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Gift Aid

Gift Aid is the main vehicle for tax efficient giving to charities. It applies to any donation whether large or small, regular or one-off.

Simply by confirming that they are taxpayers, donors can ensure that their chosen charities can reclaim the basic rate of income tax on all their donations, equal to 25% of the amount donated.

This confirmation has only to be completed once for each charity (it can even be done by telephone or internet) and remains valid for as long as the donor remains a taxpayer.

As an added boost for donors, higher rate taxpayers can claim for themselves the difference between basic and higher (currently 20%) or additional (currently 25%) rates of tax against their own income tax liabilities, reducing further the net cost of the donation. This relief may be carried back to reduce the tax payable for the previous tax year.

Example

You give to charity                       £1,000

Charity reclaims tax                        £250

Total value of your gift                £1,250

Tax reduction for higher rate taxpayer £250 and for additional rate taxpayer is £312.50.

 

So a gift worth £1,250 to the charity could cost you as little as £687.50.

Gift Aid Small Donations Scheme

Charities and Community Amateur Sports Clubs (CASCs) may be able to claim top‑up payments from HMRC on small cash donations under the Gift Aid Small Donations Scheme (GASDS). For the purposes of the scheme, a small donation is defined as £20 or less.

 

The GASDS may allow the charity to recover tax although no Gift Aid declaration has been made. Unlike Gift Aid, the scheme applies regardless of whether the donor is a UK taxpayer, although the donation must be collected in the UK. However, the scheme only applies to donations made in cash, making it particularly pertinent to those who operate collection boxes or bucket collections. Cheques and bank transfers are not eligible under the GASDS.

 

To qualify for the GASDS, the organisation must:

 

• Be a charitable trust or a charitable company, recognised by HMRC as a charity for tax purposes or a CASC

 

• Make claims under Gift Aid

 

• Have existed for at least the previous two complete tax years (6 April ‑ 5 April)

 

• Have made a successful Gift Aid claim in at least two out of the previous four tax years, without a gap of two or more tax years between those Gift Aid claims or since the last claim was made

 

• Not have incurred a penalty on a Gift Aid or GASDS claim made in the current or previous tax year.

 

Qualifying organisations can claim a top-up payment worth up to £1,250 on the lower of two amounts:

 

• ten times the amount on which Gift Aid is claimed in respect of qualifying donations made to the charity in the tax year concerned; and

 

• £5,000.

 

Higher and additional rate taxpayers will not be able to claim tax relief on their donations.

 

Charities Online

 

Charities Online allows Gift Aid repayments to be claimed online. The system is designed to speed up and simplify the process of making a repayment claim, saving valuable time for charities and CASCs.

 

There are now three options for making claims. Option one will be for charities that file Gift Aid claims for fewer than 1,000 donations. Option two is for larger charities that make claims for over 1,000 donors, while option three applies to those few charities that do not have the internet and involves completing a ChR1 paper form.

 

It is thought that online claims will normally be paid within three working days, compared to the 26 days it previously took after filling in an R68(i) form. Errors in the process will be detected by built‑in checks before the form is sent.

 

There are many complex accounting and reporting requirements governing charities and not‑for‑profit organisations. Whatever the nature of your organisation, we can help you to meet its objectives. Please contact us for more information.

CAF Charity Account

 

This is a very flexible scheme organised by CAF (Charities Aid Foundation). You can open an account with as little as £10 a month by direct debit or with a single payment of £100.

 

The ‘account’ is in effect a ‘charity cheque book and debit card’ and can be used to make donations easily – spontaneously or regularly – by phone, by post or online – to your favourite charities.

 

Tax is recovered at the basic rate and added to your account. As with Gift Aid, higher and additional rate taxpayers can reclaim the difference between the basic and higher or additional rates of tax.

 

Because CAF deduct 4% for running most accounts, a £100 donation to CAF equals £123.08 to donate to chosen charities.

Payroll Giving

 

This scheme allows you to make gross donations to charity (deducted from your salary before tax is calculated). There is no statutory minimum or maximum limit, although individual schemes may impose a lower monthly donation limit.

Example

 

You give from your gross pay                                                            £50

Charity receives                                                                                  £50

Actual cost to basic rate taxpayer                                                       £40

Actual cost to higher rate taxpayer                                                     £30

Actual cost to additional rate taxpayer                                               £27.50

 

Gifts in kind

 

Gifts of certain shares and securities, lands and buildings to a charity attract income tax relief as well as capital gains tax (CGT) relief.

 

Example

You give shares valued at                                                                                                                  £1,000

Income tax saving        basic rate taxpayer                                                                                         £200

higher rate taxpayer                                                                                                                             £400

additional rate taxpayer                                                                                                                        £450

Potential CGT saving basic rate taxpayer                                                                                             £180

higher or additional rate taxpayer                                                                                                         £280

 

There is a similar corporation tax relief for gifts by companies.

 

Source: Practice Track

 

This article is based on current legislation and practice and is for guidance only. Specific professional advice should be taken before acting on matters mentioned here.   Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene LLP. He can be contacted on 020 7383 3200 or umesh.modi@silverlevene.co.uk

Different tax rules apply to income from letting property, which is generally taxed under the property income rules. For many years, the Furnished Holiday Lettings (FHL) rules allowed holiday lettings of UK properties that met certain conditions to be treated as a trade for some specific tax purposes.

Qualifying conditions

The property must be situated in the UK or elsewhere in the EEA. The EEA comprises the 27 states in the EU plus Iceland, Liechtenstein and Norway.

Where there are properties in the UK and the EEA, they are to be treated as two separate property businesses with parallel provisions.

Accommodation is ‘furnished’ if the visitor is entitled to the use of furniture. There should be sufficient furniture provided for normal occupation.

The business must be carried on commercially. ‘Commercially’ means let on a commercial basis and with a view to making a profit. Close season lettings may produce no profit but normally help towards the cost of maintaining the property. This letting can still be treated as commercial. On the other hand, lettings to friends or relatives at zero or nominal rents are not commercial.

After you have decided that your accommodation meets these criteria you will need to see if the property then passes the qualifying tests:

Availability. The property must be available for commercial letting as holiday accommodation to the public for at least 210 days during the relevant period;

 

Letting. The property must be commercially let as holiday accommodation to members of the public for at least 105 days during the relevant period. A letting to the same person for longer than 31 continuous days (a period of longer term occupation) is not a letting as holiday accommodation for the purposes of this condition; and

Pattern of occupation. Total periods of longer term occupation must not exceed 155 days during the relevant period.

 

Effect of meeting the conditions

Holiday lettings that meet the relevant conditions can be treated as a trade for the following purposes:

• Entitlement to plant and machinery capital allowances on furniture, white goods etc in the let property as well as on plant and machinery used outside the property (such as vans and tools). There are no capital allowances for the cost of the property itself or the land on which it stands;

• Certain capital gains reliefs (including business asset roll-over relief, Entrepreneurs’ Relief, relief for gifts of business assets, relief for loans to traders); and

• Profits count as relevant UK earnings when calculating the maximum relief due for an individual’s pension contributions.

Losses from an FHL business may only be carried forward against future profits from the same business. This means that profits and losses of a UK FHL and an EEA FHL need to be calculated separately.

Holiday lettings where the property is situated outside the EEA do not qualify under the FHL rules. Instead, they are taxed under the normal property income rules.

Relevant periods

There are three possible 12-month periods that may count as relevant periods for a FHL property:

• starting 12 months beginning with the day on which it is first let as furnished accommodation
• ceasing 12 months ending with the last day on which it is let as furnished accommodation
• continuing: if neither of the above apply, the tax year itself.

 

Personal tax

• From 6 April 2016, personal allowances increased for people born after 5 April 1938 to £11,000 and will rise again to £11,500 from 6 April 2017.

• From 6 April 2016:

• The 10% dividend tax credit is abolished with the result that the cash dividend received will be the gross amount potentially subject to tax.
• A new Dividend Tax allowance charges the first £5,000 of dividends received in a tax year at 0%.
• For dividend above £5,000 new rates of tax on dividend income will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional taxpayers.

• From 6 April 2016 additional tax rates are 40% for income between £43,000.00 and £150,000.00 and 45%, beyond this.

• From 6 April 2017, the basic rate limit will increase to £33,500 and the higher rate threshold will therefore rise to £45,000 for those entitled to the full personal allowance.

 

Pension and Savings

 

• New 0% starting rate of tax on the first £5,000 of savings income will remain from 6 April 2016, with a tax saving of £500 per year.

 

• A new Lifetime ISA will be available for adults under the age of 40. Individuals will be able to contribute up to £4,000 per year and receive a 25% bonus from the government. Funds can be used to buy a first home and those wishing to save for their retirement. Funds can be withdrawn from age 60 completely tax-free.

 

• From 6 April 2016Adult NISA annual investment limit will remain at £15,240 but will increase to £20,000 from April 2017.

 

• From April 2018, an introduction of a new type of savings account aimed at low income working households in receipt of Universal Credit with minimum weekly household earrings equivalent to 16 Hours at the National Living Wage or those in receipt of Working Tax Credits.

Individuals in low income working households will be able to save up to £50 a month into a Help to Save account and receive a 50% government bonus after two years.

 

• In early 2017, it was announced the phased rollout of Tax-Free Childcare for children under 12.

 

• From 6 April 2017 the Pension scheme lifetime allowance will remain at £1 million but will be indexed annually in line with inflation. Unprotected pension pots exceeding £1 million will be subject to a 55% tax rate.

 

Inheritance tax

 

• No change to 40% and 36%death rates or 20% chargeable lifetime transfers rate. Nil rate band of £325,000 remains unchanged.

 

• As previously announced, legislation will be introduced to extend the IHT residence nil-rate band to cover situations where home-owners downsize or cease to own their home before death.

 

Capital Gains Tax

 

• Capital Gains Tax rates slashed from 28% to 20% for top rate taxpayers and from 18% to 10% for basic rate tax payer.

 

• The 28% & 20% will continue to apply for carried interest and for chargeable gains on residential property that do not qualify for private resident relief.

 

• The Entrepreneurs’ Relief remains at 10% with a lifetime limit of £10 million for each individual.

 

• Entrepreneurs’ relief (ER) extension for long-term external investors, giving them a 10% CGT rate on unlisted companies

 

Business tax (Self-employed, LLP, Partnerships and Companies)

Effective from 1 April 2016 for companies and 6 April 2016 for unincorporated businesses

 

• From 1^st January 2016 the Annual Investment Allowancewill be permanently set at a new level of £200,000.

 

• From April 2016 the wear and tear allowance is being reformed and Landlords will be able to deduct the actual costs of replacing furnishing.

 

• Introduction of a new £1,000 allowance for property income and a new £1,000 allowance for trading income from April 2017.Individuals with less than £1,000 of either source of income will no longer need to declare or pay tax on that income.Those whose property or trading income exceeds the allowance, however, will have the choice of deducting the allowance in calculating their taxable profits or calculating their taxable profit by deducting their expenses in the usual way.

 

• The current 100% first year allowance on business purchasing low emission cars will be extended to April 2020. A low emission car is one where the CO2 emissions do not exceed 75 gm/km and this threshold will fall to 50 gm/km from April 2018. In addition, the CO2 emission threshold for the main rate of capital allowances for business cars will reduce from 130 gm/km to 110 gm/km from April 2018.

 

• A new soft drinks industry levy is being introduced from April 2018. The levy will be paid by producers and importers of soft drinks that contain added sugar.  An exclusion will apply for small operators and the Government is to consult on the details over the summer.

 

• Tax relief on the finance costs incurred on residential property will be gradually restricted to basic rate tax relief from 6 April 2017.

 

Employment tax

• From April 2018, termination payments in excess of the £30,000 exemption will also be subject to employer’s national insurance contributions (NIC). A consultation will also be held on reducing the scope of the £30,000 exemption.

• The government has announced that tax relief available for employer-arranged pension’s advice will increase from £150 to £500 as of April 2017.

• · The Government will introduce the apprenticeship levy in April 2017. It will be set at a rate of 0.5% of an employer’s pay bill and will be payable through PAYE. It will apply to all employers across all sectors. Each employer will receive an allowance of £15,000 to offset against their levy payment, with the result that only employers with total gross employee earnings in excess of £3 million will be subject to the charge. 

• · The Government will increase the national insurance contributions (NIC) employment allowance from £2,000 to £3,000 a year from 6th April 2016. It will also be withdrawn from single person companies, such as a personal service company. 

• From April 2016, a restriction will apply on tax relief for home to work travel and subsistence where workers are engaged through employment intermediaries such as a personal service company.  

 

VAT

• VAT compulsory registration taxable turnover threshold limit has increased from 1 April 2016 £82,000 to £83,000

 

• VAT compulsory deregistration taxable turnover threshold limit has changed to £81,000

National insurance

• Class 1, Class 1A and Class 1B rates are unchanged.

 

• From 6 April 2016 Class2 weekly rate unchanged at £2.80. Exemption limit is still £5,965PA.

 

• From 6 April 2016Class 2 contributions will no longer be collected via direct debits but will be included in taxpayers’ final Self –Assessment liability together with income tax and Class 4 National Insurance.

 

• Class 3 voluntary weekly contributions rate remains at £14.10

 

• Class 4 Contributions – Small earnings exemption increased to £8,060 from £7,956 PA

-9% rate applies on annual profits between £8,060 and £43,000

-2% rates applies on annual profits over £43,000

 

• From April 2018 National Insurance for the self-employed will be changing with Class 2 contribution abolished and Class 4 contributions reformed although the exact nature of these reforms has yet to be confirmed.

Corporate tax

Main Corporation tax rate from 1 April 2016will continue at 20% for companies with profits exceeding £1,500,000. All companies will pay the same tax rate irrespective of the level of their profits. From beginning on 1 April 2017, 2018 & 2019 will reduce to 19% and 17% from 1 April 2020.

Should you require any additional information regarding the above please contact Silver Levene for further advice.

James Batchelor of Silver Levene provided research for this article.

 

This article is based on current legislation and practice and is for guidance only. Specific professional advice should be taken before acting on matters mentioned here.   Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene LLP. He can be contacted on 020 7383 3200 or  umesh.modi@silverlevene.co.uk

Today Public Health England is launching its latest Be Clear on Cancer campaign to raise awareness of blood in urine, which can be a symptom of bladder and kidney cancers. Running until the end of March the campaign aims to improve early diagnosis of these diseases and pharmacists are being asked to get involved.

Every year in England 17,450 people are diagnosed with bladder or kidney cancer, and around 7,600 people die from these diseases.

Patients with urinary symptoms will often go to their pharmacy as the first port of call and so this is an opportunity for pharmacists to be vigilant for patients who may have signs of these cancers and encourage them to see their doctor.

A free pharmacy toolkit has been produced and there are a range of other resources to help encourage customers to ask you for advice and to visit their GP.

As the end of the 2015/16 tax year approaches, now is a good time to review your tax position and take advantage of tax planning opportunities.

Tax Rates

For 2015/16, the personal allowance is £10,600; the 20% tax rate applies to taxable income of up to £42,385; income from £42,386 to £150,000 is taxed at 40% and income above £150,000 is taxed at 45% (dividend income will be taxed at different rates – 7.5%, 32.5% and 38.1%).

If you have a limited company and are considering drawing salary, determining the best timing – before or after 5 April 2016 – may enable you to utilise your basic rate band or avoid the top tax band. Equally, with the new tax rates on dividends from 6 April 2016, it may be appropriate for some to bring forward the amount of dividends they may wish to draw.

Capital expenditure

The Annual Investment Allowance (AIA) will remain permanent at £200,000 per annum from 1 January 2016 until the life time of this parliament. The AIA provides 100% tax relief on qualifying expenditure such as new shop fit, IT equipment and fuel efficient delivery vans/cars.

Pension contributions

There is no limit on the contributions that can be made by or on behalf of an individual into a pension scheme. The employer can make any level of contributions towards a pension. The amount of personal contributions on which tax relief can be obtained is restricted to the higher of 100% of relevant earnings and £3,600 (gross). Relief is available at the higher and additional rates of income tax but if total contributions (made by the individual, the employer and anyone else on the individual’s behalf) exceed the “annual allowance” a tax charge arises on the individual at their highest marginal rate of tax. The annual allowance is £40,000 for 2015/16 although this will be tapered downwards for higher earners in the 2016/17 tax year. The lifetime allowance is £1.25m in 2015/16 and will reduce to £1m in the 2016/17 tax year.

Tax planning for children

Each individual has a personal allowance, even minor children, so if your children have income of their own it will be tax-free up to the limit of the personal allowance (£10,600). However, income arising to a child from funds provided by the parents remains taxable on the parents, if that income exceeds £100 per parent per child per tax year. This rule does not apply to income arising from funds provided to the child by grandparents or others.

 

Other year-end matters

 

NISAs: From 1 July 2014 all ISAs has become New ISA (NISAs). No income tax is payable on any income from ISA investments. It is now possible to split your ISA allowance between cash, stocks and shares with no maximum cash component. Any child aged under 18 who lives in the UK can have a JISA. The maximum amount you can put in a Junior Isa is £4,080. If you have not already done so, therefore, you may want to consider opening an ISA before 5 April 2016 to utilise this year’s maximum allowance of £15,240.

Enterprise Investment Scheme (EIS): income tax relief is given at 30% for investment of up to £1m in shares which qualify under the EIS; the conditions for the relief are complex, both for the investor and for the issuing company. Gains made on the disposal of EIS shares are tax-free as long as various conditions are met.

Similar reliefs to the EIS are available for investment in a Venture Capital Trust (VCT).

Seed Enterprise Investment Scheme (SEIS): under this new scheme, similar to the EIS, 50% income tax relief is available on investment of up to £100,000 per tax year in shares qualifying under the scheme, which is designed to help small companies in the early stages of business.

There is also a capital gains tax reinvestment relief under the SEIS for 2015/16. If you dispose of an asset which would give rise to a chargeable gain and reinvest all or part of the amount of the gain in shares which also qualify for SEIS income tax relief, then an amount of the gain equal to half of the amount reinvested will be exempt from Capital Gains Tax. The maximum amount that can be exempted from CGT in this way is therefore £50,000.

Annual exemption for capital gains tax: the annual exemption for CGT stands at £11,100 for 2015/16, so gains of up to this amount are exempt from CGT. If you have not made gains to utilise your exemption, you may wish to consider if you are able to do so before 5 April 2016.

Annual exemption for inheritance tax: a gift of up to £3,000 per year is exempt from IHT, thus reducing your estate and potentially saving IHT of £1,200. The exemption can be carried forward for one year, so if you did not use your exemption in 2014/15 you can make a gift of up to £6,000 in 2015/16, a potential IHT saving of £2,400.

The existing nil-rate band (frozen at £325,000 until 2020/21) will be joined by an additional ‘main residence nil-rate band’. If the additional nil rate band is available, it will be £100,000 for 2017/18, £125,000 for 2018/19, £150,000 for 2019/20 and £175,000 for 2020/21. Thereafter it will increase in line with the Consumer Prices Index.  Draft legislation will be introduced in Finance Bill 2016.

Stamp duty land tax (SDLT): From 1 April 2016, a new SDLT surcharge tax of 3% will be introduced on purchase of buy-to-let properties. This rate will apply to all purchases in excess of £40,000 and will be over and above the normal SDLT rates. If you are in the process of buying a property then it might be a good idea to complete the transaction by 31 March 2016.

 

 

The Summer Budget was delivered by the Chancellor of the Exchequer on 8 July 2015. The tax proposals announced in the Budget together with the announcements in the Autumn 2014 statement will be made into law in the Finance Bill 2015 or in secondary legislation. The Finance Bill is currently being debated in Parliament and will become law on receiving Royal Assent in due course.

The notes below provide a summary of the main changes and key points.

Employment Taxes and NIC

National Living Wage (NLW)

The government will introduce a new national living wage (NLW) for workers aged 25 and above by introducing a new premium on top of the national minimum wage (NMW). From April 2016, the new NLW will be set at £7.20 and 50p above the NMW increase coming into effect in October 2015.

Self-employed NIC

The government will consult in autumn 2015 on abolishing Class 2 NICs and reforming Class 4 NICs.

National Insurance Contributions (NICs) Employment Allowance

From 6 April 2016, the annual NIC employment allowance will increase from £2,000 to £3,000. Where the director of a company is the sole employee, the company will not be able to claim the allowance from April 2016.

Taxation of Employee Benefits and Expenses

From April 2016, a statutory exemption will be introduced for trivial benefits-in-kind costing less than £50.

HMRC has published draft secondary legislation for pay rolling benefits-in-kind which has been extended to include all benefits-in-kind other than accommodation, beneficial loans and credit tokens and vouchers. Additional reporting requirements for employers pay rolling cars will be introduced from April 2017.

Tax Relief on Travel and Subsistence Expenses

A discussion paper has been published outlining a potential framework for new rules for the tax treatment of travel and subsistence expenses, following a report by the Office of Tax Simplification (OTS).

Tax Relief for Travel and Subsistence for Workers Engaged via Intermediaries

HMRC has published a consultation document seeking comments by 30 September on detailed proposals to restrict tax relief for travel and subsistence for workers engaged through an employment intermediary, such as an umbrella company or personal service company. The changes will be legislated in Finance Bill 2016 and take effect from 6 April 2016.

Tax Credits and State Benefits

The Budget announcements included significant changes and cuts to the welfare system. Some of the more significant changes focus on tax credits.

Tax Credits and Income Thresholds

From April 2016, the income threshold above which the maximum tax credits entitlement is tapered away will be reduced from £6,420 to £3,850.

Tax Credits Taper Rates

From April 2016, the taper rate for tax credits will be increased from 41% to 48% of gross income. Once claimants earn above the income threshold, their award will be withdrawn at the rate of 48p per extra £1 earned.

Income Rise Disregard in Tax Credits

From April 2016 the amount by which a claimant’s income can increase in year compared to their previous year’s income before their award is adjusted (the income rise disregard) will be reduced from £5,000 to £2,500.

Universal Credit Work Allowances (UC)

From April 2016 work allowances in UC will be abolished for non-disabled childless claimants. They will be reduced to £192 per month for those with housing costs and £397 per month for those without housing costs. Claimants earning below these amounts will retain their maximum award.

Child Element in Tax Credits and Universal Credit

The child element of tax credits and UC will no longer be awarded for third and subsequent children born after 6 April 2017. This will also apply to families claiming UC for the first time after April 2017.

Family Element

From April 2017, the family element in tax credits and the equivalent in UC will no longer be awarded when a first child is born. This will also apply to families with children making their first claim to UC.

Freeze on Benefits Uprating

Most working-age benefits will be frozen for four years from April 2016. This will apply to jobseekers’ allowance, employment and support allowance, income support, child benefit, housing benefit and local housing allowance. All disability elements will continue to be uprated by prices each year.

Welfare Benefit Cap

The welfare benefit cap applies per household to cap to cap the amount of benefits out-of-work working-age families can receive. This is currently £26,000 but will be reduced to £20,000 (£23,000 in Greater London).

Student Maintenance and Students Loans

Maintenance loan support will rise for students from low and middle income backgrounds up to £8,200 a year studying away from home outside London. From the 2016/17 academic year, maintenance grants will be replaced with maintenance loans for new students from England, pad back when their earnings exceed £21,000 a year.

The government will consult on freezing the loan repayment threshold for the next five years and review the discount rate applied to student loans and other transactions to bring it more in line with the long-term cost of borrowing.

Tax Free Childcare

The new scheme for tax-free childcare (TFC) will now be launched early in 2017. The precise details for TFC will be confirmed in due course.

This article is based on current legislation and practice and is for guidance only. Specific professional advice should be taken before acting on matters mentioned here.   Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene LLP. He can be contacted on 020 7383 3200 or umesh.modi@silverlevene.co.uk

 

The Summer Budget was delivered by the Chancellor of the Exchequer on 8 July 2015. The tax proposals announced in the Budget together with the announcements in the Autumn 2014 statement will be made into law in the Finance Bill 2015 or in secondary legislation. The Finance Bill is currently being debated in Parliament and will become law on receiving Royal Assent in due course.

The notes below provide a summary of the main changes and key points.

Pensions and Savings

Personal Savings Allowance

from 6 April 2016, an allowance will be introduced to remove tax on up to £1,000 of savings income for basic rate taxpayers and up to £500 for higher rate taxpayers. Additional rate taxpayers will not receive an allowance. Banks and building societies will no longer make the automatic 20% income tax deduction on non-ISA savings when paying interest.

Pensions – Reduction in Lifetime Allowance

From 6 April 2016, the lifetime allowance will be reduced from £1.25 million to £1 million. Transitional protection for pension rights that are already over £1 million will be introduced to ensure the change is not retrospective. The lifetime allowance will be indexed annually in line with the consumer prices index from 6 April 2018.

Pensions – Reduced Annual Allowance

The annual allowance remains at £40,000 but a tapered reduction will be made from 6 April 2016 for taxpayers with adjusted income in excess of £150,000. The rate of reduction will be £1 for every £2 that the individual’s income exceeds £150,000 up to a maximum reduction of £30,000. Therefore a minimum allowance of £10,000 will apply where the adjusted income is £210,000 or more.

Pension Tax Relief

There will be consultation on whether and how to undertake a wider reform of pensions’ tax relief.

Venture Capital Scheme Rules

The government will be implementing changes to venture capital scheme rules. This applies to venture capital trusts (VCTs), the enterprise investment scheme (EIS) and the seed enterprise investment scheme (SEIS). The changes are subject to state aid approval and are intended to take effect from Royal Assent to the Finance Bill.

Please contact us if you require details of the changes to the rules.

Inheritance Tax (IHT)

The inheritance tax nil rate band will remain frozen at £325,000 until 5 April 2021 (2020/21).

Main Residence Nil Rate Band

A new relief will be introduced in April 2017, for deaths on or after this date. The Budget describes the new relief as the “main residence nil rate band”.

There will be consultation in September 2015 with legislation in the Finance Bill 2016.

The nil rate band will be available when a residence is passed on death to lineal descendants: children, grandchildren, great-grandchildren, etc. Children include stepchildren and adopted children.

The band will be transferable where the second spouse or civil partner dies after 5 April 2017, regardless of when the first of the couple died.

The extra nil-rate band will also be available when a person downsizes or ceases to own a home after 7 July 2015 and assets of equivalent value up to the additional rate band are passed on death to their lineal descendants. For estates with a net value of more than £2 million, the additional nil rate band will be withdrawn at £1 for every £2 over this threshold.

UK Residential Property of Non-domiciles

From April 2017, IHT will be payable on all UK residential property owned by non-domiciles whether held directly or indirectly by an individual or a trust, including property owned through an indirect structure such as an offshore company or partnership. A full consultation will follow later this year.

Trusts

New rules will target avoidance through the use of multiple trusts. The IHT calculation rules for trusts will also be simplified.

Business Taxes

Corporation Tax Rates

Corporation tax rates will be reduced from 20% to 19% in the financial year 2017, and to 18% in the financial year 2020.

Corporation Tax Payment Dates

For companies with annual taxable profits of £20 million or more, there will be new payment dates for periods starting after 31 March 2017. They will have to pay quarterly instalments in the third, sixth, ninth and twelfth months of their accounting period. The £20 million threshold will be divided by the number of companies in a group.

Annual Investment Allowance (AIA)

The AIA, currently at £500,000, will be set at £200,000 for qualifying expenditure made on or after 1 January 2016.

Simplified Expenses – Partnerships

Finance Bill 2016 will include legislation to ensure that partnerships can fully access the provisions in respect of the use of home and where business premises are also a home.

If the rules mirror those already in place for other incorporated businesses, a set of fixed rates could replace actual expenditure for use of home or personal use of business premises.

Business Goodwill Amortisation

Corporation tax relief will be restricted for the cost of goodwill for acquisitions and disposals from 8 July 2015. Relief will still be available if the goodwill is sold.

Corporate Debt and Derivative Contracts

Wide ranging changes will be made to loan relationship and derivative contract rules to include a clearer link between commercial accounting profits and taxation, which will include basing taxable amounts on items appearing in the profit and loss accounts. The changes will generally take effect for accounting periods commencing on or after 1 January 2016.

There will a new relief for refinancing distressed companies and a new regime-wide anti-avoidance rule which will take effect from the date of the Royal Assent.

Business Tax Future Changes

The government will publish a business tax roadmap by April 2016 setting out its plans for business taxes over the rest of the parliament.

Controlled Foreign Companies (CFC) Loss Relief Restriction

The government will remove the ability for companies to use UK losses and reliefs against a CFC charge from 8 July 2015.

Company Car Tax Rates

The appropriate percentage of list price subject to tax will increase by three percentage points for cars emitting more than 75g/km of CO2 to a maximum of 37% on 2019/20. There will be a three percentage point differential between 0-50g/km and 51-75g/km bands and between the 51-75g/km and 76-94g/km bands.

VAT on Services Used and Enjoyed in the UK

The government will apply the VAT “use and enjoyment” provisions so that, from next year, it will be clear that all UK repairs made under UK insurance contracts will be subject to VAT in the UK.

A wider review of offshore based avoidance in VAT exempt sectors will be considered with a view to introducing additional use and enjoyment measures for services such as advertising in the following year.

Insurance Premium Tax (IPT)

The standard rate of IPT will increase from 6% to 9.5% from 1 November 2015 for insurers using the IPT cash accounting scheme. For insurers using the special accounting scheme, premiums relating to policies entered into before 1 November 2015 will continue to be liable to IPT at 6% until
29 February 2016, after which all premiums received by insurers will be taxed at 9.5%.

Vehicle Excise Duty (VED)

A new VED banding system will be introduced for cars registered after 31 March 2017. First year rates will depend on the carbon dioxide emissions of the vehicle, ranging from £NIL for cars with zero CO2 emissions to £2,000 for CO2 emissions over 255g/km.

After the first year, there will be a flat standard rate of £140 for all cars except those with zero emissions, which will continue to pay £NIL. Cars with a list price above £40,000 will attract a supplement of £310 a year for the first five years in which the standard rate is paid.

 

This article is based on current legislation and practice and is for guidance only. Specific professional advice should be taken before acting on matters mentioned here.   Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene LLP. He can be contacted on 020 7383 3200 or umesh.modi@silverlevene.co.uk

 

 

The Summer Budget was delivered by the Chancellor of the Exchequer on 8 July 2015. The tax proposals announced in the Budget together with the announcements in the Autumn 2014 statement will be made into law in the Finance Bill 2015 or in secondary legislation. The Finance Bill is currently being debated in Parliament and will become law on receiving Royal Assent in due course.

The notes below provide a summary of the main changes and key points.

Rates and Allowances

The personal allowance and higher rate threshold will be increased from 2015/16 as set out in the table below.

Age allowance for those born before 6 April 1938 will be removed from 2016/17 onwards following the increase in the standard personal allowance.

In summary:

Year Standard                  Basic                     Higher                      Additional
personal                   rate                         rate                         rate of 45%
allowance band – 20% band – 40% on income over
£                           £                                 £                                          £

2015/16                     10,600                 0 – 31,785          31,786 – 150,000            150,000
2016/17                     11,000                 0 – 32,000            32,001 – 150,000            150,000
2017/18                     11,200                 0 – 32,400            32,401 – 150,000            150,000

Tax Lock on income tax, VAT and NIC

The main rates of income tax, the standard (20%) and reduced (5%) rates of VAT and employer and employee Class 1 NIC rates will not be increased above their 2015/16 levels for the duration of this parliament by means of a “tax lock” to be introduced by legislation.

The locked income tax rates of 20%, 40% and 45% will apply to non-savings income in England, Wales and Northern Ireland and UK-wide savings income.

The lock on VAT will prevent the removal of goods/services from the zero rate of VAT and reduced rate of VAT.

Personal Taxation

Dividend Taxation

From 6 April 2016, the 10% dividend tax credit will be abolished. A new annual dividend allowance of £5,000 will be introduced which is separate to the £1,000 allowance for savings (which excludes dividends).

The new tax rates on dividend income will be 7.5%, 32.5% and 38.1% for basic, higher and additional rate taxpayers respectively. The Chancellor has said that “Those who either pay themselves in dividends or have large shareholdings worth typically over £140,000 will pay more tax”.

 

Non-domicile Status

From April 2017, anyone who has been resident in the UK for 15 of the past 20 years will be deemed to be UK-domiciled for all UK tax purposes including IHT. A technical consultation will be published later this year.

Also from 6 April 2017, individuals born in the UK to parents who are domiciled here will no longer be able to claim non-domicile status while resident in the UK, even if under general law they have acquired a domicile in another country.

Individuals affected will be liable to tax on an arising basis on worldwide income and IHT on worldwide personal assets, and the remittance basis can no longer be claimed.

Rent-a-room Relief

From 6 April 2016, the relief will be increased from £4,250 to £7,500 a year.

Residential Landlords – Wear and Tear Allowance

From April 2016, the 10% wear and tear allowance will be abolished. A new relief will operate which allow landlords to deduct the actual costs only when they replace furnishings. Capital allowances will continue to apply for landlords of furnished holiday lettings.

Buy-to-let Landlords: Restriction of Interest Relief

Tax relief will be restricted for finance costs including loan interest for higher rate taxpayers who use loans to finance buy-to-let properties. The restriction will be phased in over four years from April 2017 as shown below and by 2020/21, relief will be restricted to basic rate only:

–          2017/18, deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being eligible at basic rate relief;

–          2018/19, 50% of finance costs will be deductible and 50% will be given as a basic rate tax reduction;

–          2019/20, 25% of finance costs will be deductible and 75% will be given as a basic rate reduction;

–          2020/21, all financing costs will be given as a basic rate reduction.

The above will not apply to properties which meet the criteria of a furnished holiday letting nor to corporate landlords, and only apply to individuals.

This article is based on current legislation and practice and is for guidance only. Specific professional advice should be taken before acting on matters mentioned here.

 

Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene LLP. He can be contacted on 020 7383 3200 or umesh.modi@silverlevene.co.uk