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The world is rapidly moving towards a state of lock down due to the latest virus COVID-19 otherwise known as the coronavirus which has caused total panic among the population. Sales of antibacterial gel, soap, pasta, long life milk and other amenities have reached highs of disproportion. Large scale events have been cancelled and people are self-isolating to avoid spreading the virus among colleagues, friends and family. It has impacted the stock market and was on the top of the chancellors list for the announcement of the budget and to add to it all we are trying to negotiate our way through the recent Brexit Exit!
However WSM remain positive through all of these uncertain times. As we cancelled our hugely anticipated Budget Seminar in line with the recent Public Health Authorities advice, we have produced this news page, with thanks to Forbes Dawson the Tax Specialists for allowing us to reproduce the notes below.
From 11 March 2020 the lifetime limit on gains qualifying for Entrepreneurs’ Relief has been cut from £10 million to £1 million. Entrepreneurs’ Relief allows a taxpayer to pay capital gains tax at a rate of 10% on the sale of certain business assets, shares in a personal trading company or EMI shares. The previous limit could save a taxpayer up to £1 million in capital gains tax over their lifetime. The new £1 million lifetime limit on gains will take into account all previous disposals. For example, a taxpayer with one previous gain qualifying for Entrepreneurs’ Relief of£700,000, say in 2017/18, now has a lifetime limit remaining of just £300,000. The devil in the detail … As expected, any events that have taken place before 11 March 2020 and that crystallise a gain after Budget Day, will be subject to the new rules, for example, a gain that has been previously rolled over into loan notes. Various anti-forestalling rules have been introduced for those who entered into certain contracts in advance of the Budget.
Insurance Bonds
Top slicing relief (‘TSR’) is a long standing relief that allows gains arising in a year on the encashment of insurance bonds, to be split as if taxed over the years of ownership, facilitating relief from what could otherwise be higher or additional rates of income tax. The amounts involved can be significant where the policy has been held for several years. In calculating TSR, HMRC’s view to date has been that the personal allowance is restricted if the gain (with it all included in the year of encashment) pushes the taxpayer’s income over £100,000. Draft legislation has been released and is effective from today which allows the reinstatement of the personal allowance if the income, with the inclusion of the annualised gain, does not exceed £100,000. The legislation also clarifies the treatment of other allowances and reliefs in the TSR calculation, by confirming that they must be set as far as possible against other income in preference to the insurance gain. They remove the general ability to offset other allowances and reliefs in the most favourable manner, for example personal savings allowances etc. This will impact upon taxpayers differently on a case by case basis.
Other savings
With interest rates reduced today, savings may not be on everyone’s minds. However it is worth noting that the Junior ISA allowance has more than doubled from £4,368 to£9,000 per annum from 6 April 2020. The normal ISA allowance also remains at its generous level of £20,000 per annum.
Higher earners have doctors to thank for a relaxation in the amounts that can be contributed to a pension without restriction. Currently, anyone earning over £110,000 (who has a total income of over £150,000, including their pension contributions) would not be able to contribute the full £40,000 annual allowance into their pension. Instead it would be tapered by £1 for every £2 that their income exceeds £250,000, down to a £10,000 minimum contribution. From 6 April 2020 those earning up to £200,000 (or £240,000 with the pension contribution) are no longer caught by these tapering rules; allowing a full £40,000 annual contribution to be made. A sting in the tail is that the minimum tapered allowance will be reduced from £10,000 to £4,000. Therefore, anyone earning more than £300,000 will be worse off as a result. Unfortunately, there is no increase in the lifetime allowance for pensions, beyond the it Consumer Prices Index inflationary increase which will take the limit to £1,073,100 from 6 April 2020.
The Chancellor confirmed that the threshold beyond which National Insurance Contributions (‘NICs’) become payable will be significantly increased from 6 April 2020 as part of the Government’s commitment to reduce contributions by the low paid. This measure had been previously announced in February. For 2020/21 the threshold at which taxpayers start to pay NICs will rise to £9,500 per annum. The increase applies to both employed (Class 1) and self-employed (Class 4) individuals. The initial increase is part of the Government’s overall aim to raise the NIC threshold to£12,500 per year, in order to align more closely with the income tax personal allowance. Whilst the Class 1 primary threshold and Class 4 lower profits limit will increase, the upper limits will stay the same, although other thresholds will see an inflationary rise. The threshold increases will not affect entitlement to contributory benefits such as the State Pension. The Government says it is keeping to its manifesto promise not to increase the rates of income tax, NICs and VAT.
Employer allowance
In addition, Rishi Sunak has announced an increase in the NIC Employment Allowance from £3,000 to £4,000 from 6 April 2020. Employers will not have to do anything extra to claim the additional Allowance.
In order to support the transition to the use of an alternative measure of emissions for new cars for cars registered on or after 20 April 2020 there will be reduction of 2% in 2020-21 for the company car tax benefit charge based upon the new measure. This will then return to previously planned levels, increasing by 1% in 2021-22 and 2%2022-23. In 2024-25 the rates will be frozen. The change to the fuel benefit charge and van benefit charge will increase in line with inflation. Further benefits to company-owned electric vehicles To further incentivise the uptake of low-emission vehicles, the Government have extended the First Year Allowance (‘FYA’) for low emission vehicles, zero-emission goods vehicles and equipment for gas refuelling stations by a further four years up to April 2025. There have also been further capital allowances changes which seek to reduce the tax deductions available on higher emission vehicles. A writing down allowance of 18% will now be applicable to cars with emissions of up to 50g/km, with higher polluting cars above 50 g/km receiving the lower ‘special’ rate written down allowance of 6%. From April 2021, companies that allow private use of zero-emission vans to their employees will apply a nil rate of tax within van benefit charges.
Stamp Duty Land Tax (‘SDLT’) The Government announced proposals last year to introduce a surcharge on the purchase of residential property in the UK by non-resident individuals. The Chancellor has now confirmed that a levy of 2% will be introduced from April 2021 and will apply not only to non-resident individuals, but also to those buying through a company. The non-resident surcharge is in addition to the normal SDLT rates and the existing 3% surcharge on individuals purchasing a second home. This brings maximum SDLT rates to 17% for overseas buyers purchasing an additional property in the UK worth more than £1.5m.
Stamp Duty and Stamp Duty Reserve Tax
The Chancellor has confirmed that proposals to extend the ‘market value’ rule for stamp duty will apply to the transfer of unlisted securities to connected companies effected on or after the date Finance Act 2020 receives Royal Assent. Historically, it has been possible to use a simple planning technique known as ‘swamping’ to reduce the stamp duty charge arising on a share reorganisation where a specific stamp duty relief would not otherwise be available. This relied on the way the consideration was defined in stamp duty legislation. Under the new proposals, stamp duty will be calculated on the market value of the shares, meaning this technique will no longer be effective in reducing stamp duty liabilities on certain company reorganisations.
Today’s Budget unveiled a series of measures to support businesses, with a particular focus upon investment and innovation.
Structures and Buildings Allowances (‘SBAs’) SBAs were introduced on 29 October 2018 to provide capital allowances tax relief for the construction, renovation or conversion costs for new, non-residential structures and buildings used for qualifying purposes over their lifetime. The new regime applied to all new construction contracts entered into after that date. The relief was initially set at a fixed 2% straight line deduction for qualifying expenditure. The Chancellor has today announced that the relief will be increased to a rate of 3% per annum from 1 April 2020. This reduces the time it will take to relieve qualifying expenditure from 50 years to 33 and one third years.
Research and Development (‘R&D’) tax credits Companies that are engaged in R&D can obtain additional tax relief against trading profits. For large companies the relief is given by way of an “above the line” expenditure credit (known as ‘RDEC’) equivalent to 12% of the qualifying expenditure incurred. From 1 April 2020 the RDEC will be increased to 13%.
A series of consequential amendments were announced to deal with potential anomalies and inconsistencies arising from the transition of Non-resident property holding companies into the corporation tax regime as from 6 April 2020, specifically: • to ensure that the taxation of non trading loan and derivative income held in respect of a UK permanent establishment is not restricted; • to provide relief for pre-trading finance costs (up to 7 years prior to commencement of trading); • to align the regulations which allow for fair value movements in derivatives to be disregarded; • and finally to clarify the circumstances in which an exception from the requirement and duty to notify chargeability to corporation tax may apply, where all of a company’s income has been subject to deduction of UK income tax.
Amongst the other changes announced today were the following:
Digital services tax
The Chancellor has confirmed the introduction of a new 2% tax from 1 April 2020 on the revenues of search engines, social media services and online marketplaces which derive value from UK users. Changes to the taxation of older intangible assets as from 1 July 2020 This measure will bring ‘old’ pre-2002 intangible assets within the corporate intangible regime. Previously these assets were outside of the regime and would be ineligible for amortisation relief unless acquired from a third party. This change is intended to benefit businesses with older but well established intellectual property rights such as trademarks, patents, design rights etc.
Corporate capital loss restriction As previously announced the amount of brought forward capital losses within companies will be subject to the same restriction as has been applied to other types of losses since 2017. The £5m limit before the restriction applies will now be shared across all types of losses.
Corporation tax rate Finally, the corporation tax rate remains on hold at 19%, as previously announced.
Everyone had expected that a reform of inheritance tax would form a major part of the new Government’s first budget. There is a well accepted view that the tax is too complicated and gives too many reliefs. A recent review had been carried out by the Office of Tax Simplification which advocated a number of changes, in particular a simplification of the lifetime gift rules. Inheritance tax, however, was not mentioned at all in the Chancellor’s address, and is also absent from HMRC’s post-budget announcements. We will have to wait and see whether there is any form of further consultation announced in due course.
Amanda graduated from Brunel University, with a joint honours degree, achieving a BSC and BA degree in Leisure Management and Television and film studies. Amanda started her career in a customer service role before joining the hotel group Le Meridien as an Events coordinator, she was in the hotel industry for seven years and during her time won an award from a major international airline for her outstanding attitude and dedication to customer service, which she achieved while working for the Rezidor hotel group in the position of Airline Crew Manager. Amanda has over 20 years experience in customer relations and event management.
