Individuals
The draft Finance Bill includes the draft legislation for the new £5,000 dividend allowance. Every individual will benefit from a dividend allowance, which effectively taxes the first £5,000 of dividends at 0%, with dividends in excess of that amount being taxed at 7.5% within the basic rate band, 32.5% within the higher rate band, and 38.1% within the additional rate band (a 7.5% increase across the board after the first £5,000).
The draft Finance Bill also includes:
- the new Personal Savings Allowance (£1,000 for basic rate taxpayers and £500 for higher rate taxpayers);
- the lifetime pension fund allowance (LTA) reduction from £1.25m to £1m, with effect from 6 April 2016;
- changes to ISAs to allow the tax exemption to continue through administration of the deceased’s estate;
- replacement of wear and tear allowances for furnishings in let property;
- reforms of the taxation of non-doms and disposals of residences by non-residents;
- details of the “downsizing” provisions for the forthcoming IHT residence nil-rate band.
Privately Owned Businesses
The changes to the taxation of dividends will have a significant impact on shareholder/ directors of companies who extract profits by way of dividends, as the cost of this will now increase substantially.
As a result of the above change, the Government is also concerned that company owners will seek to extract value in such a way that the receipt is taxed as capital rather than income. Draft clauses are included that will strengthen the transactions in securities rules, which will explicitly include repayments of share capital or share premium, and distributions on a winding up from April 2016.
Corporate and International Tax
The biggest news is the unveiling of the new, but sadly unimproved, patent box regime. This will reduce patent box benefits to the extent the underlying R&D hasn’t been carried out by the company itself or sub-contracted to a third party (so R&D carried out by another group company is now ‘bad’). The new regime will also massively increase the compliance burden for companies, with the need to track and trace expenditure over a 15 year period, so that sub-streams of profit by individual IP item or product category or family can be identified.
International tax planning using hybrids is also being clamped down on, in response to the G20-OECD BEPS Action Plan.
Large businesses will be required to publish their tax strategies online. A special measures regime, where tough sanctions can be imposed, will apply to those large businesses which are either uncooperative with HMRC or persistently engage in aggressive tax planning.
General Measures
As to be expected these days, there was a further raft of anti-avoidance measures, including GAAR penalties, and a special regime for serial tax avoiders. Promoters of tax avoidance schemes also see a further threshold condition adding to their special regime.
Significantly, the government has pressed ahead with the introduction of a new criminal offence for offshore tax evasion, which will be limited to cases where the tax at stake is at least £25,000. Civil sanctions for offshore tax evasion are also being strengthened, and there is a new penalty regime for enablers of offshore tax evasion.
Tim Davies
Head of Tax
For detailed coverage of Finance Bill 2016, see our Let’s Talk Tax Blog:
Finance Bill 2016: Improving Large Business Tax Compliance
Following the public outrage at tax avoidance by large multinationals along with criticism of HMRC’s record at counteracting it, the government has acted to make the climate for tax avoidance for large businesses much tougher.
Finance Bill 2016: Serial avoiders special regime
Following the announcement at the March 2015 Budget and subsequent consultation, the government has decided to press ahead in Finance Bill 2016 with a special regime for serial tax avoiders. The regime will apply to taxpayers who have engaged in tax avoidance schemes which HMRC defeat on or after 6 April 2017.
Finance Bill 2016: New Criminal Offence for Offshore Tax Evasion
As confirmed at the Autumn Statement, the government has decided to press ahead with a new criminal offence for significant cases of offshore tax evasion. The commencement date is not yet known, as a number of other changes in relation to offshore tax evasion are also being introduced, and their introduction is to be coordinated.
Finance Bill 2016: Civil Sanctions for Enablers of Offshore Tax Evasion
Following earlier scandals, it is not surprising that Finance Bill 2016 introduces new civil penalties for individuals or businesses that deliberately assist taxpayers in evading tax by hiding assets, income and gains offshore.
Finance Bill 2016: General Anti-Abuse Rule (GAAR) Changes
Although no cases have yet been heard by the GAAR Advisory Panel, the Government has felt the need to strengthen the deterrent effect of the GAAR by introducing penalties.
Finance Bill 2016: Increased Civil Sanctions for Offshore Tax Evasion
Tougher civil measures are being introduced by Finance Bill 2016 to act both as an increased deterrent against offshore tax evasion and as a sanction where such evasion takes place.
Finance Bill 2016: Anti-Hybrids Rules
Action 2 of the G20-OECD Base Erosion and Profits Shifting (BEPS) projects concerns hybrid mismatch arrangements. These are arrangements intended to secure tax advantages (mismatches) within multinational groups resulting from differences in tax treatment of the same instrument or entity between different jurisdictions.
Finance Bill 2016: Transactions in Securities – Company Distributions
We have known for some time that from April 2016, the tax treatment of dividends received by individuals will be reformed.
One of the changes brought about as a result of the requirements of New UK GAAP is the way interest free loans and other non-market term loans are recognised in a company’s financial statements.
Draft Finance Bill 2016: New threshold for promoters of tax avoidance schemes
Following two consultations earlier this year, the Bill introduces a new threshold condition for promoters of tax avoidance schemes (POTAS) where they have marketed multiple tax avoidance schemes which are regularly defeated by HMRC.
Finance Bill 2016: Corporation Tax and Income Tax anti-avoidance: capital allowances and leasing
On 25 November 2015 HMRC published a policy paper announcing measures that took immediate effect to counter abusive practices involving plant and machinery capital allowances and leasing arrangements.
Finance Bill 2016: Averaging profits of farmers and creative artists
The Draft Bill introduces two key changes to the provisions allowing the averaging of profits for farmers and creative artists.
Finance Bill 2016: Property business deductions for replacement furniture
Following a consultation, the Draft Bill includes provisions to withdraw the ‘wear and tear allowance’ currently available to landlords of fully furnished residential property, replacing this with a deduction for the cost of replacement furniture.
Finance Bill 2016: New patent box regime revealed
The draft Finance Bill 2016 includes provisions to amend the existing patent box regime within Part 8A of CTA 2010, to bring it in line with the ‘nexus’ approach.
Finance Bill 2016: IHT- residence nil-rate band downsizing provisions
The progress of the additional nil-rate band for residences has been rather slow and tortuous: first the basics of Residence nil-rate band (RNRB) were set out in the Summer Budget and Finance (No.2) Act 2015 but at that time nothing was said about downsizing provisions except that there would be some.
Finance Bill 2016: ISA benefits to extend to deceased estates
Finance Bill 2016 will contain provisions extending the ISA exemptions from income tax and capital gains tax to income and gains arising during the period of administration of the estate.
Finance Bill 2016: IHT deemed domicile aligned with new 15/20 rule
The Draft Finance Bill 2016 extends the deemed domicile rules announced for other taxes to IHT, so that for once the rules are consistent across all taxes.
Finance Bill 2016: Miscellaneous clauses
Here we summarise some of the less prominent draft clauses for the 2016 finance Bill.
Pensions in the draft Finance Bill 2016: a brief summary
As announced in the March Budget the lifetime allowance (LTA) will be reduced from £1.25m to £1m, with effect from 6 April 2016. Protection arrangements will apply.
Finance Bill 2016: Stamp taxes - everything but the crucial residential property 3% addition
The draft 2016 Finance Bill clauses cover most of the stamp tax changes announced at the Autumn Statement. Unfortunately, the one area not covered is that which is, perhaps, of the widest interest, the additional surcharge of 3% for second homes.