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Deloitte preview of Autumn Statement 2015

19 November 2015

Ahead of the Autumn Statement on 25th November Bill Dodwell, head of tax policy, at Deloitte and Patricia Mock, tax director, consider the potential tax announcements.

Bill Dodwell, tax partner at Deloitte, commented: “After two full Budgets in 2015 and a lot of change, we hope for less tax content in the third fiscal event of the year. The main business interest will be in the outcome of the Business Rates review, which was partly foreshadowed by the announcement of greater local devolution. The change to dividend taxation will increase income tax costs for hundreds of thousands of small businesses, and the Chancellor has anticipated that many will bring forward dividends before April 2016. We expect new anti-avoidance rules, designed to limit the opportunity to take business returns without paying income tax as salary or dividends.”

Patricia Mock, tax director at Deloitte, said: “Changes due to come in next April, such as the Personal Savings Allowance and the Dividend Tax Allowance, will provide tax savings for those with income from investments. However, they will also make the tax system more complex – which will be a challenge for both HMRC and the taxpayer.”

Working tax credits
The planned restrictions to working tax credits announced at the Summer Budget have not yet been legislated and changes are widely expected. The proposals were to reduce the income threshold for tapering reliefs from £6,420 to £3,850 and the taper rate from 41% to 48%. This would reduce the tax credit entitlement for a family with two children and income of £15,000 where one family member works for at least 30 hours per week by around £1,800.

Additional proposals limited support to two children, such that additional children born after April 2017 will not be eligible for relief – at present this element of the credit is up to £2,780 per child. Neither will the family element of tax credits (worth up to £545) be available to those starting a family after April 2017.

Tax allowances
From April 2016 both the Personal Savings Allowance and the Dividend Tax Allowance will be available. The Personal Savings Allowance (announced at the March Budget) will provide an exemption of £1,000 of interest received on an individual’s savings for basic rate taxpayers, and £500 for higher rate taxpayers, giving an equal saving for both of £200 per annum. Additional rate taxpayers will not receive the allowance. However, no precise details of how the allowance will work have yet been made available, (for example, is the exempt amount to be included when considering whether the taxpayer falls into the basic or higher rate). It is hoped there will be clarification in the Autumn Statement.

From April 2016, tax will no longer be withheld on interest received from certain bank and building society accounts. A consultation document discussed whether this approach should also apply to interest paid by other payers (e.g. funds) and the outcome of this consultation may also be covered. It is hoped that whatever approach is taken will be as simple as possible, both from the viewpoint of payers and recipients. Whilst many savers will be taken out of tax by the introduction of this allowance, those who receive more than the relevant allowance and whose tax liability was previously covered by the tax deducted at source will have additional tax to pay and will need to report this and make arrangements to pay the tax due. Up to eight million taxpayers will receive net taxable interest income.

Dividend taxation
Three changes to dividend taxation will also apply from April 2016: the introduction of a Dividend Tax Exemption of £5,000, the ending of the notional tax credit which applied to dividend income, and changes in the tax rates. Overall, this is a significant tax increase for those self-employed individuals who provide their services through a company.

Comparative rates are set out below

Income band

Effective current rate on net dividend

New rate on dividend received (after £5,000 exemption)

Basic rate

0%

7.5%

Higher rate

25%

32.5%

Additional rate

30.6%

38.1%

Dividends that fall within the £5,000 allowance will form part of total income and will therefore cause tapering of the personal allowance and other relevant allowances, including the high income child benefit charge.

However, amounts falling within the dividend allowance will use any part of the lower rate bands that they would otherwise have fallen into in the absence of the allowance. Hence an individual whose other income is £5,000 below the higher rate threshold who receives £6,000 of dividends will pay higher rate tax on the £1,000 of taxable dividends rather than basic rate tax. The marginal rate on dividends may therefore be rather higher than expected for some taxpayers.

The Summer Budget also referred to anti-avoidance rules to prevent business owners from taking returns from their companies without being liable to the new dividend tax rules. It is expected that this could be announced with the Autumn Statement.

Pension changes
Following the many changes to the tax regime for pensions over the last few years a consultation document was issued in July 2015 exploring the introduction of a completely new regime. Although responses were required by 30 September it has already been confirmed that a response will not be made until the next Budget, so we are not expecting any developments in the Autumn Statement.

Changes to the taxation of non-UK domiciles
The Summer Budget included the proposed changes to the tax regime for non-UK domiciled individuals, which is expected to come into force from 6 April 2017. The main proposal is to restrict certain individuals from being taxable as non-UK domiciled individuals for tax purposes. A ‘deemed domicile rule’ will be introduced so that those who have been resident in the UK for at least 15 tax years out of the last 20 will no longer be eligible for the remittance basis on foreign income and gains from the start of year 16. They will also be brought within the scope of Inheritance Tax (‘IHT’) on their worldwide assets a year sooner than would currently be the case. In addition, a new ‘returning UK domicile’ rule is proposed, which will seek to ensure that individuals who are born in the UK and who are UK domiciled at birth will be taxable as UK domiciled individuals while they live in the UK.

The announcement was followed on 30 September by the release of a technical consultation document. As the consultation period has closed very recently we expect the follow up to this consultation process to be in Budget 2016 rather than the Autumn Statement.

A second proposal in this area is that the value of residential property owned via offshore vehicles, such as companies or partnerships will become liable to UK IHT, effectively looking through the structures for these purposes and treating the individual as if he or she owns the property directly. The details are subject to a consultation process and are scheduled to come in with effect from 6 April 2017. No detail has been issued on this part of the changes since the Summer Budget and this is likely to be taken forward at Budget 2016 rather than at the Autumn Statement.

Business Rates
The Chancellor’s review of Business Rates is due to be announced at the Autumn Statement. Business Rates raise about £27 billion annually – and control of rates in Scotland and Wales has been handed to the Scottish and Welsh governments. In October, the Chancellor announced plans for giving greater control over business rates to local councils, partly reversing the system of a single uniform business rate created in 1990. It is expected that the broad system of a property-based tax will remain in place – although retailers are greatly affected by the charge. Changes such as more frequent valuations, the removal of upwards indexation and limiting the smoothing impact of transitional changes could help improve the system.

End

Notes to editors

Rates and allowances
Income tax personal allowances and basic rate limits have already been announced and included in the Summer Finance Act. The amounts are:

Tax Year

Personal allowance

Basic rate limit

Higher rate threshold

2015/16

£10,600

£31,785

£42,385

2016/17

£11,000

£32,000

£43,000

2017/18

£11,200

£32,400

£43,600

The upper national insurance threshold is linked to the higher rate threshold but no commitment has been made on the starting threshold and so those on lower wages, despite moving out of income tax, will continue to pay national insurance contributions. The starting threshold is expected to be announced at the Autumn Statement.

Higher rate taxpayers benefit more than basic rate taxpayers from the increases in personal allowance and basic rate limit, but some of the benefits will be clawed back in the form of extra NI contributions because of the increase in the upper earnings limit. Allowing for an estimated 1% increase in the starting threshold for national insurance contributions, the overall saving for a higher rate taxpayer earner is £151 from 2015/16 to 2016/17 and £110 from 2016/17 to 2017/18. Those with income of over £100,000 whose personal allowance is tapered away, will see extra cost of up to £9 from 2015/16 to 2016/17 and a minimum savings of £30 from 2016/17 to 2017/18. A basic rate earner would save £90 from 2015/16 to 2016/17 and £50 from 2016/17 to 2017/18.

The ‘triple lock’ means that the rates of income tax, VAT and Class 1 national insurance will not increase for the duration of this Parliament.

Tax collection
Progress on various initiatives to enhance HMRC powers to collect the right amount of tax due is expected.

New disclosure facility
The Summer Budget mentioned that existing disclosure facilities in respect of undeclared offshore income and gains would cease in December 2015, to be replaced by a new facility with increased penalties. With the advent of exchange of taxpayer information under the Common Reporting Standard and other arrangements the terms of this facility represent a final opportunity for those who need to bring their UK tax affairs up to date.

Information to be required from wealthy taxpayers
Member of Deloitte Touche Tohmatsu Limited.The Summer Budget [para 1.182] mentioned a forthcoming consultation on enhancing the information reported to HMRC by wealthy individuals and trustees. This is part of an HMRC initiative to fully understand wealthy individuals’ tax affairs and the risks they present. This consultation has not yet been launched and this may be taken forward as part of the Autumn Statement. In the meantime the HMRC High Net Worth Unit has been extended to cover the tax affairs of those with net wealth of at least £10m, rather than £20m and it has been combined with responsibility for mid-size companies in HMRC’s new Mid-Size and High Net Worth Directorate.

Increased penalties and criminal sanctions for offshore tax evasion
Following consultation in this area over the last few months, progress announcements are expected. The consultations suggested increased penalties for offshore evasion, in some cases to be linked to the value of the asset on which tax had been evaded. A criminal sanction was also proposed, with the introduction of a strict liability offence for the incorrect declaration of offshore income or gains. Such an offence does not require dishonest intent, which many commentators felt to be unfair.

IHT – residence nil rate band
Under the proposals announced in the Summer Budget and partly included in the Finance Bill which is about to become law, individuals who die after 5 April 2017 will be entitled to a Residence Nil Rate Band (‘RNRB’) to apply to the value of residential property in their estates on death if this is left to lineal descendants (children, grandchildren etc.). The RNRB will initially be £100,000 but will increase by £25,000 in each succeeding tax year until it reaches £175,000 in 2020/21. It will be withdrawn at a rate of £1 for every £2 by which the value of the total estate exceeds £2 million. Married couples and civil partners will be able to transfer unused relief between them, even if one member of the couple died before 6 April 2017, as with the existing arrangements for unused normal nil rate band.

There will also be a relief for ‘downsizing’ if a property is sold after 8 July 2015 but assets of equivalent value are left to lineal descendants. These down-sizing relief proposals were set out in a technical note on which comments were invited. The outcome of this consultation may be covered in the Autumn Statement or in draft legislation which is expected to be published on 9 December.

Other consultations
There have been a number of consultations on other tax matters over the last few months and we can expect to hear the outcomes (or a progress report) at the Autumn Statement.

These include:

  • Changes to the farmers’ averaging rules (a move to five-year averaging)
  • A review of the use of Deeds of Variation for tax purposes
  • Replacement of the ‘wear-and-tear’ allowances for those letting furnished residential
    accommodation with an allowance based on actual costs
  •  Review of employee benefits and expenses
  • Simplifying tax and national insurance on termination payments
  • Changes to the IR 35 rules

Follow us online
Deloitte’s Autumn Statement coverage will be on our dedicated website www.ukbudget.com. You can also follow us on Twitter: @ukbudget where Bill Dodwell, head of tax policy at Deloitte, gives regular views.

Deloitte spokespeople
The following experts from Deloitte are available now and on the day of the Autumn Statement for comment. From 12pm on Wednesday 25th November, please call the Deloitte Budget Press Hotline on 020 7007 3333, where you will be directly connected to one of our spokespeople:

  • Bill Dodwell - Business taxes and general topics
  • Ian Stewart – Economics
  • Daniel Lyons - Indirect and green taxes
  • Patricia Mock - Personal taxes
  • James Warwick – Employment taxes
  • Wayne Weaver – Banking
  • Gavin Bullock – Asset management
  • David Clissitt – Insurance
  • Thomas Evennett - Entrepreneurial Business and SMEs

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

Member of Deloitte Touche Tohmatsu Limited.

Laura Parsons
Deloitte LLP
+44 (0) 20 7303 0885
+44 (0) 78 2695 2940
lauparsons@deloitte.co.uk

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