Autumn Statement 2016
The Chancellor’s first – and last – Autumn Statement avoided radical proposals, but offered pointers to where tax policy might be headed.
The Chancellor has delivered his Autumn Statement. While much of the Autumn Statement confirmed measures previously publicised, there were some new announcements. Key themes following the Brexit vote were around investment in infrastructure and positive, albeit reduced, growth forecasts.
Support for house building came in the form of an additional £1.4bn funding for the Affordable Homes Programme, designed to deliver 40,000 affordable homes by 2020-2021 as well as a £2.3bn Housing Infrastructure Fund for new housing in areas of high demand. In addition, the Chancellor reaffirmed the pledge he had made earlier in the month of £2bn to fund an Accelerated Construction Scheme.
Mr Hammond announced letting agents fees are to be banned in England and Wales as soon as possible although there was no reversal of stamp duty charges for second homes or on cuts to mortgage tax relief, as hoped by landlords.
There were no significant changes made to pension legislation. Tax relief continues to be available at the individual’s marginal rate and employer contributions continue to be exempt from National Insurance.
The Autumn Statement again confirmed that salary sacrifice arrangements relating to pensions will not be affected by the wider application of NI to new salary sacrifice arrangements for certain benefits after 6 April 2017.
Unfortunately, no changes were announced to reform the complicated ‘Tapered’ Annual Allowance for individuals with ‘adjusted income’ over £150,000 or to change the Lifetime Allowance (currently £1 million).
The government has launched a consultation paper over its proposal to reduce the Money Purchase Annual Allowance (MPAA) on tax-relievable contributions to money purchase schemes from £10,000 to £4,000, which would take effect from 6 April 2017. The MPAA applies to individuals who have taken benefits as Uncrystallised Funds Pension Lump Sums, who have taken income from a Flexi-access Drawdown arrangement; including those converted from Capped Drawdown or who purchase a flexible annuity. The Treasury estimates that only 3% of individuals over the age of 55 make contributions of over £4,000. This figure is above the current proposed statutory maximum level of contributions under Auto Enrolment in 2019; and the government intends to ensure that the MPAA will not adversely affect contributions to Auto Enrolment schemes.
The government will also more-closely align the treatment of ‘foreign pensions’ with UK pensions. This will probably mean that 100% of a ‘foreign pension’ payable to a UK resident will be liable to UK tax (as opposed to 90% at present). For those who have emigrated from the UK with tax-relieved pension funds: the time an individual needs to have been non-resident in order to take benefits, in excess of those permitted under HMRC’s QROPS rules, has been extended from five complete tax years of non-residence to ten complete tax years.
Finally, the government announced that it will be publishing a consultation paper designed to tackle pension scams, including banning cold calling in relation to pensions, giving firms greater powers to block suspicious transfers and making it harder for scammers to abuse ‘small self-administered schemes’ (SSAS). We have no details at this stage.
Income Tax Personal Allowances
The Income Tax Personal Allowance will increase to £11,500 from 6 April 2017. The higher rate tax threshold will rise to £45,000 from 6 April 2017, as previously confirmed in the Budget of March 2016. The Chancellor has re-affirmed the government’s commitment to raising the Income Tax Personal Allowance to £12,500, and the higher rate tax threshold to £50,000, by the end of this Parliament.
As announced in the Budget of March 2016, the government will create two new Income Tax allowances of £1,000 each, for trading and property income. Individuals with trading or property income below the level of the allowance will no longer need to declare or pay tax on that income.
The government confirmed that the 0% starting rate for savings income will remain at £5,000 for 2017/18.
The National Insurance threshold for employers (secondary) and employees (primary) will be aligned from April 2017, meaning that both employees and employers will start paying National Insurance on weekly earnings above £157. The currently weekly threshold for 2016/17 is £156 for employers, and £155 for employees.
As announced in the last Budget, Class 2 National Insurance contributions will be abolished from April 2018. Self-employed contributory benefit entitlement will be accessed through Class 3 and Class 4 NICs.
Chargeable events gains
As announced in the Budget and following consultation, the government will legislate to avoid the disproportionate tax charges that arise in certain circumstances from life insurance part-surrenders and part-assignments. The legislation will allow applications to be made to HMRC to have the charge recalculated on a just and reasonable basis to allow fairer outcomes for policyholders. The change will take effect from 6 April 2017.
The government will also legislate to give HMRC the power to amend the list of assets that Personal Portfolio Bond policyholders can invest in without triggering tax anti-avoidance rules. The changes will take effect on Royal Assent of Finance Bill 2017.
The government has re-affirmed the previously announced reforms to the taxation of non-domiciled individuals.
From 6 April 2017, non-domiciled individuals will be deemed UK-domiciled for all tax purposes if they have been UK tax resident for 15 of the past 20 tax years. Inheritance Tax will be charged on UK residential property when held by a non-domiciled individual through an offshore structure such as a company or a trust.
The government also committed to amending the rules for Business Investment Relief (BIR) to make it easier for non-domiciled individuals who are taxed on the remittance basis to bring offshore money into the UK to invest in UK businesses.
It will be important to see the detail of these changes in the Finance Bill before determining their impact and what planning may be possible.
Employer expenses and benefits in kind
The government will consider how benefits in kind are valued for tax purposes, and the use of Income Tax relief for employees’ business expenses, including those that are not reimbursed by the employer.
The government is continuing its review into the use of disguised remuneration schemes by employers and employees and proposes to extend these provisions to include the use of such schemes by the self-employed. No further details are available at present.
As signalled in the Budget, the government will also consider the introduction of penalties for any person who has enabled another person or business to use a tax-avoidance arrangement that is later defeated by HMRC. Draft legislation to this effect will follow shortly. Importantly, these provisions will not apply to “tried and tested” arrangements permitted by the legislation such as pensions, ISAs, VCTs, EISs etc.; as, to take effect, the arrangement has to be first “challenged” by HMRC.
The government will also introduce a new legal requirement to correct a past failure to pay UK tax on offshore interests within a defined period of time, with new sanctions for those who fail to do so.
However, it is important to remember that, just because something is ‘offshore’ (e.g. an offshore fund or an offshore bond), this does not necessarily mean that it will be subject to attack.
The government confirmed its commitment to reduce the level of Corporation Tax to 17% by 2020.
Capital Gains Tax
The tax advantages linked to shares awarded under Employee Shareholder Status (a special employee status where certain statutory employment rights are given up in exchange for shares) will be abolished for arrangements entered into on, or after, 1 December 2016.
Investors with offshore reporting funds will no longer be able to deduct performance fees from the funds’ reportable income for tax purposes. From April 2017, fees will instead reduce any tax payable on disposal gains.
Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs), and Seed Enterprise Investment Schemes (SEISs)
The government announced a small number of technical changes to clarify the rules regarding conversion rights for shares and follow-on investments in VCTs. A consultation was also announced into options to streamline and prioritise the advance assurance service.
ISA/Junior ISA limit
From April 2017 the ISA limit will rise to £20,000, as previously announced. The Junior ISA limit will increase to £4,128. The government also announced its intention to launch a new NS&I bond with a £3,000 limit and indicative 2.2% gross interest rate growth over a three-year term.