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Tony Wickenden: What you need to know about the Finance Act

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The Finance Bill 2016 finally received Royal Assent on 15 September to become the Finance Act 2016. There had been some conjecture that Royal Assent would not be given until sometime in October, not far ahead of the next Autumn Statement set for 23 November.

Given the tumultuous events of earlier this summer, there was genuine concern that some of the provisions of the Bill might be reviewed, amended and possibly even dropped. The key determinants of any such action were thought to be how the economy had fared post-referendum and, of course, the new Government’s philosophy in relation to the resulting fiscal measures.

Well, the economy has performed pretty well by all accounts. There are, of course, serious question marks as to the future once we are clearer on “what sort of Brexit” we get but, for now, things are not too bad. And we know that new Chancellor Philip Hammond wants to take a more measured approach to tax policy. We also know that the new Government has dropped former chancellor George Osborne’s “zero deficit by 2020” goal.

So what made it through to final legislation in the Finance Act? Well, most of what was in the Bill, actually.

We knew in August (updated consultation on the reform to the taxation of non-domiciles) that the introduction of a new 15 years of residence deemed domicile provision (for all taxes) and some other related measures would be deferred out of the draft 2016 Finance Bill to the 2017 Finance Bill. In the referred-to further consultation, it was stated:

“Budget 2016 announced that the whole package of reforms to the non-dom regime would be legislated in Finance Bill 2017 because the Government believes that the changes will be better legislated as a single package. These include the deeming provisions, for which draft legislation has previously been published.”

That said, let us remind ourselves of the provisions of relevance to financial planners that did make it through to the Finance Act 2016. There is some pretty relevant stuff, which all takes effect from 6 April 2016 unless stated otherwise.

  • The personal savings allowance (of £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and nil for additional rate taxpayers) is introduced, delivering 0 per cent tax on the relevant amounts of savings income.
  • The removal of deduction of tax at source for deposit takers. This revolutionises the cash flow consequences of interest payments and receipts.
  • The dividend allowance is introduced, delivering tax-free dividends of up to £5,000 per annum for individuals, the abolition of grossing up and tax credits, and rates of 7.5 per cent (for basic rate taxpayers), 32.5 per cent (for higher rate taxpayers) and 38.1 per cent (for additional rate taxpayers) for dividends in a tax year that exceed the allowance. The rate for trustees is 38.1 per cent but with no dividend allowance. As I have discussed in past articles, this has important consequences for investors, small business owners and trustees.
  • The standard lifetime allowance falls from £1.25m to £1m and CPI-based increases to this allowance are introduced from April 2017. Schedule 4 of the Act introduces Fixed Protection 2016 and Individual Protection 2016.
  • The corporation tax rate for 2020 is scheduled to reduce to 17 per cent. The rate will fall to 19 per cent in 2017. The UK’s low corporation tax rates will undoubtedly be presented as a powerful contributing reason why businesses should stay in the UK, even post-Brexit.
  • The capital gains tax rate reductions have been enacted. Gains made from 6 April 2016 will be charged at 20 per cent (down from 28 per cent) for higher and additional rate taxpayers and trustees, and at 10 per cent (down from 18 per cent) for basic rate taxpayers. Gains made on the sale of residential property that is not the disposer’s main residence will remain assessable at the previous (unreduced) rates i.e. 18 per cent and 28 per cent as appropriate.
  • The downsizing provisions in relation to the inheritance tax residence nil rate band are also enacted. These contribute to the already labyrinthine provisions on this far too complicated relief.

Tony Wickenden is joint managing director of Technical Connection. You can find him Tweeting @tecconn

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Money Guidance CIC 11th October 2016 at 12:18 pm

    ” and CPI-based increases to this (lifetime)allowance are introduced from April 2017.
    Thought this was to take effect from the 2018/19 tax year?

  2. I too thought the LTA will be indexed from 2018 and not 2017 ??
    Can you clarify please.

  3. CPI indexation will not be applied before the 2018/19 tax year. Per the legislation:

    “(2) The standard lifetime allowance for the tax years 2016-17 and 2017-18 is £1,000,000.
    (2A) The standard lifetime allowance for any later tax year (“the subsequent tax year”) is the same as the standard lifetime allowance for the tax year immediately preceding the subsequent tax year, unless subsection (2C) provides for it to be higher.
    (2B) Subsection (2C) applies if—
    (a) the consumer prices index for the month of September in any tax year (“the prior tax year”) is higher than it was for the previous September, and
    (b) the prior tax year is the tax year 2017-18 or a later tax year.
    (2C) The standard lifetime allowance for the tax year following the prior tax year is the standard lifetime allowance for the prior tax year—
    (a) increased by the percentage increase in the index, and
    (b) if the result is not a multiple of £100, rounded up to the nearest amount which is such a multiple.

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