2015 technical connection budget ... - mpl wealth management · budget 2015 confirmed that the...

All the information and views given in this Bulletin are presented for general consideration

only. Accordingly, Technical Connection Limited can accept no responsibility for

any loss occasioned as a result of any action taken or refrained from as a result of

the contents hereof. Readers and clients of readers must always seek independent

advice before taking or refraining from taking any action.

The contents of this Budget Report are based on the proposals put forward by the

Chancellor in his Budget speech. These need to be approached with caution as the

details may change during the passage of the Finance Bill through Parliament.

2015

Technical Connection

Budget Report

INTRODUCTION AND WELCOME

Welcome to the 2015 Technical Connection Budget Report.

Our aim is to focus on the changes that we believe will be of direct or indirect relevance to

financial planners. In the last Budget before the General Election it was expected that as well

as announcing and confirming changes that would be included in the Finance Bill, the

Chancellor would also take the opportunity to announce what further changes ( most likely

through a second 2015 Budget and Finance Bill) could be expected should the conservatives

win power.

With this in mind, this year we have covered:

the consultation on the development of a secondary annuity market

the reduction in the lifetime allowance to £1 million from 1 April 2016

the new £1,000 personal savings allowance available from 6 April 2016

the Help to Buy ISA

and

more anti-avoidance provisions

to name a few!

The Report is laid out as follows:

First there is an executive summary.

This gives you succinct bullet point summaries for each topic summarising what we believe

to be the key changes proposed in the Budget and pre-announced to take effect from April

this year. We also provide, where appropriate, “top-line” planning points.

The main Report has been split up into what we feel are the most important topics for

financial planners, financial product providers and platforms.

Within each topic you will find:

A section explaining the relevant proposals that were made in the Budget.

A section explaining changes that were been announced before the budget (for

example within the Autumn Statement and often already covered within draft

legislation in the Finance Bill) that will largely take effect from April this year.

and

A section, where relevant, giving in depth planning points to consider when advising

clients.

Finally, we have included an appendix showing all the relevant tax facts and figures.

YOUR GUIDE TO THE BUDGET REPORT

INTRODUCTION AND WELCOME

EXECUTIVE SUMMARY

1. INCOME TAX

2. NATIONAL INSURANCE CONTRIBUTIONS

3. CAPITAL GAINS TAX

4. INHERITANCE TAX

5. CORPORATION TAX

6. CAPITAL ALLOWANCES

7. TAX SIMPLIFICATION

8. TAX AVOIDANCE AND EVASION

9. PROPERTY TAX

10. TRUST TAXATION

11. SAVINGS AND INVESTMENTS

12. PENSIONS

13. TAXATION OF SHAREHOLDING DIRECTORS

14. EMPLOYEE BENEFITS

15. DOMICILE AND RESIDENCE

16. CHARITIES

17. CHILDCARE & CHILD BENEFIT

APPENDIX – TAX FACTS AND FIGURES AND NICs

EXECUTIVE SUMMARY

In the following summary:

Content shown in bold represents changes announced within the Budget

Content shown in normal type represents changes that were announced before the

Budget

Content shown in italics are the most relevant planning points

1. INCOME TAX

From April 2016, the government will introduce a tax-free personal savings

allowance to remove tax on savings income of up to £1,000 for basic rate

taxpayers and £500 for higher rate taxpayers. This will be in addition to the

£5,000 zero starting rate band for savings income.

Budget 2015 confirmed that the personal allowance will be £10,600 for the

2015/16 tax year.

The personal allowance will increase by £200 over the following two tax years to

£10,800 for 2016/17 and £11,000 for 2017/2018.

It was also confirmed that the basic rate limit will be £31,785 for 2015/16.

The basic rate limit will increase to £31,900 for 2016/17 and £32,300 for 2017/18.

As a result the higher rate threshold will be £42,700 and £43,300 respectively.

The zero starting rate band for the first £5,000 of savings income will be held at

that amount for the 2016/17 tax year. This will be in addition to the tax free

personal savings allowance.

From 6 April 2015, a zero starting rate band will apply for the first £5,000 of savings

income, thereby replacing the 10% starting rate band for savings income.

For those born after 5 April 1938 but before 6 April 1948 the personal allowance will

be £10,600, so is therefore aligned with the standard personal allowance.

The age-related higher personal allowance for those born before 6 April 1938 will

remain at £10,660.

The married couple’s allowance increases to £8,355

The total income limit for the purposes of the higher personal allowances increases to

£27,700.

From 6 April 2015, spouses and civil partners will be entitled to transfer £1,060 of

their personal allowance to their spouse or civil partner.

Married couples should plan to minimise their combined taxable income by

independent taxation strategies, making suitable investments or, if appropriate,

making suitable planning through their business.

Age allowance retention through income sharing by a couple and/or the use of tax free

or non-income producing assets should be considered.

Personal allowance reclamation for those with income between £100,000 and

£121,200 can yield worthwhile tax savings.

Further details on income tax changes and planning opportunities can be found in

Section 1 of the main report.


Class 2 NICs to be abolished and Class 4 NICs to be reformed.

The main changes are:-

- The Upper Earnings and Upper Profits Limits are £815 per week, £42,375 per

annum.

- Employees pay 12% contributions on earnings between £155 per week and £815

per week and 2% on earnings in excess of £815 per week.

- Employers pay 13.8% contributions on earnings in excess of £156 per week.

Further details on National Insurance Contributions changes and planning

opportunities can be found in Section 2 of the main report.

3. CAPITAL GAINS TAX

A range of measures will be introduced in Finance Bill 2015 to restrict the

availability of Entrepreneurs’ Relief (ER) in certain circumstances. These

measures will have immediate effect (i.e. for disposals on or after 18 March 2015)

and include amendments to TCGA 1992 to:

Ensure that a disposal of a privately owned asset will not qualify for ER,

unless the asset is disposed of in connection with a disposal of at least a 5%

shareholding in the company, or a 5% share in the partnership assets;

Relief is only available to those individuals who have a directly held stake of

at least 5% in a company carrying on a trade;

Deny ER on a disposal of shares in joint venture structures that are not

trading companies in their own right.

Legislation will also be included in Finance Bill 2015 to make it clear that to

qualify for the CGT exemption for gains accruing on the disposal of certain

wasting assets, an asset must have been used in the business of the person

disposing of it.

The Government also announced that they will consult on the CGT treatment of

gains made by academics on disposals of shares in 'spin-out' companies.

From 6 April 2015 the annual exempt amount (AEA) increases to £11,100 (from

£11,000).

The revised annual exempt amounts for trustees will be £5,550 - subject to a reduction

to a minimum of £1,110 where the same settlor has, broadly, created more than one

trust.

Rates remain at 18%/28% for individuals and 28% for trustees and personal

representatives.

From April 2015 capital gains tax on 'future gains' made by non-UK residents

disposing of UK residential property will apply.

The rate of CGT for gains qualifying for entrepreneurs’ relief remains at 10% on

cumulative lifetime capital gains of up to £10 million.

Individual’s will be able to defer gains, which are otherwise eligible for relief, by

investing in an Enterprise Investment Scheme and benefit from entrepreneurs’ relief

when the gain is realised at a later date.

For further details on the capital gains tax changes and planning opportunities to

minimise CGT can be found in Section 3 of the main report.

4. INHERITANCE TAX

The government will review the use of deeds of variation for tax purposes.

Legislation will be introduced to extend the existing inheritance tax exemption for

members of the armed forces to members of the emergency services where death is

caused or hastened by injury while on active service. The exemption will also extend

to humanitarian aid workers responding to emergency circumstances

The exemption for medals and other decorations awarded for valor or gallantry will be

extended to cover all decorations and medals awarded to the armed services or

emergency services personnel and to awards made by the Crown for achievements and

service in public life.

The nil-rate band is frozen at £325,000, and will remain so until 2017/2018.

For changes on inheritance tax and trusts please see section 10.

With the nil rate band frozen for a further two years, individuals should consider the

range of planning opportunities available to them. These can be found in Section 4 of

the main report.

5. CORPORATION TAX AND OTHER BUSINESS CHANGES

Legislation will be introduced giving the UK the power to introduce the OECD

model for county-by-country reporting. This will result in HMRC receiving more

granular and clear information from companies trading in the UK about their

global allocation of profits and indications of economic activity in a country.

This, together with the diverted profits tax (see below) will, it is thought, have a

positive impact on tax receipts from global companies trading in the UK.

Main rate of corporation tax cut from 21% to 20% for financial year 2015. It is

intended that it should remain at 20% for the financial year 2016.

The small profits rate will be unified with the main rate of corporation tax so there will

be only one corporation tax rate for non-ring fence profits – set at 20%. Consequently

there will be no marginal relief or effective marginal rate.

Diverted profits tax (so-called "Google Tax") to be introduced from 6 April 2015 to

apply a 25% tax rate to profits shifted abroad (within the tests in the legislation) by

global companies trading in the UK.

Anti- avoidance provisions to prevent companies from obtaining a tax advantage by

entering contrived arrangements to turn historic tax losses of restricted use into more

versatile “in-year” deductions.

The changing landscape in relation to corporation tax (most relevantly, for SMEs, the

rate of tax) represents a real opportunity for advisers with corporate clients to re-visit

the whole area of profit retention, investment and distribution. This will also represent

an excellent area to work with professional contacts. More explanation can be found

in Section 5 of the main report.


There was no announcement that the increased annual investment allowance

(AIA) of £500,000 would extend beyond 31 December 2015.

The government is issuing legislation to clarify the effect of the capital allowances

anti-avoidance rules where there are transactions between connected parties or

sale and lease back transactions.

Further details on capital allowances changes and planning opportunities can be found



The government will transform the tax system over the lifetime of the next

Parliament by introducing digital accounts to remove the need for individuals

and small businesses to complete annual tax returns.

The government will consult over the summer on a new payment process to

collect tax and National Insurance through digital accounts instead of self-

assessment.

Following technical consultation, an annual cap of £300 for trivial benefits will

be introduced for office holders of close companies and employees who are

family members of those office holders.

Budget 2015 also announced that the automatic deduction of 20% income tax at

source by banks and building societies is intended to cease from April 2016.

The government will simplify the administration of employee benefits and expenses

together with providing a statutory exemption for trivial benefits in kind which cost

less than £50.

From April 2016, the government will remove the £8,500 threshold below which

employees do not pay income tax on certain benefits in kind and replace it with new

exemptions for carers and for ministers of religion.

Further details on tax simplification can be found in Section 7 of the main report.

8. TAX AVOIDANCE

Automatic Exchanging of Tax information with other EU states to be provided

for in post-Budget regulations

The Liechenstein and Crown Dependencies Disclosure Facilities to be closed

“early” – at the end of 2015 instead of 2016

General Anti-Avoidance “tax-geared” penalties to be introduced post Budget

More Accelerated Payment Notices to be issued

The introduction of the diverted profits tax (25%) for the "shifted " ( out of the UK)

profits of global companies

Country-by-country reporting of profits for multi-national companies

Restricting entrepreneurs’ relief in respect of goodwill transferred to a related close

company

Denial of income tax relief on tax losses from miscellaneous transactions

Strengthening the DOTAS provisions - including toughening the IHT scheme

hallmarks and removing "grandfathering"

Further action against promoters and users of high risk tax schemes

Penalties for employment intermediaries seeking to avoid/defer tax

Further details on tax avoidance and evasion changes and planning opportunities can

be found in Section 8 of the main report.

9. PROPERTY TAX

In the Autumn Statement on 3 December 2014, it was announced that SDLT would be

reformed for residential property purchases which complete on or after 4 December

2014. The reform means that rather than a single rate of tax being charged on a

purchase, each new SDLT rate will now only be payable on the portion of the

property value which falls within each band.

It was also announced in the Autumn Statement 2014 that the government would

extend the scope of SDLT multiple dwellings relief so that the purchase from housing

associations of superior leasehold interests in residential property such as shared

ownership leases, can attract relied where the transaction is part of a lease and

leaseback arrangement.

From 1 April 2015 a new ATED band will come into effect for properties with a value

greater than £1 million but not more than £2 million with an annual charge of £7,000.

From 1 April 2016 a further new band will come into effect for properties with a

value greater than £500,000 but not more than £1 million with an annual charge of

£3,500.

An extension to the ATED-related CGT charge will take effect from 6 April 2015 for

properties worth more than £1 million and not more than £2 million and from 6 April

2016 for properties worth between £500,001 and £1 million.

From 6 April 2015, gains made by non-resident individuals, trustees, PRs and

narrowly-controlled companies on the disposal of UK residential property, will be

subject to CGT. New rules will be introduced to restrict the circumstances in which an

overseas residence can benefit from private residence relief. The new rules will apply

to both UK residents disposing of overseas property as well as non-UK tax residents

disposing of UK property.

Further details on the Stamp Duty Land Tax (SDLT), CGT and ATED changes and

planning opportunities can be found in Section 9 of the main report.

10. TRUST TAXATION

As announced in the 2014 Autumn Statement, the government is not to proceed

with the introduction of a single settlement nil rate band as part of its IHT trust

reform. The Government will introduce new “same day addition” rules to target

IHT avoidance through the use of multiple trusts. It will also simplify the rules

on the calculation of IHT on trusts. These provisions will be included in a future

Finance Bill.

The government has announced that, following consultation on the draft

legislation contained in Finance Bill 2015, changes will be made so that the new

"same day addition" rules will only apply where the value added is more than

£5,000. Also the period of grace for not applying the new rules about additions to

existing trusts from wills executed before 10 December 2014 has been extended by

12 months and will now be limited to deaths before 6 April 2017.

The trust rate continues at 45% and the dividend trust rate 37.5%. These are the rates

that trustees of discretionary trusts pay on income they receive above their £1,000

standard rate band.

Trustees will continue to pay 28% on capital gains, subject to their annual exemption

from 6 April 2015 of £5,550.

Non-related (ie different day) trusts will still be eligible for their own IHT nil rate

band. Care needs to be exercised over making later same day additions to more than

one trust.

Trustees should invest so as to maximise the future use of their CGT free annual

exemption.

Trustees of discretionary trusts wishing to avoid the trust rates and annual returns

should consider using single premium bonds to reduce taxable income and if they need

to release funds, utilise the 5% tax deferred allowance.

Further details on the trust taxation changes and planning opportunities can be found



From Autumn 2015 a ‘Help to Buy ISA’ will become available to boost savings

for first time home buyers. The government will pay £50 for every £200 saved

subject to a maximum of £3,000 which will be paid at the time the property is

bought.

From Autumn 2015, the government will allow ISA savers to withdraw and

replace money from their cash ISA without this counting towards their annual

ISA subscription provided they make a repayment in the same tax year as the

withdrawal.

Following technical consultation, the government will further extend the range of

ISA eligible investments in 2015/16 to include a wider range of investments.

The government confirmed that National Savings and Investment bonds for

pensioners (over 65) would remain on sale until 15 May 2015.

From 1 June 2015 the National Savings and Investment Premium Bond

investment limit will increase to £50,000.

Budget 2015 announced that the government will make amendments to the

Venture Capital Trusts (VCT), Enterprise Investment Scheme (EIS) and the Seed

Enterprise Investment Scheme (SEIS) to ensure that the UK continues to offer

significant and well-targeted support for investment into small and growing

companies, in line with new EU rules.

From 6 April 2015 the ISA limit will increase to £15,240 (from £15,000) and the

revised limit for the Junior ISA and Child Trust Fund will be £4,080.

Where a spouse or member of a civil partnership dies on or after 3 December 2014, the

surviving spouse/partner will inherit an additional ISA allowance equal to the value of

the deceased spouses’ ISA on the date of death. A further investment can be made on

or after 6 April 2015.

The government consultation on options for transferring savings held in Child Trust

Funds into Junior ISAs has now ended and the proposals are being taken forward

under the 2014 Deregulation Bill.

From 6 April 2015, all community energy generation undertaken by qualifying

organisations will be eligible for social investment tax relief (SITR) with effect from

the date of the expansion of SITR at which point it will cease to be eligible for the EIS,

SEIS and VCT.

The government will introduce a new digital process for investors and companies

qualifying for the tax-advantaged venture capital schemes (EIS, SEIS and SITR) in

2016 to make it easier to use the schemes. A new format for VCT returns will also be

developed.

The government will allow gains which are eligible for entrepreneurs’ relief (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 applies for disposals which take place on or after 3 December

2014.

The increase in the ISA limits will continue to be valuable to higher or additional rate

taxpayers.

Investment in qualifying social enterprises is likely to hold most appeal to those who

might otherwise have considered investing in EISs and VCTs.

Further details on the Savings and Investments changes and planning opportunities

can be found in Section 11 of the main report.

12. PENSIONS

Lifetime allowance to be reduced from £1.25 to £1m from 6 April 2016.

New transitional Fixed and Individual protection will be introduced.

The Lifetime Allowance will be indexed annually in line with CPI from 6 April

2018.

Consultation published on the development of a secondary annuity market

Benefits in kind tax exemption for employees who receives transfer advice as a

part of an employer led transfer exercise.

Guidance Guarantee/Pension Wise to receive an extra £19.5m to support

pensions freedoms.

Pension flexibility for DC schemes permitted from 6 April 2015.

Recipient of DC death benefits expanded to include nominees and successors.

Lump sum drawdown or annuity payments to beneficiaries of individuals who die

under age 75 paid tax free.

Lump sum drawdown or annuity payments where deceased died age 75 or over will

be taxed at the beneficiary’s marginal rate.

For further details on the pension changes and planning opportunities can be found in



The government intends to abolish Class 2 NICs in the next Parliament and

reform Class 4 NICs.

The lifetime allowance that applies to registered pension schemes will reduce to

£1 million from 6 April 2016. This is clearly relevant for shareholding directors

of close companies who wish to extract profits from the company in a tax

efficient form.

It was announced in the Autumn Statement that no further changes were announced

regarding the tax rules that apply to close companies remunerating shareholders by

way of loans from intermediaries.

Those director/shareholders who have income of more than £150,000 will continue to

suffer a marginal rate of income tax of 45% (earnings) and 37.5% (dividends).

The Upper Earnings Limit for class 1 NICs for 2015/16 will be £42,385. Employer

NICs will be payable on earnings of more than £8,112 per annum. The income tax

personal allowance for 2015/16 is £10,600 and will increase to £10,800 in 2016/17.

Since April 2014, every business is entitled to an annual £2,000 Employment

Allowance towards their employer NIC bill. No change to the threshold of this relief

has been announced.

Drawing income as dividends will still normally save National Insurance but pay

enough remuneration so that employees receiving dividends still qualify for state

benefits.

Directors/shareholders currently paying marginal rate tax of 45% should consider

pension planning before 6 April 2015 – especially those who will be affected by any

future reduction of the annual allowance and the forthcoming announced reduction of

the lifetime allowance to £1 million in 2016/17.

Remuneration strategies should be considered for non-taxpaying spouses who can

work in the business.

An analysis of the most tax-efficient ways of drawing income from a company

(salary/dividend or pension) should be carried out.

Anti-avoidance measures have been introduced in the area of entrepreneurs’ relief –

see Section 3 of this report - Capital Gains Tax.

Further details on Taxation of Shareholding Directors changes and planning

opportunities can be found in Section 13 of the main report.


An annual cap on trivial benefits of £300 will be introduced for office holders of

close companies, and employees who are family members of those office holders.

Company car rates will increase by 3 percentage points in 2019/20.

The Finance Bill 2015 legislation on qualifying expenses benefits exemptions has

been revised to ensure that the exemption cannot be used in conjunction with

salary sacrifice or any other arrangements that seek to replace salary with

expenses.

The £8,500 threshold for lower paid employees will be abolished from April 2016.

A trivial benefits exemption will apply to benefits costing less than £50 from April

2015.

From 6 April 2015 the income tax and NIC treatment of share options and awards

held by internationally mobile employees will be more closely aligned with other

forms of employment income.

For further details on the employee benefit changes and planning opportunities can



No new announcements were made in the 2015 Budget.

It was announced in the Autumn Statement that the annual remittance basis charge

(RBC) payable by those who have been UK resident for 12 out of the last 14 tax years

will increase from £50,000 to £60,000.

The £30,000 RBC remains for those who have been resident for 7 out of the last 9 tax

years.

In addition, a new charge of £90,000 will apply to those who have been UK resident

for 17 out of the last 20 tax years.

With announced increases to the RBC individuals should take advantage of planning

opportunities available to them.

Further details on the domicile and residence changes and planning opportunities can


16. CHARITIES

Legislation will be introduced to increase the maximum annual donation amount

which can be claimed through the Gift Aid Small Donations scheme to £8,000.

The government intends to introduce a new Charity Authorised Investment Fund

structure that will bring new investment funds established for charitable

purposes under FCA regulation, ensuring they receive the same regulatory

protections as funds for retail investors.

Legislation is to be introduced to enable regulations to be issued on Gift Aid digital

which will allow non-charity intermediaries a greater role in processing Gift Aid

claims on behalf of charities.

The government will continue and extend the review of the amount of any benefits a

donor may receive from the recipient charity while still qualifying for Gift Aid relief.

As announced in the Autumn Statement, the government wants to extend the scope of

Social Investment Tax Relief (SITR) by increasing the investment limit to £5m per year

per enterprise up to a maximum of £15m per enterprise. The relief is also to be

extended to small scale community farms and horticultural activities; and for

investments in special purpose vehicles set up to provide social impact bonds. The

government will also consult on introducing a social venture capital trust attracting

investment tax reliefs.

Gift Aid, payroll giving and relief for gifts of land and shares to charity are excluded

from the cap on income tax reliefs introduced in April 2013 and so continue to

facilitate income tax savings by extending the basic rate band.

Further details on the charities changes and planning opportunities can be found in


17. CHILDCARE

The Government confirmed that the maximum amount that parents of disabled

children will be able to receive to help to pay for their childcare costs will be

doubled to £4,000 per disabled child per year.

The 2014 Budget confirmed that the tax-free childcare costs cap under the new

childcare scheme, due to take effect from October 2015, will be increased to £10,000

per child (thereby providing basic rate tax relief of up to £2,000 per child). The

scheme will be rolled out to all eligible families with children under 12 within the first

year of operation.

At Autumn Statement it was announced that parents eligible for Universal Credit will

be able to claim back up to 85% of paid out childcare costs up to a monthly limit of

£646 for one child or £1,108 for two or more children from April 2016.

Further details on the Childcare changes can be found in Section 17 of the main

report.

Main Report

1. INCOME TAX

1.1 PROPOSALS MADE IN THE BUDGET

From April 2016, the government will introduce a tax-free personal savings allowance to

remove tax on savings income of up to £1,000 for basic rate taxpayers and £500 for higher

rate taxpayers. This means that for a basic rate taxpayer to be eligible for the allowance their

total income has to be below £42,700 for the 2016/17 tax year and a higher rate taxpayer has

to have income between £42,701 and £150,000. Additional rate taxpayers will not benefit

from this new allowance.

The 2015 Budget confirmed that the personal allowance will be £10,600 for the 2015/16 tax

year. For the following two tax years the personal allowance will increase by £200 to £10,800

for 2016/17 and £11,000 for 2017/2018 respectively. This means that the amount available

for transfer under the marriage allowance will increase by £20 and £40 respectively.

The increase in the personal allowance will also mean that from 2016/17 everyone will be

entitled to the same personal allowance regardless of when they were born.

It was also confirmed that the basic rate limit will be £31,785 for 2015/16. The basic rate

limit will increase to £31,900 for 2016/17 and £32,300 for 2017/18. As a result the higher

rate threshold will be £42,700 and £43,300 respectively.

The zero starting rate band for the first £5,000 of savings income will be held at that amount

for the 2016/17 tax year.

1.2 CHANGES ALREADY ANNOUNCED

1.2.1 Changes to the income tax bands

From 6 April 2015, the basic rate limit reduces to £31,785 from £31,865.

In addition, a zero starting rate band will apply for the first £5,000 of savings income, thereby

replacing the 10% starting rate band for savings income. This means that if an individual’s

taxable non-savings income exceeds £5,000 then the zero rate will not apply. This is because

non-savings income is taxed before savings income.

Under the old rules to be able to register for savings income to be paid gross an individual’s

total income must not have exceeded their personal allowance – i.e £10,000 in 2014/15.

However, with the introduction of a zero starting rate band of £5,000 for savings income

from 6 April 2015 these rules are changing to ensure that any saver who is unlikely to be

liable to tax on any of their savings income in the tax year can complete a Form R85 and

register to receive interest without tax being deducted – even if they pay tax on other (non-

savings) income.

In practice this means that if a saver's total taxable income will be below the total of their tax-

free personal allowance plus the £5,000 starting rate limit for savings then, from 6 April

2015, they can register to have interest paid on their accounts, without tax deducted, using

form R85. A separate Form R85 must be sent to each institution with which an account is

held.

1.2.2 Increase in the income tax personal allowance for 2015/16

From 6 April 2015 the income tax personal allowance for those born after 5 April 1948 will

increase to £10,600. This is an increase of £600 over the personal allowance for 2014/15.

As the basic rate limit reduces to £31,785, taxpayers who are entitled to the full standard

personal allowance will pay 40% tax on income above £42,385 (the higher rate tax threshold,

which is the sum of the basic rate limit and standard personal allowance).

1.2.3 Changes to the higher personal allowance for 2015/16 (those born before 5

April 1938)

For the 2015/16 tax year people born before 6 April 1938 will be entitled to a personal

allowance of £10,660.

Those born after 5 April 1938 but before 6 April 1948 will be entitled to a personal allowance

of £10,600 which is therefore now aligned with the standard personal allowance.

The higher personal allowance is subject to an income limit. Where an individual's total

income exceeds the income limit (£27,700 in 2015/16), their personal allowance is reduced

by £1 for every £2 above the income limit.

However, the higher personal allowance is not reduced below the amount of the standard

personal allowance (£10,600 for 2015/16).

From 2016/17 the age-related personal allowance will be phased out as everyone will be

entitled to the same personal allowance regardless of when they were born.

1.2.4 The married couple’s allowance for 2015/16

The married couple’s allowance is £8,355 provided at least one of the couple was born before

6 April 1935.

1.2.5 The total income limit

This is increased to £27,700 as mentioned in 1.2.3 above.

1.2.6 Loss of the personal allowance

Those with an adjusted net income exceeding £100,000 will lose their personal allowance at

the rate of £1 for every £2 above the income limit. For 2015/16 this means that those with an

adjusted net income of £121,200 or more will lose their entire personal allowance.

1.2.7 Introduction of transferable tax allowance (marriage allowance)

From April 2015, spouses and civil partners will be entitled to transfer £1,060 of their

personal allowance to their spouse or civil partner provided that neither of them is subject to

income tax at the higher or additional rate. The transferable amount is 10% of the standard

personal allowance so the amount available for transfer will increase to £1,080 for 2016/17

and to £1,100 for 2017/18.

1.3 PLANNING

1.3.1 General

The fact that each individual has their own personal allowance and their own starting and

basic rate tax bands means that worthwhile overall income tax saving opportunities are

available for 2015/16. This is especially so in regard to income that falls between £100,000 -

£121,200 which causes the removal of some or all of the personal allowance and an effective

tax rate of 60% for non-dividend income.

1.3.1 Introduction of a tax-free personal savings allowance

From 6 April 2016, a tax-free personal savings allowance of £1,000 for basic rate taxpayers

and £500 for higher rate taxpayers will be introduced. The zero starting rate band of £5,000 is

set to remain at this amount for the 2016/17 tax year. This means that individuals whose only

income is savings income which is at or below £16,800 will not be liable to tax on that

income. Another “tax free” variation would be where an individual had, say, £10,800 of non-

savings income (say from a pension) and £6,000 of savings income. In that case the pension

would be tax free under the personal allowance and the savings income tax free by virtue of

the £5,000 nil “starting rate” and the £1,000 tax free personal savings allowance.

Where an offshore investment bond has been used, say for funding the cost of higher

education, assigning segments to a non-taxpaying child/grandchildren could prove to be tax

attractive as provided the gain is not in excess of £16,800 they would have no further tax

liability on the gain.

As a reminder, “savings income” includes most interest from savings accounts, interest

distributions from OEICS and unit trusts, income from purchased life annuities and gains

under life assurance contracts.

1.3.2 Married couples

For all couples, as a bare minimum, both personal allowances and starting/basic rate tax

bands should be used to the full. This is particularly beneficial where income can be

legitimately shifted from a higher or additional rate taxpaying spouse to a non, starting or

basic rate taxpaying spouse. For those with cash and investments this will usually be

facilitated by a transfer of income-producing assets from the higher tax paying spouse to the

other.

Any such transfers would usually be CGT and IHT neutral as transfers between spouses

living together are treated as transfers on a no gain/ no loss basis for CGT purposes and

transfers between UK domiciled spouses (living together or not) are exempt from IHT

without limit.

1.3.3 Business owners

Business owners with greater control over “income flow” might consider, in relation to their

spouses who are non/lower taxpayers:

employing them (although deductibility of the amount paid would be subject to

showing that the expense was incurred wholly and exclusively for the purposes of the

trade); or

bringing them fully into partnership (sharing in capital and profits); or

transferring or issuing fully participating shares (ie. shares with rights to capital,

voting and income) to them which would carry the right to dividends

as a means of tax effectively ensuring that income distributed from the business bears as low

a personal tax rate as possible.

They should ensure that, taking account of other income in retirement, eg state pension, each

spouse has sufficient income to fully utilise their personal allowance.

1.3.4 Those in the age allowance trap

Age allowance applies separately to a husband and wife as does the total income limit of

£27,700 above which the allowance reduces. By careful planning both spouses can possibly

each qualify for a full age allowance. When investment income falls within the “age

allowance trap” it can suffer an effective rate of tax of 30% so reinvestment in non-income

producing assets should be considered.

Capital investment bonds, capital growth oriented collectives and ISAs may be attractive as,

(subject to guarding against “capital erosion”), “income” can be taken without loss of age

allowance. With the insurance-based investment bond (“capital investment bond”), this will

commonly be by use of the 5% annual withdrawal facility. In some cases, more than 5% can

be taken (without an addition to total income which may impact on the age allowance)

provided the first withdrawal is made in the second policy year.

1.3.5 Those with income in excess of £100,000

Where an individual has adjusted net income in the band between £100,000 and £121,200 (or

just above £121,200) a part of any non-dividend income in that band will effectively be taxed

at 60% because of the cut back in the personal allowance. A contribution to a registered

pension scheme could, in effect, provide tax relief at the same effective 60% rate. As part of

their planning, such people may also wish to consider independent taxation strategies and

reinvestment into tax-efficient investments such as ISAs or capital investment bonds.

However, it needs to be borne in mind that no top-slicing relief applies for the purposes of

adjusted net income when a capital investment bond is encashed.



Class 2 NICs will be abolished in the next Parliament and Class 4 NICs will be reformed to

introduce a new contributory benefit test. These changes will be consulted on this year.


The Upper Earnings and Upper Profits Limits, beyond which NICs are charged at 2%,

increase to £42,385.

The rates for 2015/16 are as follows:-

The Employee’s Primary Class 1 National Insurance rate is 12% on earnings between

the Primary Threshold (£155 per week - £8,060 pa) and Upper Earnings Limit (£815

per week - £42,385 pa).

Employees, in addition, pay 2% Primary Class 1 National Insurance on all earnings

above the Upper Earnings Limit (£42,385 per annum).

The Employer’s Secondary Class 1 contribution rate on earnings above the Secondary

Threshold (£156 per week - £8,112 pa) is 13.8%. This rate applies also to Class 1A

and Class 1B contributions.

The self-employed Class 4 rate on profits between the Lower (£8,060 pa) and Upper

Profits Limit (£42,385 pa) is 9%.

The self-employed Class 2 flat rate contribution is £2.80 per week.

The self-employed, in addition, pay Class 4 contributions at a rate of 2% on all profits

above the Upper Profits Limit (£42,385).

The Class 3 voluntary contribution rate is £14.10 per week.

The Married women’s reduced rate is 5.85%.

It is understood that from April 2015 the £2,000 annual Employment Allowance for

employer NICs will be extended to care and support workers. This means that a

family will be able to employ a care worker on a salary of around £22,600 and pay no

employer NICs.

From April 2016 employer NICs up to the Upper Earnings Limit for apprentices aged

under 25 will be abolished.

From 6 April 2015 employers will no longer be required to pay Class 1 NICs on

earnings paid up to the Upper Earnings Limit to any employee under the age of 21.

To cater for this change, a new Upper Secondary Threshold has been introduced

which is £815 per week - £42,385 p.a.

From October 2015 a new Class 3A voluntary NI contribution will be introduced.

2.3 PLANNING

As ever, the changes for 2015/16 should give advisers an incentive to visit their business

clients to discuss effective methods of remuneration.

If a salary is to be taken which avoids both employee’s and employer’s NICs then it should

not exceed £8,060 per annum ie. the threshold above which employees pay NICs.

A highly effective form of NIC planning for genuine (non-shareholding) employees would be

to consider a salary sacrifice arrangement in conjunction with employer contributions to a

registered pension plan. Contributions could be boosted by payment of the saved NIC costs

as additional pension payments.

There are, of course, a number of other important implications to consider with a salary

sacrifice scheme.

Those running their business through a company are likely to seriously consider paying

themselves dividends as opposed to salary. The main reason for this will, of course, be that

dividends are not subject to NICs. The pros and cons of dividends and salary have been well

rehearsed many times in the past and these should be revisited before any meetings are

arranged with clients. An analysis of dividends vs salary is available in the further

information section 13 on the Taxation of Shareholding Directors. In addition, a review of

the opportunities for payment of salary to working spouses could be beneficial. In any

remuneration planning for a spouse it is important that payments, in order to be fully tax

deductible, can be justified on the basis of work carried out.

Any planning carried out with a view to taking a spouse into partnership (where appropriate),

or issuing shares to a spouse in order to pay dividends, must be carefully discussed with

professional advisers.

There may be an additional benefit to incorporation in the shape of the avoidance of the

“unlimited” 2% Class 4 NICs on earnings over £42,385 that could be avoided on profits that

accrue to a company. NICs could continue to be legitimately avoided, even if the money

leaves the company, provided it is paid to the shareholders by way of dividend. Naturally,

before taking this important step (incorporating an unincorporated business), there are many

other factors to be taken into account and professional advice is essential.

3. CAPITAL GAINS TAX 3.1 PROPOSALS MADE IN THE BUDGET

3.1.1 Entrepreneurs’ relief and associated disposals

Legislation will be introduced in Finance Bill 2015 to prevent claims to entrepreneurs’ relief

in respect of gains on disposals of privately-held assets used in a business unless they are

associated with a significant material disposal, that is to say a disposal of at least a 5%

shareholding in the company or of at least a 5% share in the assets of the partnership carrying

on the business. These changes have effect for disposals on or after 18 March 2015.

3.1.2 Entrepreneurs’ relief, joint ventures and partnerships

Legislation will also be introduced in Finance Bill 2015 to prevent claims to entrepreneurs’

relief in respect of gains on shares in certain companies which invest in joint venture

companies, or which are members of partnerships. The new rule will deny relief where the

investing company has no trade (or no relevant trade) of its own. This change also has

immediate effect (i.e. for disposals made on or after 18 March 2015).

3.1.3 Wasting assets exemption

Legislation will be introduced in Finance Bill 2015 clarifying that the CGT exemption for

certain wasting assets is only available where qualifying assets have been used in the seller’s

own business. These changes will have effect from 1 April 2015 for corporation tax and 6

April 2015 for CGT.

3.1.4 Entrepreneurs’ relief on goodwill.

Following consultation, legislation included in Finance Bill 2015 to prevent claims to

entrepreneurs’ relief in respect of gains on business goodwill in certain circumstances, has

been revised to allow entrepreneurs’ relief to be claimed by partners in a firm who do not

hold or acquire any stake in the successor company.

3.1.5 Entrepreneurs' relief and academics

The Government announced that they will consult on the CGT treatment of gains made by

academics on disposals of shares in 'spin-out' companies. Any necessary legislation will be

introduced in a future Finance Bill.


From 6 April 2015 the annual exempt amount (AEA) increases to £11,100 (from

£11,000). The exemption for most trustees will be £5,550.

For individuals, the rate of capital gains tax (CGT) remains at 18% where total

taxable gains and income are less than the income tax basic rate limit (£31,785). The

28% rate applies to gains (or any parts of gains) above that limit. For trustees and

personal representatives of deceased persons, the rate of CGT remains at 28%.

The rate of CGT for gains qualifying for entrepreneurs’ relief remains at 10% on

cumulative lifetime capital gains of up to £10 million. It will be possible for

individuals to defer gains, which are otherwise eligible for relief, by investing in an

Enterprise Investment Scheme and benefit from entrepreneurs’ relief when the gain is

realised at a later date.

3.2.1 Non-residents and UK residential property

Following consultation the government has confirmed that from 6 April 2015 non-UK

resident individuals, trusts, personal representatives and narrowly controlled companies will

be subject to CGT on gains accruing on the disposal of UK residential property on or after

that date. Non-resident individuals will be subject to tax at the same rates as UK taxpayers

(28% or 18% on gains above the annual exempt amount). Non-resident companies will be

subject to tax at the same rates as UK companies (20%) and can benefit from indexation

allowance.

For more on this see Section 9 – Property Tax.

3.2.2 Capital gains tax and entrepreneurs’ relief

The Government will allow gains which are eligible for ER, but which are instead deferred

into investments which qualify for the Enterprise Investment Scheme (EIS) or Social

Investment Tax Relief (SITR), 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 EIS

or SITR on or after 3 December 2014.

Entrepreneurs' relief, delivering a 10% CGT rate on cumulative “lifetime” gains of up to £10

million, is incredibly valuable. Advisers will probably not advise directly on it but having an

awareness of how it works and any constraints will be valuable in advising business-owning

clients.

3.2.3 ATED related CGT charge

All corporate and other ‘envelopes’ affected by the new ATED band will also be subject to

CGT on disposal of the properties held, at a rate of 28%. The extension to the ATED-related

CGT charge will take effect from 6 April 2015 for properties worth more than £1 million and

not more than £2 million. For properties worth more than £500,000 and not more than £1

million, the extension to the ATED-related CGT charge will take effect from 6 April 2016. In

both cases, the charge will apply only to that part of the gain that is accrued on or after the

effective date. The balance of any gain will continue to be treated as at present which means

the gain will be apportioned between the two periods and charged accordingly. Legislation on

the CGT elements of this measure is included in Finance Bill 2015.

3.2.4 Disposals of UK residential property by non-UK residents






subject to tax at the same rates as UK corporates (20%) and will have access to an indexation

allowance. Full details were set out in the response document ‘Implementing a capital gains

tax charge on non-residents – summary of responses’, published on 27 November 2014 and

further guidance on the changes was published by HMRC on Budget Day in the form of

‘frequently asked questions’.

3.2.5 Private residence relief (PPR) on properties located in other jurisdictions

The government will restrict access to PPR in circumstances where a property is located in a

jurisdiction in which a taxpayer is not tax resident. In those circumstances, the property will

only be capable of being regarded as the person’s only or main residence for PPR purposes

for a tax year where the person meets a 90-day test for time spent in the property over the

year. The new rules will apply to both UK residents disposing of overseas property as well as

non-UK tax residents disposing of UK property.

3.3 PLANNING

3.3.1 Planning for investors:

3.3.1.1. Minimising tax on realised gains

There is an appreciable difference in the rate of CGT paid by higher rate and additional rate

taxpayers on the one hand and non/basic rate taxpayers on the other. For married clients, it

can therefore be beneficial to ensure that taxable gains are made by the lower taxed spouse

where this is possible. Even if both spouses are taxed at the same rate, there may still be the

opportunity to use two annual exemptions rather than one.

Transfers between spouses or civil partners living together are made on a ‘no gain/no loss’

basis and are, of course, exempt from inheritance tax. Such transfers should be made on an

outright basis with ‘no strings attached.’

The rate of CGT on non-exempt gains is dependent on the level of total taxable income.

Action to reduce it could therefore result in a CGT rate that is reduced by 35% (28% to 18%).

Higher rate tax relief on a pension contribution continues to be given by the extension of the

basic rate band by the gross contribution and so, for some investors will be effective for the

purposes of determining whether the 28% or 18% rate of CGT is applicable. Payment of an

allowable pension contribution would represent an effective way of providing an indirect

CGT benefit for a basic rate taxpayer who realises a chargeable gain which would otherwise

take them into higher rate tax. This is because it would result in an equivalent amount of a

capital gain that would otherwise be subject to CGT at the higher rate of 28% now being

taxed at 18%.

3.3.1.2 Making use of the annual exemption

This may seem like an obvious planning point but one which can sometimes be missed. The

annual exemption is given on a ‘use it or lose it’ basis. So if individuals are relying on certain

investments for additional income, re-balancing asset allocation within their investment

portfolio could provide the opportunity to use their annual exemption.

In some cases considering a phased sale of shares over two tax years can prove to be

beneficial as it is possible to benefit from use of two annual exemptions.

3.3.1.3 Maximising the use of losses

Despite the recovery in some asset values, some longer-term holdings could still be standing

at a loss. Combine this fact, with the higher rates of tax on gains made by higher rate

taxpayers and the often-forgotten rules on the tax treatment of capital losses might assume

increased importance.

If a taxpayer realised a gain and a loss in the same tax year:

The loss will be set off against the gain, even if the gain is within the taxpayer’s

annual exemption. Some or all of the exemption may therefore be wasted.

However, if the taxpayer carried forward a loss from a previous tax year:

The carried forward loss is only used up to the extent that it reduces their overall gains

to the level of the annual exemption.

The loss is therefore only partly used when necessary with the balance carried

forward to set off against later gains.

Care should always be taken before realising gains and the losses together in a single tax

year. In particular, care should be taken not to waste the annual CGT exemption.

3.3.2 Planning for business owners

The entrepreneurs’ relief limit stands at £10m, which on the face of it, continues to increase

the appeal of building up the value of a business with a view to realising a low-taxed gain.

Of course, reliance on an individual’s business as the sole or main means of providing

financial security in the future may represent an excessively undiversified and, thus, high risk

strategy. Business owners contemplating or adopting this route should be encouraged to

consider some alternative means of providing for the future including, as appropriate,

pensions and other suitable investments so as to diminish risk through diversification.

It is one thing having a hugely beneficial tax regime for gains made on business sale but quite

another achieving and realising the gain in the first place!

Careful consideration will also need to be given to the rule changes that have effect for

disposals on or after Budget Day that restrict the availability of entrepreneur’s relief in certain

circumstances.

3.3.3 Non-residents and UK residential property

As non UK residents will be subject to UK capital gains tax on future disposals of UK

residential property, those falling into this category should consider seeking advice on viable

options for example, potentially transferring the property to a company – provided of course,

that is it not caught by the annual tax on enveloped dwellings and stamp duty land tax – see

our section on property tax for more information.

When the property is later sold however, there could be a liability to corporation tax on any

gain at that point unless other planning is carried out to prevent this.

4. INHERITANCE TAX


In an interview with the Sunday Times last January Chancellor George Osborne said that

inheritance tax (IHT) should only be paid 'by the rich' and the Conservatives will set out

proposals to introduce further relaxations (which could incorporate an increase to the nil rate

band) before the general election. Immediately before the Budget, speculation abounded

about the possible rising of the NRB to £1 million and possible abolition of the IHT on main

residences of up to a certain figure. None of these predictions materialised. Instead, the only

surprise announcement related to the review of the use of deeds of variation.

4.1.1 Deeds of variation

The Chancellor announced a government review of what he described as attempts to avoid

IHT through the use of deeds of variation. The review will report by autumn and will look at

cases where individuals use deeds of variation to alter a will in order to pass bequests on to

their children, thereby removing sums from their estate for IHT.

4.1.2 Inheritance tax online.

As part of the introduction of the new IHT digital service HMRC will publish draft

regulations to facilitate the use of electronic communications.

4.1.3 IHT and trusts

Some amendments have been proposed to the draft legislation first published on 10

December 2014. For full details please see section 10.


4.2.1 Nil rate band

The nil rate band will remain frozen at £325,000 until 2017/2018.

4.2.2 IHT and trusts

Most of these changes were announced last December. For details on the changes in respect

of inheritance tax and trusts please see section 10.

4.2.3 Extension of death on active service exemption and medals exemption

The government has announced that it is to extend the exemption for death on active service

to people who die as a result of their activities whilst on active service to the emergency

services (this will include firefighters, ambulance crews, coastguards and the police) and

humanitarian aid workers responding to emergency circumstances. The changes will be

effective from 6 April 2015 and will apply to deaths which occur on or after 19 March 2014.

No IHT is payable on the death of a person from wound, accident or disease contracted whilst

on active service against an enemy (or on service of a similar nature) during that time or from

aggravation during that time of a previously contracted disease. This exemption applies when

HMRC Inheritance Tax receives a valid certificate issued by the Ministry of Defence.

The following information should be provided:

the deceased's service number;

a copy of the death certificate; and

any relevant supporting medical evidence, such as a post-mortem report.

Exemption applies to a person certified by the Defence Council or the Secretary of State as

dying from the above causes inflicted or incurred whilst in the armed forces or, if not a

member of those forces, whilst subject to the law governing any of those forces by reason of

association with or accompanying them. The wound does not have to be the only or direct

cause of death, provided it is a cause.

This means that, soldiers who die in the line of duty, or whose death is "hastened by injury

incurred in the line of duty", will be able to pass on all their estate - including their homes,

shares and other assets - to their relatives and other beneficiaries without having to pay IHT.

The death may occur sometime after the injury. For example, a veteran who dies in 2015

from an injury suffered in the Gulf War in 1991 would qualify for the exemption.

This exemption will also now apply to people who die as a result of their service in the fire

brigade, ambulance crew, the police force, being a coastguard and because they were a

humanitarian aid worker responding to emergency circumstances.

The exemption for medals and other decorations awarded for valor or gallantry will also be

extended to cover all decorations and medals awarded to the armed services or emergency

services personnel and to awards made by the Crown for achievements and service in public

life. This will apply to transfers of value made or treated as made on or after 3 December

2014.

4.3 PLANNING

4.3.1 People affected by IHT

With the nil rate band frozen until the 2017/18 tax year, stock markets flourishing and house

prices increasing more and more people will find that there will be a potential liability on

their death. It therefore makes sense for such people to take early planning action.

4.3.2 Making use of exemptions

This is a fundamental IHT planning point and one which can often be missed. The key is to

remember that there are a number of IHT exemptions which individuals can take advantage

of. The most common ones are:

Annual exemption – each individual can give £3,000 per annum and also use the

previous year’s exemption if not already used.

Small gift exemption – up to £250 can be given to any number of individuals (note the

small gifts exemption cannot be combined with the annual exemption).

Normal expenditure out of income – gift can be made from surplus taxable income on

a regular basis provided it doesn’t affect the donors standard of living.

Exemptions are also available on the occasion of a marriage and where gifts are made to a

UK registered charity and community amateur sports clubs. Planning in this area can

sometimes be overlooked with few people using such exemptions to the full potential.

Using the normal expenditure and annual exemptions through the payment of premiums

under life assurance policies held in trust to meet the liability to IHT can be particularly

effective.

4.3.3 Other lifetime planning

In some cases it may be possible for individuals to make gifts in their lifetime whether

outright or by executing a trust.

The current regime for outright gifts is indeed very favourable especially where the person

making the gift is in good health. Outright gifts (whether to another individual/absolute trust)

are potentially exempt transfers (PETs) for inheritance tax purposes which means that no IHT

is payable at the time the gift is made. Further provided the donor survives for 7 years the

whole amount is free of an IHT on the donors’ estate. Also there is no limit on the amount

which can be gifted.

Alternatively, where someone wishes to maintain an element of control, consideration could

be given to executing a lifetime trust. Most trusts with any element of flexibility are taxable

under the relevant property regime, i.e. as a discretionary trust. This means that the trust can

be subject to IHT on creation, when capital appointments are made and at each tenth year

anniversary. For this reason it is advisable to execute these trusts within the individual’s

available nil rate band. And where the settlor is in good health, a cycle of nil rate band use

every seven years might represent a very effective means of planning - through appropriate

trusts where a degree of retained control is to be retained.

And for those requiring a degree of access as well as control (but without triggering a

reservation of benefit) then a form of Loan Trust or Discounted Gift Trust (or a combination)

may prove suitable.

When determining the type of trust to use (especially where the trust assets could produce

income and capital gains) all aspects of taxation need to be considered in determining

suitability.

Note that there are a range of trusts available to cater for each individuals specific needs and

proper advice is essential when making any gift to a trust.

4.3.4 Will Planning

4.3.4.1 Using the Nil rate band

For a person with assets of £325,000 or more, effective use of the nil rate band can result in

an IHT saving of £130,000.

Under the transferable nil rate band (TNRB) rules, where a spouse/civil partner dies leaving

assets to the survivor, it is possible for the personal representatives to make a claim in respect

of the percentage any unused nil rate band within two years from the date of the death of the

survivor.

These provisions, apply to anyone who dies on or after 9 October 2007, regardless of when

their spouse died (including deaths before 1986 when IHT was introduced).

For a married couple or registered civil partners, this can mean that up to £650,000 (i.e. twice

the current NRB threshold) of the combined estate could pass free of IHT. Assets that exceed

this value on death will be taxed at 40%.

While it may be reasonable to conclude that couples with combined assets of up to twice the

nil rate band, especially those whose main asset is their home, may not need or be interested

in IHT planning, others may still be interested in ‘first death nil rate band planning,’

especially given the fact that the nil rate band has been frozen since 2009 and is set to remain

so until April 2018. Examples of this may be where it is thought that the value of the assets

to be left on first death will increase in value at a rate faster than the expected increase in the

nil rate band or where the surviving spouse has already inherited (from an earlier marriage) a

100% multiplier of the nil rate band. Some of the planning solutions for using the nil rate

band will involve a discretionary will trust which will absorb some of the TNRB.

4.3.4.2 Business or Agricultural Property Relief

It is important that reliefs are not wasted on death. And with nothing announced in the

Budget to directly affect such reliefs, individuals should be reminded that they exist and the

IHT savings that they deliver. Assets which qualify for relief at 100% should if possible be

left to children or to a trust on their behalf as opposed to the surviving spouse where the relief

would be wasted. Where a business succession plan is in place (resulting in the sale of a

business interest by a deceased's personal representatives and a purchase by the remaining

business owners) then estate planning for the deceased's family receiving the cash proceeds

of sale will be beneficial. Any purchase should be made under an option agreement – in order

to maintain business property relief. Also, a form of by-pass trust for the deceased's share in

the business may be appropriate to avoid the cash proceeds of sale attracting IHT on

subsequent death of the spouse of the business owner.

4.3.4.3 Leaving assets to Charity

Gifts to UK registered charities are exempt from IHT. Further where someone leaves 10% or

more of their chargeable estate to charity, the IHT payable on the remainder of the estate will

be at 36% instead of 40%.

4.3.5 Deeds of variation

Where property is inherited, it is possible to redirect the inheritance by deed of variation to

achieve immediate IHT savings. Ordinarily the inherited assets accumulate with the taxable

estate of the receiving beneficiary who may be wealthy in their own right. Instead of

choosing to make a gift of such assets, which could give rise to IHT, the receiving beneficiary

could execute a deed of variation to make an immediate IHT saving on their own estate. This

can be done within 2 years of death. As mentioned above, this area has been picked for

review as part of the Government’s drive to counter tax avoidance. So, those contemplating

using this device should bear the possible changes in mind and may want to consider taking

action sooner rather than relying on the 2 year limit currently available.

5. CORPORATION TAX AND OTHER BUSINESS TAX

CHANGES


5.1.1 R & D tax credits: access

Following a consultation on improving access to R&D tax credits for smaller companies, the

government will introduce voluntary advanced assurances lasting 3 years for smaller

businesses making a first claim from autumn 2015 and reduce the time taken to process a

claim for 2016. The government will produce new standalone guidance aimed specifically at

small companies backed by a 2 year publicity strategy to raise awareness of R&D tax credits.

HMRC will publish a document in the summer setting out a roadmap for further

improvements to the scheme over the next 2 years.

5.1.2 Country-by-country reporting

The government will introduce legislation that gives the UK the power to implement the

Organisation for Economic Co-Operation and Development (OECD) model for country-by

country reporting. The new rules will require multinational enterprises to provide high level

information to HMRC on their global allocation of profits and taxes paid, as well as

indicators of economic activity in a country. This together with the diverted profits tax (see

5.2.2 below) will, it is hoped, operate to substantially increase the tax yield in relation to

profits substantially generated from trading activities in the UK.


5.2.1 Corporation tax rates

The main rate of corporation tax will be cut by 1% from 21% to 20% for Financial Year 2015

- the year commencing 1st April 2015.

This means that for the first time for many years (and with the exception of oil and gas ring

fence profits) we have a single rate of corporation tax at 20%. There will no longer be the

need to consider the impact of the "marginal rate of tax" brought about by the application of

"marginal relief" in relation to profits between £300,000 and £1.5m.

The introduction of a single rate of corporation tax also removes the need for the “associated

companies rules”, which are used to determine whether a company is small and therefore

taxed at a rate different from the main rate.

However, those rules cannot be entirely repealed, as they are also used for other purposes

within the corporation tax regime. It is proposed that they will be replaced with a simpler

51% group test to be used to determine:

the rate at which oil and gas ring fence profits are taxed;

whether a company is entitled to use a simplified method for calculating patent box

profits;

how much has been spent by a company on long-life assets for capital allowances

purposes; and

a company’s requirement to pay corporation tax by quarterly instalments

5.2.2 Diverted profits tax

Despite strong representations made as to why the implementation of this tax should be

deferred and aligned with the implementation of EU/OECD action, this 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.

However, the consultation and resulting representations have not been entirely without effect.

The original draft legislation has now been revised to narrow the notification requirement

together with other changes to clarify how the rules will operate and, effectively, limit their

scope.

Diverted profits is a subject that has grabbed the headlines with “big names”, such as

Starbucks and Google, attracting much negative attention. There was an overwhelming

feeling that “something had to be done” and now it has been. As referenced above, country-

by-country reporting will also help in this fight against “profit shifting”. All of this, of

course, is within the context of the OECD/G20 commitment to ensure that profits are taxed in

the country that the trade giving rise to the revenue in question is carried out in.

5.3 PLANNING

Corporate investment of cash on deposit has always been a relatively challenging area of

business. Before even thinking about tax it is essential to consider liquidity needs, appetite

for risk and other uses for available funds eg. debt repayment and pension contributions.

If it is decided that an equity based investment is suitable then it is worth remembering that

dividends from collectives, are likely to be tax free if received or reinvested on behalf of a

UK company and only capital gains over inflation (based on the RPI) will be subject to

corporation tax when the gain is actually realised.

Investment bonds are sometimes considered as an alternative. However, the expected impact

of the new EU accounting directive (and the introduction of the new FRS 102 to replace

FRSSE) effectively prevents, in most cases, any hoped for tax deferment.

It is, however, reiterated that before any investment is made (in whatever vehicle),

professional advice should be taken in relation to the impact that investment (taking funds off

deposit) might have on the availability of entrepreneurs’ relief and, for investment in

deposit/cash-based investments and life policies (bonds), the impact that the loan relationship

rules might have on the annual corporation tax liability of the company.

The rate of corporation tax payable is also likely to have a strong influence on the choice of

trading entity for those in business or those considering starting a business. Especially where

profits earned from the business exceed (or are expected to exceed) the amounts required by

the business owners for personal expenditure, retaining profits inside a company will mean

that significantly less tax will need to be paid than if the profits had been earned by the owner

as a higher or additional rate tax paying sole trader, partner or member of a LLP.

5.3.1 General business planning

With the retention of an additional rate of tax (at 45%) and a higher rate of tax (40%) that is

double the main corporation tax rate, the balance seems to be firmly in favour of

incorporation once profits exceed the higher rate threshold.

However, for the increasing numbers of individuals “starting their own business”, self-

employment remains an easy and natural, low-cost choice. For these, the cash accounting

option may prove attractive as will other measures targeted to reduce red tape and help to

make business life easier.



The government has announced that it intends to introduce legislation which will, with effect

from 26 February 2015, clarify the effect of the capital allowances anti-avoidance rules where

there are transactions between connected parties or sale and leaseback transactions.

This measure can affect businesses that enter into connected party transactions and sale and

leaseback transactions, where the expenditure is incurred on plant and machinery that has

previously been acquired by the business or a connected party without incurring capital

expenditure.

The measure clarifies the effect of the capital allowances anti-avoidance rules where there are

transactions between connected parties or sale and leaseback transactions.

For example, where a person acquires an item of plant and machinery without incurring

capital expenditure, the expenditure qualifying for capital allowances following certain types

of transaction will now be restricted to nil unless the plant or machinery was acquired for

revenue expenditure or on its manufacture, at an arm’s length price. The types of transaction

affected are connected party transactions, sale and leaseback transactions, transfer and

subsequent hire-purchase or transfer and long funding leaseback transactions where the

transaction takes effect on or after 26 February 2015.

The reason for this change is that proposed sale and leaseback transactions in respect of plant

and machinery could create substantial capital allowances on assets that previously entitled

the owner to no allowances. The Government announced on 26 February 2015 its intention to

remove the opportunity for avoidance in this area.

The Chancellor announced the intention to maintain a higher level of annual investment

allowance (currently £500,000) beyond 31 December 2015 but with no specific sum

mentioned and with further details promised for Autumn.


From 1 April 2015 the research and development expenditure credit will increase from 10%

to 11% and the SME scheme super deduction from 225% to 230%. Also from 1 April 2015

qualifying expenditure for R & D tax credits will be restricted so that the costs of materials

incorporated in products that are sold are not eligible and will launch a package of measures

to streamline the application process for smaller companies investing in R&D.

See also: Section 8 Tax Avoidance.

6.3 PLANNING

Whilst there has been an expression of intent to maintain a higher level of investment

allowance, no definitive extension to the entitlement date or indication of the amount has

been given. As of now the increased AIA of £500,000 for expenditure incurred between

April 2014 and 31 December 2015 can be obtained. This may mean that the timing of

planned business investment ought to be reviewed.

Where relevant, advantage should be taken of the AIA, particularly as (subject to what is

announced in the Autumn) the rate of the AIA is scheduled to reduce to £25,000 from 1

January 2016.

Capital allowances will continue to be an important feature of tax life for businesses. Of

course, as for any expenditure, businesses should consider carefully the commercial

appropriateness of any investment. Especially in the light of the latest proposals, advisers

must be fully aware of the capital allowance system so that they can properly advise their

business clients on the tax impact of various items of expenditure. Closer to home they may

be interested in how capital allowances work for their own business.

In the right circumstances, it may be appropriate to consider an investment in order to obtain

a Business Property Renovation Allowance.



A major change to the way in which people manage and pay their taxes was announced in the

2015 Budget.

It was proposed that the government will transform the tax system over the lifetime of the

next Parliament by introducing digital accounts to remove the need for individuals and small

businesses to complete annual tax returns. This is an intrinsic part of the government’s vision

to modernise the tax system as it hopes to bring together each taxpayer’s details in one place

– similar to that of online banking.

It is anticipated that by 2016 5 million small businesses and 10 million individuals will have

access to their own digital tax account.

The government will consult over the summer on a new payment process to collect tax and

National Insurance through digital accounts instead of self-assessment. For more information

on this announcement, please see here.

Following technical consultation, an annual cap of £300 for trivial benefits will be introduced

for office holders of close companies and employees who are family members of those office

holders.

Budget 2015 also announced that the automatic deduction of 20% income tax at source by

banks and building societies is intended to cease from April 2016 which represent a major tax

simplification.


The government will simplify the administration of employee benefits and expenses together

with providing a statutory exemption for trivial benefits in kind which cost less than £50.

From April 2016, the government will remove the £8,500 threshold below which employees

do not pay income tax on certain benefits in kind and replace it with new exemptions for

carers and for ministers of religion.

Further details can be found in our Employee Benefits section which is section 14 of the main

report.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413975/making-tax-easier.pdf

8. TAX AVOIDANCE

We have seen continued government activity to close the tax gap throughout the 2014/5 tax

year. Unsurprisingly this will continue in the 2015/16 tax year

Action has included:

continued action to prevent evasion

targeted anti-avoidance legislation

"naming and shaming " individual and corporate tax avoiders

the use of Conduct and Monitoring notices issued to high risk promoters of aggressive

tax avoidance schemes

the successful use of accelerated payment notices (APNs) to secure "early" payment

of tax by those with tax avoidance schemes that have a DOTAS (Disclosure of Tax

Avoidance Schemes) reference number and for which an enquiry has been opened on

an assessment or the assessment is under appeal

consultation on expanding and toughening the DOTAS hallmarks and removing

"grandfathering". The proposal to expand the DOTAS hallmarks to cover more

inheritance tax avoidance schemes is a key part of this initiative

continued litigation against aggressive schemes

the launch of the "Fair Tax Mark" to encourage companies to be more open, and

committed to not using aggressive tax avoidance techniques and paying tax at (or

close to) the main rate of corporation tax

the proposed commencement, from April 2015, of a focused "diverted profits tax"

applying a 25% tax rate to profits diverted abroad by global companies trading in the

UK

These facts significantly influence the continued government action to prevent aggressive

avoidance, and with strong political motivation, be seen as doing so.


8.1.1 Overview

The government remains committed to a fair tax system where everyone contributes to

reducing the deficit, and those with the most make the largest contributions. This Budget

announces a number of policies (in addition to the significant raft of new anti-avoidance

provisions already in the Finance Bill) to enhance the actual and perceived fairness of the tax

system further.

Tax Evasion and Fraud

8.1.2 Laying of regulations to implement the Automatic Exchange of Information

Agreements

The government will lay the regulations to implement the UK’s Automatic Exchange of

Information Agreements and adopt the updated EU Directive on Administrative Co-operation

shortly after Budget 2015.

8.1.3 Common Reporting Standard: new disclosure facility

In advance of the receipt of data under the Common Reporting Standard in 2017, the

government will offer a new time limited disclosure facility from 2016 to mid-2017 on less

generous terms than existing facilities.

8.1.4 Closing the Liechtenstein Disclosure Facility early

In advance of a new disclosure opportunity, the existing Liechtenstein Disclosure Facility

will close at the end of 2015, instead of April 2016.

8.1.5 Closing the Crown Dependencies Disclosure Facilities early

In advance of a new disclosure opportunity, the existing Crown Dependencies Disclosure

Facilities will close at the end of 2015, instead of September 2016.

8.1.6 Financial Intermediaries notifying their customers in advance of receipt of data

under the Common Reporting Standard

The government will introduce legislation under which financial intermediaries can be

required to notify their UK resident customers with UK or overseas accounts, to inform them

about the Common Reporting Standard, the penalties for evasion and the opportunities to

disclose.

8.1.7 Maximising the yield from the Common Reporting Standard

The government will invest £4 million in data analytics resource to maximise the yield from

the Common Reporting Standard data.

8.1.8 Implementing the previously announced civil penalty regime

As announced at Autumn Statement 2014, the 2015 Finance Bill will include legislation on

enhanced civil penalties for offshore tax evasion.

8.1.9 New criminal offence for professionals

The Chancellor announced proposals for a new criminal offence for tax evasion and new

penalties for those professionals who assist tax evaders. Details are expected to be published

on 19th March.

Marketed avoidance schemes

8.1.10 Serial avoiders

The government will introduce legislation for tougher measures for those who persistently

enter into tax avoidance schemes which fail (serial avoiders), including a special reporting

requirement and a surcharge on those whose latest tax return is inaccurate as a result of a

further failed avoidance scheme. The government will also look to restrict access to reliefs

for the minority who have a record of trying to abuse them through avoidance schemes that

don’t work and intends to develop further measures to name those who continue to use

schemes that fail. Legislation will be introduced in due course that will widen the current

scope of the Promoters of Tax Avoidance Schemes regime by bringing in promoters whose

schemes regularly fail. These changes will be included in a future Finance Bill.

8.1.11 Promoters of tax avoidance schemes

The government will introduce legislation that will enable HMRC to issue Conduct Notices

to a broader range of connected persons under the Promoters of Tax Avoidance Schemes

regime. It will also legislate to ensure that the 3 year time limit for issuing Conduct Notices to

promoters who have failed to disclose avoidance schemes to HMRC applies from the date

when a failure is established. These changes will be incorporated into the Finance Bill 2015.

8.1.12 General Anti-Abuse Rule penalties

The government will introduce legislation, in a later Finance Bill, that will increase the

deterrent effect of the General Anti-Abuse Rule (GAAR), by introducing a specific, tax-

geared penalty that applies to cases tackled by the GAAR.

8.1.13 Accelerated Payments - additional cases

HMRC has continued to review cases after the Accelerated Payments legislation took effect

and Budget 2015 announces that HMRC will be issuing an additional 21,000 Accelerated

Payment Notices over and above the original estimated number.

8.1.14 Improvements to the Disclosure of Tax Avoidance Schemes (DOTAS) regime

The government will introduce legislation that will ensure that DOTAS remains an effective

information tool. This will include measures to:

require employers to notify employees of their involvement in avoidance schemes

relating to their employment and to provide details of those employees to HMRC

(Finance Bill 2015)

provide HMRC with a power to identify users of undisclosed avoidance schemes

(Finance Bill 2015)

increase the penalty for users who do not comply with their DOTAS reporting

requirements (Finance Bill 2015)

introduce protection for those wishing to voluntarily provide information to HMRC

about potential failures to comply with DOTAS (Finance Bill 2015)

require promoters of tax avoidance schemes to notify HMRC of any relevant changes

to a disclosed scheme (Finance Bill 2015)

enable HMRC to publish information about promoters and schemes (Finance Bill

2015)

strengthen the descriptions of schemes which must be disclosed and to expand the

coverage of inheritance tax (IHT), to include schemes seeking to avoid IHT charges

during a person’s lifetime and following death.

There has been much discussion and a little consternation over the potential impact of

expanded and strengthened DOTAS provisions. This has been especially so in relation to

IHT schemes. Based on the last iteration of the consultation one could have some hope that,

despite the removal of “grandfathering”, most, if not all, of the IHT schemes currently

marketed would not be caught by the new provisions. Currently, though, we are somewhat

“in the dark” as we do not have the detail of any further proposed changes to consider.

8.1.15 Capital gains Tax (CGT) entrepreneurs’ relief

The government will deny entrepreneurs’ Relief (ER) on the disposal of shares made on or

after 18 March 2015 in a company that is a non-trading company in its own right. The

government will also prevent individuals from claiming ER on the disposal of personal assets

used in a business carried on by a company or a partnership unless they are disposed of in

connection with a disposal of at least a 5% shareholding in the company or a 5% share in the

partnership assets. This also affects disposals on or after 18 March 2015.


Substantial action against avoidance and evasion had already been announced (and in some

cases actioned) before the Budget. The main aspects of these “already announced” changes

on tax avoidance and evasion are summarised below. Wherever appropriate planning

strategies that could be considered in relation to the change being discussed will be outlined.

8.2.1 Anti-avoidance: Businesses

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 (DPT)

will be applied, using a rate of 25%, from 1 April 2015.

Following consultation and representation, the application of DPT has been given greater

focus so that the companies affected by it are more narrowly defined. Further clarification

has also been given in relation to key definitions and conditions. The securing of a low

effective rate of tax on profits generated in the UK is a subject that has grabbed the headlines

with “big names”, such as Starbucks and Google, attracting much negative attention. There

was an overwhelming feeling that “something had to be done” – and it has.

Country-by-country reporting

Legislation will be introduced that gives the UK the power to implement the OECD model

for country-by-country reporting. The new rules will require multinational enterprises to

provide high level information to HMRC on their global allocation of profits and taxes paid

as well as indicators of economic activity in a country.

Accelerated Payments group relief

As announced at Autumn Statement 2014, the government will introduce legislation to ensure

that the Accelerated Payments legislation works effectively where avoidance arrangements

give rise to losses surrendered as group relief. (Finance Bill 2015).

Employment intermediaries penalties

As announced at Autumn Statement 2014, the government will make a minor amendment to

correct legislation underpinning the penalty regime for the late filling or non-submission of

quarterly returns from employment intermediaries. This will take effect from 6 April 2015

with policies included in the Finance Bill 2015.

Capital Allowances

As announced on 26 February 2015, the government will introduce legislation, with effect

from 26 February 2015, to clarify the effect of capital allowances anti-avoidance rules where

there are transactions between connected parties or sale and leaseback transactions (Finance

Bill 2015).

8.2.2 Anti-Avoidance: Individuals:

Capital gains tax - restricting entrepreneurs’ relief (ER): restricting unfair tax

advantages on incorporation

The government will prevent individuals from claiming ER on disposals of the

reputation and customer relationships associated with a business (‘goodwill’) when

they transfer the business to a related close company. This will affect transfers made

on or after 3 December 2014.

Miscellaneous loss relief

As announced at Autumn Statement 2014, the government will legislate to counter the

avoidance of income tax through miscellaneous loss relief by introducing anti-

avoidance rules from 3 December 2014. From 6 April 2015 it will also limit the

miscellaneous income against which a miscellaneous loss can be claimed. (Finance

Bill 2015).

Special purpose share schemes

As announced at Autumn Statement 2014, the government will legislate to remove the

unfair tax advantage provided by special purpose share schemes, commonly known as

‘B share schemes’. From 6 April 2015 all returns made to shareholders through such a

scheme will be taxed in the same way as dividends. (Finance Bill 2015)

Private equity management fee planning

As announced at Autumn Statement 2014, the government will introduce legislation,

effective from 6 April 2015, to ensure that sums which arise to investment fund

managers for their services are charged to income tax. It will affect sums which arise

to managers who have entered into arrangements involving partnerships or other

transparent vehicles, but not sums linked to performance, often described as ‘carried

interest’, nor returns which are exclusively from investments by partners. (Finance

Bill 2015).

8.3 PLANNING

The existence of the GAAR and the other anti-avoidance measures referred to above have

substantially operated to remove the public and financial planner appetite for aggressive tax

avoidance. Planning should, as a result, focus on tried and tested planning centred on

financial strategies, and products permitted and contemplated by the legislation and those

accepted by HMRC.

9. PROPERTY TAX


There were no new proposals made in the Budget.


9.2.1 Stamp Duty Land Tax (SDLT)

Since 4 December 2014 SDLT on purchases of residential property has been payable at each

rate on the portion of the purchase price which falls within each band, rather than at a single

rate on the whole transaction value as was previously the case.

The current rates and thresholds are as follows:

0% on the first £125,000 of the property price;

2% on the next £125,000 (i.e. on the portion between £125,001 and £250,000)

5% on the next £675,000 (i.e. on the portion between £250,001 and £925,000);

10% on the next £575,000 (i.e. on the portion between £925,001 and £1,500,000); and

12% on the rest (i.e. on the portion above £1,500,000).

From April 2015, SDLT will no longer apply to land transactions in Scotland. These will

instead be subject to Land and Buildings Transaction Tax (LBTT). LBTT operates in the

same way as the reformed SDLT with the exception that the 0% rate applies on purchases up

to £145,000, the 10% rate applies to the portion of the purchase price between £325,001 and

£750,000 and the 12% rate will apply to the slice over £750,000. Guidance on the new LBTT

regime has now been published by HMRC.

Application of SDLT on certain authorised property funds.

As announced at Autumn Statement 2014, the government intends to introduce a seeding

relief for property authorised investment funds and co-ownership authorised contractual

schemes (CoACSs) and intends to make changes to the SDLT treatment of CoACSs investing

in property so that SDLT does not arise on the transactions in units, subject to the resolution

of potential avoidance issues. Any changes will be legislated for in a future Finance Bill.

Treatment of shared ownership properties

As announced in the Autumn Statement 2014, the government will extend the SDLT multiple

dwellings relief to include superior interests in residential property, such as shared ownership.

This will apply where the transaction is part of a lease and leaseback arrangement, if acquired

from a qualifying body such as a housing association. The change will take effect from the

date on which Finance Bill 2015 receives Royal Assent.

9.2.2 Annual tax on enveloped dwellings (ATED)

Annual Tax on Enveloped Dwellings (ATED) is payable by companies and other corporate

entities that own UK residential property which is valued above a certain amount. The

annual chargeable amounts for ATED are increased each year in line with the Consumer

Prices Index.

ATED is currently only payable on properties valued at over £2m at the later of 1 April 2012

and the date of acquisition and a return is only required where ATED is payable.

However, from 1 April 2015, the government proposes to increase the ATED charges by 50%

above inflation on properties valued at more than £2 million so that the new charges are:-

Property value Annual Charge in 2015-16

£2m - £5m £23,350

£5m - £10m £54,450

£10m - £20m £109,050

£20m + £218,200

Also, a new band will also come into effect for properties with a value greater than £1 million

but not more than £2 million with an annual charge of £7,000.

From April 2016 there will also be an ATED charge of £3,500 on properties valued at

between £500,000 and £1 million.

Filing requirements will change in line with the increased charges so that with effect from 1

April 2015, an ATED return will be required in respect of properties that is within a corporate

wrapper of envelope and that were valued at more than £1 million on 1 April 2012 or at

acquisition if later.

There will be a transitional rule for persons falling into this new threshold where returns will

be due by 1 October 2015 and payment by 31 October 2015, instead of the normal filing date

of 30 April 2015. The ATED annual charges for this period will be published before 1 April

2015.

From 1 April 2016 a further band will come into effect for properties with a value greater

than £500,000 but not more than £1 million, with an annual charge of £3,500.

9.2.3 Capital Gains Tax (CGT)

All corporate and other ‘envelopes’ affected by the new ATED band will also be subject to

CGT on disposal of the properties held, at a rate of 28%. The extension to the ATED-related

CGT charge will take effect from 6 April 2015 for properties worth more than £1 million and

not more than £2 million. For properties worth more than £500,000 and not more than £1

million, the extension to the ATED-related CGT charge will take effect from 6 April 2016. In

both cases, the charge will apply only to that part of the gain that is accrued on or after the

effective date. The balance of any gain will continue to be treated as at present which means

the gain will be apportioned between the two periods and charged accordingly. Legislation on

the CGT elements of this measure is included in Finance Bill 2015.

Disposals of UK residential property by non-UK residents






subject to tax at the same rates as UK corporates (20%) and will have access to an indexation

allowance. Full details were set out in the response document ‘Implementing a capital gains

tax charge on non-residents – summary of responses’, published on 27 November 2014 and

further guidance on the changes was published by HMRC on Budget Day in the form of

‘frequently asked questions’.

Private residence relief on properties located in other jurisdictions

The government will restrict access to PPR in circumstances where a property is located in a

jurisdiction in which a taxpayer is not tax resident. In those circumstances, the property will

only be capable of being regarded as the person’s only or main residence for PPR purposes

for a tax year where the person meets a 90-day test for time spent in the property over the

year. The new rules will apply to both UK residents disposing of overseas property as well as

non-UK tax residents disposing of UK property.

9.3 PLANNING

Due to the tightening of the rules on PPR, non-residents who own a UK property or UK

residents who own an overseas property may now find that they are liable to pay some CGT

on eventual disposal. The new ’90-day rule’ will be crucial in determining the tax position

and anyone on the cusp will need to keep detailed records.

The broad intention of the new restriction on PPR is to prevent non-residents from being able

to benefit from PPR. Nonetheless in practice there may still be some limited circumstances in

which a person can simultaneously accrue PPR and be non-resident on an ongoing basis.

Likewise, in appropriate circumstances, it may still be possible to acquire and hold a UK

residential property within a corporate structure without incurring either the 15% SDLT rate

or the ATED if the structure falls within one of the exemptions available.

If a high value property is likely to qualify for PPR under the new rules, this may make it

preferable for an individual (or trustees) to hold it directly rather than via a company. On an

acquisition of a property directly by an individual or trustees, SDLT will be at standard

residential rates (although the changes to the SDLT rates from 4 December 2014 may mean

that the overall SDLT charge is higher than it would have been previously for higher value

properties) and ATED will not be an issue. However the property will be within the IHT net

unless other forms of IHT mitigation are put into place.

It is, however, important to recognise that these are complex areas of tax planning and

professional, bespoke advice is essential.

10. TRUST TAXATION


The Autumn Statement 2014 announced that legislation would be introduced to provide new

rules about adding property to trusts on the same day, to target inheritance tax (IHT)

avoidance through the use of multiple trusts. Legislation was published in draft on 10

December 2014. The Budget announced that, following consultation on the draft legislation,

the government has made changes to the legislation so that the new rules apply only when

property is added to more than one relevant property trust on the same day.

Concerns were also expressed that small same day additions by the settlor to a number of

trusts for say, trustee fees, would result in the property in those other trusts being aggregated

and brought into the 10 year charge calculation. The government has announced that the

revised legislation will provide that where the value of the addition is £5000 or less there will

not be a same day addition.

Also, the period of grace for not applying the new rules to additions to existing trusts from a

will executed before 10 December 2014 have been extended by 12 months. The exclusion

will now be limited to deaths before 6 April 2017.

As stated before, the calculation of trust charges will be simplified by removing the

requirement to include non-relevant property in the computation. Changes are also to be

made in certain areas of the relevant property trust legislation to close a loophole and ease the

effects of the legislation elsewhere, but no details of these have yet been announced.


10.2.1 Trust rates and annual exemption

The CGT annual exemption for trustees will be £5,550 in 2015/16 (subject to dilution

where the same settlor has created more than one trust).

The trust rate remains unchanged at 45% and the dividend trust rate at 37.5%. These

are the income tax rates that trustees of discretionary trusts pay on income they receive

above their standard rate band which is normally £1,000 (and remains at this level in

2015/16).

10.2.2 Trust taxation simplification

As announced last December the Government is not proceeding with the introduction of a

single settlement nil rate band. Instead new rules will be put in place to target avoidance

through the use of multiple trusts and deal with some areas of the legislation where anomalies

exist with a view to simplification. These measures were included in the draft Finance Bill

2015 but following consultation further changes are to be made and so this legislation will

now be included in a future Finance Bill.

(a) Removing anomalies in the IHT regime on non-relevant property

Inheritance tax on discretionary trusts is levied on the value of relevant property. Currently

whilst non-relevant property is not subject to IHT, if a trust holds relevant and non-relevant

property, (ie property on interest in possession trusts), the whole value of the trust property is

taken into account in determining the rate of IHT that should apply. In future, this will no

longer be the case and property that is not relevant property will be ignored for these

purposes.

Provisions will also be included in a future Finance Bill to prevent an exit charge arising

where property is transferred out of a discretionary trust created on death within 3 months

from its creation. This previously represented a trap for people who sought to redirect

property in a discretionary trust created on a person's death within the 24 months permitted

by section 144 IHT Act 1984. In such circumstances the IHT rules will then ignore the

discretionary trust for IHT purposes and the legacy will be treated as taking place on that

person's death.

(b) The new anti-avoidance rules for multiple settlements.

The ‘new’ new rules in the form of a targeted anti-avoidance provision will be inserted into

IHTA 1984 by Finance Bill 2015 to counter IHT avoidance in certain circumstances using

multiple trusts. A new section 62A will ensure that where property is added to two or more

settlements on the same-day and after the commencement of those settlements, the value of

the added property to the other trusts will be brought into account in calculating the rate of

tax for the purposes of ten-year (periodic) charges and exit charges of a particular trust. Those

other trusts will also be regarded as related settlements and so the property put into them at

outset will also be brought to account when calculating IHT on a particular trust.

This provision, which will only apply if the addition is more than £5,000, is specifically

aimed at a common will planning technique that involves the establishment (during lifetime)

of a series of pilot trusts, usually created on separate consecutive days each for a nominal

amount. Following the creation of the trusts, a will is executed which provides for a larger

gift (typically in excess of the nil rate band) to be applied across all the trusts following the

testator’s death. No IHT advantage arises at the point of death of the settlor but, because

there are several lower value trusts - rather than just one high value one - the likelihood of

ongoing relevant property charges on those trusts is significantly reduced.

The planning exploits the technicalities of the existing ‘added property’ rules which provide

that transfers made on the same-day can be ignored for the purposes of calculating the

settlor’s cumulative total in the seven year period prior to making the addition (which in turn

is relevant for the purposes of calculating the amount of the nil rate band available to the trust

when working out relevant property charges for that trust). The broad effect of this technical

‘loophole’ is that where property is settled on a series of low value trusts on the same-day

(e.g. on the settlor's death), each trust can still benefit from its own nil rate band even after

the additions have been made. Of course, if the settlor had made other chargeable transfers in

the seven years before he makes the addition to the trusts (ie. on death) those additions will

reduce the nil rate band available to each trust.

Clause 62A of the IHT Act 1984 will, in broad terms, make this long-established will

planning technique redundant.

The practical implications of the changes are covered in detail in the Techlink bulletin dated

13 January 2015

The new rules on same-day additions will apply to all relevant property charges arising on or

after the proposed commencement date of 6 April 2017 in respect of relevant property trusts

created on or after 10 December 2014. To prevent forestalling, they will also apply to

relevant property trusts created before 10 December 2014 where additions are made after that

date.

Transitional provisions apply to provide an exception for wills executed before 10 December

2014 where the death of the testator occurs before 6 April 2017. This provides time for those

affected to change their will and avoid unwanted tax consequences.

10.3 PLANNING

10.3.1 Impact of the new rules on common trust planning strategies

As long as there is no "same-day addition to the trusts", the new rules will have no impact on

the situation where multiple trusts are used to ensure that a series of lower or no value

transfers can be made into trusts created on separate days with each having their own nil rate

band (only diminished by any chargeable transfers made by the settlor in the seven

immediately preceding years). This can be particularly effective where the only transfers

made by the settlor in the seven year period immediately preceding the establishment of

each trust were the low/nil value transfers made in creating the other low/no value trusts as

this would mean that each trust would then have its own nil rate band – or very close to it.

This means that multiple “separate days” trusts of:-

Life assurance protection plans

Loan trusts

Discounted gift trusts

could all continue to deliver the potential for reduced nil periodic and exit charges.

Indeed, provided the trusts are created on different days and the settlor has made no previous

chargeable lifetime transfers, it will still be possible:

for a settlor to create two discretionary trusts on different days without IHT provided

the combined chargeable transfer doesn’t exceed the settlor’s available nil rate band;

or

for a client to create a combination of IHT planning arrangements – for example a

discounted gift trust and a loan trust, or one straightforward gift trust and one

discounted gift trust

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In such a case, provided the loan trust was established first and the settlor hadn’t previously

used any of their nil rate band, each trust would retain the benefit of a full nil rate band

regardless of whether the trusts are created before or after the rule change.

Spousal by-pass trusts set up to receive payments of pension death benefits from trust based

pension schemes would also be unaffected as there will be no "same day addition".

10.3.2 Additions to existing trusts of financial products

Additions made to pre 10 December trusts will only invoke the application of the new

provisions if, when the addition is made (i.e. on the same-day), additions are made to other

trusts created by the same settlor at the same time. An addition to one trust, say by waiving a

loan under a Loan trust will not come within the new rules.

The concept of a same-day transfer needs a simultaneous addition to more than one existing

settlement. However, it would seem that there is no requirement for all of those settlements

to be relevant property (ie discretionary) trusts. So it could apply if an addition is made on

the same day to an existing discretionary and interest in possession trust.

For examples of how this works with loan trusts and DGTs see the above mentioned Bulletin.

A specific exemption in s62A(3)(d) applies where the same-day addition ‘results from the

payment of a premium under a contract of life insurance the terms of which provide for

premiums to be due at regular intervals of one year or less throughout the contract term.’ This

exemption prevents the new rule having any application to regular premiums paid under a

contract of life insurance and ensures that if, for example, the settlor has more than one trust

policy with direct debits set up to go out to each on the same-day, the regular premiums will

not be treated as ‘same-day additions’. It is important to note that the tight wording of the

exemption ensures that top-ups to single premium policies – even if contractually allowed for

under the policy conditions - will not fall within the scope of the exemption.

In conclusion, advisers can continue to confidently recommend the use of multiple trusts in a

lifetime estate planning strategy in appropriate circumstances, provided, of course, that

reliance on future "same-day additions" is not an inherent part of the strategy.

Clients who have already set up pilot trust arrangements in conjunction with legacies to be

made under their wills have a clear opportunity and responsibility to review and reorganise

their affairs to avoid unwanted tax and possibly unnecessary commercial consequences.

10.3.3 Discretionary trusts

The high rates of income tax payable by trustees of discretionary trusts (see above) and the

relatively higher rate of CGT (now at 28%) have continued to have a serious impact on the

returns available for trust beneficiaries.

As a result, trustees need to be even more careful to incorporate tax efficiency into any

investment decisions they make.

In this respect trustees of a discretionary trust could consider:-


Distributing income out of the trust to a “low-tax” beneficiary with a view to

recovering the high rates of income tax the trustees have already paid.

Subject to the terms of the trust allowing them to do so, appointing a life interest to a

low taxpaying beneficiary with a view to ensuring that trust income is taxed on that

beneficiary – and without the trustees having to pay high up-front rates of income tax.

Investing for capital growth with a view to, in future, using the trustees’ annual CGT

exemption of £5,550. (This exemption will be diluted by the number of non-bare

trusts created by the same settlor since 7 June 1978 but the exemption will never be

less than £1,110 – 10% of the full individual annual exemption).

An investment in a single premium life assurance investment bond can be tax efficient

for trustees because:-

- it does not generate taxable income;

- it is not subject to CGT in the hands of the investor;

- it enables the trustees to draw 5% of the initial investment, for 20 years, with no

tax charge at that time;

- it permits switching within the bond wrapper without a tax charge at that time; and

- assignment to a beneficiary (or an absolute appointment) will not give rise to a tax

charge.

Don’t forget that bonds are taxed under the chargeable events legislation. This means any

chargeable event gains are taxed on the settlor of the trust if the settlor is alive and UK

resident in the relevant tax year. Otherwise, they are taxed on UK resident trustees at a rate

of 45% (less a 20% tax credit for a UK bond), subject to the standard rate band of £1,000.

These rules do not apply to bare trusts. Here, subject to the parental settlor anti-avoidance

rule – see below, the person assessed to tax is the beneficiary (regardless of the age of the

beneficiary).

On the other hand, if a bond is held in a flexible/discretionary trust and the trustees intend to

distribute the encashment proceeds of the bond to a minor beneficiary (or to a parent of a

minor beneficiary for the beneficiary’s benefit), it may be better for the trustees to first

appoint an absolute right in the trust fund (and the bond) in favour of the intended

beneficiary. This would not trigger a chargeable event so that on a subsequent encashment

any chargeable event gains of the bond would be taxed on the beneficiary at his/her lower

rate of tax.

Care needs to be exercised if the beneficiary is a minor unmarried child of the settlor because

in these cases, if chargeable event gains exceed £100 in a tax year, they will be assessed on

the parental settlor.

Alternatively, if the intended beneficiary is an adult, the trustees will usually just assign

individual segment policies to the beneficiary prior to encashment to achieve the same result.

With all of the above planning ideas, one eye needs to be kept on the relevant anti-avoidance

rules, particularly those that apply to settlor-interested trusts. These, of course, do not apply

where a single premium bond is the trustee investment.

10.3.4 Setting up a new trust

When setting up a new trust, the prospective settlor needs to carefully consider all the tax

implications. Whilst discretionary trusts have become more popular following the changes to

the inheritance tax treatment of trusts, the higher income tax rates paid by the trustees of

discretionary trusts can be avoided if the trust is an interest in possession trust.

Another possibility, if a discretionary trust still appeals, is to create a settlor-interested trust,

by including the settlor’s spouse (but not the settlor) as a potential beneficiary. This will give

useful flexibility yet the trust will still be effective for IHT purposes. Historically such trusts

have been avoided as income will then be taxed on the settlor and in the past settlors have

been taxed more harshly than trustees. However, the position is now reversed. If the settlor is

not a 45% taxpayer, then some tax refund can be secured, although the trustees still have the

initial liability at the trust rates.

Finally, remember that the trust rates of income tax do not apply to bare trusts and the

parental settlement anti-avoidance rules only apply to such trusts for income tax purposes.

For CGT, regardless of who the donor is, the gains of a bare trust are assessed on the

beneficiary with a full annual exemption – which is £11,100 for tax year 2015/16.


11.1 OVERVIEW

Managing investments (incorporating appropriate asset allocation) to produce acceptable

returns, whilst managing risk, takes absolute priority in portfolio planning. However,

maximising the tax efficiency to minimise tax on investments can substantially improve the

“bottom line” – especially for those who will suffer the 45% additional rate of tax (or the

effective 60% rate of tax for those who lose their personal allowance).

Income tax and capital gains tax changes are covered in sections 1 and 3 of this Bulletin

respectively.

In addition we also cover pensions in section 12.

In this section we look at:

ISAs

National Savings

Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs)

Seed Enterprise Investment Scheme (SEIS)

Social Investment Relief

11.2 INDIVIDUAL SAVINGS ACCOUNTS (ISAs)

11.2.1 PROPOSALS MADE IN THE BUDGET

More radical changes were announced in relation to ISAs – all bringing a welcome change

and even more product flexibility.

11.2.1.1 Help to Buy: ISA

It was announced in Budget 2015 that a ‘Help to Buy ISA’ would become available from

Autumn 2015 under which the government would boost a first-time home buyer’s savings by

25% - which is £50 for every £200 saved subject to a maximum of £3,000 per person (rather

than one per home). This means that someone who saves £12,000, will have their savings

boosted to £15,000 – which will be paid at the time the property is bought. The bonus will be

available on home purchases of up to £450,000 in London and £250,000 outside London.

New accounts will be available for 4 years and must be opened with a minimum of £1,000.

There will be no limit on how long someone can save for once the account has been opened

and no minimum monthly savings amount. The account holder has to be 16 or over and must

be a first-time buyer who is purchasing a UK property.

Saving in a ‘Help to Buy ISA’ will no doubt be welcomed for those who wish to climb the

property ladder and given that the account will be made available to each person (as opposed

to one per home) the overall boost in savings could amount to £6,000 – which at the very

least could help with the general costs of moving or help to cover part/all of the stamp duty

payable.

11.2.1.2 Ability to withdraw ISA savings

From Autumn 2015, the government will allow ISA savers to withdraw and replace money

from their cash ISA without it counting towards their annual ISA subscription provided they

make a repayment in the same tax year as the withdrawal. This means the account will

benefit from more flexibility as it will be possible to access funds during the tax year without

impacting the ability to maximise the subscription amount.

11.2.1.3 Extending the range of ISA eligible investments

Following technical consultation, the government will further extend the range of ISA

eligible investments in 2015/16 to include listed bonds issued by a co-operative society and

community benefit society and SMEs securities issued by companies trading on a recognised

stock exchange.

The government will also explore extending the range of investments to include debt and

equity securities offered via crowd funding platforms and consult in the summer on how to

include peer-to-peer loans.

11.2.2 CHANGES ALREADY ANNOUNCED

In the Autumn Statement, it was announced that for tax year 2015/16 the maximum

contribution for all qualifying investors would be raised to £15,240. Savers now have

complete flexibility to save how they wish within a cash ISA or stocks and shares ISA

provided they don’t exceed the overall limit. The Junior ISA subscription limit is similarly

increased to £4,080 for 2015/2016 with the same limit applying to the Child Trust Fund

(CTF).

The government consultation on options for transferring savings held in Child Trust Funds

into Junior ISAs has now ended and the proposals are being taken forward under the 2014

Deregulation Bill.

In the Autumn Statement, which was delivered on 3 December 2014, it was announced that

the ISA rules would be amended to provide for the spouse or civil partner of a deceased ISA

saver to receive an additional ISA allowance up to the value of the deceased saver's ISA at

the time of their death. In addition, the additional ISA allowance would not count against the

surviving spouse's/civil partner's annual ISA allowance.

11.2.3 PLANNING

The increase in the investment limit combined with the increased flexibility of the ISA, while

valuable to all who qualify, will be particularly welcome for those who are:

higher rate taxpayers

additional rate taxpayers and/or

restricted on relievable pension contributions or increased benefits because of existing

provision.

The value of an ISA as a means of investing tax effectively for higher and additional rate

taxpayers is well known. Those affected by the reduced annual allowance and restriction of

tax relief will appreciate that there is little financial appeal in either making a contribution to

a pension arrangement that attracts no tax relief or benefiting from an employer contribution

or scheme accrual that triggers a tax charge while paying tax on the emerging pension income

at (possibly) 40%/45%. This is especially so where the investor can secure tax free growth

and income within the ISA.

Since 5 August 2013, it has been possible to invest in AIM shares through ISAs. This gives

the investor the opportunity to benefit from a double tax break - firstly on the tax-free status

of ISAs and then again on death by virtue of inheritance tax business property relief which is

available on certain AIM/ISDX stock.

The increased upper limit of £15,240 (which will apply from 6April 2015) equates to £30,480

for a married couple each year and over 10 years, with no increases, equates to £304,800!

And it will soon be possible to put a further £4,080 per annum into a Junior ISA for a child

who qualifies. Parents and grandparents who require more control over when the child gets

access to the investment may prefer to mirror a JISA investment pattern by investing

regularly into ordinary (non-ISA) collectives subject to a trust or, for those with capital, into

an offshore bond. Both types of investment could be held in a suitable trust.

11.3 NATIONAL SAVINGS


11.3.1.1. Pensioners bonds

The government confirmed that National Savings and Investment bonds for pensioners (over

65) would remain on sale until 15 May 2015. The bonds have been extremely popular – being

the biggest opening sale of any retail financial product in Britain’s modern history – and the

government wish to ensure eligible investors do not miss out.

11.3.1.2 Premium bonds

Budget 2015 announced that the planned increase to the National Savings and Investment

Premium Bond investment limit to £50,000 will take place on 1 June 2015, providing further

support for savers.


The government announced last month that National Savings and Investment bonds for

pensioners (over 65) would remain on sale for longer than originally planned.

11.3.3 PLANNING

National Savings and Investment products are government-backed and therefore appeal to

many cautious investors. With the opportunity still available to invest in Pensioner Bonds

with their high guaranteed returns (paid on maturity) clients falling in this category may wish

to take advantage of this opportunity while it is still available.

11.4 VENTURE CAPITAL TRUST/ ENTERPRISE INVESTMENT

SCHEME/ SEED ENTERPRISE INVESTMENT SCHEME AND

SOCIAL INVESTMENT RELIEF


Budget 2015 announced that the government will make amendments to the Venture Capital

Trust (VCT), Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment

Scheme (SEIS) to ensure that the UK continues to offer significant and well-targeted support

for investment into small and growing companies, in line with new EU rules.

Subject to state aid approval The government will:

require that companies must be less than 12 years old when receiving their first EIS or

VCT investment, except where the investment will lead to a substantial change in the

company’s activity

introduce a cap on total investment received under the tax-advantaged venture capital

schemes of £15 million, increasing to £20 million for knowledge-intensive companies

increase the employee limit for knowledge-intensive companies to 499 employees, from

the current limit of 249 employees

The government will also smooth the interactions between the schemes by removing the

requirement that 70% of the funds raised under the SEIS must have been spent before EIS or

VCT funding can be raised.


11.4.2.1 Venture capital schemes: changes to scheme rules

All community energy generation undertaken by qualifying organisations will be eligible for

social investment tax relief (SITR) with effect from the date of the expansion of SITR (likely

to be from 6 April 2015), at which point it will cease to be eligible for the EIS, SEIS and

VCT. All other companies benefiting substantially from subsidies for the generation of

renewable energy will be excluded from also benefiting from EIS, SEIS and VCTs with

effect from 6 April 2015. These measures will be included in the Finance Bill 2015.

11.4.2.2 Venture capital schemes – digital process

The government will introduce a new digital process for investors and companies qualifying

for the tax-advantaged venture capital schemes (EIS, SEIS and SITR) in 2016, making it

easier to use the schemes. A new format for VCT returns will also be developed.

11.4.2.3 Entrepreneurs’ relief and EIS/SITR

The government will allow gains which are eligible for entrepreneurs’ relief (ER), but which

are instead deferred into investments which qualify for the EIS or SITR, to remain eligible for

ER when the gain is realised. This benefits qualifying gains on disposals that would be

eligible for ER but are deferred into EIS or SITR on or after 3 December 2014.

11.4.3 PLANNING

11.4.3.1 Venture capital trusts (VCTs)

VCTs have a number of tax advantages:-

Up to 30% income tax relief is available on an investment of up to £200,000 per annum

into a VCT (subject to claw-back if the investment is sold within 5 years)

Dividend income is tax free, which is a considerable advantage for the higher/additional

rate taxpaying investor – especially where the ISA contribution limit has been reached

Capital gains on sale of shares are tax free – very important in an era of high taxation.

Remember, though, VCTs usually carry more investment risk – particularly now that VCTs

are able to invest in a wider range of companies.

11.4.3.2 Enterprise investment schemes (EISs)

The amount that can be effectively invested in a pension each year has reduced in recent

years. However, three successive governments have improved the EIS regime and it is now

arguably the most generous tax-efficient investment vehicle available to the UK taxpayer.

The tax benefits of an EIS are as follows:

Income tax relief at 30% on investments of up to £1m for the tax year in which the

underlying investment is made (subject to claw-back if the investment is sold within 3

years)

No capital gains tax on profits on the sale of shares after a three year holding period

100% inheritance tax relief after two years if the underlying investments qualify

CGT deferral relief

An EIS is an investment into shares of an unlisted company and so, by its nature, is a

relatively high risk investment. However, certain EIS funds exist that can limit the investment

risk.

11.4.3.3 The seed enterprise investment scheme (SEIS)

The SEIS became operational in April 2012. The scheme offers 50% income tax relief on

investments of up to a maximum of £150,000, into small start-up companies. For one year

only the amount invested in qualifying shares could be offset against capital gains, meaning

investors could reduce their capital gains tax bill.

Last year, HMRC confirmed that where an election is made to have some or all of an issue of

shares to be treated as though acquired in the tax year immediately preceding that in which

they were actually acquired, the shares will also be treated as having been acquired in the

earlier tax year.

With the SEIS and its 50 per cent capital gains tax reinvestment relief to be made permanent,

business angels will be able to continue to benefit from the tax advantages offered by the

scheme for the foreseeable future.

11.4.3.4 Social Investment tax relief

Following the announcement of the rate at which relief is to be given, investment in

qualifying social enterprises looks set to provide an attractive alternative to those who have

historically invested in the EISs and VCTs. The 30% rate is higher than the 25% for 40% rate

taxpayers reclaiming when they donate to charity and lower than 31.25% for 45% rate payers

using gift aid.

12. PENSIONS


After last years’ changes there were very few pension related surprises in this year’s Budget.

The exception was the future reduction in the Lifetime Allowance although a number of

commentators had included this change in their pre-Budget predictions.

The consultation on the development of a secondary market in annuities was, possibly, the

biggest Budget “story” (especially for financial planners and financial institutions). However,

this was heavily trailed so its appearance on Budget Day was no surprise.

12.1.1 Reduction of the Lifetime Allowance

The reduction of the Lifetime Allowance from £1.25m to £1m from 6 April 2016 has been

proposed. This comes with a new Fixed Protection 2016 and new Individual Protection

provision. According to HMRC over 96% of individuals currently approaching retirement

have a pension pot worth less than £1m, so this change will only affect the wealthiest of

pension savers. Given this and that pension tax relief costs the Government over £34bn per

annum some change was thought to be inevitable. Many believe that we may see more

change further limiting or reattributing relief after the election.

12.1.2 Inflation proofing the Lifetime Allowance from 6 April 2018

The Lifetime Allowance will be indexed to increase annually by CPI from 6 April 2018.

12.1.3 Creation of an annuity secondary market

A consultation document has been published detailing and seeking views on how the

operation of a secondary annuity market could work. This could potentially be relevant to

over 5 million annuitants.

The consultation proposes that annuities will be capable of assignment (for consideration) to

a third party.

Only sales to institutions – not individuals – are proposed. And sales back to the original

provider are not being considered. Despite this though, healthy demand is hoped for.

On the “supply” side of the equation, 75% of those reaching retirement with DC pension

benefits have bought an annuity so there could be a reasonable number of would-be “sellers”.

A key requirement to making this market work is the removal of the penal unauthorised

payment charge of 55% (or 70%) applicable to an assignment under the law as it stands.

It is proposed that any lump sum received would be subject to tax at the seller’s marginal

rate(s). An alternative choice for a seller would be for the consideration to be transferred to

another retirement income product such as flexi access drawdown or a flexible annuity and

tax paid when the income is drawn.

Any assignment of an annuity will trigger the Money Purchase Annual Allowance (£10,000)

to prevent the seller diverting material levels of future income into registered pensions and

generating more tax relief.

Taking the lump sum directly will mean that any funds remaining on death would form part

of the selling “ex-annuitants” estate for IHT purposes. If there is a transfer of the funds to

flexi access drawdown or the purchase of a new flexible annuity this will mean that the funds

are not subject to IHT and only taxable when drawn if the death of the previous owner occurs

on or after age 75.

The consultation also identifies (among many others) the following issues to be considered,

discussed and resolved:

How to assess the mortality risk and thus the value of the income stream that the

annuity provides. It is thought that risk mitigation could be secured through rigorous

underwriting, bulk purchase or matching against longevity risk.

Who will buy? Insurers and pension funds are given as examples. Especially given

the recent problems with “life settlements” (based on sales of life assurance policies),

the retail market is not being considered for annuity schemes.

Brokers/middlemen/intermediaries could emerge as the means of packaging sufficient

numbers of annuities so as to facilitate an appropriate “bulk purchase” market.

Knowing when to stop annuity payments (eg. by reason of notification of death) will

be critically important.

Costs are also a key factor in the “pros and cons” of the sale.

Only annuities held outside of an occupational scheme should be capable of sale

within these new rules.

Provisions will be included in the legislation to prevent annuity sale being used in any

form of tax avoidance. As a result we can expect to see a widely drawn provision

making this clear and what the consequences will be if the “anti-avoidance” provision

is triggered.

Consumer protection will be at the heart of the proposals with the FCA deeply

involved. The requirement to take financial advice, an offer of guidance and

regulatory interventions will all be in evidence. Special care will be required for those

suffering from ill health.

Special care will be needed for the (estimated) 13% of annuitants in receipt of means-

tested benefits. Full understanding of the impact of exchanging an income right for

capital will be essential. The deliberate deprivation rules may come into play –

depending on the circumstances of the case. The consultation makes it clear that the

government does not intend to compensate sellers through welfare for any economic

loss suffered. The consultation put forward for discussion the possibility of a

complete prohibition of annuity sale for those on means-tested benefits.

12.1.4 Tax exemption for DB transfer advice

The provision of pension transfer advice as a consequence of an employer led transfer

exercise will not result in a tax liability on the employee as a taxable benefit in kind.

12.1.5 Extra funding for Pension Wise

The Guidance Guarantee and Pension Wise service to receive an extra £19.5m in 2015/16 to

support pensions freedom.


12.2.1 Death benefits taxation and recipients

From 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 where no payments have been made to the beneficiary before 6 April 2015. The tax rules

will also be changed to allow joint life annuities to be paid to any beneficiary. Where the

individual was 75 or over when they died, the beneficiary will pay the marginal rate of

Income Tax.

12.2.2 Pensions Flexibility

The Taxation of Pensions Act 2014 (which introduces pension flexibility for DC pensions)

and The Pension Schemes Act 2015 (which introduces the requirements for DB to DC

transfers, public sector scheme transfers and introduces the framework for the Guidance

Guarantee programme) both take effect on 6th April 2015. More information on this can be

found here.

12.3 PLANNING

12.3.1 Lifetime Allowance

The reduction in the lifetime allowance from 2016/17 may be inevitable even with a change

in government and means that individuals who may be affected by this will need:

To consider whether to elect for Fixed or Individual Protection. This should include

individuals aged under 75 in receipt of drawdown benefits, if they feel a future

BCE5A or BCE5B test at age 75 may result in their exceeding the reduced £1 million

lifetime allowance.

To consider the implications of an election for fixed protection as fixed protection can

only be retained where contributions cease and DB benefit accrual is severely

restricted, after (probably) 6 April 2016, any individuals looking to make such an

election will need to ensure that contributions/benefit accrual occurring before then

are appropriately maximised and the impact of triggering the MPAA considered.

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To consider how best to minimise the value of benefits being tested against the

lifetime allowance. For instance, someone aged 55 or over looking to crystallise

benefits in the next few years could consider drawing some or all of their benefits in

2015/16 when these will be set against the current £1.25 million lifetime allowance.

For example, if an individual crystallised benefits with a value of £500,000 in

2015/16 this would only use up 40% of his lifetime allowance whereas if he left this

until 2016/17 it would use up 50% of his allowance.

To consider how the benefits are taken. For example, if a member had money

purchase benefits, using his fund to purchase a scheme pension rather than a lifetime

annuity may reduce the percentage of the lifetime allowance he has used up.

Although, of course, the purchase of a scheme pension may have the impact of

passing pension funds via the nominee/successor route. A member of a DB scheme

should consider the difference in the lifetime allowance assessed where he draws his

benefits solely as a pension or as a tax free cash sum with a reduced pension.

12.3.2 Annual Allowance

Although the annual allowance is unchanged in this Budget, it is still important to remember

that carry forward of unused annual allowance is still available and the allowance for the tax

years 2011/12, 2012/13 and 2013/14 remains at £50,000.

The current limit of £40,000 can have a serious impact on members of DB schemes with long

past service. For the time being the problem may not be that great because many people have

experienced sub-CPI inflation (or zero) pay rises, leaving some carry forward headroom.

However, a concerted period of real earnings growth would quickly erode this safety margin.

Obviously each case would need to be considered on its own facts.

In view of the complex pension input period rules, great care needs to be taken where a

contribution is paid to ensure that it falls in a pension input period in the desired tax year. For

example, a contribution paid on 1 April 2015 to a pension arrangement with a pension input

period end date of 30 June would fall in the input period ending 30 June 2015 and therefore

be assessed against the individual's annual allowance of £40,000 in tax year 2015/16.

The impact of the money purchase annual allowance (MPAA) should also be factored into

any planning exercise. The MPAA can be triggered by a payment of income (in excess of any

PCLS) from flexi access drawdown, any payment of a uncrystallised funds pension lump sum

(UFPLS), purchase of a scheme pension or flexible annuity or drawing more income from

capped drawdown than the GAD max pension annual limit. Triggering the MPAA mid PIP

year will need careful planning to avoid triggering an annual allowance charge.



The government has announced its intention to abolish Class 2 NICs in the next

Parliament and reform Class 4 NICs to introduce a new benefit test. The government

will consult on the details and timing of these reforms later in 2015.


The small profits rate of corporation tax remains at 20% but the main rate reduces to

20% with effect from 1 April 2015.

The additional rate of income tax (which applies to individuals with income of more

than £150,000) remains at 45% (earnings) and 37.5% (dividends). The highest

National Insurance contribution rates for 2015/16 are 13.8% (employers) and 14% -

12% plus 2% - for employees.

For 2015/16, there are no changes to the percentage rates of contribution for Class 1,

Class 1A, Class 1B and Class 4 NICs but there are changes to all of the thresholds and

limits.

The Class 1 Upper Earnings Limit and the Class 4 Upper Profits Limit will be aligned

for 2015/16 with the higher rate tax threshold of £42,385.

Since April 2014 every business and charity have been entitled to an annual £2,000

Employment Allowance towards their employer NICs bill. From April 2015, it is

understood the £2,000 annual allowance for employer NICs will be extended to care

and support workers. This means that a family will be able to employ a care worker

on a salary of around £22,600 and pay no employer NICs.

The government has announced that it has completed its review into the tax charge on

loans from close companies to individuals, trusts and partnerships that have a share or

interest in them. The government does not intend to make any changes to the

structure or operation of the tax charge following this review.

From April 2016 employer NICs up to the Upper Earnings Limit for apprentices aged

under 25 will be abolished.

From 6 April 2015 employers will no longer be required to pay Class 1 NICs on

earnings paid up to the Upper Earnings Limit to any employee under the age of 21.

To cater for this change, a new Upper Secondary Threshold has been introduced

which is £815 per week - £42,385 p.a.

13.2.1 Drawing cash from an owner-managed business

(i) Payments to a director shareholder

The Employment Allowance (EA) came into effect from the beginning of 2014/15 and this

gives an employer a credit of up to £2,000 a year against their Class 1 Secondary National

Insurance Contributions (NICs).

The EA is claimable via Real Time Information (RTI) and once a claim is made, it will be

carried forward to future years. For 2015/16, the £2,000 EA will equate to the employer’s

NIC liability on one employee with annual earnings of about £22,600 ([£22,600 - £8,112 @

13.8% = £1,999.34).

The EA does not alter the arguments for dividend v salary for a one-person company outside

the grasp of IR35. There may be no employer’s NICs, but there will still be employee’s NICs

of 12%. Take, for example, someone who draws salary up to the primary NICs threshold of

£155 a week in 2015/16, with the rest drawn as dividends, who wants to pass out an extra

£10,000 of profit from the company into the individual's own hands. In most cases a

dividend would still be preferable.

Bonus

£

Dividend

£

Marginal tax rate 20% 40% 20% 40%

Marginal gross profit 10,000 10,000 10,000 10,000

Corporation tax @ 20% N/A N/A ( 2,000) ( 2,000)

Dividend N/A N/A 8,000 8,000

Employer’s National Insurance

contributions with EA

NIL

NIL N/A N/A

Gross bonus 10,000 10,000 N/A N/A

Employee’s NICs @ 12% (1,200) (1,200) N/A N/A

Income tax * (2,000) (4,000) ( NIL) ( 2,000)

Net benefit 6,800 4,800 8,000 6,000

*after allowing for 10% dividend tax credit

The only person who could in theory benefit from a bonus is a non-taxpayer, for whom 12%

NICs is a better deal than 20% corporation tax and a non-reclaimable tax credit. However, in

practice such circumstances will be rare and only cover a narrow band.

For those owner-run businesses where the director/shareholder already has a sizeable income

and there is a desire to draw more from the business, the changes to National Insurance

contributions and tax rates will once again alter the mathematics of the choice between

dividends and salary, as does the introduction of the NICs Employment Allowance of £2,000

in 2014/15. For shareholder/directors able to choose between the two, and not caught by the

IR35 personal company rules, a dividend remains the more efficient choice, as the example

below shows. However, a pension (within the annual allowance provisions) could avoid all

immediate tax and NIC costs.

Or nothing at all?

For some business owners, the ultimate way to limit their tax bill is to choose to leave profits

in the company rather than draw either a dividend or salary. With the top rate of income tax

currently at 45%, there is an obvious argument for allowing profits to stay within the

company, where the maximum tax rate (for the financial year beginning 1 April 2015) is

20%.

This strategy has post-election tax risks in terms of eligibility for CGT entrepreneurs’ relief,

income tax rates and inheritance tax business property relief. Money left in the company is

also money exposed to creditors, so professional advice should be sought before turning a

business into a money box.

(ii) Employing the spouse

The Employment Allowance (EA) may be useful for very small businesses where, for

example, a sole trader employs just one person – their spouse. For 2015/16 it makes little

sense for the spouse to be paid more than the primary threshold (£155 a week) because above

this level employee’s NIC is payable. Any gain in net income has to be considered against

the hassle of paying (and deducting) NICs.

In 2015/16 the employee will still be liable for NICs once their earnings exceed £155 a week,

but the employer’s NIC liability will be removed by the EA until their sole employee earns

more than about £22,600 a year.

For example, consider a higher rate taxpaying sole trader who employs their spouse with pay

up to the level of the primary (employee) threshold. If the sole trader generates £1,000 extra

Make Mine a Dividend A director/shareholder has £25,000 of gross profits in his company which he wishes to

draw, either as bonus or dividend. Assuming the company pays corporation tax at the

rate of 20% and the director already has annual income in excess of £42,385, the choice

can be summarised thus:

Bonus

£

Dividend

£

40% tax 45% tax 40% tax 45% tax

Marginal gross profit 25,000 25,000 25,000 25,000

Corporation tax @ 20% N/A N/A (5,000) (5,000)

Dividend N/A N/A 20,000 20,000

Employer’s National Insurance

Contributions £21,968 @ 13.8%

(3,032)

(3,032) N/A N/A

Gross bonus 21,968 21,968 N/A N/A

Director’s NICs £21,968@ 2% (439) (439) N/A N/A

Income tax * (8,787) ( 9,886) (5,000) (6,111)

Net benefit to director 12,742 11,643 15,000 13, 889

*After allowing for 10% tax credit on dividends

profit, in the sole trader’s hands it will be worth £580 net after £400 income tax and £20

Class 4 NICs. On the other hand, if the spouse’s pay is increased instead, the situation is as

shown below.

Nil Taxpayer Spouse Basic Rate Taxpayer Spouse

2015/16 2015/16

Total Outlay 1,000.00 1,000.00

Employer NIC NIL NIL

Salary 1,000.00 1,000.00

Employee NIC -120.00 -120.00

Employee tax NIL -200.00

Net salary 880.00 680.00

Such tax planning must always ensure that the spouse’s level of pay is justifiable. An increase

from, say, £7,500 a year to £22,000 a year just to utilise the EA could well invite HMRC

scrutiny. Where the employed spouse has little other income, an increase to make full use of

their personal allowance is clearly now much more attractive.

13.2.2 Close company loans to participators

The Finance Act 2013 introduced provisions to address perceived areas of abuse with regard

to the tax rules that apply to loans to shareholder directors of close companies. It also

announced a consultation process to determine whether this system of tax should be

amended.

As well as introducing these changes in the Finance Act 2013, the Government announced a

general review into the way the “tax on loans to participators” operates.

The Government announced in the Autumn Statement that following consultation there

will be no further changes to toughen up these rules. This received a good response from

directors of close companies and their tax advisers.

13.3 PLANNING

Pension contributions remain an effective means of reducing tax for the small business even

though the annual allowance has reduced to £40,000 for pension input periods ending after 5

April 2014.

In this respect, the carry forward rules allow any unused annual allowance to be carried

forward for a maximum of three years. Thus 5 April 2015 is the last opportunity to rescue

unused relief from 2011/12. With the election in mind, director/shareholders might also want

to consider using the carry forward rules again shortly after 5 April 2015. There is a definite

possibility that higher/additional rate tax relief on pension contributions will eventually be

cut, regardless of the colour(s) of the next government. The annual allowance could also be

reduced. The government has announced that the lifetime allowance will be reduced to £1

million with effect from 6 April 2016.

Any dividend payment from a company will not suffer NICs and so dividends are an

attractive means of extracting funds from the company for shareholding directors. This is

especially so as the Upper Earnings Limit is reducing to the higher rate tax threshold of

£42,385. By taking dividends, the directors “take-home” amount could be increased.

However, it is important that a director draws sufficient remuneration to retain entitlement to

state benefits.

The variables that have an impact on the relative attraction of dividends and salary as a means

of extracting benefits from a company for a shareholding director continue to be:

(i) the NIC rates (personal and corporate)

(ii) personal tax rates

(iii) the corporate tax rates

For the “one-person” company, at the lower end of remuneration planning, the NIC

Employment Allowance that was introduced last year may make dividend payment slightly

less attractive (see above).

Determining the so-called “remuneration strategy” for shareholding directors is an area where

a financial adviser can add significant value - especially when working together with the

client’s accountant.

For sole traders or a partner in a partnership, thought could be given to incorporation in order

to take advantage of the lower corporation tax rates. Alternatively, for those with falling

profits, there may be a benefit from changing the accounting date to 31 March or 5 April, but

beware - restrictions apply if this date has recently changed.

Where a non-taxpaying spouse can be legitimately employed in a business, income of up to

£10,600 can be paid in 2015/16 without income tax liability. This will increase to £10,800 in

2016/17. The payment of remuneration should be deductible for the employer provided

reasonable services are provided by the employee – deduction being based on the “wholly

and exclusively” principle. Earnings would need to be restricted to £8,060 to avoid employer

and employee NICs. Where the employer is self-employed, employment of the spouse may

well benefit from the NIC Employment Allowance (see above).

Those planning to sell their trading business, should make sure that any of the company’s

non-qualifying (ie non-trading) income or assets do not exceed 20% of the total income or

assets of the businesses respectively. This should ensure shares qualify for CGT

entrepreneurs’ relief on an eventual sale. Where entrepreneurs’ relief is available the CGT

rate is reduced to 10% on lifetime gains of up to £10 million (cumulatively) rather than

suffering the top 28% CGT rate. Business owners could consider having at least 5% of

ordinary shares and voting rights held by their spouse (or children if they work for the

company) so that they too each qualify for up to £10 million entrepreneurs’ relief.

Those considering crystallising their entrepreneurs' relief should do so sooner rather than

later as, because of the significant cost to the Treasury of this relief, it is expected that the

maximum amount of relief will be scaled back in the future. Indeed the 2015 Budget

announces the introduction of anti-avoidance rules aimed at entrepreneurs’ relief.



14.1.1 Annual cap on trivial benefits for office holders of close companies

As announced in the Autumn Statement 2014, a statutory exemption from tax for qualifying

trivial benefits in kind costing £50 or less will apply from April 2015 (see also below). It was

announced in this Budget that following technical consultation on the draft legislation, an

annual cap of £300 will be introduced for office holders of close companies, and employees

who are family members of those office holders. Those affected by this cap will be able to

receive a maximum of £300 worth of trivial benefits in kind each year exempt from tax.

Corresponding legislation will also be introduced for National Insurance contributions

purposes. The changes will have effect from 6 April 2015.

14.1.2 Company cars

It was announced in this Budget that in 2019/20 rates for Ultra Low Emission Vehicles will

increase more slowly than previously announced, and that rates for other cars will increase by

three percentage points. Legislation will be introduced in a future Finance Bill.

14.1.3 Qualifying expense payments – exemptions

Budget 2015 announced that following consultation, the legislation included in Finance Bill

2015 that exempts from tax certain expenses payments and benefits in kind provided to

employees, has been revised to ensure that the exemption cannot be used in conjunction with

any arrangements that seek to replace salary with expenses. These changes will have effect

from 6 April 2016.


14.2.1 Abolition of the £8,500 threshold for lower paid employment

From April 2016, the government will remove the £8,500 threshold below which employees

do not pay income tax on certain benefits in kind and replace it with new exemptions for

carers and for ministers of religion.

14.2.2 Trivial benefits exemption

As announced in the Autumn Statement, from April 2015 the government will provide a

statutory exemption for trivial benefits in kind costing less than £50.

14.2.3 Company cars

The benefit arising on a company car is calculated by applying the appropriate percentage to

the list price of the car. From 6 April 2016:

the maximum percentage that can be applied, is to increase from 35% to 37%;

all other appropriate percentages will be increased by 2 points; and

the diesel supplement of 3% will be removed, in line with European emissions

standards, so that petrol and diesel cars will be taxed equally.

14.2.4 Employee share plan consultation

It was confirmed at Autumn Statement that the Government would not proceed with the

introduction of either a new employee shareholding vehicle (a ‘safe harbour trust’) as an

alternative to a typical EBT or the concept of a ‘marketable security’ whereby income tax

would not become payable on shares or securities awarded to employees until they could be

sold for cash.

14.2.5 Qualifying expense payments – exemptions

As announced at Autumn Statement 2014, legislation will be introduced in Finance Bill 2015

to exempt from tax certain expenses payments and benefits in kind provided to employees.

The legislation will apply where employees would have been eligible for tax relief if they had

incurred and met the cost of the expenses or benefits themselves. This exemption replaces the

rules that require employers to either apply to HMRC for an agreement known as a

‘dispensation’ so that they can provide expenses and benefits free of tax and National

Insurance contributions, or to report such expenses and benefits to HMRC. However the

exemption will not apply where expenses are paid as part of a salary sacrifice arrangement.

Note that it was announced in the Budget that following consultation, the legislation has been

revised to ensure that the exemption cannot be used in conjunction with other arrangements

that seek to replace salary with expenses. These changes will have effect from 6 April 2016.

14.2.6 Internationally mobile employees

Under new rules, which take effect from 6 April 2015, the taxation of share options and

awards held by internationally mobile employees (IMEs) will be more closely aligned with

other forms of employment income. This will involve new rules around relevant periods and

provisions for apportionment within these periods between amounts chargeable to tax in the

UK and other income.

The new rules will apply to all share options exercised/share awards vesting after 6 April

2015, whenever they were granted. Regulations to align the NIC treatment of IMEs to the

new income tax treatment will also come into force from 6 April 2015. Broadly, under the

current rules, where a share option is granted to a non-UK resident employee, subject to

certain conditions being met, they could exercise the option free of income tax.

14.3 PLANNING

In addition to the new trivial benefits exemption, there remain opportunities for employers to

provide tax efficient benefits in kind which are either specifically tax exempt (whether due to

legislation or concession) or benefits, which although taxable, can still be efficient because

the employer can use its purchasing power to obtain favourable rates.

The changes in relation to employee benefits give corporate advisers an opportunity to

demonstrate awareness of change and, for practitioners, to advise and work with other

professionals advising mutual clients.



No new announcements were made in the 2015 Budget.


At the Autumn Statement it was announced that the annual remittance basis charge payable

by a non-domiciled individual who is UK resident and who wishes to retain access to the

remittance basis of taxation will be increased in some circumstances.

The charge paid by those who have been UK resident for 7 out of the last 9 tax years

will remain at £30,000.

The charge paid by those who have been UK resident for 12 out of the last 14 tax

years will increase from £50,000 to £60,000.

A new charge of £90,000 will be introduced for those who have been UK resident for

17 of the last 20 tax years.

15.3 PLANNING

Whilst no major changes to the domicile and residence rules were announced this year, due to

the immense number of changes made over the last few years those affected should be taking

action to reduce their tax exposure. This particularly applies to those who

have been resident in the UK for some years and so may, subject to a remittance basis

charge election, find that their overseas income and gains will be taxed the arising

year basis (rather than the remittance basis), or

have been UK tax resident for a period of years approaching seventeen and so may

soon be deemed domiciled for IHT purposes.

For those non-UK domiciliaries who wish to reduce their exposure to income tax and capital

gains tax on overseas investments, they should give thought to the merits of offshore bonds as

a legitimate means of avoiding income and capital gains being subject to the arising basis of

assessment or causing a non-domiciled individual to consider paying the remittance basis

charge to avoid it. Remember though that the normal remittance basis rules apply if a non-

UK domiciliary invests mixed funds into an offshore bond and then remits a withdrawal to

the UK. This could cause previously unpaid income tax and/or CGT included in the

underlying mixed fund to become payable, even if the withdrawal itself falls within the 5%

tax-deferred withdrawal allowance.

For those with long-term UK residence who are keen to avoid the full impact of IHT on their

worldwide assets because they become UK deemed domiciled, they should consider

establishing an excluded property trust before such a status is achieved. This can be achieved

by creating a discretionary trust and investing in overseas investments (such as offshore

bonds and offshore collectives) and certain UK collective investments. The investor can be a

beneficiary under the trust which can be a UK trust or an offshore trust.

16. CHARITIES


The Budget confirmed a number of measures announced in the Autumn Statement and

announced a few new ones

16.1.1 Gift Aid Small Donations Scheme.

Secondary legislation will be introduced to increase the maximum annual donation amount

which can be claimed through the scheme from £5,000 to £8,000 allowing charities and

Community Amateur Sports Clubs to claim Gift Aid style top-up payment of up to £2,000 a

year with effect from 6 April 2016.

16.1.2 Charity Authorised Investment Funds

The government is working with the Financial Conduct Authority (FCA), the Charity

Investors’ Group and the Charity Commission to introduce a new Charity Authorised

Investment Fund structure that will bring new investment funds established for charitable

purposes under FCA regulation, ensuring they receive the same regulatory oversight and

protections as funds for retail investors. No further details have yet been released but this is a

welcome development.


16.2.1 Gift Aid claims by intermediaries

Legislation is to be introduced to enable regulations to be issued on Gift Aid digital which

will allow non-charity intermediaries a greater role in processing Gift Aid claims on behalf of

charities.

Intermediaries will no longer need to receive a Gift Aid declaration for each individual

charity a donor gives through them. This will ease the process for donors of giving to

multiple charities via a single intermediary.

The government hopes this will also encourage the development of new platforms that allow

people to donate in new ways.

The government wants to maximise the take up of Gift Aid on eligible donations.

This measure will make it easier for donors to claim Gift Aid on donations to multiple

charities, particularly those made through non-charity intermediaries via digital channels,

thereby potentially leading to Gift Aid being claimed on a greater proportion of eligible

donations and more relief going to charities.

This measure was first announced in Budget 2013. A consultation entitled ‘Gift Aid and

digital giving’ ran from July to September 2013 this was followed by confirmation in Budget

2014 that the government would legislate, in Finance Bill 2015, to allow a greater role for

intermediaries.

The primary legislation will have effect on the date that Finance Bill 2015 receives Royal

Assent, with regulations setting out the detailed operating model(s) for non-charity

intermediaries to be consulted upon and made thereafter.

16.2.2 Social Investment Tax Relief

As announced in the Autumn Statement, the Government wants to extend the scope of Social

Investment Tax Relief (SITR) but must first seek EU approval. The aim is to increase the

investment limit to £5m per year per enterprise up to a maximum of £15m per enterprise.

The relief is also to be extended to small scale community farms and horticultural activities

and for investments in special purpose vehicles set up to provide social impact bonds. The

Government will also consult on introducing a social venture capital trust attracting

investment tax reliefs.

SITR was first announced in the 2013 Budget and became law in the Finance Act 2014. SITR

is intended to support "social enterprises" (which includes community interest companies and

community benefit societies as well as charities) looking for external investment finance by

giving tax relief to donors who invest in shares or debt instruments.

One of the perceived limitations of SITR is that there are restrictions on the amount of funds

any enterprise can raise pursuant to the relief – this must be no more than €200,000 in any

three year period. The restriction stems from the EU prohibition on state aid; in its current

form SITR falls under the "de minimis" exemption to the general rule.

16.2.3 Gift Aid - charity donor benefits

The government will continue and extend the review of the amount of any benefits a donor

may receive from the recipient charity while still qualifying for Gift Aid relief. A review was

launched after the 2014 Budget and this will include consideration of the rules for claiming

Gift Aid on membership and entrance fees.

16.3 PLANNING

Charitable donations enable the taxpayer to make substantial savings whether in lifetime or

on death. Income tax savings can be made by extending the basic rate band by the gross

amount gifted to charity and it is welcome that this tax relief will continue without limit.

The introduction of a reduced rate of inheritance tax (from April 2012) where 10% or more of

the deceased’s net estate is left to charity now also means that it is possible to make further

IHT savings through charitable donations.

The proposed improvements to the Social Investment Tax Relief will be of particular interest

to social enterprises looking to raise funds and to individuals looking to invest in them.

The simplification of Gift Aid claims by intermediaries and the increase in the Gift Aid Small

Donations Scheme will also be beneficial to the charities sector.

The proposed introduction of the new Charity Authorised Investment Fund structure will be

of particular interest to financial advisers.

17 CHILDCARE


No new proposals were made in the Budget, although the government confirmed that the

maximum amount that parents of disabled children will be able to receive has doubled to

£4,000 (see below).


17.2.1 Childcare Scheme

From Autumn 2015, a new childcare scheme will be introduced to support working families

with their childcare costs. The scheme will provide parents with savings worth up to £2,000

per year - compared with the original proposal of £1,200 - by giving basic rate tax relief on

the first £10,000 they spend on childcare (i.e. £10,000 x 20% = £2,000).

In HMRC’s response to the technical consultation on draft secondary legislation for the

Childcare Payments Act (published on 9 February 2015) it was confirmed that the maximum

amount that parents of disabled children will be able to receive to help to pay for their

childcare costs, would be doubled to £4,000 per disabled child per year.

To be eligible under the new scheme, both parents, or a single parent in work, must be each

earning less than £150,000 a year and must not already receive support through tax credits or

the new universal credit. Support will be provided through a childcare account redeemable at

any registered childcare provider.

The existing workplace childcare vouchers scheme, which is currently subsidised by the

taxpayer, will be closed to new claimants from 2015 and phased out. Employers will be able

to continue to set up a childcare voucher scheme until tax-free childcare is launched, meaning

there is still an opportunity for employers to enjoy the National Insurance savings which

childcare vouchers provide. Parents will be able to sign up for childcare vouchers until

August 2015 and they can then continue to order vouchers beyond Autumn 2015, for as long

as their employer continues to run the scheme. Some existing scheme members will choose to

switch to the new scheme from 2015, as in some cases this will provide higher savings.

17.2.2 Additional support for Universal Credit claimants

It was confirmed at Autumn Statement 2015 that, from April 2016, the government will

increase childcare support within Universal Credit to 85% of eligible costs for all families. In

addition, if a claimant leaves Universal Credit and returns within a 6-month period, they will

be able to keep their existing assessment period. To offset the cost of these policies, the

Universal Credit work allowances will be maintained at their current level for a period of 1

year from April 2017. Surplus earnings that are in excess of £100 above a household’s

Universal Credit award threshold will be accounted for in award calculations over a 6-month

period.

APPENDIX - TAX FACTS AND FIGURES AND NICs

MAIN INCOME TAX ALLOWANCES AND RELIEFS

2014/15 2015/16

£ £

Personal allowance – standard 10,000 10,600

- Born between 6 April 1938 and 5 April 1948 10,500 N/A

- Born before 6 April 1938 10,660 10,660

Personal allowance reduced if total income exceeds 100,000 100,000

Transferable tax allowance (marriage allowance)§ N/A 1,060

Married couple’s allowance* – minimum amount 3,140 3,220

– maximum amount 8,165 8,355

Maintenance to former spouse * 3,140 3,220

Age-related allowances reduced if total income exceeds ¶ 27,000 27,700

Employment termination lump sum limit 30,000 30,000

For 2014/15 and 2015/16 the reduction is £1 for every £2 additional income over

£100,000. As a result there is no personal allowance if total income exceeds £121,200

(£120,000 for 2014/15).

§ Available to spouses and civil partners born after 5 April 1935, provided neither party

pays tax at above basic rate.

* Relief at 10%. Available only if at least one of the couple was born before 6 April

1935.

¶ For 2014/15 and 2015/16 the reduction is £1 for every £2 additional income over the

total income threshold. Standard allowance(s) only are available if total income

exceeds:-

2014/15 2015/16

£ £

Taxpayer born between 6 April 1938 and 5 April 1948 [personal

allowance]

28,000 N/A

Taxpayer born before 6 April 1938[personal allowance] 28,320 27,820

Taxpayer born before 6 April 1935 [married couple’s allowance] 38,370 38,090

INCOME TAX RATES

2014/15 2015/16

£ £

Starting rate 10% 0%

Starting rate on savings income 1 – 2,880 1-5,000

Basic rate 20% 20%

Maximum tax at basic rate 6,373 6,357

Higher rate - 40% 31,866-150,000 31,786-150,000

Tax on first £150,000 53,627 53,643

Additional rate on income over £150,000 45% 45%

Discretionary and accumulation trusts (except dividends) ° 45% 45%

Discretionary and accumulation trusts (dividends) ° 37.5% 37.5%

Ordinary rate on dividends 10% 10%

Higher rate on dividends 32.5% 32.5%

Additional rate on dividends 37.5% 37.5%

High income child benefit charge 1% of benefit per £100 income

between £50,000 and £60,000

Assumes starting rate band not available. £5,357 on first £31,785 (£6,085 on first

£31,865 in 2014/15) and £52,643 (£53,339 in 2014/15) on first £150,000 if full

starting rate band is available.

° Up to the first £1,000 of gross income is generally taxed at the standard rate, ie. 20%

or 10% as appropriate.

CAR BENEFITS

The charge is based on a percentage of the car’s “price”. “Price” for this purpose is the list

price at the time the car was first registered plus the price of extras.

For cars first registered after 31 December 1997 the charge, based on the car’s “price”,

is graduated according to the level of the car’s approved CO2 emissions.

For petrol cars with an approved CO2 emission figure.

CO2

g/km1

% of price

subject to tax2

CO2

g/km

% of price

subject to tax2

CO2

g/km

% of price

subject to tax2

14-15 15-16 14-15 15-16 14-15 15-16

50 or less 53 5 125–9 18 20 170–4 27 29

51–75 5 9 130–4 19 21 175–9 28 30

76–94 11 13 135–9 20 22 180–4 29 31

95–99 12 14 140–4 21 23 185–9 30 32

100–4 13 15 145–9 22 24 190–4 31 33

105–9 14 16 150–4 23 25 195–9 32 34

110–4 15 17 155–9 24 26 200–4 33 35

115–9 16 18 160–4 25 27 205–9 34 36

120–4 17 19 165–9 26 28 210 and

over

35 37

Notes

1. The exact CO2 emissions figure should be rounded down to the nearest 5 g/km for

levels of 95g/km or more.

2. For all diesels add 3%, subject to maximum charge of 35% in 2014/15 and 37% in

2015/16.

3. There is no charge for any car which cannot produce CO2 in 2014/15 only.

CAR FUEL BENEFITS

For cars with an approved CO2 emission figure, the benefit is based on a flat amount of

£22,100 (£21,700 for 2014/15). To calculate the amount of the benefit the percentage figure

in the above car benefits table (that is from 5% to 37%) is multiplied by £22,100. The

percentage figures allow for a diesel fuel surcharge. For example, in 2015/16 a petrol car

emitting 142 g/km would give rise to a fuel benefit of 23% of £22,100 = £5,083.

VAT

From 1 April 2014 1 April 2015

Standard rate 20.0% 20.0%

Annual turnover

limit for registration

£81,000 £82,000

De-registration

threshold

£79,000 £80,000

INHERITANCE TAX

Cumulative chargeable transfers [gross] tax rate

on death

%

tax rate in

lifetime*

% 2014/15

£

2015/16

£

Nil rate band 325,000 325,000 0 0

Excess No limit No limit 40 20

* Chargeable lifetime transfers only.

On the death of a surviving spouse on or after 9 October 2007, their personal

representatives may claim up to 100% of any unused proportion of the nil rate band of

the first spouse to die (regardless of their date of death). 36% where at least 10% of net estate before deducting the charitable legacy is left to

charity.

CAPITAL GAINS TAX

Main exemptions and reliefs

2014/15

£

2015/16

£

Annual exemption 11,000* 11,100*

Principal private residence

exemption

No limit No limit

Chattels exemption 6,000 6,000

Entrepreneurs’ relief Lifetime cumulative

limit £10,000,000.

Gains taxed at 10%

Lifetime cumulative

limit £10,000,000.

Gains taxed at 10%

* Reduced by at least 50% for most trusts.

Rates of tax

Individuals: 18% on gains within basic rate band, 28%

for gains in higher and additional rate

bands

Trustees and personal representatives: 28%

STAMP DUTY LAND TAX, LAND AND BUILDING TRANSACTION

TAX AND STAMP DUTY

UK excluding Scotland: SDLT

Residential (on slice of value) Rate Commercial (on total value) Rate

£125,000 or less Nil £150,000 or less Nil

£125,001 to £250,000 2% £150,001 to £250,000 1%

£250,001 to £925,000 * 5% £250,001 to £500,000 3%

£925,001 to £1,500,000 * 10% Over £500,000 4%

Over £1,500,000 * 12%

* 15% on entire value of properties worth over £500,000 purchased by certain non-

natural persons

Scotland: LBTT

Residential (on slice of value) Rate Commercial (on slice of

value)

Rate

£145,000 or less Nil £150,000 or less Nil

£145,001 to £250,000 2% £150,001 to £350,000 3%

£250,001 to £325,000 5% Over £350, 000 4.5%

£325,001 to £750,000 10%

Over £750,000 12%

UK Stamp Duty (including SDRT)

Stocks and marketable securities: 0.5%

No stamp duty charge unless the duty exceeds £5

CORPORATION TAX

Year Ending 31 March

2015 2016

Main rate 21% 20%

Small profits rate * 20% N/A

Small profits limit * £300,000 N/A

Upper marginal level £1,500,000 N/A

Effective marginal rate 21.25% N/A

* Formerly the small companies’ rate/limit

TAX-PRIVILEGED INVESTMENTS [MAXIMUM INVESTMENT]

2014/15

£

2015/16

£

ISA

Overall per tax year: 15,000 15,240

Maximum in cash for 16 and 17 year olds 15,000 15,240

Junior ISA 4,000 4,080

ENTERPRISE INVESTMENT SCHEME

(30% income tax relief)

1,000,000* 1,000,000*

Maximum carry back to previous tax year for income tax

relief

1,000,000

1,000,000

SEED ENTERPRISE INVESTEMENT SCHEME


100,000¶ 100,000¶

VENTURE CAPITAL TRUST


200,000

200,000

* No limit for CGT reinvestment relief.

¶ 50% CGT reinvestment exemption in 2014/15 and 2015/16

PENSIONS

* May be increased under 2006, 2012 or 2014 transitional protection provisions

WORKING AND CHILD TAX CREDITS

Working and Child Tax Credits is gradually being replaced by Universal Credit, which began

to be phased in in 2014/15. For the time being the main features of the tax credits are:

1. Child tax credit

Eligibility is assessed on household income.

The claimant must be responsible for one or more children aged 16 or under, or at

least one child under age 20 and in full-time non-advanced education.

The family element of the tax credit is £545 per annum.

The child element is £2,780 per annum for each child.

The disabled child element is £3,140 per annum (where relevant).

HMRC will pay the CTC to the main carer for the child.

2. Working tax credit

The claimant, or one of the joint claimants, must be in qualifying remunerative work.

The amount of WTC will be based on circumstances which are primarily the number

of hours worked and the income of the claimant (or joint income for a couple).

The age and working hours conditions are not straightforward. Generally, the

minimum weekly working requirement will be:

2014/15 2015/16

Lifetime allowance* £1,250,000 £1,250,000

Lifetime allowance charge:

Excess drawn as cash

Excess drawn as income

55% of excess

25% of excess

Annual allowance £40,000 £40,000

Money purchase annual allowance N/A £10,000

Annual allowance charge 20%-45% of excess

Max. relievable personal contribution 100% relevant UK earnings or £3,600 gross if

greater

a) 24 hours for families with children and workers with a disability. The

claimant can be aged 16 or over. One of the couple must work at least 16

hours.

b) 30 hours for workers with no children and no disability. The claimant has to

be aged 25 or over.

The basic element of the tax credit is £1,960 per annum.

The couple or lone parent element is £2,010 per annum.

A 30 hour element of £810 per annum is payable where the claimant or one of the

claimants works at least 30 hours a week (couples with children may aggregate their

hours for this purpose).

A disabled worker element of £2,970 per annum or more is available where the

claimant, or his or her partner, has a disability.

For employees, payment will normally be made by their employer with their wages

(except the childcare element which is paid direct to the main carer). For the self-

employed, payment is made directly by HMRC.

3. Calculating the credits

It is necessary first to total the various elements available to arrive at the maximum available

amount of tax credits before any reduction on account of income. All elements can be

reduced at the rate of 41% (ie. 41p per £1 of income).

NATIONAL INSURANCE CONTRIBUTIONS

Class 1 Employee Not Contracted Out of State Second Pension (S2P)

2014/15 2015/16

Employee Employer Employee Employer

Main NIC rate 12% 13.8% 12% 13.8%

No NICs on first:

Under 21

21 & over

£153 pw

£153 pw

£153 pw

£153 pw

£155 pw

£155 pw

£815 pw

£156 pw

Main NIC charged up to £805 pw No limit £815 pw No limit

Additional NIC rate

on earnings over 2%

£805 pw N/A

2%

£815 pw N/A

Certain married women 5.85% 13.8% 5.85% 13.8%

Contracted Out Rebates 2014/15 2015/16

Rebate on £111.01 – £770 pw £112.01 – £770 pw

Salary-related scheme only 1.4.% 3.4% 1.4% 3.4%

Limits and Thresholds 2014/15 2015/16

Weekly

£

Yearly

£

Weekly

£

Yearly

£

Lower earnings limit 111 5,772 112 5,824

Primary earnings threshold 153 7,956 155 8,060

Secondary earnings threshold 153 7,956 156 8,112

Upper secondary threshold – U21s N/A N/A 815 42,385

Upper accrual point 770 40,040 770 40,040

Upper earnings limit 805 41,865 815 42,385

Self-employed and non-

employed

2014/15 2015/16

Class 2

Flat rate

Small earnings exception

£2.75 pw

£5,885 pa

£2.80 pw

£5,965 pa

Class 4 (Unless over state pension age on 6 April)

On profits £7,956 – £41,865 pa: 9%

Over £41,865 pa: 2%

£8,060 – £42,385 pa: 9%

Over £42,385 pa: 2%

Class 3 (Voluntary)

Flat rate £13.90 pw £14.10 pw

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