Budget 2016

 

Budget 2016 took place on Wednesday 16 March 2016. The Finance Bill itself was published on Thursday 24 March 2016. Finance Act 2016 was passed on Thursday 15 September 2016.

This is the main page at the GOV.UK site, where you can see the various announcements that were made on the day.

But for tax practitioners who are interested in the detail, the most important page is the page where you can find the documents. That page is here. But as we all know, throughout the day we find that there are several links going to several pages, or even going to the same page, or just taking you round and round in circles!

Well, you can’t blame them can you? After all, one of the top priorities of Government these days is to keep as many IT people employed as possible. So that they can create sites like GOV.UK…

Update 16 March 2016 sometime in the early afternoon – the Chancellor has stopped talking

And guess what? They’ve given us a different page from where you can download the Budget itself. Amazing isn’t it?

And here are the key announcements. On yet another page.

Still waiting for the important page to be filled. The one with all the small print…

Update 2 – a little bit later on 16 March 2016 – The documents have arrived!

Here is an Overview – OOTLAR which, as we all know, stands for “Overview Of Tax Legislation And Rates. This most important document wasn’t made avilable until 6.15 pm. That’s right. After work hours. Shame on them.

We shall look at the following:

Measures coming into force with (almost) immediate effect.

Personal Tax

Savings and Investments

Capital Gains Tax

Owner Managed Businesses

Corporate Tax

Property Tax

VAT

The following measures take effect from 16, 17 and 23 March 2016 

 In other words, these are the measures that take place “now-ish” before the Finance Bill actually received Royal Assent.

Stamp Duty Land Tax – Commercial property to be taxed using the tier system

 This makes a welcome change. For years and years, the rate of SDLT was set by a single rate depending on the band in which the price for the property fell. There was no tiered system as is the case with calculating income tax.

For example, today, (16 March 2016), a commercial property worth £150,000 falls within the nil rate band, so that no SDLT is payable. Increase the price by £10,000 to £160,000 and the property falls within the 1% band which means that 1% applies to the whole of the £160,000, giving rise to a tax charge of £1,600.

From tomorrow, 17 March 2016, the calculation will look like this:

  • No tax payable on the first £150,000 which falls within the nil rate band;
  • £200 tax payable on £10,000, being the excess (£160,000 less £150,000) falling within the 2% band;

Making a total of £200, which is a lot less than it was the day before.

This is a welcome change. The tiered system already applies to residential property. Scotland of course, is far ahead of England, Wales and Northern Ireland in this respect, as their stamp rates (Land and Buildings Transaction Tax) already applies this system to both commercial and residential property.

But – and there is a big but…

Just look at the rates before and after the changes.

We have a new 5% rate which kicks in at the lower level of £250,000 plus. For the more expensive properties, the SDLT will be higer under the new rules, even with the added benefit of applying a tiered system. As the price increases, the effect of the lower rates applying to the 0-£250,000 band will be less and less significant.

Price From 17 March 2016 Until 16 March 2016
£0 – 150,000  Nil rate   Nil rate
£0 – £150,000 leasehold with annual rent of £1,000 or more    Nil rate   1%
£150,001 – 250,000 2% 1%
 £250,001 – 500,000 5% 3%
Over £500,000   5%  4%

 

Download the Policy Paper and Draft Legislation from this page.

Anti-avoidance – More rules on disguised remuneration schemes

Disguised remuneration schemes have been around in one form or another for years and years, all with the intention of rewarding employees without having to account for PAYE/NIC. These have included payments to Employee Benefit Trusts, or making available an interest free loan in a form that doesn’t attract PAYE/NIC, in circumstances that the loan is unlikely to ever be repaid.

We now have some additional measures as follows :

  • The introduction of a TAAR (Targeted Anti-Avoidance Rule) to counter a specific scheme that has been in use for a while;
  • The withdrawal of a relief on the “investment return” for certain users of disguised remuneration schemes that were in place before new rules were introduced in ITEPA 2003 Part 7A. Those people who settled with HMRC were given relief from tax charges that might otherwise have arisen under the new Part 7A. Until today, relief was given for both the amount of the remuneration and any subsequent growth in value of the investment. From now on, the latter part will be excluded from the relief and only the original value of the remuneration will be covered. However, those people who satisfy the relief conditions on or before 30 November 2016 will not be affected.

These measures come into force on 16 March 2016.

Finance Bill 2017 will contain even more measures, this time “to put beyond any doubt that schemes which result in a loan or other debt being owed by an employee to the third party, whatever the intervening steps, are within the scope of [ITEPA 2003] Part 7A.”

So be warned…

You can download the Policy Paper, the Draft Legislation and a Technical Paper at this page.

Calculating Trading Profits – receipt of non-monetary income

This is a measure about how to calculate profits when traders receive a payment otherwise than in cash – in other words, barter transactions. The measure ensures that the payment is included in the profits as it should do.

This measure comes into force on 16 March 2016.

Download the Policy Paper and Draft Legislation from this page.

Deduction of income tax on royalty payments

These measures concern the deduction of income tax at source on royalty payments to non-residents. The general rule is that the payer must deduct income tax at basic rate, but HMRC have been concerned where the parties are connected and make use of an appropriate double tax treaty to either reduce the amount of withholding, or allow the payee to reclaim the tax.

So from 17 March 2016, we have another anti-avoidance measure to deal with this (when are they going to use that GAAR that they were so keen on?)

In addition, there are plans to  amend the definition of the term “intellectual property” in respect of which a duty to deduct royalties arises. This is “to  ensure it is consistent with the definition of rights in respect of which income is chargeable to tax in the Income Tax Acts” (yes of course. Can’t they explain it in plain English for once?) This amendment will take effect from Royal Assent.

As if that weren’t enough, more legislation will be introduced so that:

  • If a non-UK resident has a permanent establishment in the UK;
  • There are royalties from intellectual property rights which are connected to that permanent establishment;

Then those royalties shall be UK royalties, giving rise to an obligation to deduct withholding tax. Consequential changes will also be made to the Diverted Profits regime.

These changes will also take effect after Royal Assent.

Download the Policy Paper, the Draft Legislation and a Technical Note at this page.

Anti-avoidance – Stamp Taxes and Deep in the Money Options

These rules are aimed at the situation where a person is granted an option over shares or securities where the strike price is far below the market value of the securities when the option is granted. Such an option is said to be “deep in the money”.

The strike price is the price that the option holder pays for the shares, which is set in advance – it is obvious why the holder is likely to exercise the option, for this gives rise to a very hefty profit. Furthermore, the stamp tax payable – either stamp duty or stamp duty reserve tax – is a lot lower than it would have been had the option holder bought the shares at their market value.

HMRC do not like this because it leads to avoidance opportunities, usually involving clearance services or depositary receipt issuers. So from now on, when an option is exercised and the securities are transferred to these entities, the tax will be payable by reference to the market value, if higher than the strike price.

The new rules will apply to options granted on or after 25 November 2015 and exercised on or after 23 March 2016. So, anyone who has such an option, you have a week to exercise it.

Download the Policy Paper and Draft Legislation at this page.

Now, let’s look at the other taxes.

Personal Tax

Increase of personal allowance and basic rate limit

For the tax year 2017/18:

  • The personal allowance will increase to £11,500;
  • The basic rate limit will be increased to £33,500 so that the higher rate threshold will be £45,000;
  • The NIC upper earnings limit, which is aligned to the higher rate threshold, will also increase to £45,000.

(Note that for Scotland, different figures apply as the Scottish Parliament now sets the income tax rates).

A point of order. This is what the Policy Paper says:

“The Summer Finance Bill 2015 set the personal allowance for 2017 to 2018 at £11,200, and the basic rate limit for 2017 to 2018 at £32,400.”

That Summer Finance Bill was passed on 18 November 2015. Barely three months later and they’re talking about an amendment.

That should tell you all you need to know about what’s wrong with Government and bureaucracy. People just can’t leave well alone. They always have to act as if they’re doing something, but in the end all they’re doing is creating paper and extra work.

Download the Policy Paper and Draft Legislation at this page.

Savings and Investments

 New Lifetime ISA – but not for the elderly

 From April 2017. there will be a new Lifetime ISA – a LISA (anyone remember what happened to TESSA and PEP?). For those adults over the age of 18, but under 40, for every £4 you contribute, the Government will contribute £1. A bit like a pension. The maximum yearly amount is £4,000.

It isn’t entirely clear how the funds can be invested – presumably there will be a stocks and shares element as in the standard ISA – can’t imagine that it will be restricted to interest bearing deposits with interest rates as low as they are. Furthermore, what does this mean?

“Funds from the Lifetime ISA, including the government bonus, can be used to buy a first home at any time from 12 months after the account opening, and be withdrawn from age 60.”

But if you want to buy a house you’ll need to withdraw the money surely? Or is it the only way you can make a withdrawal before reaching the age of 60?

And what constitutes a withdrawal? Do you have to withdraw the money at 60? For example, suppose that someone invests in dividend stocks, reinvesting the dividends over the years. Does he have to sell bits of the portfolio to withdraw the cash? Can he leave the stocks in the ISA and just draw the income?

Well, look at what I’ve just come across. A one-page factsheet. You can take out all the money tax free after 60, but there is a 5% charge on earlier withdrawals. But the factsheet assumes that this new LISA will operate as a savings account rather than a stocks and shares – how much will it grow with present day interest rates?

It will be interesting to see the take-up on this. Which “young” people” will be able to start investing the minute they reach 18? I suspect that most will have to wait a considerable time before they start earning to take advantage of this generous new tax wrapper.

And what about those of us who have reached the age of 40? My advice is to not be 40 at all. The best age to be is 39. It worked for comedian Jack Benny – once he reached 39, he never looked forward. He liked being 39 so much that he stayed 39 for the rest of his life.

(OOTLAR paragraph 2.15)

Removal of deduction of tax on interest distributions

 From next year, there will no longer be a  requirement to deduct income tax at source from interest distributions from authorised retail funds, investment trusts and from interest on peer to peer loans.

How does it affect me, you may ask? Well, for those people who have a pension offered to them from the workplace, have you ever stopped to ask where they actually put the money? (Hint: it’s not in a piggy bank.)

(OOTLAR paragraph 2.11)

Capital Gains Tax

 One of the biggest surprises this Budget is the reduction in the CGT rates.

  • For basic rate taxpayers, the 18% rate comes down to 10%;
  • For higher rate taxpayers, the 28% rate comes down to 20%;
  • Entrepreneurs’ relief is still preserved at 10%

(Does anyone remember a few years ago, when a group of people headed by John Redwood (Conservative) were clamouring for the return of the 18% rate, just after the rates were hiked to 28% for higher rate taxpayers? Didn’t work then – when the Government was a coalition. Seems to have worked now that the Conservatives have managed to throw off their former LibDem allies and are now going it alone.)

BUT:

  • The new rates won’t apply to residential property that comes within the CGT charge, and so doesn’t qualify for the principal private residence relief;
  • The new rates won’t apply to carried interest;
  • The CGT rate for non-resident corporate and other vehicles holding residential property under the ATED regime stays at 28%.

 In other words, buy to let landlords are still not the flavour of the month.

Download the Policy Paper at this page.

Owner Managed Businesses

 Corporation Tax and loans to participators 

 The close company rules contain restrictions on the way in which the owners of the business can extract cash without being subject to a tax charge. A close company is a company with five or fewer participators (shareholders). In particular, a loan from the company to a participator is subject to a tax charge on the company at the rate of 25%.

From 6 April 2016, the rate will be increased to 32.5% in line with the new dividend upper rate (now, why do you think they did that?)

Download the Policy Paper at this page.

A number of changes to Entrepreneurs’ Relief

This is the 10% rate that applies when an individual sells a business. Not all bad news this time. In fact, quite good news. These changes include:

An extension of the relief when making an associated disposal

An associated disposal is one where a person provides an asset such as a building to the business in which he holds a stake. The asset is owned personally and not by the business. A disposal of the asset can also qualify for entrepreneurs’ relief where the disposal is linked to the owner also withdrawing from the business.

However, since 18 March 2015, there is a requirement for the owner to dispose of at least a 5% stake in the business. This last condition will not apply to cases where disposals are made to family members, and the rules will be backdated to 18 March 2015.

This is a welcome change, as it will facilitate succession planning in family businesses (see the previous comments made by the CIOT when the original anti-avoidance rule was introduced).

Download the Policy Paper at this page.

Entrepreneurs’ relief now available on incorporation of goodwill  

But didn’t they get rid of it in 2014? Is this a U-turn?

Yes, it’s a U-turn (sort-of).

Since 3 December 2014, entrepreneurs’ relief has been unavailable for a disposal of goodwill to a close company to which the seller is related. This stopped an “avoidance” scheme whereby business owners were able to incorporate and extract cash in a tax efficient manner. However, these rules are to be mitigated for those individuals who come to hold less than 5% of the acquiring company’s shares. There will also be special rules to allow relief where the acquiring company is then sold to a third party.

Note however, that the other bit of the double whammy remains in place. It will still not be possible for the acquiring company to write down the value of the goodwill.

Download the Policy Paper at this page.

Changes to the treatment of joint venture and partnerships

Another U-turn! From 18 March 2015, there were changes to the rules on determining the trading status of a company or group, by disregarding the underlying activities of any joint venture holdings or partnerships in which the business had invested. These rules are also to be mitigated in cases where genuine commercial arrangements are involved. Again, the amendments are to be backdated to 18 March 2015.

Download the Policy Paper at this page.

And finally – something a little different:

Entrepreneurs’ relief now available to “long term investors”

It looks as if they are going to include angel investors for the first time as being able to qualify for the relief.

This measure is aimed at those people who provide equity funding for the venture, without holding the necessary 5% minimum holding and being an employee or office holder in the company. The 10% rate will be available in the following circumstances:

  • The shares must be ordinary shares of an unlisted trading company;
  • The investors subscribes for the shares for “new consideration” (in other words, you have to pay cash) on or after 17 March 2016 (just as in the various Enterprise Investment Schemes);
  • The shares must have been held for at least three years starting from 6 April 2016 (three years isn’t really long term).

As with the main entrepreneurs’ relief, there will be a lifetime cap of £10m (but does this also cover the case where you have a business owner who sells his business under the main rules and then goes on to be a business angel? Are there two separate caps or just one?)

This really is a pleasant surprise. In the old days we had taper relief which was available to anyone who held a stake in an unlisted trading company, no matter how small the stake was. There was no requirement to be an office holder or employee either. Usually, business angels would also seek relief under the Enterprise Investment Schemes which are horrendously complicated – so much so that one wonders how much the tax breaks really are worth?

However, one could take a relaxed view on the Enterprise Investment conditions breaking down. Although investors might have to pay back some income tax relief and lose the CGT exemption under EIS, they could still benefit from a 10% CGT rate under the taper relief rules. But that safety net was taken away when taper relief was abolished and replaced by entrepreneurs’ relief in 2008.

Now we have the safety net back. Very welcome indeed. (But there’s bound to be a catch or two…)

Download the Policy Paper at this page.

New lifetime limit of £100,000 for exempt gains for Employee Shareholders

 This is a scheme whereby employees receive shares as an inducement to take on employment with the company. Provided certain conditions are satisfied, the shares are exempt from capital gains tax.

The measure places a lifetime limit of £100,000 on the Capital Gains Tax (CGT) exempt gains that a person can make on the disposal of shares acquired under Employee Shareholder Agreements entered into after 16 March 2016.

Download the Policy Paper at this page.

Enterprise Investment Scheme and Venture Capital Trusts

 A measure to ensure that “the EIS and VCT legislation introduced by the Finance (No.2) Act 2015 works as intended.”

Well, that says a lot doesn’t it. The legislation refers to the most recent changes to both these schemes that were made following the Summer Budget of last year, as a result of EU rules.

This measure makes clear that certain time periods mentioned in the legislation are to end immediately before the beginning of an investee company’s last accounts filing period. These relate to the following:

  • The rules relating to the maximum age of the company. In general, the company raising funds must be relatively new, with the first commercial sale being made within the previous 7-10 years. However, more established companies can qualify, provided that they are effectively winding down their previous activities and starting a new trade. There is a 5-year average turnover test which determines the extent to which the company has “wound down” its previous activities – the new measure determines when this 5 year period ends;
  • Knowledge intensive companies must meet a three year operating costs test whereby in each of the three years prior to raising funds, at least 10% of its operating costs were spent on R&D or innovation. Again, the new measure determines when the three year period ends.

There will also be a new measure to clarify what investments a VCT may make for the purpose of managing the liquidity of the investment portfolio. Recall that at least 70% of the VCT’s investments must be in qualifying holdings – in other words, high risk companies – while the VCT is free to invest the balance as it sees fit. This part of the portfolio is a good place to park cash awaiting investment.

It will be interesting to see what the new measure says. Will it provide that cash can be part of the qualifying investment part, as it is the case with REITs?

Download the Policy Paper at this page.

Corporate Tax

Corporation Tax rate to reduce to 17% by 2020

 And not 18% as was originally planned. Great. Well, not quite. Whenever they reduce headline rates, there’s always some other tax relief that gets abolished “reformed”

Download the Policy Paper at this page.

Tax relief for interest  payments to be restricted to 30% of earnings

Told you.

It seems as if it’s the OECD is behind this again – their BEPS project (short for Base Erosion Profit Shifting). They have made some recommendations and now the UK Government has decided to limit the amount of relief companies can obtain on their finance costs.

But existing “commercial arrangements within the oil and gas ringfence regime will not be adversely affected.” Doesn’t mean they won’t be affected. Doesn’t mean future arrangements won’t be affected either.

More information is available on the Business Tax Roadmap.

The plan is to publish draft legislation for Finance Bill 2017 – no doubt we shall see this at the Autumn Statement later this year. And then the new rules will apply from 1 April 2017 (will there be any forestalling measures?)

(OOTLAR paragraph 2.28)

Corporation Tax and reform of loss relief

 These proposed reforms are aimed at carry forward losses. The purpose behind these reforms is “to give all companies more flexibility by relaxing the way in which they can use losses arising on or after 1 April 2017”.

More flexibility. Yes, there is more flexibility, but look at what else they’re doing:

  • Losses will be available for carry forward against all types of income including set-off against profits of group companies. This seems a good idea. At present, trading losses can only be carried forward to set off against profits from the same trade. They can’t be carried forward and then be surrendered as group relief – they have to be surrendered in respect of the year in which they were incurred;
  • The bad news is that carried forward losses will only be available to set against 50% of future profits, not the entire lot as is the case now. This doesn’t mean the losses are wasted – however, under these proposals, it takes longer to utilise them. Not so good. Worse if you’re a bank because the figure will be 25%.

Again, oil and gas companies ringfence trades are excluded from these rules (it wouldn’t be a ringfence trade if you carry forward losses against all types of income).

There will be a consultation later this year and the new rules will come into force next year.

(OOTLAR paragraph 2.29)

Reform of the Substantial Shareholdings Exemption

 The Substantial Shareholding Exemption – SSE for short – is to be reformed. Why, or how, we do not know yet. But it gives the civil servants a good excuse to produce even more paper when we have another consultation round.

The SSE is a tax break that is directed at corporate holdings in trading companies or groups. Provided that the shares have been held for at least one year, they can be sold without attracting corporation tax on any gains. The other side of the coin is that losses are unallowable. Not so good when each M&A cycle comes to an end and those companies who’ve splurged out and overpaid now find themselves having to divest at a loss.

(OOTLAR, paragraph 2.31).

Capital Allowances and Enterprise Zones

 Businesses that are located in enterprise zones qualify for special incentives, including an enhanced 100% capital allowance for plant and machinery expenditure. Normally, such expenditure would attract the writing down rates on a reducing basis of either 18% or 8% unless they can be covered by a first year allowance or the annual investment allowance.

Under the current rules, the expenditure must be incurred during an 8 year period from 2012. The rules are to be amended so that for each enterprise zone, the starting date will be the date that the area first qualified for enterprise zone status.

Download the Policy Paper at this page.

There are also some additions to the areas that currently qualify for EZ treatment:

  • Three new Enterprise Zones are to be created and as well as extending an existing Zone;
  • The Northern Ireland Executive has set out its plans for a pilot Enterprise Zone on two sites near Coleraine.

(OOTLAR paragraphs 2.17, 2.18)

R&D tax reliefs

 A measure to prevent an unintended reduction in the R&D relief available to some SMEs when the Large Company relief comes to an end on 31 March 2016. The Large Company Relief will then be replaced by Research and Development Expenditure Credit.

Download the Policy Paper at this page.

Don’t forget that Vaccine Research Relief is coming to an end after 1 April 2017. So you need to start spending your money now.

Download the Policy Paper at this page.

State Aid – HMRC Powers to require Information

 As everyone know, there are lots and lots of places in the tax legislation where HMRC can give notice to people, requiring them to provide information, as well as money to settle an outstanding tax bill.

These new powers are concerned with those tax incentives that comply with EU State Aid rules such as the following:

  • The risk capital schemes such as EIS, SEIS, and VCT Schemes;
  • Media and cultural reliefs such as film, high end and children’s TV including animation programmes, theatre and orchestra relief (coming soon);
  • R&D reliefs for SMEs
  • Climate Change Agreements (reduced rate of Climate Change Levy);
  • Enhanced Capital Allowances –such as the zero emission goods vehicles scheme, enterprise zones and the business premises renovation allowance (ending soon).

The purpose of the new powers is to require those who are claiming the relief to provide HMRC with information that will satisfy the latter than the State Aid rules have been complied with. This will be a pre-condition for granting the relief. There is also the possibility of HMRC disclosing the information “through a legal gateway for the purpose of publication.” (Confidentiality issues anyone?)

Download the Policy Paper at this page.

Banking companies

 More bank bashing – it’s becoming the norm isn’t it?

There are to be further restrictions on the way in which banks can relieve their profits against brought forward losses. Since April 2014, only 50% of a bank’s current year profit can be relieved in this way – from 1 April 2015, this figure will reduce to 25%.

There is a good reason for the reduction. If it continued to be 50% then banks would no longer be treated less favourably than other companies. Because from 2017, everyone else will have their carry forward losses restricted to 50% of the profits.

Download the Policy Paper at this page.

There will also be a measure to amend the excluded entities test, which forms part of the definition of a bank used in tax legislation. This is to ensure that only proper banks are subject to the various rules on banks, whereby a bank is subject to:

  • The bank levy;
  • The bank surcharge;
  • Rules restricting loss relief;
  • Rules restricting the deductibility of compensation payments for mis-selling.

Excluded entities won’t be affected by these restrictions. So it’s best to be an excluded entity!

Download the Policy Paper at this page.

Oil and Gas

 The following measures are to apply:

  • Petroleum Revenue Tax to be reduced to zero, from a rate of 35% (for accounting periods ending after 31 December 2015);
  • A reduction of the supplementary charge from 20% to 10% for ring fence profits (for accounting periods beginning on or after 1 January 2016);
  • A number of amendments to the onshore, cluster area and investment allowances (from 16 March 2016).

Download the Policy Papers on the reduced tax charges and the amendments to the investment allowances.

Corporation Tax and the Anti-hybrid Rules

These measures implement the OECD recommendations and are aimed at transactions between members of multinational groups, which seek to exploit tax mismatches between the jurisdictions involved. For example, a payment from one company to another could result in either:

  • A deduction for the payer, but no corresponding taxable receipt for the payee; or
  • There is a double deduction, as a result of the payer being subject to taxation in both jurisdictions.

Mismatches can occur usually due to the hybrid nature of the transaction or the entities involved. For example:

  • A financial instrument such as a loan convertible to share capital has characteristics of both debt and equity. A (deductible) interest payment in the payer’s jurisdiction may be treated as an exempt dividend in the payee’s jurisdiction;
  • An entity such that is opaque (corporate) in one jurisdiction, and is taxable there, but is tax transparent in another (partnership).

The solution in the rules is, broadly, to deny the tax deduction, or provide that the receipt is taxable.

Download the Policy Paper at this page.

Corporation Tax: update to the transfer pricing guidelines

These are the guidelines that apply to treat connected party transactions on arm’s length basis. From 1 April 2016 the statutory definition of “transfer pricing guidelines” will be amended to incorporate the revisions to the OECD guidelines. What fun.

Download the Policy Paper at this page.

Property Tax

Stamp Duty Land Tax and residential property – higher rates to apply when buying a second home

These proposals were announced during the last Autumn Statement and were perceived as driving another nail in the coffin of buy to let landlords, who have already been hit by the restrictions in deducting finance costs from their profits.

It had been thought that these rates wouldn’t apply to corporates, and especially for funds such as REITs. The reforms of 2012 were intended to encourage the latter to invest in the residential sector. So it is surprising to see that corporates are also included in this measure.

From 1 April 2016, the SDLT rate an additional rate of 3% will apply for purchases of second homes. It doesn’t look as if properties coming within the ATED rules  are caught.

Price Standard rate Additional rate
£0 – £125,000 Nil rate   3%
£125,001 – £250,000   2% 5%
£250,001 – £925,000 5% 8%
 £925,001 – £1.5 million 10% 13%
Over £1.5 million   12%  15%

This is what the Policy Paper says:

“If, at the end of the day of the transaction, an individual owns 2 or more properties and has not replaced their main residence, the higher rates will apply.

Purchasers will have 36 months to either claim a refund from the higher rates, or before the higher rates will apply, in the event that there is a period of overlap or a gap in ownership of a main residence.

Companies purchasing residential property will be subject to the higher rates, including the first purchase of a residential property. Properties purchased for under £40,000, caravans, mobile homes and houseboats will be excluded from the higher rates. Furthermore, small shares in recently inherited properties will not be considered when determining if the higher rates apply.”

Download the Policy Paper and Draft Legislation at this page.

And while we’re on the subject of buy to let…

“Clarification” to finance costs restriction for landlords

 This measure will clarify that the basic rate tax reduction is available to beneficiaries of deceased persons’ estates. It also ensures that the basic rate tax reduction applies and is calculated as intended (who said it didn’t?)

Legislation will be introduced in Finance Bill 2016 in order to:

  • Put beyond doubt that individual beneficiaries of deceased persons’ estates are entitled to the basic rate tax reduction;
  • Ensure that the total income restriction to the tax reduction applies where the relevant finance costs or property profits are higher than the total income;
  • Ensure that total income is a measure of the net taxable income after other reliefs;
  • Ensure that any carried forward tax reduction is given in any subsequent year in which property income is received, even if there is no restriction on the deduction of finance costs in that year, for example, where the loan has been repaid.

 Download the Policy Paper at this page.

Renewals allowance to be repealed

 This is an old allowance that pre-dates the capital allowance regime, and applies to businesses incurring expenditure on replacement, or alteration of small capital items used in the business. Until recently, it was more relevant to property landlords of residential property.

We’ve known for a while that it was going to be phased out/withdrawn and now the legislation is to be repealed from 6 April 2016 for income tax purposes and 1 April 2016 for corporation tax. However:

“These dates align with the introduction of a new relief for domestic items for residential landlords, ensuring alternative relief for this type of expenditure is available.”

Though I am not sure how popular this new relief really is!

Download the Policy Paper at this page.

Profits from Trading in and Developing UK Land

This is a Technical Note, together with draft legislation for new rules to rules to tax trading profits derived from UK land. It is aimed primarily at offshore arrangements which are designed to avoid having a permanent establishment. Recall that non-UK residents who trade in the UK are not taxed unless they are trading through a permanenet establishment.

So now they are going to abolish the permanent establishment requirement. The new rules are to come into force “from Report Stage of Finance Bill 2016.” (page 1 – what happened to Royal Assent, which is at least a single specific date? Who wrote this stuff?) And by the way, there are to be anti-avoidance rules to ensure that anyone reading the policy paper can’t take steps to avoid the new rules between now and when they come into force. So there.

Note that these rules concern property trading. They do not affect property investment. That’s a relief isn’t it? You all probably thought that the capital gains exemption was going to be axed didn’t you?

These proposals are subject to consultation – please send comments to: landproperty.mailbox@hmrc.gsi.gov.uk  by 29 April 2016.

Download the Policy Paper, Draft Legislation and Technical Note at this page.

VAT

VAT Registration and De-Registration Limits

From 1 April 2016 the VAT registration threshold, will rise from £82,000 to £83,000 and the de-registration threshold will rise from £80,000 to £81,000.

Download the Policy Paper at this page.

VAT and internet traders

 More powers, to tackle non-compliance from overseas businesses that avoid paying UK VAT on sales of goods made to UK consumers, via online marketplaces.

Download the Policy Paper at this page.

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Satwaki Chanda

Satwaki Chanda

Satwaki Chanda is a tax lawyer with a First Class degree in Mathematics. Called to the Bar in 1992, he is the Editor of Tax Notes.
Satwaki Chanda

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