On 10 December 2015, the government published draft clauses for the 2016 Finance Bill for consultation, before its final introduction towards the end of March 2016. These draft clauses are published prior to the introduction of the Finance Bill in order to provide taxpayers with certainty about future tax changes.
It should also be noted that the Scottish Government’s draft budget was published on 16 December 2015, where it was confirmed that the Scottish Rate of Income Tax will not increase.
Included below, are what we believe to be the more relevant highlights of the Draft Finance Bill 2016. The exact tax implications will always be specific to your individual circumstances and we would always recommend that you contact us to consider the implications for you in detail.
Personal Savings Allowance and Bank Interest
From April 2016, the government plans to introduce a Personal Savings Allowance (PSA) for individuals. The PSA will work much the same as an individual’s Personal Allowance, and will enable most individuals to receive savings income up to £1,000 tax free. Individuals being taxed at the higher rate will only receive £500 of PSA, and individuals being taxed at the additional rate will not receive any PSA.
With the introduction of this new allowance, Banks, Building Societies and National Savings & Investments (NS&I) will cease to deduct income tax from interest they pay and therefore all interest will be paid gross from 6 April 2016.
The taxation of dividends is to be completely reformed from 6 April 2016. The government plans to scrap the dividend tax credit, which consequently means that all dividends will be received gross. Replacing this tax credit is a new dividend allowance where individuals will pay no tax on the first £5,000 of dividend income. Above this allowance, dividends will be taxed at 7.5% within the basic rate band, 32.5% within the higher rate band, and 38.1% within the additional rate band.
Tax Exemption for Trivial Benefits in Kind
There will be a tax exemption applied to trivial benefits in kind provided from employers to employees from 6 April 2016. In order to qualify for the exemption, the cost of providing the benefit in kind cannot exceed £50.
There is also an annual cap of £300 where these trivial benefits in kind are provided, where the employer is a close company and the benefit is provided to a director or other office holder and their family members.
There are certain other conditions which need to be met in order for the trivial benefit to qualify for this exemption. For example it can only be provided for a non-work related reason (i.e. birthday or social event), and cannot be cash or a cash voucher.
Pension Lifetime Allowance
The standard lifetime allowance of pension savings is to be reduced to £1 million from April 2016 onwards. There will be protection available from retrospective taxation, for individual with pension savings up to £1.25 million.
Individuals with a qualifying farming trade, profession or vocation where averaging is available, will have the option to average profits either over a two or a five year period from April 2016. This new five year option will be available to individuals where profits fluctuate so much that HMRC’s “volatility” condition is met. The first accounting period that this five year averaging option becomes available will be within the year ended 5 April 2017, which means profits can be averaged as far back to an accounting period within the year ended 5 April 2013. This 5 year averaging option can be looked at each year, even if profits have been averaged within the previous 5 years.
The government have also simplified the existing two year averaging rules by removing marginal relief for profits that only fluctuate by 70-75% between the two years of trade. This means that full averaging of trade profits fluctuating by up to 75% between two years, will be available for any accounting period within the year ended 5 April 2017.
Stamp Duty Land Tax and Capital Gains Tax on Properties
As announced in the Autumn Statement and mentioned in our last briefing, the government has confirmed that there will be a higher rate of Stamp Duty Land Tax on purchases of additional residential properties, such as buy-to-lets & second properties, from 1 April 2016.
The government has also confirmed that a payment on account will need to be made in respect of any Capital Gains Tax (CGT) due on sales of residential property from April 2019. This CGT payment on account will be required to be made within 30 days of the sale of the residential property.
Digital Tax & Simple Assessment
Also as advised in the Autumn Statement, the government has confirmed that it intends to create a digital tax system for businesses, self-employed people and landlords to keep track of their tax affairs quarterly, via a digital tax account. The government will be publishing its plans to transform the tax system shortly, but in the meantime it has announced it will make available free software and apps to provide help to those who need it.
The government has also confirmed its plans to make assessment simple. Legislation will be created which gives the government powers to make an assessment of an individual’s income tax and CGT liability, without the individual being required to complete a tax return, where sufficient information is available. This measure is intended to be put in place, on or after the date of Royal Assent of the 2016 Finance Bill.
Please do not hesitate to contact us if you wish to discuss any of these issues in more detail.