Personal Savings Allowance
Savings allowance, and savings nil rate
• At Budget 2015, the government announced the introduction of a
Personal Savings Allowance (PSA). The key features are:
1. Each individual will have an annual savings allowance of £1,000, unless
a. they have any higher-rate income for the year – in which case their allowance will be £500 or
b. any additional-rate income – in which case their allowance will be nil.
2. The PSA provides a new nil rate for savings income in addition to
a. the 0% starting rate (£5,000) for savings which has applied
since 6 April 2014, or
b. the tax-advantages that apply for ISA savings.
3. Savings income is defined – it includes:
b. certain purchased life annuity payments;
c. profits from deeply discounted securities;
d. gains from certain contracts for
Deduction of Income Tax at source
• Deposit-takers (such as banks) and building societies, currently deduct
20% from the account interest they pay, under the Tax Deduction
Scheme for Interest (TDSI).
• Similarly, National Savings and Investments currently deducts sums representing income tax at the basic rate from the interest it pays on certain bonds.
• Worth noting that for these purposes, returns on certain alternative finance arrangements are treated in the same way as interest.
• The draft legislation (clause and Schedule) removes the requirement upon deposit-takers, building societies and other institutions to deduct sums representing income tax from the interest or other returns they pay on certain savings, investments and alternative finance arrangements.
• This will avoid the need for some taxpayers to claim repayment of overpaid tax but will mean others will need to make returns where they otherwise would not have had to do so.
Taxation of dividends
- A new dividend allowance, will apply to the first £5,000 of an individual’s dividend income.
- The allowance will operate as a 0% tax rate and not as an exemption.
- Where the dividend income is above £5,000, the lowest part of the dividend income will be chargeable at 0%, and anything received above £5,000 is taxed at the rate that would apply to that amount if the dividend nil rate did not exist.
- The tax rates are to be 7.5%, 32.5% and 38.1%
Dividend tax credits
Abolition of the dividend tax credit and consequential amendments.
This may have implications for those making gift aid payments.
Transactions in securities: company distributions
Amendments to the Transactions in Securities rules in Part 13 of Income Tax Act 2007 will have effect for transactions occurring on or after 6 April 2016.
Related changes are being made to the legislation to prevent amounts extracted from companies being treated as capital transactions when their effect is in substance the same as a distribution.
Amendments to Part 13 align the counteraction process for the Transactions in Securities legislation more closely with the process for compliance checks under self-assessment.
Individual investment plans of deceased investors
• ISA tax advantages currently cease when an account holder dies
• The Autumn Statement 2015 included an announcement that these tax advantages would be extended into the administration of the ISA saver’s estate.
• The legislation will allow regulations made by HM Treasury to provide that ISAs can retain their tax-advantaged status following the death of the account holder.
• The effect of regulations made under this clause will be that, subject to certain time limits, personal representatives and beneficiaries or legatees should not face tax on any income or gains from investments retained in an ISA during the administration of a deceased saver’s estate.
Inheritance tax: domicile
• Draft legislation provides that an individual will be treated as domiciled for IHT purposes if they have been resident in the UK for at least 15 out of the previous 20 tax years rather than 17 out of the 20 tax years ending with the tax year in question.
• It also introduces a separate rule to provide that an individual born in the UK with a UK domicile of origin who has acquired a domicile of choice elsewhere will be treated as domiciled for IHT purposes if
• at any time they are resident in the UK and
• have been resident in the UK in at least one out of the two previous tax years.
Inheritance tax: Increased nil-rate band
• This measure ensures that an estate will continue to qualify for an increased residence nil-rate band for inheritance tax when
• an individual downsizes from a higher value residence to a lower value one or
• ceases to own a residence and other assets are left on death to direct descendants.
• The draft Schedule sets out the conditions for the entitlement to the additional amount (the downsizing addition),
• the effect of the addition, and
• how the amount of the residence nil-rate band that has been lost
as a result of downsizing or disposal should be calculated.
• The change will apply for deaths on or after 6 April 2017 and for downsizing moves or disposals on or after 8 July 2015.
Inheritance tax: pension drawdown funds
An IHT charge may arise if a person reduces the value of their estate by failing to exercise rights they have over property.
• This general rule does not apply to funds held in pension schemes to which a person fails to become entitled.
• However, when a person takes their pension benefits, or elects to draw down all or part of their pension, they become entitled to those funds.
• Having become entitled, if they fail to exercise their rights over those drawdown funds leaving funds undrawn on their death, the general rule applies and an IHT charge may arise.
• This measure introduces an exemption so that an inheritance tax (IHT) charge will not arise where a person has failed to exercise their rights to draw designated funds from a drawdown pension fund or a flexi-access drawdown fund during their lifetime and so has left unused funds when they die.
Income tax relief for irrecoverable peer-to peer loans
• A new tax relief, will allow lenders subject to Income Tax on interest that they receive from peer to peer (P2P) loans to set losses from irrecoverable loans against other P2P interest that they receive.
• It will allow lenders to:
o claim relief on P2P loans that become irrecoverable from 6 April
o will apply automatically to set losses from P2P loans that become irrecoverable on or after 6 April 2016 against other P2P interest received through the same platform.
Relief for irrecoverable peer-to-peer loans
• Applies to loans that become irrecoverable on or after 6 April 2015.
• However, a loan that becomes irrecoverable before 6 April 2016 will only be eligible for relief if the lender makes a claim to that relief.
• If a claim is not made then the irrecoverable loan will not be eligible for relief under the Income Tax Acts. But, for a P2P loan that become irrecoverable between 6 April 2015 and 5 April 2016, if no claim is made the loss may be eligible for relief as a Capital Loss under Taxation of Chargeable Gains Act (TCGA) 1992, if it meets the relevant conditions.
• From 6 April 2016 relief is given on irrecoverable P2P loans whether or not a claim is made.
• This relief is only given against income received in the same tax year as the loan becomes irrecoverable and relief for irrecoverable loans is only given against receipts of interest from other qualifying P2P loans held through the same platform.
• Lenders may make a claim for additional relief for irrecoverable loans against receipts of interest from P2P loans that are held through other P2P platforms.
• Sideways relief for irrecoverable P2P loans may only be carried forward against interest received on other qualifying P2P loans Lenders may make a claim for additional relief for irrecoverable loans against receipts of interest from P2P loans received in future tax years.
• Relief may be carried forward for the next four tax years following the year in which the loan becomes irrecoverable.
EIS, SEIS and VCTs: exclusion of energy generation
• Draft legislation excludes all energy generating activities, including the production of gas or other fuel, from the tax-advantaged venture capital schemes for investments in companies made on or after 6 April 2016. Specifically this covers:
o Seed Enterprise Scheme (SEIS),
o Enterprise Investment Scheme (EIS) and
o Venture Capital Trusts (VCTs)
• The changes follow previous amendments limiting the use of the
venture capital schemes by those companies undertaking energy generating activities and supersede those made during the passage of the Finance (No.2) Act 2015.
14. Diesel cars: the appropriate percentage
• A chargeable car benefit arises when an employee is provided by an employer with a car that they can use for their private journeys. The cash equivalent of the benefit is treated as earnings of the employee’s employment and is subject to income tax at the employee’s marginal rate of tax. In addition, employers will pay Class 1A National Insurance contributions.
• For most employees, the cash equivalent of the benefit is calculated by multiplying the appropriate percentage (set by the level of CO2 emissions of the car) by the list price of the car (including VAT and accessories).
• The appropriate percentage for diesel cars ranges from 8% in 2015 to
2016, but this will increase to 10% from 6 April 2016 for 2016 to 2017 to a maximum appropriate percentage of 37%.
• The draft legislation has the effect of retaining the diesel supplement of
3 percentage points that was to be abolished with effect from 6 April
15. Exemption for income tax for trivial benefits provided by employers
• Legislation is to introduce a statutory exemption from income tax for trivial benefits in kind (BiKs) provided by employers to employees.
• BiKs that qualify for the exemption will not incur a charge to income tax nor a liability for National Insurance contributions (NICs), and will not need to be reported to HM Revenue & Customs (HMRC).
• The exemption is capped at £300 a year where the employer is a close company and the BiK is provided to a director or other office holder of that company and also where BiKs are provided to an employee who is a member of the family or household of the director or other office holder of a close company.
• The change comes into effect on and after 6 April 2016.
16. Travel expenses of workers providing services through intermediaries
• Legislation is to come into effect from 6 April 2016 amends the rules in the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) on deductions from earnings made for travel and subsistence expenses, where a worker is engaged through an employment intermediary.
17 Employee Share Schemes: Minor Amendments
• Several changes are to be made to simplify the tax rules and administrative processes for employee share schemes, including permitting late notification of tax-advantaged share schemes where the taxpayer had a reasonable excuse.
• The measures give effect to a number of changes to the rules for employment-related securities (ERS) and ERS options.
18 Securities Options
• Draft legislation deals with ERS options held outside one of the four types of tax-advantaged share schemes.
• From 6 April 2016 their acquisition or events such as exercise are charged to tax under the rules that deal with securities options, rather than those that deal with earnings.
• As a result of these changes the position in relation to NICs will also be clarified: employer’s and employee’s NICs liabilities will arise for the period where the employee was subject to UK social security contributions.
19 Standard lifetime allowance from 2016-2017
• Individuals can save as much as they like in a registered pension scheme subject to overall limits on the amount of tax relief that their pension savings can benefit from.
• When an individual becomes entitled to their pension benefits, these benefits are tested to see if they exceed the individual’s lifetime allowance.
• If they do, the excess is subject to the lifetime allowance charge and the rate of the charge will depend on how the individual takes their benefits
• Any amount over the lifetime allowance taken as a lump sum is taxable at 55 per cent, whilst any amount taken as a pension is taxable at 25
per cent, and the income will be taxable at the individual’s marginal rate.
• The Finance Act 2004 is to be amended as it relates to the lifetime allowance for UK tax relieved pension savings and provides for it to be increased subsequently in line with increases in the consumer prices index.
• Legislation introduces transitional provisions to protect pension savers affected by this reduction to the lifetime allowance and makes a number of consequential amendments to FA 2004 relating to the reduction in the lifetime allowance.
20 Pensions bridging between retirement and state pensions
• A technical change
• Removes existing legislation in Schedule 28 of the Finance Act 2004 regarding bridging pensions.
• In place of this provision, regulations will be made under Schedule 28 in connection with bridging pensions to align pensions tax legislation with the Pensions Act 2014 and allow the payment of bridging pensions to continue as set out in current legislation.
21 Dependants’ scheme pensions
• If an individual who is a member of a registered pension scheme and in receipt of a scheme pension or prospectively entitled to a scheme pension dies with dependants then dependants’ scheme pensions may be payable.
• If that scheme pensioner had reached age 75 at the time of their death, the total amount of any dependants’ scheme pensions have to be tested against the amount of the member’s scheme pension. This will ensure that excessive amounts, from the member’s pension savings, cannot be set aside to pay benefits for dependants to enable the member to avoid paying a lifetime allowance charge.
• These tests are to be carried out annually for all dependants’ scheme pensions regardless of the size of the member’s pension savings.
• Legislation is to be enacted that introduces three exceptions from the tests that must otherwise be carried out in respect of dependants’ scheme pensions where the member died age 75 or over.
• The change has effect for dependants’ scheme pensions payable on or after 6 April 2016.
• However, if the member had enhanced protection or the scheme had only money purchase pension savings that were all tested against the lifetime allowance on reaching age 75 the tests on the dependants’ scheme pensions do not need to be carried out.
• Further, the tests on the dependants’ scheme pensions do not need to be carried out if 25% of the appropriate standard lifetime allowance is more than the total, under a scheme, of a member’s: money purchase pension savings (including cash balance and other money purchase pension savings) and defined benefits scheme pension and dependants’ scheme pensions multiplied by the relevant valuation factor (in this
case, 20) plus any lump sum death benefits.
Section 3 Business tax and SDLT
1 Averaging profits of farmers etc
• Legislation provides for an extension to the period over which an individual carrying on a qualifying trade of farming, market gardening, or intensive rearing of livestock or fish, can average fluctuating trading profits.
• For 2016-2017 and subsequent years they will be able to claim to average trading profits for income tax purposes over two or five consecutive tax years.
• The legislation also removes marginal relief from the two-year averaging rules for farmers and creative artists, so that from 2016-
2017 full two-year averaging relief will be available where the profits
of one year are 75% or less of the profits of the other year.
2 Fixed-rate deductions for use of home for business purposes
• This measure introduces amendments to the simplified expenses provisions contained in the Income Tax (Trading and Other Income) Act (ITTOIA) 2005.
• The purpose of the amendments is to clarify how those provisions should be applied for partnerships in respect of the use of home and where business premises are also a home.
• Simplified expenses was one of the measures introduced in 2013 as a consequence of a report by the Office of Tax Simplification and it was always intended that the provisions would apply equally to most partnerships and individuals.
Property business income
3 Property business deductions
• This measure introduces a new deduction for capital expenditure incurred by a lessor on replacing furnishings, appliances and kitchenware provided for the use of a lessee in a dwelling-house.
• The deduction has effect for expenditure incurred on or after 6 April
2016 for income tax and 1 April 2016 for corporation tax.
• The measure also repeals the wear and tear allowance and the renewals allowance for property businesses.
• It is important to note conditions A to D:
o Condition A is that a person (“P”) carries on a property business that includes a dwelling-house.
o Condition B is that P incurs expenditure on a replacement domestic item provided solely for the lessee for use in the dwelling-house.
o Condition C is that the expenditure is of a capital nature and is incurred wholly and exclusively for the purposes of the property business.
o Condition D is that no capital allowances are available in respect of the expenditure.
It is noted that in this section, “domestic item” means an item for domestic use (such as furniture, furnishings, household appliances and kitchenware), and does not include anything that is a fixture.
A “fixture” means any plant or machinery that is so installed or otherwise fixed in or to a dwelling-house as to become, in law, part
of that dwelling-house, and includes any boiler or water-filled radiator
installed in a dwelling-house as part of a space or water heating system.
4 VAT: Power to provide for persons to be eligible for refunds
• Non-departmental public bodies, and similar arms-length bodies, will be able to recover the VAT they incur when they enter into cost-sharing arrangements (from the date of Royal Assent to the Finance Bill).
• It is worth noting that refunds of VAT are subject to certain funding agreements with the Treasury.
5 VAT: installation of energy saving materials
• The reduced rate of VAT for energy saving materials (‘ESM’s) is to be amended following a decision of the European Court (‘CJEU’).
o maintains the relief for those customers over the age of 60 years or on certain benefits, for supplies to relevant housing associations and for buildings used solely for a relevant residential purpose.
o excludes the installation of solar panels, wind and water turbines.
• For all other customers who live in residential accommodation, the relief
is also retained except where the cost of the goods element of the supply is greater than the labour cost of installing those goods: in which case, the labour element of the supply will be subject to the reduced rate and the goods element of the supply will be standard rated.
6 VAT: Isle of Man charities
• For enactments relating to Value Added Tax, Schedule 6 to the Finance Act 2010 to make is amended to make it clear that the High Court of the Isle of Man is a relevant UK court.
• This has the effect of ensuring that organisations on the Isle of Man that are subject to the jurisdiction of the High Court of the Isle of Man are capable of being recognised as charities for Value Added Tax purposes and can benefit from the Value Added Tax relief that is available to charities subject to the jurisdiction of a UK Court.
7 SDLT: property authorised investment funds and co-ownership authorised contractual schemes
• A relief from Stamp Duty Land Tax for the ‘seeding’ (initial transfer) of properties into Property Authorised Investment Funds (PAIFs) and Co- ownership Authorised Contractual Schemes (CoACSs) is to be introduced for transactions from the date of Royal Assent to Finance Bill
• The measure also introduces changes to the stamp duty land tax
(SDLT) treatment of CoACSs.
8 SDLT higher rate: properties occupied by certain employees etc
• New reliefs from the 15% higher rate of SDLT where a property is purchased for the purpose of providing living accommodation either to
an employee of a qualifying property rental business, or to a caretaker of a building who is employed by a tenant-run management company.
9 SDLT higher rate – acquisition under a regulated home reversion plan
• New relief from the 15% higher rate of SDLT where a purchaser acquires the whole or part of a dwelling exclusively for the purposes of entering into an equity release scheme, specifically a home reversion plan.
10 SDLT higher rate: dwelling converted to use for trade purposes etc
• New reliefs from the 15% higher rate of SDLT in circumstances where the purchaser, in the course of running a trade, acquires a dwelling for the purposes of either
o converting the building for use other than as a dwelling, or
o for permanent demolition.
11 ATED: relief for properties occupied by certain employees etc New section 147A(2), FA2013 sets out the conditions that must apply, which are that the:
• management company holds the single-dwelling interest (i.e. the flat) for the purposes of making it available as caretaker accommodation;
• premises containing the flat also consist of two or more other flats;
• tenants of at least two of the other flats in the premises are members of the management company;
• management company owns the freehold of the premises;
• management company is not carrying on a trade or property rental business.
12 ATED: relief for regulated home reversion plans
• A new relief from annual tax on enveloped dwellings (ATED) to apply where an interest is held in UK residential property exclusively for the purposes of entering into an equity release scheme, specifically a regulated home reversion plan.
13 Alternative property finance: land in Scotland
• This measure is needed as a result of the introduction of the Scotland Act and makes a consequential change to the ATED legislation in relation to alternative property finance arrangements (Islamic finance) entered into between a financial institution and another person, whereby that institution purchases a property in Scotland on behalf of another person and leases it back to them.
14 Intangible fixed assets: pre-FA 2002 assets
• These rules only apply to assets created on or after 1 April 2002, or to assets acquired by a company from a third party after that date.
• Assets owned since before 1st April 2002 by a company or a party related to it should stay within the old rules: in such cases relief for the cost of the asset is given when the asset is disposed of.
• However, HMRC has identified arrangements that use bodies such as partnerships or LLPs to transfer assets in ways that aim to bring the assets within the new rules without an effective change of economic ownership.
• These changes are intended to confirm that these arrangements are not effective to avoid the Part 8 commencement rules.
• A related change ensures that the correct value is used when assets which are within the Part 8 regime are transferred between companies and persons such as partnerships or LLPs – see below.
15 Intangible fixed assets: transfers treated as at market value
• This measure is intended to confirm that arrangements are not effective in preventing the correct value being used when assets within the Part 8 regime are transferred between companies and other bodies such as partnerships or LLPs, where the participation condition is satisfied.
16 Exploitation of patents etc – profits arising from the exploitation of patents etc
• The Patent Box provides a reduced rate of Corporation Tax on profits from patents and similar intellectual property (IP) but the design of the legislation in Part 8A of Corporation Tax Act (CTA) 2010 is to be amended to ensure compliance with the new international framework developed by OECD (see Chapter 4 of “Countering harmful Tax Practices More Effectively, Taking Into account Transparency and Substance”, OECD, Paris, 2015).
• The amended rules will require profit for the purpose of the Patent Box to be calculated at the level of an IP asset (for example a patent), or a product or a product family relying on an IP asset or assets. The profit will be adjusted to reflect the proportion of the development activity on the asset (or product, or product category) undertaken by the company itself.
• The measure will have effect for new entrant companies to the Patent Box on or after 1 July 2016, and also for some IP assets acquired on or after 2 January 2016.
• The new rules are being phased in, with the current Patent Box rules applying to some companies and IP during a transitional period lasting until 2021.
• The new rules will apply to all companies and IP after 2021.
17 Carried Interest
• Managers of investment funds are rewarded in a variety of ways and legislation in FA 2015 ensured that fee income could not be disguised as a form of capital receipt.
• They also receive performance-based rewards, sometimes known as
‘carried interest’. Carried interest is based on the performance of the
funds that they manage and can take the form of a share in the fund’s total return.
• Legislation in Finance (no 2) Act 2015 ensured that where carried interest is taxable as a chargeable gain, the full amount would be taxable without reduction through arrangements such as ‘base cost shift’.
• The new legislative test replaces the case law tests based around the
‘badges of trade’ to determine whether performance-based rewards (or
‘carried interest’) paid to asset managers should be taxed as income or as chargeable gains.
18 Loan relationships: non-market loans
• The new UK accounting standards, can now require companies to recognise interest-free loans and other non-market loans in their accounts at a discount.
• This discount unwinds progressively in later periods’ accounts and can create a notional interest cost in the accounts of the borrower.
• There would also normally be an accounting credit entry arising for the borrower on inception of the loan.
• Following the wider changes made in Finance (No.2) Act 2015, these accounting credit entries may not be taxable.
• In some cases this could result in a tax deduction in the borrower, but no matching UK tax liability for the lender.
• In particular, the accounting treatment can create an asymmetry where the lender is an individual or where interest is paid cross-border.
• This measure therefore restores the borrower, in appropriate cases, to the position that would have arisen before the accounting changes: in particular, it restricts tax relief for the borrower’s notional interest expense where the borrower’s corresponding accounting credit entry on inception of the loan is not taxed.
19 Loan relationships and derivative contracts: transfer-pricing rules
• At Budget 2013, the government announced consultation on a package of proposals to modernise the rules governing the taxation of corporate debt and derivative contracts.
• Typically amounts of profits and losses arising from loan relationships and derivative contracts are brought into account for corporation tax in line with the company’s accounts.
• However, the transfer pricing rules apply where the loan or derivative is not on arm’s length terms and there is a potential tax advantage.
• In such a case, the profits and losses are to be calculated as if the loan or derivative had been on arm’s length terms.
20 Loan relationships and derivative contracts: exchange gains and losses
• Sections 447, 449, 451 and 694 CTA 2009 operate to restrict amounts of exchange gains and losses brought into account for corporation tax
on loans and derivatives in cases where the loan or derivative are not at
arm’s length. Section 448 operates in a similar way where the loan is as
‘equity note’ under section 1015(6) Corporation Tax Act 2010.
• A particular concern has been identified with those provisions, as a result of which they can introduce a foreign currency exposure for corporation tax purposes even though none exists commercially or in the accounts.
• Changes are to be made to ensure that those provisions do not apply to the extent to which the loan or derivative in question is matched: broadly loans and derivatives are in a matching relationship when one is intended by the company to hedge foreign currency risk on the other.
• In addition, the measure ensures that those provisions do not apply to the extent to which exchange gains and losses are disregarded under the ‘Disregard Regulations’.
21 Loans to participators – trustees of charitable trusts
• The loans to participator rules, which exist to ensure that value is not extracted by individuals from close companies (broadly companies owned by 5 or fewer shareholders) in ways which minimise their personal taxes, apply to charities in relevant circumstances.
• Whilst recent (2013) changes to the rules did not bring charities within the rules for the first time, they raised awareness that certain financing transactions that charities entered into could be caught by the rules.
• An exemption will ensure that certain loans are no longer caught.
22 Tax relief for the production of orchestral concerts
• Legislation is to introduce a relief from corporation tax for qualifying orchestral concerts.
• The relief will allow qualifying companies engaged in the production of concerts to:
o claim an additional deduction in computing their taxable profits and
o where that additional deduction results in a loss, to surrender those losses for a payable tax credit.
• Both the additional deduction and the payable credit are calculated on the basis of EEA core expenditure up to a maximum of 80% of the total core expenditure by the qualifying company.
o The additional deduction is 100% of qualifying core expenditure and the payable tax credit is 25% of losses surrendered.
o The credit is based on the company’s qualifying expenditure on the production of a qualifying orchestral concert.
o The expenditure must be on activities directly involved in producing the concert, such as rehearsal costs.
o Qualifying expenditure will not include indirect costs such as financing, marketing and accountancy and legal fees.
o At least 25% of the qualifying expenditure must be on goods or services that are provided for from within the EEA.
o Concerts whose main purpose, or one of the main purposes, is to advertise goods and services, including a competition or the primary purpose is to make a recording will not qualify for relief.
23 Hybrid and other mismatches
• Rules to counteract tax avoidance through hybrid and other mismatch arrangements which result in a deduction for various payments where there is no corresponding inclusion in ordinary income, or in double deductions from ordinary income are being introduced.
• These new hybrid mismatch rules:
o effectively replace the existing anti arbitrage rules in Part 6
o are being introduced multilaterally and the UK legislation contains provisions for counteraction in the UK where exceptionally the other country does not counteract the mismatch.
24 Insurance companies carrying on long term business
• Legislation is to amend the corporation tax rules introduced by Finance Act 2012 so that they produce the appropriate policy result for the taxation of long-term business carried on by insurance companies.
25 Consideration for taking over payment obligations as lessee under a lease of plant or machinery taxed as income
• Tax avoidance schemes, involving arrangements whereby non-taxable consideration is received when taking over tax deductible lease obligations, disclosed under DOTAS are to be countered.
o To the extent that such consideration is received, the person taking over those obligations incurs no real expenditure.
o The legislation is intended to ensurethat all of the consideration payable to that person or connected persons is taxable as income.
26 Capital allowances: anti-avoidance relating to disposals
• Tax avoidance schemes which seek to reduce disposal values of plant or machinery for capital allowances purposes below the actual full value attributable to the disposal of those assets are to be countered.
27 Payments from a sporting testimonial treated as earnings
• Income Tax charging provisions for income from sporting testimonials for employed sportsmen and sportswomen which are not otherwise earnings from their employment are to be introduced.
o New section 226E in Chapter 12 Part 3 ITEPA is intended to clarify that such income is to be treated as earnings from the employment or former employment.
o Separate provisions for an Income Tax exemption as announced, and for Corporation Tax deductions as appropriate, are set out below.
28 Limited exemption from income tax for sporting testimonial payments
• A limited exemption from the charge to income tax is being introduced as section 226A of the Income Tax (Earnings & Pensions) Act 2003 (ITEPA)
• New section 306B ITEPA allows a single life-time exemption of £50,000 to be set against the earnings from a sporting testimonial.
29 Corporation Tax: sporting testimonial payments and associated payments
• A corporation tax deduction for sporting testimonial payments and associated payments is being introduced.
Section 4 Administration
1 Addition of CGT to Provisional Collection of Taxes Act 1968
• The Provisional Collection of Taxes Act 1968 (PCTA 1968) is to be amended to include Capital Gains Tax.
• The principal practical application of this is to allow the government to collect taxes on a provisional basis between Budget day (or a day after Budget), and the coming into operation of the Finance Act.
2 CGT: disposals of UK residential property by non-residents etc
• The Capital Gains Tax (CGT) provisions in relation to disposals of UK
residential property by non-residents (NRCGT) is being amended:
o it corrects how to compute the amount of chargeable gain or loss that accrues on a disposal; and
o gives HMRC powers to prescribe circumstances when an
NRCGT return is not required to be made.
3 General Anti-Abuse Rule: Penalty
• A new penalty for all cases successfully counteracted under the General
Anti-Abuse Rule (GAAR) is being introduced.
o A penalty of 60% of the counteracted tax will be charged whenever a taxpayer submits a return, claim, or other document on the basis that a tax advantage arises from the tax arrangements where all or part of that tax advantage is later counteracted under the GAAR.
o It is to apply to tax arrangements entered into on or after Royal
• Changes to the GAAR procedure are also being introduced:
o a GAAR Advisory Panel opinion will enable counteraction of the equivalent arrangements by other users.
o to enable a provisional counteraction under the GAAR.
• This will enable HMRC to counteract under the GAAR within assessing
time limits, whilst preserving the safeguards for the taxpayer.
o These procedural changes will apply from Royal Assent, without reference to when the tax arrangements in question where entered into.
4 Serial tax avoidance
• A new regime of warnings and escalating sanctions for those who persistently engage in tax avoidance schemes which HMRC defeats is being introduced.
o Following the first defeat of a tax avoidance scheme, HMRC will place the taxpayer on warning that the use of any avoidance schemes in the following 5 years which HMRC defeats, will result in a penalty being issued, based on the amount of the
o If the taxpayer uses any further schemes while under warning which HMRC defeats, the rate of penalty will be increased to a maximum of 60% of the understated tax.
o If HMRC defeat three tax avoidance schemes while the taxpayer is on warning, the taxpayer’s details can be published.
o If three avoidance schemes which exploit reliefs are used while under warning and HMRC defeat them, the taxpayer will be denied further benefit of reliefs until the warning period expires.
The regime comes into effect on 6 April 2017.
5 Promoters of tax avoidance schemes
• Changes to the Promoters of Tax Avoidance Schemes (POTAS) legislation in Part 5 of the Finance Act 2014 (FA2014) introduce a new threshold condition, which, if met, identifies a person as a promoter of tax avoidance schemes to which the provisions can be applied.
• These changes will take effect from Royal Assent to the Finance Bill
2016 to ensure that certain persons who display the behaviour of promoting a series of tax avoidance schemes which do not work are brought within POTAS.
• “relevant defeat” for the purposes of these new provisions occurs where
any of Conditions A to F is met. Those conditions are that:
• Condition A – the arrangements have been counteracted by the general anti-abuse rule in Part 5 of FA2013;
• Condition B – a follower notice has been given under Chapter 2 of
Part 4 of FA2014;
• Condition C – the arrangements are DOTAS arrangements as defined in new paragraph 12L, which have been counteracted;
• Conditions D and E – the arrangements are disclosable VAT arrangements as defined in new paragraph 12L, which have been counteracted;
• Condition F – the obtaining of tax advantage relies on the application or dis-application of an anti-avoidance rule (defined in new paragraph 12J) to which a final judicial ruling applies.
6 Publication of tax strategies of qualifying groups etc
• A legislative requirement for all qualifying groups, companies, and partnerships to publish a tax strategy, in relation to UK taxation, on the internet is being introduced.
• Non-publication or incomplete content may lead to an appealable penalty.
7 Sanctions for persistently un co-operative large businesses
• A special measures regime to tackle the small number of large businesses who engage in aggressive tax planning, or refuse to engage with HMRC in an open and collaborative manner is being introduced.
8 Civil penalties for enablers of offshore tax evasion
• New civil penalties for deliberate enablers of offshore tax evasion, including a new financial penalty, and a new power to publish information about the enabler are being introduced.
• The penalties will be applicable in relation to income tax, capital gains tax and inheritance tax.
9 Penalties in connection with offshore matters and offshore transfers
• This measure increases minimum penalties for inaccuracies, failure to notify a charge to tax or failure to deliver a return, where the penalty relates to an offshore matter or transfer.
o For the increased penalties to apply, the behaviour that led to the penalty must have been deliberate or deliberate and concealed.
• It will also increase minimum penalties for cases of deliberate offshore inaccuracies in a return, failure to notify a liability to tax and failure to deliver a return.
• It will also require taxpayers to disclosure additional details of the offshore inaccuracy or failure in order to receive maximum penalty reductions.
• The sanctions will apply to a liability to income tax, capital gains tax or inheritance tax that arises offshore, or income or gains that arise In the UK, but are transferred offshore and not declared to HMRC.
10 Offshore tax errors etc: publishing details of deliberate tax defaulters
• This measure makes changes to the naming provisions in section 94
Finance Act 2009, so that where there is an inaccuracy in a taxpayer’s document, or failure to notify which relates to offshore matters or offshore transfers, only full, unprompted disclosures will be outside the scope of the provisions.
• Section 94 is also amended to allow the naming of certain people who have benefited from the inaccuracy or failure.
11 Offences relating to offshore income, assets and activities
• A new criminal offence which does not require the need to prove intent for failing to declare taxable offshore income and gains, is being introduced through an amendment to the Taxes Management Act 1970 (TMA).
• The offences will apply for the purposes of income tax and capital gains tax, where a person has failed to properly declare offshore income or gains in accordance with sections 7 and 8 TMA leading to a loss of tax over a threshold amount which will be defined in regulations and will be on a per tax year basis.
• The provisions will come into force following a commencement order.
12 Simpler assessments
• Legislation will provide a new power to allow HM Revenue & Customs
(HMRC) to make an assessment of an individual’s Income Tax or
Capital Gains Tax liability without them first being required to complete a self-assessment return where it has sufficient information about that individual to make the assessment.
• This measure will have effect on and after the date of Royal Assent to
Finance Bill 2016.
13 Time limit for self assessment tax returns
• This measure clarifies the time allowed for making a self-assessment when HMRC has served a notice to file a return.
14 Rate of interest applicable to judgement debts etc: Scotland, Northern Ireland,
England and Wales.
• The first two of three related clauses will provide that in Scotland and Northern Ireland, where HM Revenue & Customs (HMRC) is party to a tax-related judgment debt (court proceedings in a taxation matter), the rates of interest are those referred to in tax legislation. The Scotland and Northern Ireland clauses also set the rates of interest on tax-related judgment debts owed by or to HMRC to appropriate levels given prevailing interest rates and harmonises the rates UK-wide.
• The third related clause removes the exclusion of National Insurance contributions from the definition of taxation matter in section 52 Finance (No2) Act 2015 in order that the definition of taxation matter is harmonised UK-wide.
15 Power to impose penalties on charities and intermediaries
• This amendment gives HMRC the power to impose penalties if an intermediary or a charity fails to comply with requirements set out in regulations.
• An appointed day order will be completed to commence the primary legislation when regulations have been finalised.
16 Detention and seizure under CEMA 1979: Exceptions to notice requirement etc.
• A measure that augments current legislation relating to the detention or seizure of goods liable to forfeiture is to be introduced.
17 Proceedings under customs and excise Acts: prosecuting authority
• This measure makes minor amendments to Part 11 of the Customs and
Excise Management Act (CEMA) 1979.
18 Data-gathering powers: providers of payment or intermediary services
• A measure extends Schedule 23 to Finance Act (FA) 2011, which covers HM Revenue & Customs’ (HMRC) bulk data gathering powers, enables HMRC to collect data from certain third parties which is for use in HMRC’s compliance activities.
19 Data-gathering powers: daily penalties for extended default
• Amendment to Schedule 23 to Finance Act 2011, which covers HM Revenue & Customs (HMRC) data-gathering powers, will enable HMRC to collect data from certain third parties for use in HMRC’s compliance activities.
20 Extension of provisions about set-off to Scotland
• Extends the provisions of sections 130 and 131 of the Finance Act 2008 to Scotland.
21 Raw Tobacco Registration Scheme
• An amendment to Parts 8 and 9 of Tobacco Products Duty Act (TPDA)
1979 introduces new legislation requiring users and dealers of raw tobacco, to be registered by HM Revenue & Customs (HMRC). This will
have effect on or after 1 October 2016.
22 Stamp duty on certain transfers to depositaries or providers of clearance services
• It is to be provided that securities transferred to a depositary receipt issuer or clearance service (or their respective nominees) as a result of the exercise of an option will be charged the 1.5% higher rate of stamp duty based on either the amount or value of the consideration or, if higher, the value of the securities.
• The legislation will have effect from Budget Day 2016 and will apply to options which are entered into on or after 25 November 2015 and exercised on or after Budget Day 2016.
• A related change is made in respect of stamp duty reserve tax (SDRT).
23 CCL: abolition of exemption for electricity from renewable sources
• A measure will remove the climate change levy (‘CCL’) exemption for renewable source electricity generated before 1 August 2015 where this is supplied on or after 1 April 2018.