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Finance Act 2015 offers no surprises

This article highlights key information in the Finance Act 2015 which has received Royal Assent on 26th March 2015 with more detail than our Budget Day summary. All proposals mentioned in the Budget summary which have stayed the same when included in the Finance Act 2015 have not been reiterated below.

You can view our Budget Day summary “UK Budget 2015” by clicking here when viewing this article online.

Whilst the changes shown below may impact clients, there are no direct impacts on our business processes.

You can find the tax rates and allowances applicable to clients for the tax year 2015/16 in the Appendix to this article.

INCOME TAX

Increased remittance basis charge

The amendments announced in the Autumn statement have been enacted and apply for the 2015/16 tax year. As a reminder, the proposals are:

Individuals who are not domiciled in the UK are able to elect to pay tax on the remittance basis so any income and gains held offshore are only taxable as and when they are brought into the UK.

The remittance charge for non-domiciles is increasing as follows for individuals who have been living in the UK for a long time.

Time resident in the UK:

  • 7 out of last 9 years - charge unchanged at £30,000 per year
  • 12 out of last 14 years - charge to increase from £50,000 to £60,000 per year
  • 17 out of last 20 years – a new charge of £90,000 to be introduced.

This means non-UK domiciled persons who have been UK resident for at least 12 years but less than 17 years will have to pay tax of an extra £10,000 to utilise the remittance basis and those resident for 17 out of the last 20 years will pay an extra £40,000.

Making planning of offshore income and gains more important than ever and increasing the financial benefit of using an offshore bond for such.

ANTI AVOIDANCE PROVISIONS

Disclosure of tax avoidance schemes

The draft legislation introduces an obligation for promoters of any scheme to provide updated information to HMRC when certain changes are made to the scheme. Such changes include a change to the scheme name, any change of address or name of a promoter. Another change extends the amount of time for a scheme to be allocated a reference number from 30 to 90 days.

The final change is a requirement that employers, who are clients of a scheme, and are likely to receive some form of tax advantage from the scheme, must provide employees with prescribed information relating to the scheme.

Promoters of tax avoidance schemes

The draft legislation clarifies the rules to include body corporates and partnerships within the category of entities to be included within this legislation, as promoters of tax avoidance scheme.

Penalties in connection with offshore matters and penalties in connection with moving assets offshore

Schedule 24 of Finance Act 2007 includes provisions for penalties relating to the submission of tax returns.

Where any type of return (income tax, CGT, VAT, trustee) is submitted to UK HMRC, which is inaccurate and the inaccuracy leads to—.
(a)an understatement of a liability to tax,
(b)a false or inflated statement of a loss by the tax payer, or
(c)a false or inflated claim to repayment of tax; AND

the inaccuracy was careless or deliberate, the tax payer will be liable to a penalty.

More specifically, the legislation now specifically includes which taxes the penalties apply to, how much the penalty is and also categorises the inaccuracy of the information submitted to HMRC. The legislation makes explicit reference to offshore jurisdictions where income or gains arise and where assets are transferred to. The draft legislation categorises the degree of liability.

(1) Category 0. 
An inaccuracy is in category 0 if:

(a) it involves a domestic matter, 
(b) it involves an offshore matter or an offshore transfer, the territory in question is a category 0 territory and the tax at stake is income tax, capital gains tax or inheritance tax, or 
(c) it involves an offshore matter and the tax at stake is a tax other than income tax, capital gains tax or inheritance tax. 

(2) Category 1.
An inaccuracy is in category 1 if— 

(a) it involves an offshore matter or an offshore transfer;
(b) the territory in question is a category 1 territory; and 
(c) the tax at stake is income tax, capital gains tax or inheritance tax.”

The amendments included in the Finance Act increase the penalty amount as follows:

(a) for careless action, from 30% of the potential lost revenue to 37.5%,
(b) for deliberate but not concealed action, from 70% of the potential lost revenue to 87.5%, and
(c) for deliberate and concealed action from 100% of the potential lost revenue to 125%.

The legislation applies where:

(1) The tax is income tax and any part of the income
(a) is received in a territory outside the UK, or 
(b) is transferred before the filing date to a territory outside the UK.

(2) The tax is capital gains tax and if the proceeds of the disposal, to which CGT is charged, or any part of the proceeds
(a) is received in a territory outside the UK, or 
(b) is transferred before the filing date to a territory outside the UK.

(3) The tax is inheritance tax and;
(a) the disposition that gives rise to the transfer of value by reason of which the tax becomes chargeable involves a transfer of assets, and
(b) after that disposition but before the filing date the assets, or any part of the assets, are transferred to a territory outside the UK.

So what do these changes to tax avoidance schemes mean?

It is clear that HMRC are stamping out complex layering tax avoidance schemes and there is now nowhere to hide, however it is still possible to complete tax planning using tried and tested schemes, such as our trust arrangements.

APPENDIX

INCOME TAX RATES AND ALLOWANCES

Income tax allowances

 

Tax year 2014-15

Tax year 2015-16

Tax year 2016-17

Born after 5 April 1948

£10,000

£10,600

£10,800

Born after 5 April 1938 but before 6 April 1948

£10,500

£10,600

TBC2

Born before 6 April 1938

£10,660

£10,660

TBC2

Income limit for personal allowance 1

£100,000

£100,000

£100,000

Income limit for allowance for those born before 6 April 1948 1

£27,700

£27,700

TBC2

1 The personal allowance reduces where the individual’s income is above the limit by £1 for every £2 above the limit. This applies regardless of the individual’s date of birth.

2 These amounts are subject to indexation – the annual increase in CPI. The values will be published in late 2015 and 2016

 

Income tax bands for taxable income (£ per tax year)

 

Tax year 2014-15

Tax year 2015-16

Tax year 2016-17

Basic rate

£0 - £31,865

£0 - £31,785

£0-£31,900

Higher rate

£31,866 - £150,000

£31,786 - £150,000

£31,901 - £150,000

Additional rate

Over £150,000

Over £150,000

Over £150,000

 

 

Tax year 2014-15

Tax year 2015-16

Basic rate

20%

20%

Higher rate

40%

40%

Additional rate

45%

45%

Dividend ordinary rate (for dividends otherwise taxable at the basic rate (effective rate with tax credit))

10% (0%)

 

10% (0%)

 

Dividend upper rate (for dividends otherwise taxable at the higher rate (effective rate with tax credit))

32.5% (25%)

32.5% (25%)

Dividend additional rate (for dividends otherwise taxable at the additional rate (effective rate with tax credit))

37.5% (30.6%)

37.5% (30.6%)

Special rates for trust income

 

Tax year 2014-15

Tax year 2015-16

Tax year 2016-17

Standard rate on first £1,000 of income that would otherwise be taxable at the special rate for trusts

Up to 20% It depends on the type of income

Up to 20% It depends on the type of income

Up to 20% It depends on the type of income

Trust rate

45%

45%

45%

Dividend trust rate

37.5%

37.5%

37.5%

 

CAPITAL GAINS TAX RATES AND ALLOWANCES

Annual Exempt Amount

 

Tax year 2014-15

Tax year 2015-16

Individuals

£11,000

£11,100

Trusts (split equally between all trusts with the same settlor (minimum per trust))

£5,500 (£1,100)

£5,550 (£1,110)

 

RATES

 

Tax year 2014-15

Tax year 2015-16

Individuals (non or basic rate taxpayers)

18%

18%

Higher or additional rate individuals or trusts

28%

28%

 

CORPORATION TAX

 

Tax year 2014-15

Tax year 2015-16

Smaller companies rate

20%

20%

Main rate

21%

20%

 

INHERITANCE TAX

 

Tax year 2014-15

Tax year 2015-16

Nil rate band

£325,000

£325,000

Rate on death (above NRB)

40%

40%

 

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