Summer Budget 2015



The Finance Bill (No 2) 2015 received Royal Assent on 18 November 2015 and the Finance (No 2) Act 2015 can be accessed at this page.

The Summer Budget – the second of 2015 – took place on Wednesday 8 July 2015. The Finance Bill was published on  Wednesday 15 July 2015. You can the Explanatory Notes at this page.

Supporting documentation is to be found at this page.

Please note – this  page has a link to an Overview of Tax Legislation and Rates (OOTLAR). which  “lists the tax policy measures announced at Summer Budget 2015 and shows when they will be legislated.” However, at the time of writing, this link leads you to an overview of the earlier March 2015 Budget.

You can find an overview of the Summer Budget 2015 at this page.

I’ll deal with the immediate measures first. However, there are some other quite important changes such as the ending of the non-dom regime, restrictions of tax relief for borrowing costs for private landlords, and a nasty change to the way dividends are taxed (not good news for savers).

I hope to fill the page within the next few days.

The following measures are with immediate effect from 8 July 2015 

Corporation Tax – Controlled Foreign Companies – loss restriction

This is a measure aimed at large multinationals that are subject to a “CFC” charge under the Controlled Foreign Companies (CFC) rules. A CFC charge arises when profits which should be UK profits, have been diverted offshore.

New rules will restrict the ability to reduce the charge by setting off losses and surplus expenses. In particular, the following types of loss or expense:

  • Brought forward losses/expenses from previous years;
  • Current year losses/expenses; and
  • Losses/expenses from other group companies to be surrendered as group relief.

There will also be an amendment to the existing anti-avoidance rules restricting carried forward losses in Part 14B of CTA 2010 “to put beyond doubt that they apply to arrangements involving CFCs.”

Download the Policy Paper here.

Corporation Tax – restriction of relief for business goodwill amortisation

This is a really big piece of news. Companies acquiring a business under an asset sale will no longer be able to claim tax relief for the goodwill element – even though they may be required to write it down under accounting rules. The restriction also applies to customer related intangibles such as customer lists.

Strange. When the intangible rules first came into force in 2002, we all thought that this was the point of claiming relief in line with the accounts – otherwise there is a mismatch between accounting profits and taxable profits.

The rule change applies to ALL business acquisitions, not just those made from a “related party” – recall that the latter scenario was already dealt with earlier this March, when HMRC was worried about people using entrepreneurs’ relief to avoid income tax and NIC. One wonders why they couldn’t have made it universal then.

However, it seems that relief can still be claimed when the goodwill is sold – assuming that it is sold at a loss. Might as well put goodwill back into the capital assets regime.

Download the Policy Paper here.

Corporation Tax and Income Tax – disposal of stock other than in trade, and corporate intangibles

This measure is said to be an avoidance measure, though it really springs from the fact that there are two separate valuation tests that apply when connected parties transfer stock in trade or intangibles between them:

  • There is a market value rule that normally applies between connected parties;
  • However, if the transfer pricing rules apply (“arm’s length” basis), the latter takes precedence – and this might not give the same result.

 The idea of the new legislation is to ensure that “as far as possible, values brought into account are equivalent to those that would be achieved in a sale to an unconnected third party.”

(I do not know why the title says “stock other than in trade” while the Policy Paper talks about “trading stock.” One of life’s many mysteries.)

Download the Policy Paper here.

Investment managers Capital Gains Tax treatment of carried interest

This is a measure aimed at the Investment Managers carried interest element when they provide their services to investment funds via a partnership arrangement. By applying Statement of Practice D12, together with various tax planning techniques it is possible to reduce the CGT charge, by taxing an amount which is lower than the true economic gain.

This will not be possible any more. New rules will ensure that only certain specified amounts will be allowed as a deduction in computing the gain, such as the amount of actual consideration given for the carried interest. Notional amounts such as would have been given under Statement of Practice D12 will be disallowed.

Download the Policy Paper here.

Restriction on pensions relief

Two pension measures – we knew that the Chancellor was going to do this:

  • Firstly, for people with income over £150,000 (including the value of pension contributions) and over £110,000 excluding contributions – why does it have to be so complicated? – the annual allowance will be reduced by reference to a tapering calculation;
  • Secondly, legislation is to be introduced to “align pension input periods with the tax year” – these are essentially transitional rules

Download the Policy Paper on Pension Relief restrictions here.

Download the Guidance on the transitional rules here.

Corporate and Business Taxes

Bank bashing – restricting relief for compensation payments

Another rap on the knuckles for the banking sector. No relief for banks that have been naughty and mis-sold bad products such as insurance policies to unsuspecting members of the public.

From now on, banks and building societies will be unable to deduct compensation payments when calculating their corporation tax bills. This is quite a penal measure when one considers that the banks are nevertheless taxed on the profits they might have made on such products. Will this measure force banks to behave themselves?

Download the Policy Paper here.

Tax debts to incur the same rate of interest whether or not they result from a court action

This is described as “Simplification of HM Revenue and Customs debtor and creditor interest rate”

But what it really means is that if you go to Court and HMRC owe you money, they won’t have to pay you the 8% interest as required by the Judgments Act 1838 s 17(1) and section 74(1) County Courts Act 1984 s 74(1).

Much simpler for the interest provisions to be provided under the tax legislation. Where the interest is a lot lower, at 0.5%. Of course, if HMRC are suing you it works against them – but remember they can bolster their income with penalties and fines.

So HMRC are in a better position than other litigants in court.

Download the Policy Paper here.

Now for some of the other Budget measures

Abolition of non-dom status

Perhaps one of the biggest announcements was the abolition of the permanent non-domiciled status. This applies to people who come over to the UK to work – such as a US banker being seconded to the London office – or people who have acquired a London home to enjoy the delights of the capital. Previously non-doms were taxed on the remittance basis subject to paying an annual £30,000 fee. That’s all going to change – from now on, they’ll be taxed on the same basis as other UK residents, on your worldwide income, but with credit for non-UK.

Download the Technical Briefing here.

There is also a Technical Briefing for non-doms on new inheritance tax rules, which you can download here.

Savings and Investments

Taxation of Dividends – tax credit to be replaced with an allowance

The tax credit that we all know and love is to be abolished. In its place, there will be a £5,000 allowance up to which dividends can be received tax free. Thereafter, the following rates will apply on the excess:

  • 7.5% for basic rate taxpayers – under the credit system their effective tax rate was nil;
  • 32.5% for higher rate taxpayers; and
  • 38.1% for additional rate taxpayers.

This is not going to encourage people to save for a rainy day.

(No link – see the Summer Budget 2015 Overview at paragraph 2.57).

Property Investment

Restriction of interest relief for individual landlords

For years, landlords have been able to claim tax relief for the borrowing costs incurred on the property.

By 2020/21, individual landlords of residential property will only be able to claim tax relief at basic rate. The changes will be phased in from 2017 as follows:

  • From 2017/18, 25% of the finance costs will be subject to the basic rate relief;
  • This will increase to 50% for the following tax year 2018/19;
  • Another increase to 75% for the tax year 2019/20;
  • And finally, from 2020/21 ALL finance costs will be relieved at basic rate.

This is to “make the tax system fairer” (but of course!) and to ensure “that landlords with higher incomes no longer receive the most generous tax treatment.”

But this goes against the principle that in the UK, we tax business profits, not turnover. That is, we tax the business owner on what ends up in his pocket at the end of the day.

Note that these new rules only apply to:

  • Individual landlords; who
  • Rent out residential property.

They do NOT apply to furnished holiday lettings, which are treated as a trading venture.

Download the Policy Paper here.

Rent a room relief increased

Happier news for those people who just let out one room rather than a whole building. The level of Rent-a-Room relief will increase from £4,250 to £7,500 from April 2016.

Download the Policy Paper here.

Reform of the wear and tear allowance for residential landlords

Wear and tear is the allowance given for replacement furniture – normal capital allowances aren’t permitted for residential lettings. A Consultation Paper will appear before the end of the summer.

(No link – see the Summer Budget 2015 Overview at paragraph 2.58).

Corporate and Business Taxes

Corporation tax main rate to reduce to 18% by 2018

The corporation tax rates have been gradually reducing over the years, from 30% during the last Labour Government to the current rate of 20%. Now we’re going to see even further reductions:

  • From April 2017 we will have a 19% rate; and then
  • From April 2018 an 18% rate.

Question: what will be the corporation tax rate for OEICs and unit trusts? When the main corporation tax rate was 30%, authorised funds were given special tax treatment and taxed at 20%. The current legislation states that the rate for such funds is the same rate as the basic rate income tax which happens to be 20% at the moment.

Surely the legislation needs to be amended, otherwise we get a very bizarre result.

Download the Policy Paper here.

Capital Allowances – Annual Investment Allowance to be set at £200,000 permanently

The current AIA – believe it or not – is £25,000. But each year, we are told that this has been temporarily increased to a much larger amount such as £500,000, and then the figure will go back down to £25,000.

So advisers keep telling their clients: “If you’re going to incur any major capital expenditure, do it this year rather than next.” And then the next year we find that the figure hasn’t gone back down to £25,000, because the temporary AIA has been extended.

Increasing the permanent figure to £200,000 will mean that businesses won’t have to rush into making their capital investments.

Download the Policy Paper here.

More bank bashing

Two more bank bashing measures:

  • Firstly, the bank levy is to be reduced out over a 6 year period. But just in case they thought they’d paid their debt to society;
  • There will be a new 8% surcharge on bank profits, which will be will be “calculated on the same basis as for Corporation Tax, but with some reliefs added back.” – so not quite a surcharge on profits then.

Of course, one would expect the surcharge to kick in after the final bank levy reductions, but no, the surcharge kicks in from 1 January 2016.

Download the Policy Paper on the Bank Levy here.

Download the Policy Paper on the Bank Surcharge here.

Corporation Tax: modernisation of the taxation of corporate debt and derivative contracts

A major overhaul in the way that corporate debt and derivatives are taxed. This was first announced in Budget 2013, and there has been an ongoing consultation, with various technical notes and paper being produced.

The following link is stated to contain all the relevant “past paper” though it doesn’t go back as far as the original 2013 consultation.

The new approach is as follows:

  • No more requirement that credits and debits must fairly represent profits, losses or gains;
  • Tax to follow the accounting treatment – as before, BUT one can only recognise credits and debits if they are recognised as accounting profits and losses. That is, you have to go to the profit and loss account. Previously one was able to look at other places in the accounts, such as the Statement of Changes in Equity or the Reserves Statement;
  • New tax relief rules in cases where a business is in trouble and has to undergo a debt restructuring. Normally the release of a debt is subject to a tax charge – which doesn’t help when a company happens to be in financial difficulty;
  • A new “regime-wide” anti-avoidance rule (another one?) – and therefore a number of existing anti-avoidance rules will have to be repealed;
  • Consequent changes to update the rules on forex hedging, convertibles and property derivatives.

The changes to take place for accounting periods starting on 1 January 2016 or after, except for the “corporate rescue” rules and the anti-avoidance measure which will apply on or after Royal Assent.

Happy reading for those of you who specialise in this field.

Download the Policy Paper here.

Corporation Tax – Universities and charities to be denied R&D tax credits

Universities and charities will no longer be able to claim the R&D tax credit. This is a credit given by way of superdeduction, whereby one can claim tax relief for more than the amount that is actually expended on R&D activities (currently 230% for SMEs). Alternatively, for SMEs, they can claim a cash rebate – very valuable for small businesses.

This measure only affects the relvant organisation’s own independent research activites and work they carry out as subcontractors. It does NOT affect university spin-outs and the like, where the organisation is commercialising its IP.

Download the Policy Paper here.



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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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