The Spring Budget March 2017 & 2017/2018 Update

Personal Allowance and Higher Rate Threshold

The Personal Allowance will rise from £11,000 to £11,500 in 2017/2018. The point at which higher rate income tax starts will increase from £43,000 to £45,000 in 2017/2018. Once the Personal Allowance reaches £12,500 (planned for 2020), it will increase in line with inflation.

Dividend allowance

The allowance will reduce from £5,000 to £2,000 from April 2018.

National Insurance contributions (NICs)

Currently, the self-employed may have to pay both Class 4 and Class 2 NICs:

 Class 4 NICs at 9% are paid on profits between £8,060 and £43,000

 Class 2 NICs are paid on profits of £5,965 or more

From 2018, Class 2 NICs will be abolished.

The Primary and Secondary Thresholds for employee and employer NI contributions will be aligned at £157pw from April 2017 (once income exceeds this level, NI becomes payable).

Non-domiciled individuals

As announced at Summer Budget 2015, from April 2017 non-UK domiciled individuals (non-doms) will be deemed domiciled in the UK for income, capital gains and inheritance tax purposes where they have been UK resident for 15 of the past 20 tax years. Additionally, individuals who were born in the UK with a UK domicile of origin, but have acquired a domicile of choice elsewhere, will be deemed UK domiciled for all tax purposes while they are UK resident.

Non-doms who set up a non-UK resident trust before becoming deemed domiciled in the UK will not be taxed on any income and gains retained in that trust.

As previously announced at Summer Budget 2015 and following further consultation on draft legislation published in December 2016 on charging Inheritance Tax (IHT) on UK residential property, the limit below which minor interests in UK property are disregarded has been increased from 1% to 5% of an individual’s total property interests. As first announced at Summer Budget 2015, from April 2017 IHT will be charged on all UK residential property even when indirectly held by a non-dom through an offshore structure.

As announced at Budget 2016, non-doms will be able to segregate amounts of income, gains and capital within their overseas mixed funds to provide certainty on how amounts remitted to the UK will be taxed. Following consultation on the draft legislation this will be extended by government amendment to income, gains and capital held in mixed funds from years before 5 April 2008, as well as those from subsequent years.

Those who become deemed domicile in April 2017, excepting those who were born in the UK with a UK domicile of origin, will be able to treat the cost base of their non-UK based assets as the market value of that asset on 5th April 2017.

The government will legislate these reforms in Finance Bill 2017 to have effect from 6th April 2017.

Trading and property income allowances

Two separate £1,000 allowances are to be introduced for 2017/2018 onwards for trading income and property income. Where an individual’s gross receipts (i.e. before deducting expenses) do not exceed the £1,000 limit, there will be no charge to tax. The individual can, however, elect that this should not apply. Where gross receipts exceed that limit, the individual can elect to use an alternative method of calculating the taxable income

Cash basis

The threshold below which an unincorporated business can use the cash basis of accounting in computing their taxable profit is increased to £150,000 for 2017/2018 onwards. The exit threshold is increased to £300,000 for all cash basis users. In addition, the legislation will now provide a simple list of disallowable expenditure to simplify the rules for allowable deductions within cash basis accounting.

The cash basis will also be extended to property businesses for 2017/2018 onwards. Those with both a UK and an overseas property business will be able to use the cash basis, if they so choose, for either or for both. Similar exclusions will apply as for trades, including the operation of the £150,000 threshold.

Salary sacrifice

From April 2017, employers and employees who use salary sacrifice schemes to receive various non-cash benefits in kind (BIKs) will pay the same tax as if the BIK had been received as cash. However, salary sacrifice in lieu of employer pension contributions are excluded from this change (together with pensions advice, ultra-low emission cars, childcare, and the cycle-to-work scheme).

All arrangements in place before April 2017 will be protected for up to a year, and arrangements in place before April 2017 for cars, accommodation and school fees will be protected for up to four years.

Making Tax Digital (MTD)

Unincorporated businesses which have an annual turnover below the VAT registration threshold (£85,000 at April 2017) will have until April 2019 to prepare before MTD becomes mandatory. Under MTD, businesses will use digital software to keep tax records and update HMRC quarterly.

Businesses and landlords with a turnover of less than £10,000 will be exempt.

Termination payments

For 2018/2019 onwards, where employers make payments on termination of employment, including all payments in lieu of notice (PILONs), they will be required to identify, using a new statutory formula, the amount of basic pay that the employee would have received if he had worked his full notice period. That amount will be treated as earnings and Class 1 NICs will be payable in respect of them. Those earnings will not qualify for the exemption from income tax on the first £30,000 of termination payments. Such excess will now be subject to employer

Class 1A NICs.

Under current legislation, depending on the length of any foreign service in relation to total service, termination payments may be wholly exempted or the amount otherwise chargeable may be proportionately reduced. This relief is to be abolished for 2018/2019 onwards.

Workers’ services provided to public sector through intermediaries

Legislation will be introduced in Finance Bill 2017 to change the way in which the tax rules on employment income apply to cases where workers provide their services to public sector bodies through personal service companies (PSCs). Where a PSC provides the services of a worker to a public body, (such as a Government department, NHS trust or local authority), the responsibility for operating the current intermediaries rules (commonly known as the IR35 rules) and deducting any tax and NICs due will move from the individual worker’s PSC to the public sector body, agency or third party paying that PSC.

The usual 5% deduction for expenses will not be available in cases where it is the public sector body etc. (and not the PSC) who is treated as making the deemed employment income payment to the worker. The public sector body etc. will, however, be permitted to take account of the worker’s actual expenses when calculating the tax due.

Stamp Duty Land Tax

As announced at Autumn Statement 2015, the government consulted in 2016 on a reduction in the Stamp Duty Land Tax (SDLT) filing and payment window from 30 days to 14 days, as well as on the SDLT filing and payment process generally. After consideration of the responses, the government will delay the reduction in the filing and payment window until after April 2018.

Reducing the money purchase annual allowance (MPAA)

Following a consultation launched at Autumn Statement 2016, the government will legislate in Finance Bill 2017 to reduce the money purchase annual allowance to £4,000 from April 2017. This restricts the amount of tax relieved contributions an individual can make in a year into a money purchase pension, if they have flexibly accessed their pension savings. A response to the consultation will be published on 20th March 2017.

As before, any unused MPAA cannot be carried forward for later years. There are no changes being made to the formulae used in calculating the MPAA and the transitional provision relating to tax year 2015/2016 and the tapered annual allowance will remain unchanged.

Qualifying recognised overseas pension schemes (QROPS)

The government intends to introduce a 25% tax charge to pension transfers made to QROPS. Exceptions will be made to the charge, allowing transfers to be made tax free where people have a genuine need to transfer their pension, where:

 both the individual and the pension scheme are in countries within the European Economic Area (EEA) or

 if outside the EEA, both the individual and the pension scheme are in the same country, or

 the QROPS is an occupational pension scheme provided by the individual’s employer

If the individual’s circumstances change within 5 tax years of the transfer the tax treatment of the transfer will be reconsidered.

The changes will take effect for transfers requested on or after 9th March 2017.

The government will also legislate in Finance Bill 2017 to apply UK tax rules to payments from funds that have had UK tax relief and have been transferred, on or after 6th April 2017, to a QROPS. UK tax rules will apply to any payments made in the first 5 full tax years following the transfer, regardless of whether the individual is or has been UK resident in that period.

Foreign pension regimes

Legislation to be included in Finance Bill 2017 will align the treatment of foreign pensions more closely with the UK’s domestic pension regime. This will have effect from 6 April 2017.

Junior Individual Savings Accounts (ISAs) and Child Trust Fund limit

The annual subscription limit for Junior ISAs and Child Trust Funds will be £4,128.

The ISA subscription limit increases from £15,240 to £20,000 from 6th April 2017. All types of ISA subscription use up part of this limit (except Junior ISA subscriptions).

The Lifetime ISA will be available from 6th April this year. The Lifetime ISA will allow younger adults to save up to £4,000 each year and receive a bonus of up to £1,000 a year on these contributions. Funds can be withdrawn tax-free to put towards a first home or saved until a person turns 60.

New National Savings bond

A new savings bond will be available through National Savings & Investment (NS&I) from April 2017. The Chancellor has confirmed that the bond will have an interest rate of 2.2% gross, and a term of three years. Savers over the age of 16 will be able to deposit up to £3,000, with a minimum investment of £100.

Life insurance policies

As announced at Autumn Statement 2016 and confirmed at Spring Budget 2017, the government will legislate in Finance Bill 2017 to change the current tax rules for part surrenders and part assignments of life insurance policies to allow policyholders who have generated a wholly disproportionate gain to apply to HMRC to have the gain recalculated on a just and reasonable basis. These changes will have effect from Royal Assent of Finance Bill 2017.

Corporation tax

Corporation Tax will be 19% for the years starting the 1st April 2017, 2018 and 2019 and 17% for the year starting 1st April 2020.

Helping someone else to use a tax avoidance scheme

A new penalty is being introduced for those helping someone else to use a tax avoidance scheme. Tax avoiders are hit with significant bills when HMRC defeats their avoidance scheme, and this new penalty will ensure that those who help them will also face the consequences. Tax avoiders will not be able to claim as a defence against penalties that relying on non-independent tax advice is taking reasonable care.

Disguised remuneration schemes

Budget 2016 announced changes to tackle use of disguised remuneration schemes by employers and employees. The government will now extend the scope of these changes to tackle the use of disguised remuneration avoidance schemes by the self-employed. Further, the government will take steps to make it less attractive for employers to use disguised remuneration avoidance schemes, by denying tax relief for an employer’s contributions to disguised remuneration schemes unless tax and National Insurance are paid within a specified period.

The content of this guide is for your general information and use only and is not intended to address your particular requirements. The content should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of the content. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on an individual’s personal circumstances.

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