George Osborne promised a big Budget and he certainly delivered on the volume, with a raft of substantive tax changes and policy announcements.
Here are the headlines:
- The personal allowance will rise to £11,000 in 2016/17 and £11,200 in 2017/18.
- The 40% higher rate threshold will rise to £43,000 in 2016/17 and £43,600 in 2017/18.
- Corporation tax will drop from 20% to 19% in 2017 and fall again to 18% in 2020.
- Income tax rates remain unchanged.
Legislation is going to be brought in which sets a ‘tax lock’ on the main rates of income tax, standard and reduced rates of VAT and employer and employee NIC rates, to ensure they cannot rise above their 2015/16 level.
- The inheritance tax nil-rate band of £325,000 will remain frozen until April 2021.
- An additional nil-rate band is to be introduced when a residence is passed on death to direct descendants. This rate will be £100,000 in 2017/18, £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21.
- From April 2017, inheritance tax will be payable on all UK residential property owned by non-domiciles, regardless of their residence status for tax purposes, including property held indirectly through an offshore structure.
- Individuals, who are born in the UK to parents who are domiciled here, will no longer be able to claim non-domicile status whilst they are resident in the UK.
From April 2017 anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed to be domiciled in the UK for tax purposes.
Insurance premium tax
- From 1 November 2015, the standard rate of IPT will go up from 6% to 9.5%. From this date all premiums received by insurers using the IPT cash accounting scheme will be charged at 9.5%.
- For insurers using the special accounting scheme, there will be a 4 month concessionary period that will begin on 1 November 2015 and end on 29 February 2016, during which premiums received that relate to policies entered into before 1 November 2015 will continue to be liable at 6%.
- From 1 March 2016 all premiums received by insurers will be taxed at the new rate of 9.5%, regardless of when the policy was entered into.
- Rent-a-room relief will increase to £7,500 from £4,250, with effect from April 2016.
- The Wear and Tear Allowance which has been available to landlords to claim, regardless of whether they actually replaced furnishings, will be succeeded by a new relief. The relief will allow a deduction for the actual costs when furnishings are replaced. Again this change becomes effective from April 2016.
- Landlords will no longer be able to deduct all of their finance costs, such as mortgage interest, from their property income. Instead, they will receive a basic rate deduction from their income tax liability. This change will be introduced gradually from 6 April 2017.
- In 2017/18 the deduction from property income will be restricted to 75% of the finance costs, with the remaining 25% being available as a basic rate tax reduction.
- In 2018/19, 50% of the finance costs will be allowed as a deduction and 50% given as a basic rate tax reduction. In 2019/20, the rates are 25% and 75% respectively, before all financing costs incurred by landlords are given as a basic rate tax reduction from 2020/21.
Tax Avoidance and Evasion
- The government is going to invest £800m to support HMRC’s work on non-compliance and tax evasion over the course of this Parliament.
- £300m is to allow HMRC to tackle non-compliance by small and mid-sized businesses, public bodies and affluent individuals.
- £60m is to enable HMRC to step up criminal investigations into serious and complex crime, particularly focused on wealthy individuals and corporate entities.
- £36m is to tackle non-compliance by trusts, pension schemes and non-domiciled individuals.
- HMRC is to extend its Customer Relationship Model to target individuals with a net worth of between £10-£20m. The government also intends to consult on enhancing the information reported to HMRC by wealthy individuals and trustees.
- Large business compliance work is going to be widened, with a consultation launched to consider new measures to increase transparency in relation to large business tax strategies. These measures will include the introduction of a regime to tackle businesses that persistently adopt highly aggressive behaviour surrounding tax planning arrangements.
- Legislation will be introduced in Finance Bill 2016, following a consultation, to target serial avoiders who repeatedly enter into tax avoidance schemes which are defeated.
- HMRC’s powers are to be extended to acquire data from online intermediaries and electronic payment providers to find those operating in the hidden economy.
- A new digital disclosure channel is going to be created to make it simpler for taxpayers to disclose unpaid tax liabilities.
- The government will legislate to require financial intermediaries, including tax advisers, to notify their clients about the Common Reporting Standard, the penalties for evasion and the opportunities to disclose.
- A consultation will start this autumn to consider abolishing Class 2 NIC and reforming Class 4 NIC for the self-employed.
- A roadmap will be published before the end of the year showing how the government will transform tax administration for individuals and small businesses over the course of this Parliament.
- Another roadmap will follow by April 2016, setting out the government’s plans for business taxes over the rest of the Parliament.
Author: Guy Smith, Tax Investigations Manager