Budget 2015 took place on Wednesday 18 March 2015. Finance Bill 2015 was published on Tuesday 24 March 2015 – about 20 committed MPs spend a single day debating it on 26 March 2015, and then they passed it the following day. How gratifying that our legislators can give so much of their valuable time to this most important piece of legislation.
The Finance Act 2015 has been published, but at the time of writing, only the pdf version is available. Hopefully the online version will soon appear.
The main Budget 2015 page which appears to be the main page. This has a link to the following page where you can find the various documents at:
There is also an Overview which contains some of the key highlights of the day. However, for tax practitioners, there is another overview which is an overview of the documentation and tax rates, which is more detailed. This is the familiar OOTLAR document (Overview Of Tax Legislation and Rates).
Don’t forget, a lot of the material will be a restatement of measures announce in last year’s Autumn Statement 2014.
We are told that this is a dull Budget, but that doesn’t mean that we tax practitioners should relax. “Dull” doesn’t mean that there won’t be a lot of documents and it certainly doesn’t mean that something horrid won’t appear in the small print.
The following measures are with immediate effect from 18 March 2015:
First of all two measures on Entrepreneurs’ Relief
Entrepreneurs’ Relief – or ER for short – is the tax relief for individuals selling a business. Those who qualify are taxed at the reduced 10% rate.
The relief is also available to people who own an asset and hire it out to a business, whether a company or a partnership, of which the individual must be a shareholder or member. The general rule for asset sales is that assets cannot be sold in isolation. In this case, the sale of the asset must be linked with the sale of the individual’s stake in the business. The latter can be the entire stake or a part, but must amount to a partial or full withdrawal from the business.
What is a partial withdrawal? Is it possible to claim the 10% rate on the asset while selling a tiny portion of one’s holding in the business? But how can this amount to a partial withdrawal if one’s interest is substantially the same as it was before the asset was sold?
It is to counter this situation that the rules have been modified. From now on, to count as a withdrawal from the business, the individual must sell a stake of at least 5% or more – either a 5% shareholding in the company or a 5% interest in the partnership assets.
This new rule will apply to disposals of business assets made on and after 18 March 2015.
Tax Information Note can be found here.
Entrepreneurs’ Relief: joint ventures and partnerships
This is aimed at individuals who wish to benefit from the relief without having the required 5% stake in a trading company or holding company of a trading group.
One of the key issues is whether the company or group can be classified as trading. The usual rule is that the company or group must have substantial trading activities – this presupposes that the company or the group members are the entities that actually carry out these activities.
However, there are special rules where these activities are carried out indirectly through membership of a joint venture company or partnership. It is possible in this way, to look through the corporate structure. The Government is concerned that this can be manipulated so that while the individual does have a 5% interest in the corporate vehicle investing in the joint venture or partnership, his indirect interest in the underlying trade is in fact a lot less than 5% compared to all the other joint venture members or partners.
This position is now to be remedied. From now on, the trading activities of such joint ventures and partnerships will no longer be taken into account in determining the company’s own trading status.
The new rule applies to disposals made on or after 18 March 2015.
Tax Information Note can be found here.
Corporation Tax: loss refresh prevention rules
This is another set of anti-avoidance rules designed to prevent companies from effectively using carried forward losses in ways that were never intended by the legislation. There are three types of losses that are the subject of these new rules:
- Trading losses;
- Non-trading loan relationship deficits; and
- Management expenses.
Losses carried forward from previous years are limited in how they can be used. For example, carried forward trading losses can only be set against the same trade that they came from – they cannot be set against other trading activities or surrendered as group relief, as opposed to current year losses which can be utilised in this way.
The new rules seek to counter tax motivated arrangements which are designed to effectively “refresh” these losses. The Technical Note has examples of how these rules will work in practice.
Tax Information Note here.
Pensions and Investments
Perhaps one of the biggest pieces of news from the the world of pensions. Three key announcements:
- From April 2015 people will no longer be required to buy an annuity with their pension – they can cash the whole of their pension pot and spend it all on the horses!
- For those who already have an annuity, and are stuck with a low rate, new rules will be introduced in April 2016 so that they can sell it for a lump sum;
- But the bad news is that the lifetime limit is to be reduced from £1.25m to £1m.
Now pensions liberation certainly sounds like a lot of fun (yes, some of us do actually look at our pension statements and wonder whether it’ll ever be enough…) – certainly in view of the level of annuity rates on offer in recent years. Consider the situation of a person with a self invested pension whose investments yield a higher income than the annuity he’ll be getting at the end of the day – cashing out sounds like a far more attractive proposition.
But the question “Can I cash in my pension?” is far easier to answer than the more important question “Should I cash in my pension?” It’s not all plain sailing – after taking out the 25% tax free sum, the remainder is taxed at the individual’s marginal rate. Do the numbers stack up? If you still happen to be working, the rates are quite punitive as this article from FT Adviser shows.
(I am grateful to tax and pensions specialist Steve Carlson who brought this article to my attention.) Steve has also written an informative article on the choices available to people as a result of the new pensions rules.
The bad news is the reduction in the lifetime limit. £1m may sound like a lot of money, but consider what level of income it yields. Furthermore, £1m in today’s money may be worth far less tomorrow, though we are told this limit will now be index linked. Not that it makes much difference now we have zero inflation.
Two ISA measures:
- ISAs will be more flexible – from now on you’ll be able to withdraw money from an existing cash ISA and put it back within the same tax year without it counting towards the years’ ISA allowance;
- A new Help to Buy ISA will be introduced – because we still need to help people get on the housing ladder don’t we? This is for first time buyers who are saving up towards a house. People who save up to £200 per month will receive a bonus from the Government worth 25% of the amount they save. So the maximum monthly bonus is £50 and there is a cap on the total bonus that anyone can receive of £3,000.
This is all great news. But no one seems to have addressed the more important question: “What is the rate of return that you’re likely to get from a cash ISA these days? Given the current level of interest rates the Government subsidy is a welcome boost to the ISA pot – but will it be enough?
You can find out more about the Help to Buy ISA in this Factsheet.
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