budget seminar - march 2016

Budget Seminar 2016

March 2016

www.francisclark.co.uk

Merger with Princecroft Willis

• 1 April 2016• 11 partner office• 120 staff• Turnover £6.8m• 2 offices

- Poole

- New Forest


PCW

PCW

Princecroft Willis offices PCW


External recognition

South West Insider Dealmaker Awards 2015• Corporate Finance Advisory Team of the

Year• Mark Greaves – Dealmaker of the Year• Matt Willmott & Nick Tippett shortlisted

for Young Dealmaker of the Year


External recognition

The British Accountancy Awards 2015• James Twigger - Practitioner of the

Year

Personal Tax


Income tax rates and allowances

Rates

2015/16 2016/17

Basic rate 20% 20%

Higher rate 40% 40%

Additional rate 45% 45%

Dividend tax rate (BR) 0% 7.5%

Dividend tax rate (HR) 25% 32.5%

Dividend tax rate (AR) 30.6% 38.1%


Income tax rates and allowances

Allowances

2015/16 2016/17 2017/18

Personal allowance £10,600 £11,000 £11,500

Basic rate band £31,785 £32,000 £33,500

Higher rate threshold £42,385 £43,000 £45,000

Additional rate threshold £150,000 £150,000 £150,000

Personal allowance abated by £1 for each £2 of income from £100,000 £100,000 £100,000

Personal allowance lost at £121,200 £122,000 £123,000

Age allowance - - -


NIC

Class 2 NIC

• Moved to collection via self assessment in 2015/16

• Rate is £2.80 per week

• Abolished altogether from April 2018

Class 4 NIC

• Reform of Class 4 NIC proposed


Dividend taxation

For 2016/17 onwards:

• 10% tax credit abolished

• Each individual entitled to £5,000 dividend allowance

• First £5,000 taxed at 0%

• Dividend allowance does not displace personal allowance but uses up basic rate band (or higher rate band)

• Dividend allowance not available to trustees

• Higher rates of dividend tax


Dividend taxation (cont.)

Effective tax rates*

2015/16 2016/17 Increase

Basic rate 0% 7.5% 7.5%

Higher rate 25% 32.5% 7.5%

Additional rate 30.6% 38.1% 7.5%

* = taking into account 10% tax credit (2015/16), but ignoring £5,000 dividend allowance (2016/17)


Dividends - Example

2016/17 tax year

William has salary of £40,000

Dividend income of £18,000

How do we calculate his tax liability?


Income slice Cumulative

Personal allowance £11,000 £11,000

0%

Dividend Non-dividend



£29,000 £40,000

20% Salary


0%




£2,000 £45,000 0% Dividend allowance £5,000 taxed at 0%Higher rate threshold £3,000 £43,000

£29,000 £40,000

20% Salary


0%



Income slice Cumulative £13,000 £58,000

32.5% Dividend taxed at marginal rate

£2,000 £45,000 0% Dividend allowance £5,000 taxed at 0%Higher rate threshold £3,000 £43,000

£29,000 £40,000

20% Salary


0%



2016/17 example

• £11,000 of salary is covered by the 2016/17 personal allowance

• Next £29,000 is taxed at 20%

• The basic rate band in 2016/17 is £32,000 so first £3,000 of dividend allowance uses up remainder of BR band

• Remaining part of dividend allowance, £2,000 uses up first part of higher rate band.

• Remainder of dividend, £13,000, is taxed at 32.5%


Savings

• 0% savings allowance for first £1,000 of savings income for basic rate taxpayers

• £500 for higher rate taxpayers

• no allowance for additional rate taxpayers

• From 6 April - banks and building societies - no tax deducted from interest

• Interest is treated as the top slice of income


Stamp Duty Land Tax (SDLT)

3% surcharge on buy to let residential properties (and second homes)

Main residence

Second home or buy to let

Up to £40,000 Zero Zero

Up to £125,000 Zero 3%

The next £125,000 (the portion from £125,001 to £250,000) 2% 5%

The next £675,000 (the portion from £250,001 to £925,000) 5% 8%

The next £575,000 (the portion from £925,001 to £1.5 million) 10% 13%

The remaining amount (the portion above £1.5 million) 12% 15%


SDLT (cont.)

• 3% surcharge effective for transactions completed from 1 April 2016

• Higher rates of SDLT are not intended to impact:

• if moving from one main residence to another, and

• are disposing of a previous main residence.

• 3 year window allowed – can reclaim additional 3% SDLT if sell old home within 3 years

• Commercial and mixed use properties unaffected

• No exemption for ‘large’ investors


SDLT surcharge flowchart

Changed from 18 months


Landlords – interest restriction

• From 6 April 2017 landlords of residential property will start to have the tax deduction for loan interest restricted

• By 2020/21, deduction for loan interest available at basic rate only

Tax deduction Tax reducer at BR2016/17 100% 0%

2017/18 75% 25%

2018/19 50% 50%

2019/20 25% 75%

2020/21 0% 100%

• Will push some landlords into higher or additional tax band


Landlords – wear and tear allowance

As announced in the Autumn Statement 2015

• From 6 April 2016, wear and tear allowance abolished. This was relief for 10% net rents.

• Replaced by relief for actual expenditure on items such as furniture, white goods.

• But only replacement expenditure, not initial cost of acquisition.


Capital Gains Tax

• Annual exemption 2016/17: £11,100

• Capital gain treated as top slice of income

• BIG CHANGE IN RATES

• Basic rate – 18% now 10%

• Higher/additional rate/trusts – 28% now 20%

• Does not include gains on residential property, carried interest and ATED gains

• 30 day payment window for gains arising on disposals of residential property from 6 April 2019


Capital Gains Tax – Entrepreneurs’ Relief

• Extension to long term external investors

• 10% rate will apply on unlisted shares in a trading company

• Newly issued, acquired for new consideration after 17 March 2016

• Hold for at least three years from 6 April 2016

• Lifetime cap of £10m


Capital Gains Tax – Entrepreneurs’ Relief on Associated Disposals

• Privately owned assets used by a business

• Finance Act 2015 changes to combat ‘abuse’ caught normal succession arrangements

• Entrepreneurs’ Relief now allowed when disposing of business assets to family member

- aids retirement or reducing participation

• Changes backdated to 18 March 2015


Capital Gains Tax – Entrepreneurs’ Relief- Joint Ventures and Partnerships

Finance Act 2015 changes introduced to prevent ‘abuse’

E.g. 10 individuals each own 10% of a management company

Management Co

Trade Co

10 individuals ER?

Pre FA 2015 √

FA 2015 X

Now X

Family

10% 10%

30%70%



Finance Act 2015 inadvertently caught commercial arrangements

Mr A Mr B

ER qualifying

Pre FA 2015 √

FA 2015 X

Budget ‘16 announcement- March 2015 onwards √

Trade Co

100%

100%

50% 50%



• New definitions of trading company and trading group

• Treated as carrying on a proportion of the activities of JV

• Claim ER if effective 5% interest and control

Mrs A

20% x 40% = 8% effective controlCo A

Co B

20%

40%


IHT – deemed domicile

• Long term non-dom residents will no longer be able to claim remittance basis (from 2017)

• Deemed domiciled in UK if resident for 15 of past 20 years (previously 17 out of 20)

• IHT look through for offshore structures (from 2017?)


IHT – residence nil rate band

• Phased in from 2017 over 4 years (£100k to £175k)

• Means NRB of £1m for many married couples from 2020

• Tapered withdrawal over £2m (before reliefs)

• Residence nil rate band (RNRB) on downsizing – draft clause in Finance Bill to allow:

• selling and moving into lower value property or

• ceasing to own home

• to make use of RNRB provided they leave assets to that value to lineal descendants


Digital tax accounts

• HMRC already has information for individual taxpayers about

• employment income

• some dividend and savings income

• From 2016/17 individuals will have their own personal tax accounts pre-populated

Extended April 2019 and April 2020 to VAT registered business and companies


Digital tax accounts (cont.)

• From April 2018 self employed and landlords other than those

• employed

• with gross income from self employment or property <£10k

• required to provide quarterly info to HMRC

• No detail around what info to be provided


Digital tax accounts (cont.)

HMRC working with software developers on taxpayer provision of information

• No detail on info to be provided

• No detail on penalties for filing quarterly reports late or inaccurately

Payment of tax

• Government intends to ‘simplify’/accelerate payments on account

• No detail yet on how this will be done


Contact details

Exeter – Sue Probyn – Tax Partner01392 [email protected]

Plymouth – Gordon Fox – Tax Partner01752 [email protected]

Salisbury – Paul O’Connell – Tax Partner01722 337661paul.o’[email protected]

Taunton - Heather Britton – Tax Director01823 [email protected]

Tavistock – Guy Talbot01822 613355 (01752 301010 from the 1st May)[email protected]

Torquay – Andrew Squires – Tax Partner01803 [email protected]

Truro – Anthony Meehan – Tax Consultant01872 [email protected]

mailto:[email protected]









Business Tax


Company tax

Corporation Tax rate unchanged 1 April 2016 – 31 March 2017 - 20%

Past and future corporation tax rates:

*Small companies rate applied to companies with annual profits <£300k

Abolished with effect from 1 April 2015

Year commencing

1 AprilMain rate

%

Small profits rate

%*2010 28% 21%

2011 26% 20%

2012 24% 20%

2013 23% 20%

2014 21% 20%

2015 20% -

2016 20% -

2017 19% -

2018 19% -

2019 19% -

2020 17% -


Dividends – profit extraction

Company dividend - 2015/16

Company dividend - 2016/17

Company salary - 2016/17

Unincorporated - 2016/17

Business profits 100,000 100,000 100,000 100,000

Corporation tax payable (20,000) (20,000) -

Class 1 secondary NIC (12,127)80,000 80,000 87,873 100,000

Income tax on dividend (24,440) (30,480) - - Income tax on salary - - (39,543) - Income tax on profits - - - (45,000)NIC on profits - - - (2,000)NIC on salary - - (1,757) -

Net income 55,560 49,520 46,573 53,000

Effective tax rate 44.44% 50.48% 53.43% 47.00%


Company liquidations

• Incentive for capital extraction

• Existing position appear to allow trades to be carried on post company wind up by sole traders/partnerships without dividend treatment applying.

• Position changes in respect of distributions post 5 April 2016.

• Attack on phoenix companies but appears to have wider consequences


Company liquidationsTransaction in Securities

• Transactions in securities avoidance rules to prevent income tax advantage by turning income into capital.

• From 6 April 2016 definition of transactions in securities extended to include:

• Redemption of share capital

• Distribution on a winding up

Clarification rather than substantial change


Company liquidationsDistribution rules

• Income rather than capital treatment applied to distributions on a winding up if caught by new ITTOIA rules – 3 conditions to be met

1) Close company

2) Carrying on same or similar trade within two years of distribution as that of the company being wound up. Applies if carrying on trade directly, through a company they control or through someone with whom they are connected.

3) Main or one of main purposes of the winding up is tax avoidance

• Exemption for liquidation demergers

• Under new rules dividend treatment of distributions subject to self assessment


Corporation Tax

• Loan to participators charge to increase to 32.5% with effect from 6 April 2016

• Restrictions to tax relief on interest payments capped at 30% of UK earnings for large companies

• UK tax on offshore property developers UK profits

• Changes to losses regime to increase flexibility but restriction to utilisation where profits in excess of £5.0m


Miscellaneous

• ESS – restriction of CGT exemption to £100,000 of lifetime gains

• Personal service companies – changes to intermediary legislation where PSC providing services to public sector bodies

• Termination payments – from April 2018 employers will need to pay NIC on pay-offs above £30,000 where income tax is also due

• From April 2017 small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates. 600,000 businesses will pay no rates.


Budget 2016 – Non-residential SDLT

Changes to non-residential SDLT bands and rates effective 17 March 2016

SDLT will be charged at each rate on the portion of the purchase price which falls within each rate band

The new rates and thresholds for freehold purchases and leases premiums are:


Budget 2016 – VAT

• VAT registration threshold £83,000 from 1 April 2016 (currently £82,000)

• Deregistration threshold £81,000 from 1 April 2016 (currently £80,000)

• Fuel Scale Charges – changes expected from 1 May 2016


Budget 2016 – VAT

• Changes to restrict the availability of the 5% rate on installing energy saving materials will be included in the Finance Act 2016. The current intention is that they will come into effect on 1 August 2016.

• HMRC will have the power to hold suppliers such as Amazon and Ebay jointly and severally liable for VAT in respect goods sold in the UK by overseas businesses, if those businesses are not registered in the UK. This should create a more level playing field for compliant suppliers in the UK.


Budget – Other Indirect Taxes

• Insurance Premium Tax to rise by 0.5% to 10% with proceeds diverted to flood relief.

• Duty rates frozen on beer, whisky and low strength cider. Wine and high strength cider duty rise by inflation from 21 March 2016

• Air Passenger Duty to rise for tax years 2016/17 and 2017/18 in line with RPI

• Increase to gaming duty bands from 1 April 2016

• Landfill tax – increase in rates from 1 April 2016


Brexit

• VAT

• Customs duties – increased cost of exporting goods to EU members possible

• Re-negotiating of tax treaties with EU member states

• EU savings and parent/subsidiary directions may no longer apply

• Future developments of UK tax law


Contact details

Exeter – Damian Lannon – Tax Partner01392 [email protected]

Plymouth – Gordon Fox – Tax Partner01752 [email protected]

Salisbury – Erin Davies – Tax Director01722 [email protected]

Taunton – Adam Kefford – Tax Consultant01392 [email protected]

Tavistock – Guy Talbot01822 613355 (01752 301010 from the 1st May)[email protected]

Torquay – Paul Collings – Tax Partner01803 [email protected]

Truro – Scott Bentley – Partner01872 [email protected]












The Budget -The Financial Planning View

www.fcfp.co.uk Twitter.com/francisclarkifa

The Budget

Agenda

• What is changing?Headlines

Other points of note

• What does it all mean?Placing the changes in context

http://websrv/micore/core/info/content.asp?content_id=9856&type_id=-1&team_id=-1


What is Changing?

The (financial planning) Headlines• Lifetime ISAs

Other points of note

• Stamp Duty on Commercial property

• Pension reforms

• Dividend allowance

• CGT

X


What is Changing?Investments

• ISAs£20,000 limit from April 2017

Junior ISA limit raised form £4,000 to £4,080

• Lifetime ISAsAvailable to under 40s

£4,000 annual limit from April 2017

25% tax ‘bonus’. £4,000 contribution = £5,000 invested

Bonus available until age 50

Completely tax free on withdrawal to buy a first home or after age 60….but…..



• Lifetime ISAsWithdrawal pre age 60 results in loss of bonus

And interest on that bonus

And a 5% charge

Lifetime ISA subscriptions contribute to the £20,000 overall allowance


What is Changing?

Pensions(announced in Autumn statement)

• Lifetime AllowanceReducing to £1m from £1.25m

(Was £1.8m as recently as 2011/12)

• Pension Tapered Annual AllowanceReducing the amount high earners can put in a pension

Affects those earning £150,000+

Annual Allowance can be cut to £10,000


What is Changing?

Pensions• Dependents Pension

Under 23’s receiving dependent's drawdown can continue to take income even after age 23.

• Salary SacrificeInference is that is will be allowed for pension contributions

• Ill Health retirementIll heath payments now taxed at marginal rates for those aged over 75; 45% rate abolished

(tax free under age 75, where life expectancy is under 12 months)



• CGTRates reduced by 8%

• SDLTRates on commercial property changing to tiered system

Additional 3% will (still) not apply

• Dividend Allowance£5,000 allowance being introduced

Additional 7.5% charge above this level

So what does it all mean?


What does it all mean?

Lifetime ISAs

• A serious alternative to pensions for those under 40

• Basic rate tax payers - should look at Lifetime ISA before pensions (after employer contribution secured) because of tax free pay out

• Higher rate tax payers – decide if 40% tax relief now is better than tax free pay out in retirement



Lifetime ISAs



Lifetime ISAs

• ‘additional’ savings (after mandatory AE pension contribution) will be placed in Lifetime ISA

• (Even) greater potential for meaningless AE pots in retirement

• Pressure on pension scheme providers?

• Will employers re-visit their staff benefits package?



Pensions:Tapered annual allowance and Lifetime Allowance

• Pensions less attractive for high earners

• Defined benefit schemes are particularly at risk

• Will negatively impact the public sector

Are pensions unattractive?



Pensions:Tapered annual allowance and Lifetime Allowance

• No! – but the limits mean its harder to get funds in than before

• Individual Protection 2014 still available!

• Plus new protections from 2016



Pensions:Dependents pension

• Previously pension funds left to those under 23 had to be ‘paid out’ by 23rd birthday

• The potential for a ‘tax free fund’ to be passed down the generations could thus be halted if passed to a youngster

• This restriction no longer applies

• Makes pensions even more attractive as inheritance tax savings vehicles



SDLT

• Another good reason to hold commercial property in a SIPP

• Particularly for owner-managed businesses

• *See previous FCFP presentations…..



CGT

• Makes ‘growth’ investing much more attractive

• All income-mandated portfolios should be reviewed

• ‘yield’ is less important than total return mindset



Dividend Allowance

• Look at portfolios held by husband and wife

• Make use of £5,000 allowances of both – regardless of marginal tax rate

• Trusts don’t receive an allowance – even more reason to look at ‘growth’ mandates?

• Trustees should at least review the situation


Contact details

Exeter – Rachel Allen – Chartered Financial Planner01392 [email protected]

Exeter – Tom Parry– Chartered Financial Planner01392 [email protected]

Plymouth – Richard Wright – Chartered Financial Planner01752 [email protected]

Salisbury – Anne Hills – Chartered Financial Planner01722 [email protected]

Taunton – Ian Townsend – Chartered Financial

Planner01823 [email protected]

Tavistock – Reme Holland – Consultant01752 301010 [email protected]

Torquay – Kevin Stoyle – Chartered Financial Planner01803 [email protected]

Truro – Alan Turner – Chartered Financial Planner & Chairman of FCFP01872 [email protected]











www.fcfp.co.uk

No responsibility can be accepted for any action taken as a result of information contained in this presentation. We therefore strongly recommend that no action should be taken before obtaining detailed professional advice.

Past performance is not a guide to future returns and the value of investments and income from them may go down as well as up and an investor may not get back the amount invested.

Francis Clark Financial Planning is a trading style for Francis Clark Financial Planning Limited, which is authorised and regulated by the Financial Conduct Authority.

Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay, TQ2 7FF. Registered in England No. 05413603

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