.
Starting rate of tax for savings income
From 6 April 2015, the maximum amount of an eligible individual's
savings income that can qualify for the starting rate of tax for
savings will be increased to £5,000 from £2,880, and this starting rate
will be reduced from 10% to nil. These rates are not available if
taxable non-savings income (broadly earnings, pensions, trading profits
and property income) exceeds the starting rate limit.
Comment
This will increase the number of savers who are not required to
pay tax on savings income, such as bank or building society interest.
If a saver's taxable non-savings income will be below the total of
their personal allowance plus the £5,000 starting rate limit then
they can register to receive their interest gross using a form R85.
The increase will also provide a useful tax break for
director/shareholders who extract their share of profits from a
company by taking a low salary and the balance in dividends. This is
because dividends are taxed after savings income and thus are not
included in the individual's 'taxable non-savings income'.
Example
| Type of income |
Amount |
Tax rate |
Comment on tax rate |
| Salary |
£10,600 |
Nil |
(as covered by personal allowance) |
| Bank interest |
£3,000 |
Nil |
(as salary plus interest is less than £15,600) |
Dividend income is then taxed at the appropriate dividend tax rates.
Transferable Tax Allowance for some
From 6 April 2015 married couples and civil partners may be eligible for a new Transferable Tax Allowance.
The Transferable Tax Allowance will enable spouses and civil
partners to transfer a fixed amount of their personal allowance to their
spouse. The option to transfer is not available to unmarried couples.
The option to transfer will be available to couples where neither
pays tax at the higher or additional rate. If eligible, one partner
will be able to transfer 10% of their personal allowance to the other
partner which means £1,060 for the 2015/16 tax year.
Comment
For those couples where one person does not use all of their
personal allowance the benefit will be up to £212 (20% of £1,060).
HMRC will, no doubt, be publicising the availability of the
Transferable Tax Allowance in the next few months and details of how
couples can opt to transfer allowances.
New Individual Savings Accounts (NISAs)
On 1 July 2014 ISAs were reformed into a simpler product, the NISA,
and the overall annual subscription limit for these accounts was
increased to £15,000 for 2014/15. From 6 April 2015 the overall NISA
savings limit will be increased to £15,240.
The Chancellor has now announced an additional ISA allowance for
spouses or civil partners when an ISA saver dies. From 6 April 2015,
surviving spouses will be able to invest the inherited funds into their
own ISA, on top of their usual allowance. This measure applies for
deaths from 3 December 2014.
At Budget 2014, the Chancellor announced that peer-to-peer loans
would be eligible for inclusion within NISAs. The government is
consulting on the options for changes to the NISA rules to allow
peer-to-peer loans to be held within them.
No start date has been announced.
Comment
Peer-to-peer lending is a small but rapidly growing alternative
source of finance for individuals and businesses. The inclusion of
such loans in NISAs will increase choice for investors and encourage
the growth of the peer-to-peer sector.
Junior ISA and Child Trust Fund (CTF)
The annual subscription limit for Junior ISA and Child Trust Fund accounts will increase from £4,000 to £4,080.
The government has previously decided that a transfer of savings
from a CTF to a Junior ISA should be permitted at the request of the
registered contact for the CTF. The government has confirmed the measure
will have effect from 6 April 2015.
Bad debt relief on investments made on peer-to-peer lending
The government will introduce a new relief to allow individuals
lending through peer-to-peer platforms to offset any losses from loans
which go bad against other peer-to-peer income. It will be effective
from 6 April 2016 and, through self assessment, will allow individuals
to make a claim for relief on losses incurred from 6 April 2015.
Pensions - changes to access of pension funds
In Budget 2014, George Osborne announced 'pensioners will have
complete freedom to draw down as much or as little of their pension pot
as they want, anytime they want'. Some of changes have already taken
effect but the big changes will come into effect on 6 April 2015 for
individuals who have money purchase pension funds.
The tax consequences of the changes are contained in the Taxation of Pensions Bill which is currently going through Parliament.
Under the current system, there is some flexibility in accessing a pension fund from the age of 55:
- tax free lump sum of 25% of fund value
- purchase of an annuity with the remaining fund, or
- income drawdown.
For income drawdown there are limits, in most cases, on how much people can draw each year.
An annuity is taxable income in the year of receipt. Similarly any
monies received from the income drawdown fund are taxable income in the
year of receipt.
From 6 April 2015, the ability to take a tax free lump sum and a
lifetime annuity remain but some of the current restrictions on a
lifetime annuity will be removed to allow more choice on the type of
annuity taken out.
The rules involving drawdown will change. There will be total freedom to access a pension fund from the age of 55.
It is proposed that access to the fund will be achieved in one of two ways:
- allocation of a pension fund (or part of a pension fund) into a
'flexi-access drawdown account' from which any amount can be taken
over whatever period the person decides
- taking a single or series of lump sums from a pension fund (known as an 'uncrystallised funds pension lump sum').
When an allocation of funds into a flexi-access account is made the
member typically will take the opportunity of taking a tax free lump
sum from the fund (as under current rules).
The person will then decide how much or how little to take from the
flexi-access account. Any amounts that are taken will count as taxable
income in the year of receipt.
Access to some or all of a pension fund without first allocating to a
flexi-access account can be achieved by taking an uncrystallised funds
pension lump sum.
The tax effect will be:
- 25% is tax free
- the remainder is taxable as income.
Comment
The fundamental tax planning point arising from the changes is
self-evident. A person should decide when to access funds depending
upon their other income in each tax year.
Pensions - changes to tax relief for pension contributions
The government is alive to the possibility of people taking
advantage of the new flexibilities by 'recycling' their earned income
into pensions and then immediately taking out amounts from their
pension funds. Without further controls being put into place an
individual would obtain tax relief on the pension contributions but
only be taxed on 75% of the funds immediately withdrawn.
Currently an 'annual allowance' sets the maximum amount of tax
efficient contributions. The annual allowance is £40,000 (but there may
be more allowance available if the maximum allowance has not been
utilised in the previous years).
Under the proposed rules from 6 April 2015, the annual allowance for
contributions to money purchase schemes will be reduced to £10,000 in
certain scenarios. There will be no carry forward of any of the £10,000
to a later year if it is not used in the year.
The main scenarios in which the reduced annual allowance is triggered is if:
- any income is taken from a flexi-access drawdown account, or
- an uncrystallised funds pension lump sum is received.
However just taking a tax-free lump sum when funds are transferred
into a flexi-access account will not trigger the £10,000 rule.
Taxation of resident non-domiciles
The Chancellor has announced an increase in the annual charge paid
by non-domiciled individuals resident in the UK who wish to retain
access to the remittance basis of taxation.
The charge paid by people who have been UK resident for seven out of
the last nine years will remain at £30,000. The charge paid by people
who have been UK resident for 12 out of the last 14 years will increase
from £50,000 to £60,000. A new charge of £90,000 will be introduced for
people who have been UK resident for 17 of the last 20 years. The
government will also consult on making the election apply for a minimum
of three years.
Business Tax
Corporation tax rates
From 1 April 2015 the main rate of corporation tax, currently 21%, will be reduced to 20%.
As the small profits rate is already 20%, the need for this separate
code of taxation disappears. The small profits rate will therefore be
unified with the main rate.
Research and Development (R&D) tax credits
The government will increase the rate of the 'above the line' credit
from 10% to 11% and will increase the rate of the SME scheme from 225%
to 230% from 1 April 2015.
It is proposed to restrict qualifying expenditure for R&D tax
credits from 1 April 2015 so that the costs of materials incorporated in
products that are sold are not eligible. There will be a package of
measures to streamline the application process for smaller companies
investing in R&D.
Construction Industry Scheme (CIS) improvements
In Budget 2014 the government announced that it would consult on
options to improve the operation of the scheme for smaller businesses
and to introduce mandatory online CIS filing for contractors. The
consultation has now taken place.
A key reform concerns changes to the requirements for subcontractors
to achieve and retain gross payment status. There are proposals for
simplifying and improving the compliance and turnover tests which will
enable more subcontractors to access gross payment status. There is no
intention to change the £30,000 turnover test for sole traders, but the
government proposes lowering the threshold for the upper limit of the
turnover test to help more established businesses with multiple
partners or directors qualify for gross payment status. The current
upper threshold of £200,000 could fall to as little as £100,000.
Some compliance tests would be relaxed so that it would be easier for subcontractors to retain their gross payment status.
For contractors the government is proposing mandatory online filing
of monthly CIS returns. Improvements will be made to the IT systems to
provide a better CIS online service. These will include the online
system for verification of subcontractors by contractors.
Comment
About two thirds of CIS contractors are also employers who
therefore file Real Time Information PAYE returns online. It is no
surprise that the government wants to extend the scope of mandatory
online filing. The improvements to the online verification process
would be welcome but the government is also proposing to remove the
option of verifying subcontractors by telephone.
Class 2 National Insurance contributions (NIC)
From 6 April 2015 liability to pay Class 2 NIC will arise at the end
of each year. Currently a liability to Class 2 NIC arises on a weekly
basis.
The amount of Class 2 NIC due will still be calculated based on the
number of weeks of self-employment in the year, but will be determined
when the individual completes their self assessment return. It will
therefore be paid alongside their income tax and Class 4 NIC. For those
that wish to spread the cost of their Class 2 NIC, HMRC will retain a
facility for them to make regular payments throughout the year. The
current six monthly billing system will cease from 6 April 2015.
Those with profits below a threshold will no longer have to apply in
advance for an exception from paying Class 2 NIC. Instead they will
have the option to pay Class 2 NIC voluntarily at the end of the year
so that they may protect their benefit rights.
Corporation tax relief for goodwill on incorporation
Corporation tax relief is given to companies when goodwill and
intangible assets are recognised in the financial accounts. Relief is
normally given on the cost of the asset as the expenditure is written
off in accordance with Generally Accepted Accounting Practice or at a
fixed 4% rate, following an election.
An anti-avoidance measure has been announced to restrict corporation
tax relief where a company acquires internally-generated goodwill and
certain other intangible assets from related individuals on the
incorporation of a business.
In addition, individuals will be prevented from claiming
Entrepreneurs' Relief on disposals of goodwill when they transfer the
business to a related company. Capital gains tax will be payable on the
gain at the normal rates of 18% or 28% rather than 10%.
These measures will apply to all transfers on or after 3 December
2014 unless made pursuant to an unconditional obligation entered into
before that date.
Comment
Prior to this announcement it was possible, for example, on
incorporation of a sole trader's business to a company which is owned
by the sole trader, for the company to obtain corporation tax relief
on the market value of goodwill at the time of incorporation. The
disposal by the sole trader would qualify for a low rate of capital
gains tax.
The government considers this is unfair to a business that has always operated as a company.
Corporation tax reliefs - creative sector
Two new reliefs and a change to an existing relief are proposed:
- Children's television tax relief
- The government
will introduce a new tax relief for the production of children's
television programmes from 1 April 2015. The relief will be available
at a rate of 25% on qualifying production expenditure.
- Orchestra tax relief
- The government will consult on the introduction of an orchestra tax relief from 1 April 2016.
- High-end television tax relief
- The
government will explore with the industry whether to reduce the
minimum UK expenditure for high-end TV relief from 25% to 10% and
modernise the cultural test, to bring the relief in line with film tax
relief.
Overarching contracts of employment and temporary workers
The government will review the increasing use of overarching
contracts of employment by employment intermediaries such as 'umbrella
companies'. These arrangements enable workers to obtain tax relief for
home to work travel that would not ordinarily be available. The
government will publish a discussion paper shortly which may result in
new measures at Budget 2015.
Banks - loss relief restriction
The government will restrict the amount of a bank's annual profit
that can be offset by the carry forward of losses to 50% from 1 April
2015. The restriction will apply to losses accruing up to 1 April 2015
and will include an exemption for losses incurred in the first five
years of a bank's authorisation.
Diverted profits tax
A new tax to counter the use of aggressive tax planning techniques
by multinational enterprises to divert profits from the UK will be
introduced. The Diverted Profits Tax will be applied using a rate of 25%
from 1 April 2015.
Employment Taxes
Employer provided cars
The scale of charges for working out the taxable benefit for an
employee who has use of an employer provided car are now announced well
in advance. Most cars are taxed by reference to bands of CO
2
emissions. The percentage applied to each band has typically gone up
by 1% each year with an overriding maximum charge of 35% of the list
price of the car. From 6 April 2015, the percentage applied by each
band goes up by 2% and the maximum charge is increased to 37%.
Comment
These increases have the perverse effect of discouraging retention of the same car. New cars will often have lower CO2 emissions than the equivalent model purchased by the employer, say three years ago.
Employer National Insurance contributions (NIC) for the under 21s
From 6 April 2015 employer NIC for those under the age of 21 will be
reduced from the normal rate of 13.8% to 0%. For the 0% rate to apply
the employee will need to be under 21 when the earnings are paid.
This exemption will not apply to earnings above the Upper Secondary
Threshold (UST) in a pay period. The weekly UST is £815 for 2015/16
which is equivalent to £42,385 per annum. Employers will be liable to
13.8% NIC beyond this limit.
Comment
The UST is a new term for this new NIC exemption. It is set at the
same amount as the Upper Earnings Limit, which is the amount at
which employees' NIC fall from 12% to 2%.
NIC for apprentices under 25
The government will abolish employer NIC up to the upper earnings
limit for apprentices aged under 25. This will come into effect from 6
April 2016.
NIC Employment Allowance
The Employment Allowance was introduced from 6 April 2014. It is an
annual allowance of up to £2,000 which is available to many employers
and can be offset against their employer NIC liability.
The government will extend the annual £2,000 Employment Allowance
for employer NIC to care and support workers. This will come into
effect from 6 April 2015.
Review of employee benefits
The Office of Tax Simplification has published a number of detailed
recommendations on the tax treatment of employee benefits in kind and
expenses. In response the government launched:
- a package of four related consultations on employee benefits in kind and expenses
- a longer term review of the tax treatment of travel and subsistence expenses
- a call for evidence on modern remuneration practices.
The government has now announced:
- From 6 April 2015 there will be a statutory exemption for trivial benefits in kind costing less than £50.
- From 6 April 2016, the £8,500 threshold below which employees
do not pay income tax on certain benefits in kind will be removed.This
threshold adds unnecessary complexity to the tax system. There will be
new exemptions for carers and ministers of religion.
- There will be an exemption for certain reimbursed expenses
which will replace the current system where employers apply for a
dispensation to avoid having to report non-taxable expenses. The new
exemption for reimbursed expenses will not be available if used in
conjunction with salary sacrifice.
- The introduction of a statutory framework for voluntary
payrolling benefits in kind. Payrolling benefits instead of submitting
forms P11D can offer substantial administrative savings for some
employers.
Capital Taxes
Capital gains tax (CGT) rates
The current rates of CGT are 18% to the extent that any income tax
basic rate band is available and 28% thereafter. The rate for disposals
qualifying for Entrepreneurs' Relief is 10% with a lifetime limit of
£10 million for each individual.
CGT - Entrepreneurs' Relief (ER)
The government will allow gains which are eligible for ER, but which
are instead deferred into investments which qualify for the Enterprise
Investment Scheme or Social Investment Tax Relief to remain eligible
for ER when the gain is realised. This will benefit qualifying gains on
disposals that would be eligible for ER but are deferred into either
scheme on or after 3 December 2014.
CGT - non-residents and UK residential property
At present a non-resident individual or company is not liable to CGT
on residential property even though it is located in the UK. This is in
marked contrast to many other countries that charge a capital gains
tax on the basis of the location of a property rather than on the
location of the vendor.
Therefore from 6 April 2015 a CGT charge will be introduced on gains
made by non-residents disposing of UK residential property. The rate of
tax for non-resident individuals will be the same as the CGT rates for
UK individuals. Non-resident individuals will have access to the CGT
annual exemption.
The rate of tax for companies will mirror the UK corporation tax rate.
The charge will not apply to the amount of the gain relating to
periods prior to 6 April 2015. The government will allow either rebasing
to a 5 April 2015 value or a time-apportionment of the whole gain, in
most cases.
The government has decided that some changes are required to the
rules determining the circumstances when a property can benefit from
Private Residence Relief (PRR). The changes will apply to both a UK
resident disposing of a residence in another country and a non-resident
disposing of a UK residence.
From 6 April 2015 a person's residence will not be eligible for PRR for a tax year unless either:
- the person making the disposal was resident in the same country as the property for that tax year, or
- the person spent at least 90 midnights in that property.
Comment
The main point of the changes to the PRR rules is to remove the
ability of an individual who is resident in, say, France with a
property in the UK as well as France to nominate the UK property as
having the benefit of PRR. Any gain on the French property is not
subject to UK tax anyway and, without changes to the PRR rules, the
gain on the UK property could be removed by making a PRR election.
The good news is that the latest proposals retain the ability of a
UK resident with two UK residences to nominate which of those
properties have the benefit of PRR.
Changes to the tax treatment of pensions on death
IHT and pension funds
If an individual has not bought an annuity, a defined contribution
pension fund remains available to pass on to selected beneficiaries.
Inheritance tax (IHT) can be avoided by making a 'letter of wishes' to
the pension provider suggesting to whom the funds should be paid. If an
individual's intention has not been expressed the funds may be paid to
the individual's estate resulting in a potential IHT liability.
Other tax charges on pension funds - current law
There are other tax charges to reflect the principle that income tax
relief would have been given on contributions into the pension fund
and therefore some tax should be payable when the fund is paid out. For
example:
- if the fund is paid as a lump sum to a beneficiary, tax at 55% of the fund value is payable
- if the fund is placed in a drawdown account to provide income
to a 'dependant' (for example a spouse), the income drawn down is taxed
at the dependant's marginal rate of income tax.
There are some exceptions from the 55% charge. It is possible to
pass on a pension fund as a tax free lump sum where the individual has
not taken any tax free cash or income from the fund and they die under
the age of 75.
Other tax charges on pension funds - changes
The government has decided to introduce significant exceptions from the tax charges.
Under the new system, anyone who dies under the age of 75 will be
able to give their remaining defined contribution pension fund to
anyone completely tax free, whether it is in a drawdown account or
untouched.
The fund can be paid out as a lump sum to a beneficiary or taken out
by the beneficiary through a 'flexi access drawdown account' (see the
personal tax section of this summary for an explanation of this term).
Those aged 75 or over when they die will be able to pass their
defined contribution pension fund to any beneficiary who will then be
able to draw down on it as income at their marginal rate of income tax.
Beneficiaries will also have the option of receiving the pension as a
lump sum payment, subject to a tax charge of 45%.
The proposed changes take effect for payments made from 6 April 2015.
Tax treatment of inherited annuities
The Chancellor has announced further changes to the pension tax
regime. From 6 April 2015 beneficiaries of individuals who die under the
age of 75 with a joint life or guaranteed term annuity will be able to
receive any future payments from such policies tax free. The tax rules
will also be changed to allow joint life annuities to be passed on to
any beneficiary.
Comment
Without this change in tax treatment of inherited annuities,
individuals had a potential prospective tax advantage in choosing not
to purchase an annuity. If an individual died relatively early,
their fund would pass tax free to beneficiaries. If the individual
would prefer the financial comfort of a guaranteed payment of income,
beneficiaries would be taxed on the income at their marginal rate of
income tax under current rules. From 6 April 2015, the beneficiaries
will be able to receive any future payments from such policies tax
free.
Changes to the trust IHT regime
Certain trusts, known as 'relevant property trusts', provide a
mechanism to allow assets to be held outside of an individual's estate
thus avoiding a 40% IHT liability on the death of an individual. The
downside is that there are three potential points of IHT charge on
relevant property trusts:
- a transfer of assets into the trust is a chargeable transfer in both lifetime and on death
- a charge has to be calculated on the value of the assets in
the trust on each ten-year anniversary of the creation of the trust
- an exit charge arises when assets are effectively transferred out of the trust.
The calculation of the latter two charges is currently a complex
process which can take a significant amount of time to compute for very
little tax yield.
A third consultation on proposed changes was issued in June 2014.
Although still proposals, the new rules already apply in order to
prevent tax planning to forestall the effect of the new rules. The new
rules will apply to situations where:
- a new trust is made after 6 June 2014
- property is added to an existing trust after 6 June 2014
- property in an existing trust, the terms of which are changed in certain ways after 6 June 2014.
Under the new rules an individual would have a 'settlement nil rate
band' (SNRB) which would be unconnected to their personal nil rate band.
The SNRB will be the same amount as the personal nil rate band
(currently £325,000). Where an individual intends to create more than
one trust in their lifetime, that person can make an election to
determine the percentage of their SNRB to be allocated to each
settlement for the purposes of both ten-year and exit charges.
Comment
If Mr A considers he will want to create two trusts in his
lifetime, he can elect for each trust to have part, say half, of the
SNRB. The ten-year charge for each trust would then be calculated by
deducting half of the SNRB from the value of the assets in the trust
at the ten-year date.
This is less generous than the regime for a trust which was
established before 7 June 2014 (and where no new property is added
and the terms of the trust are not changed). For many such trusts,
with effective planning, the ten-year charge calculation would have
the benefit of the full nil rate band even though the individual had
created more than one trust.
If no election is made to allocate part of the SNRB, a trust would
have to calculate the charges on the basis that none of the SNRB is
available.
New funds added from 7 June 2014 will be treated as a separate fund
within the settlement. The individual who created the trust can allocate
any part of his SNRB to the fund. The property put into the trust
before 7 June would remain subject to the old tax regime.
IHT - exemption for emergency services personnel and humanitarian aid workers
Following consultation since Budget 2014, the government will extend
the existing IHT exemption for members of the armed forces whose death
is caused or hastened by injury while on active service to members of
the emergency services and humanitarian aid workers responding to
emergency circumstances. It will have effect for deaths on or after 19
March 2014.
Stamp Duty Land Tax (SDLT)
The Chancellor has announced a major reform to SDLT on residential
property transactions. SDLT is charged at a single percentage of the
price paid for the property, depending on the rate band within which the
purchase price falls. From 4 December 2014 each new SDLT rate will
only be payable on the portion of the property value which falls within
each band. This will remove the distortion created by the existing
system, where the amount of tax due jumps at the thresholds.
Where contracts have been exchanged but not completed on or before 3
December 2014, purchasers will have a choice of whether the old or new
structure and rates apply. This measure will apply in Scotland until 1
April 2015 when SDLT is devolved to the Scottish Parliament.
The new rates and thresholds are:
| Purchase price of property |
New rates paid on the part of the property price within each tax band |
| £0 - £125,000 |
0% |
| £125,001 - £250,000 |
2% |
| £250,001 - £925,000 |
5% |
| £925,001 - £1,500,000 |
10% |
| £1,500,001 and above |
12% |
Comment
Purchasers of residential property valued at £937,500 or less will
pay the same or in most cases less tax than they would have paid
under the old rules.
Annual Tax on Enveloped Dwellings (ATED)
The ATED is payable by those purchasing and holding their homes
through corporate envelopes, such as companies. The government
introduced a package of measures in 2012 and 2013 to tackle this tax
avoidance. One of the measures was the ATED.
The government has now announced an increase in the rates of ATED by
50% above inflation. From 1 April 2015, the charge on residential
properties owned through a company and worth:
- more than £2 million but less than £5 million will be £23,350
- more than £5 million but less than £10 million will be £54,450
- more than £10 million but less than £20 million will be £109,050
- more than £20 million will be £218,200.
Other matters
Devolved tax powers to Scottish Parliament
Following the referendum on Scottish independence, the main
political parties in Scotland have agreed on new devolved powers. The UK
government will publish draft clauses in January 2015 for the
implementation of these powers.
For income tax:
- the Scottish Parliament will have the power to set income tax
rates and the thresholds at which these are paid for the non-savings
and non-dividend income of Scottish taxpayers
- all other aspects of income tax will remain reserved to the UK
Parliament, including the imposition of the annual charge to income tax,
the personal allowance, the taxation of savings and dividend income,
the ability to introduce and amend tax reliefs and the definition of
income
- HMRC will continue to collect and administer income tax across the UK.
For other taxes:
- VAT
- Receipts raised in Scotland by the first 10
percentage points of the standard rate of VAT will be assigned to the
Scottish government's budget. All other aspects of VAT will remain
reserved to the UK Parliament.
- Air passenger duty
- The
power to charge tax on air passengers leaving Scottish airports will
be devolved to the Scottish Parliament, with freedom to make
arrangements with regard to the design and collection of any
replacement tax.
- Aggregates levy
- The power to
charge tax on the commercial exploitation of aggregate in Scotland will
be devolved to the Scottish Parliament, once the current European
legal challenges are resolved.
Devolution to Northern Ireland
The government recognises the strongly held arguments for devolving
corporation tax rate-setting powers to Northern Ireland. HMRC and HM
Treasury have concluded that this proposal could be implemented provided
that the Northern Ireland Executive is able to manage the financial
implications.
The parties in the Northern Ireland Executive are currently taking
part in talks aimed at resolving a number of issues. The government will
introduce legislation in this Parliament subject to satisfactory
progress on these issues in the cross-party talks.
Devolution of non-domestic rates to Wales
Agreement has been reached with the Welsh government on full
devolution of non-domestic (business) rates policy. The fully devolved
regime will be operational by April 2015.
Offshore tax evasion
In 2014, the government announced its intention to introduce a new
strict liability criminal offence of failing to declare taxable offshore
income and gains. This means that HMRC would need only demonstrate
that a person failed to correctly declare the income or gains, and not
that they did so with the intention of defrauding the Exchequer. This
will complement existing offences, such as the common law offence of
cheating the public revenue, with less serious sanctions than existing
criminal offences.
The government is consulting on the design of the new offence.
The government considers the majority of cases are still likely to
be investigated and settled through civil means. Another consultation
is seeking views on strengthening the existing civil penalty regime on
offshore evasion.
The offshore penalties regime has applied to liabilities arising
from 6 April 2011. The level of penalty is based on the type of
behaviour that leads to the understatement of tax, and is linked to the
tax transparency of the territory in which the income or gain arises.
The underlying premise is that where it is harder for HMRC to get
information from another territory, the more difficult it is to detect
and remedy non-compliance and therefore the penalties for failing to
declare income and gains arising in that territory will be higher.
Direct Recovery of Debts (DRD)
At Budget 2014, the Chancellor announced HMRC would be given the
power to recover tax and tax credit debts directly from the bank and
building society accounts (including NISAs) of debtors. A consultation
on DRD set out the process and safeguards but many commentators
considered the safeguards were not robust enough. In response to
concerns about the risk of DRD being used in error and the potential
impact on vulnerable individuals, the government will introduce further
safeguards.
It is now proposed the main features of the DRD process will be:
- only debts of £1,000 or more will be eligible for recovery through DRD
- HMRC will always leave £5,000 across a debtor's accounts, as a minimum, once the debt has been held
- guaranteeing every debtor will receive a face-to-face visit
from HMRC agents, before their debts are considered for recovery through
DRD
- extending the window to 30 calendar days, from the start of the
DRD being initiated to the earliest point at which funds could be
transferred to HMRC
- an option for debtors to appeal against HMRC's decision to a
County Court on specified grounds, including hardship and third party
right.
Scotland will be removed from the scope of DRD as HMRC already has
summary warrant powers in Scotland to recover debts in a similar, though
not identical, manner to DRD.
In order to allow for an extended period of scrutiny, the government intends to legislate in 2015, during the next Parliament.
Comment
HMRC state that the vast majority of people pay their taxes in
full and on time and DRD will only affect individuals and businesses
who are making an active decision not to pay. HMRC also state they
will use the power in a very small minority of cases.
Last year, HMRC collected £505.8 billion from about 35 million
taxpayers. About 90% was paid on time but around £50 billion was not,
and became a debt. They made around 16 million contacts with debtors
by letter, phone, text message or other means to collect the debt.
This included making more than 900,000 visits to follow up on around
400,000 debt cases. HMRC estimate they will use DRD 17,000 times a
year.
Air Passenger Duty (APD)
The Chancellor announced an exemption from reduced rate APD from 1
May 2015 for children under 12 and from 1 March 2016 for children under
16. The government has reviewed how to improve tax transparency in
ticket prices and will consult on whether the APD needs to be displayed
on airline tickets.
If you wish advice on any of the above, please do not hesitate to contact us!
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