This year’s Budget was short on major shifts in policy or legislation. It did contain a number of minor improvements, tightening or alterations to what already existed but no game changers in the Chancellor, Philip Hammond’s first budget.
Of the two fundamental developments which would impact on British taxpayers one has already been withdrawn :
- The tax free dividend allowance will, from 2018, be cut from £5000 to £2000. The explanation given for the change is that it will reduce the tax differential between those working through their own company and the employed. The true effect is not to discourage incorporation, but simply to raise more tax which will affect many with investment portfolios as well as those working through their own company.
- The plans for Class 4 NICS to be increased from 9% to 10% in April 18 and then to 11% in April 19 have been cancelled. Again the explanation that was given for the change is that it would reduce the tax differential, this time between the self-employed and the employed. Again, we would suggest this was simply window dressing for what was essentially an increase in income tax. These proposals have now been withdrawn. This follows the Election pledge not to raise NICs during the course of this Parliament, which the Chancellor has now affirmed. As many self-employed people had expected an immediate increase, this back tracking will be a welcome relief .
Of course, all of these proposals are subject to approval in the Finance Bill and the NIC point will now be postponed to later legislation.
Will these changes impact our advice or client behaviour?
In short, not greatly. The self-employed still enjoy certain tax advantages, such as the expense of a company car, over employed individuals. There are bigger issues than tax to consider when deciding on the most appropriate platform for a small business. We suggest that the Government is simply taking note of the growing number of self-employed people in Britain and wishes to protect some of that revenue by increasing the NICs.
What was not in there?
There was some speculation that the Government may seek to increase the tax burden on closely held investment companies. There is a growing appetite for what are commonly referred to as “Family Investment Companies” as a platform to divest wealth to future generations without transferring control. There was nothing in the Budget on this topic.
What announcements will impact those with a foreign aspect to their tax affairs?
The biggest change was a further tightening of the legislation relating to Qualified Overseas Pension Schemes (QROPS). This change has immediate effect (from 9th March) and introduces a transfer charge of 25% to transfers made to a QROPs unless they are exempt under the new law and remain exempt for at least five years from the transfer. In summary, unless the QROPS and the tax payer are resident in the EEA, or both the QROPs and the individual are resident in the same country (not an EEA country), or the QROPS is a genuine occupational pension scheme, it will not be exempt. This change is justified and right in its objective of trying to prevent “pension liberation” whilst protecting genuine pension transfers. However, it would appear to exempt Malta, one of the largest hosts for QROPs from the transfer charge if the individual is an EEA resident.
A couple of concessions were announced to the impending changes to the taxation of persons presently domiciled abroad. First, it was announced that “non-doms” with an interest in UK residential property will not be caught by the new IHT rules if the interest in the property is less than 5%. Given the valuation discount that arises by virtue of multiple ownership of property, there may be merit in divesting small interests in the property to the wider family circle. Second, it was announced that the facility for long term residents, caught by the changes from April 6th, to cleanse “mixed funds” will be extended to mixed funds held in years prior to 2007/8. Both of these changes arose as a result of lobbying by professional bodies, including representatives of IM, during the consultation period and are welcome.
Why is March 20th relevant to those advising RNDs?
On 20th March a Consultation Document will be published on the proposal, announced in the Autumn, to bring certain non-resident companies into the corporation tax charge. More importantly, on the same date we will have affirmation/closure of the consultations for the substantial changes to the taxation of RNDs effective from….. two weeks later!
A small respite before the Autumn?
As the main budget event will move to the Autumn from now on, this was the last of the Spring Budgets. It is a relief to those working the profession that there were no major changes, but perhaps this is only a small respite before the Autumn?
If you have any queries on the Spring Budget outcomes and how they may impact you or your clients, please do contact our Private Wealth Team.
Updated: 16 March 2017
March 2017
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