Spring Budget 2017
8 March 2017
The Spring Budget, delivered on Wednesday 8 March, contained few surprises, largely comprising smaller changes or confirmations of measures that had been previously announced. However, as ever there were a number of announcements which may affect private clients and their finances.
Personal savings and income
Income tax changes
For tax year 2017-2018, the income tax personal allowance will increase by £500 to £11,500. The threshold for the higher tax rate will increase by £2,000, to £45,000.
National Insurance Contributions for the self-employed
6 April 2018 will see the replacement of Class 2 NICs by an increase in the main rate of Class 4 NICs by 1% to 10%, with a further 1% increase on 6 April 2019. The combined effect of these two increases, based on the rates announced for 2017/18, is to increase the annual NI burden for the self-employed and partners from £148 to £736.
The dividend allowance
The tax allowance for dividend income will be reduced from £5,000 to £2,000 from April 2018. The Government announced that the particular intention of this change, beyond simply raising tax revenue, is to reduce the tax differential between the employed and self-employed on the one hand and those working through a company on the other.
Introduction of new Lifetime ISA
The Government has confirmed that the new Lifetime ISA, announced in the 2016 Budget, will be available from 6 April this year. The Lifetime ISA allows younger adults to save up to £4,000 each year and receive a government bonus of 25% on their savings (i.e. up to £1,000 per year) , which can be withdrawn tax-free to put towards the purchase of a first home (worth up to £450,000) or when the saver turns 60.
The new ISA will be open to savers between 18 and 40 and anyone who already has a Help to Buy ISA can transfer savings from there into a Lifetime ISA or continue saving in both, although the bonus will only be available from one for a house purchase. If the ISA savings are not needed for a house purchase (or if the saver is not a first time buyer) then they cannot be withdrawn tax-free until after the saver's 60th birthday. Withdrawing the money at any other time will result in a 25% charge (which effectively negates the government bonus).
The Government confirmed, as announced at the Autumn Statement 2016, that the rate of corporation tax will reduce to 19% (down 1% from the current 20% rate) from 6 April 2017 and then again to 17% in April 2020.
Tax-advantaged venture capital schemes
As previously announced in the Autumn Statement 2016, the Government will amend the requirements that apply to the Enterprise Investment Scheme ("EIS"), the Seed Enterprise Investment Scheme ("SEIS") and Venture Capital Trusts ("VCTs"). These are all schemes which provide tax advantages to investment in small businesses. The changes have not yet been detailed but the Government state that they will provide additional flexibility and certainty for companies making use of these schemes.
Taxation of non-domiciliaries
The Government confirmed that it will legislate to introduce the reforms originally announced at Summer Budget 2015 in the Finance Bill 2017, to have effect from 6 April 2017.
By way of outline of the key provisions, from 6 April 2017:
- Non-UK domiciled individuals will be deemed to be domiciled in the UK for all tax purposes where they have been resident in the UK for 15 of the past 20 tax years. These individuals will no longer be able to claim the remittance basis of taxation.
- Individuals who were born in the UK and who have a UK domicile of origin but have since acquired a domicile of choice elsewhere will be deemed to be UK-domiciled for all tax purposes while they are UK-resident.
- Individuals who become deemed domiciled on 6 April 2017:
- may be able to segregate income, gains and capital within their non-UK bank accounts which comprise mixed funds; and
- may achieve a rebasing of their non-UK assets as at their 6 April value for UK capital gains tax purposes
- provided that certain conditions are met.
Non-UK domiciled individuals who established and funded non-resident trusts prior to becoming deemed domiciled will not be taxed on foreign income and gains retained in those trusts (and those trusts will remain outside the UK IHT net) on an arising basis provided that certain conditions are met. To the extent that the trust in question is settlor-interested, the settlor will be taxed on UK-source trust income on an arising basis.
No such protections will be available in relation to non-resident trusts established by individuals who were born in the UK and who have a UK domicile of origin while the settlor is resident in the UK.
It will no longer be possible to "wash out" gains held within non-resident trusts by making distributions to non-UK resident beneficiaries.
All UK residential property will fall within the IHT regime, no matter how that property is held, as will loans provided for the purpose of financing the purchase or enhancement of such property.
For more details on the extent and application of these reforms, please visit our website to see our briefing notes.
Qualifying recognised overseas pension schemes (QROPS)
Qualifying recognised overseas pension schemes ("QROPS") are frequently used by individuals who are relocating abroad. They allow UK pension funds (which have been built up out of funds which have had the benefit of tax relief) to be transferred to an approved pension structure based abroad - that is, one that has been approved by the UK Revenue authorities. As such there has been no tax charge on moving the funds, as they remain within the Revenue approved pension regime.
QROPS are also useful for individuals moving to countries that do not recognise trusts, such as Spain. In those circumstances a contract-based QROPS can be a useful solution.
In view of perceived avoidance in the QROPS arena, it is now provided that transfers from a UK pension fund to a QROPS will suffer an exit charge of 25% unless certain exceptions apply.
One important exception is where both the QROPS and the individual are resident within the EEA. Many QROPS are based in locations such as Malta, Gibraltar and the Channel Islands so these will continue to provide a suitable vehicle for persons relocating to Europe but, for those moving elsewhere in the world, this may be a significant change.
Following consultation, there will be a delay in introducing the previously-announced reduction of the filing and payment window for SDLT to 14 days until after April 2018.
Profits from trading and developing land in the UK
Finance Act 2016 extended income and corporation tax on profits from trading in and developing Land in the UK to all developers and traders of land in the UK, wherever based. The scope of the measure has been extended in Budget 2017 to include certain contracts which the original legislation did not cover. In brief, these are long term contracts entered into at an early stage in a development for transfers of land over an extended period of time. All relevant profits recognised in accounts on or after 8 March 2017 will be taxed, even if the contact was entered into before 5 July 2016, the cut-off date in the original legislation.