Posted by Gary Mackley-Smith on April 26, 2017
A number of key tax changes announced in the Spring Budget have been sacrificed by the government at the last moment, as there was no time to bring them into law before the 8 June General Election.
The legislative decks have been cleared for the poll.
With 135 clauses, 29 schedules and 776 pages, Finance Bill 2017 was the largest on record, containing many personal and corporate tax changes. With a snap election called, Parliament did not have the time to scrutinise the detailed legislation and so it had to be shelved for now.
The Finance Bill has been shortened to just 63 clauses, 11 schedules and 156 pages, and will receive Royal Assent before Parliament is dissolved on 3 May.
Whether the changes that were dropped will re-emerge after the election in a new Finance Bill, and in what form, remains to be seen. Any re-introduction of a measure that has been dropped may now be from a different date to that previously planned.
The following key proposals have been dropped:
Making Tax Digital will require businesses to keep their records in a digital form, including spreadsheets, and file quarterly updates to the tax office, with a fifth and final clearing up return after each tax year end.
The regime was meant to start for unincorporated businesses and landlords with a turnover above £85,000 (the VAT threshold) from April 2018, with smaller businesses joining a year later, and companies in 2020.
There has been blanket criticism of the project, with nearly all calling for it to be delayed by at least a couple of years.
As Making Tax Digital has now been dropped, for the moment at least, there is time for an in-coming government to re-appraise the proposals and take on board the various representations that have been made. The tax office will, in the meantime, continue a pilot exercise with selected businesses over a two year period to identify and iron out any issues.
We won’t know until after the election whether significant changes will be made to the rules and whether they will be delayed. It is worth noting that the previous Chancellor – George Osborne – was the architect of tax digitalisation, and with him no longer in government or even an MP, there is some likelihood that it will not proceed as originally planned when it is re-introduced in a subsequent Finance Bill.
The planned reduction in the dividend tax-free allowance from £5,000 to £2,000 for dividends paid on or after 6 April 2018 has been dropped. It would have meant shareholders being worse off by £225, £975 or £1,143 a year depending on whether they paid tax at the basic rate, higher rate or the additional rate. The measure would have affected millions of individuals, ranging from employees and directors of small businesses to investors holding shares outside of ISAs and pensions.
It cannot be discounted that this unpopular tax-raising measure will return in a new Finance Bill.
Controversial plans to increase probate fees have been scrapped due to the election. They had been set to rise in May 2017 from as little as £155 up to as much as £20,000 for some estates in England and Wales. The proposals had been dubbed a “stealth death tax”.
Some UK residents from overseas were due to have their tax status changed from 6 April 2017, and had already planned around the new regime. But with the changes dropped, this leaves them in limbo, awaiting the outcome of a second Finance Bill.
The changes would have meant that a non-domiciled person who had lived in the UK for 15 out of the last 20 years would no longer have been able to use the remittance-basis, meaning they would have been liable to UK tax on all their income and gains wherever they arose in the world.
The changes would also have meant that someone born in the UK, but who later acquires a domicile of choice outside the UK, would likely remain liable to UK tax on all their worldwide income and gains, whenever they returned to the UK.
Two key areas where action may have already been taken by affected non-domiciles that may be problematic if the proposals are not reintroduced with an effective date of 6 April 2017, are asset rebasing, and cleansing of foreign bank accounts.
An increase in the tax-free allowance for employer-funded pension advice is another casualty of the truncated Finance Bill. The allowance was due to increase from £150 to £500 per employee on 6 April. The increase has been scrapped.
A new Pension Advice Allowance, allowing people to withdraw £500 on up to three occasions from their pension pot to pay for financial advice has not been changed.
From 6 April 2017 pension savers aged 55 and over were due to have their Money Purchase Annual Allowance (MPAA) cut from £10,000 to £4,000. This change has been scrapped.
People saving for their retirement can invest £40,000 a year into a pension, whilst those aged 55+ have a restricted £10,000 MPAA. The proposed change had been to prevent people withdrawing money from their pension pot and recycling it back in again, gaining more tax relief on the sum.
We shall have to see if the measure is re-introduced in a subsequent Finance Bill, and from a new date.
Other changes dropped for the moment include termination payment changes from April 2018 and corporation tax changes to carried forward losses from April 2017.
If you would like to discuss these issues, please contact your usual Bishop Fleming advisor.