Published on: Mar 13th, 2017
|With the Brexit bill being amended in the Lords, a new and untested US President and uncertainty in politics across Europe, our post-Brexit world still seems to be heading into the unknown. The last Spring Budget is one for uncertain times.
With no clarity on what a “Hard Brexit” actually entails, Mr Hammond remains at the helm of an unsteady ship. Although we have promises of growth, there are also rumours of job losses arising from international mergers, a possible flight of talent to Europe together with a new tax regime for long term resident non-doms. Mr Hammond still has to keep the economy on an even keel, balance the books and attract inward investors to the UK – as well as making the UK the place to do business!
Against this backdrop, the theme of Mr Hammond’s budget as presented was “Building the foundations for a more global Britain”.
This is a budget for fairness, so individuals who currently benefit from being self-employed, including many LLP members and those who use personal service companies, will be adversely affected. In order to align National Insurance (“NIC”) payments for employees and the self-employed, Class 2 NICs will be abolished in April 2018 and, at the same time, the Class 4 NICs will be increased to 10% and then 11% in the following year.
The tax free dividend band, sometimes utilised by owner-managed businesses as part of their remuneration packages, will be reduced from £5,000 to £2,000 from April 2018. Therefore, companies should consider paying dividends early.
Where there is an intention to arrange benefits in kind via salary sacrifice, the contract should be agreed prior to 6 April 2017 to benefit from the transitional rules and maintain the income tax and NIC advantages. Favoured benefits such as childcare remain unaffected.
Although the first £30,000 of a termination payment will remain free from tax and NIC, employers NIC will be due on any payment in excess of the threshold. Where a payment is made in lieu of notice, this will now be subject to tax and NIC.
Foreign pensions will be treated as UK pensions and transfers to qualifying overseas pension schemes will be subject to a 25% tax charge unless they are within the EEA, paid to a foreign resident or if it is an occupational scheme. Detailed legislation is expected. In addition, where UK tax relief has been enjoyed, the scheme will be subject to UK tax for five years.
There will now be a legal requirement for individuals who have failed to declare UK tax on offshore interests to correct that situation, and tougher sanctions will be introduced for those who fail to do so after 1 October 2018.
The budget has simply confirmed the ongoing changes to non-doms who have been resident in the UK for 15 out of 20 tax years, and has verified that those who become deemed domiciled under the new rules will not be subject to tax on the income and capital gains from non-resident trusts established prior to their becoming deemed domiciled.
As previously announced, Inheritance Tax will be charged on all UK residential property, even where held indirectly by a non-dom through an offshore company or trust. Minor interests in UK property are to be disregarded if they are less than 5% of the individual’s total property interests.
The rules regarding the cleansing of mixed bank accounts to enable non-doms to bring clean capital to the UK are also to be extended to include years prior to 2008, and to allow segregation of capital gains and income.
Individuals who become deemed domiciled under the new rules (but not those with UK domicile of origin) will be able to rebase their foreign assets to their market value on 5 April 2017.
We expect to see further details of HMRC’s consultation on the taxation of partnerships later this year. In particular, we expect that the Government will legislate to ensure that profits are allocated in such a way that a tax advantage is not received by a higher rate tax payer (typically by allocating disallowable expenses to a corporate member). The Government intends to legislate in the Finance Bill 2017-18.
There will be a drop in the rate of corporation tax from 20% to 19% from 1 April 2017, with a further drop to 17% in April 2020.
As stated in the 2016 Autumn Statement, there are changes to simplify the Substantial Shareholding Exemption, making loss relief more flexible and restricting tax deductions for interest. These are corporate tax measures and will only be relevant to businesses structured as a limited liability company.
Other points worth noting
Double taxation treaty passport scheme: This scheme simplifies the withholding tax arrangements on interest paid by UK companies that borrow from foreign lenders. The scheme was previously restricted to corporate lenders and corporate UK borrowers. From 6 April 2017, the scheme will apply to all types of overseas lenders and UK borrowers.
The Government will introduce an exemption from withholding tax for interest on debt traded on a multilateral trading facility. A consultation document will be published on 20 March 2017 with further details.
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