The second Finance Bill 2015 and its explanatory notes were released on 15th July. The Bill received it’s second reading in the House of Commons on 21st July, although MPs will not debate it until September, after the summer recess. The Bill is expected to be passed by 20th October 2015.  

Tax locks .. & their Implications over the next 5 Years

The Chancellor promised a “tax lock” on income tax, VAT and national insurance for the duration of the parliament before the election. The main income tax rates have been fixed at 20%, 40% and 45% for the parliament and a widening tax base, new taxes and increasing the tax take from other taxes will be required to fill the funding gap. It is inevitable. The new income tax on dividends clearly represents one such new tax.

The standard and lower rates of VAT have been fixed at no more than 20% and 5% respectively, in this bill, but  Revenue & Customs can easily move items out of the list of VAT exempt category and into the chargeable category quite easily. 

The tax lock on national insurance will have to be legislated in a separate NIC bill, but we already know that it won’t apply to national insurance for the self-employed, as a consultation on the merger of class 2 and class 4 NIC is expected later in 2015.    

The Bill also contains provisions concerning; taxation of lump sum pension benefits and reduction of annual allowance for additional rate taxpayers, changing conditions for EIS and VCT investments, IHT on trusts and CGT on carried interest payments.

Corporation tax

The rate of corporation tax is set at 19% for the financial years starting 1 April 2017 to 2019, and will reduced to 18% from 1 April 2020.

Inheritance tax

The nil rate band is fixed at £325,000 until April 2021, but the new home-related nil rate band of £100,000 is introduced from 2017, to rise to £175,000 by 2020.

Changes to inheritance tax payable by non-domiciled individuals will come into effect from 2017, but those changes will be included in Finance Bill 2016 and Finance Bill 2017.

See my blog of 10th July for planning points –

Dividend tax

The new tax on dividends was the biggest surprise in the Summer Budget. The tax is designed to reduce tax-driven incorporations, but interestingly the new law is not in the Finance Bill.

The much trumpeted £5,000 personal dividend allowance is also absent from the Bill so we are still very unclear about exactly how that tax-free allowance for dividend income will interact with the personal allowance, even though it is due to come into effect from 6 April 2016.    

See my blog of 10th July for planning points –

Let properties 

The restriction of tax relief for financing let property has received considerable publicity in the property and financial press. Although the reforms don’t start until April 2017 the alterations to ITTOIA 2005 to restrict tax relief are found in the Bill at clause 24.

It should be understood that an individual cannot avoid the interest relief restriction by forming a partnership to hold the let property, and borrowing to invest in the partnership. The interest relief on the loan to invest in that partnership will be restricted in the same fashion as for direct investment in properties by an individual.  

The abolition of wear and tear allowance and replacement with statutory renewals basis is subject to consultation and will take effect from April 2016. The law will be amended by Finance Act 2016. 

See my blog of 10th July for planning points –

Annual Investment Allowance

The Allowance is to reduce from £500,000 to £200,000 for expenditure incurred on and after 1 January 2016. The Chancellor promised the Allowance would be fixed at this level, but that promise is not written into the Bill.

See my blog of 10th July for planning points –

Personal allowances

The personal allowance for 2016/17 is fixed at £11,000 and at £11,200 for 2017/18.

The basic rate threshold above which 40% tax applies is fixed at £32,000 for 2016/17 and £32,400 for 2017/18.

Direct recovery of debts

From Royal Assent of the bill HMRC will, very controversially, have the power to collect tax debts directly from taxpayers’ bank accounts.