Spring Budget 2017

We outline below the main changes in today’s Spring Budget.

Dividend Allowance 

The Chancellor has announced a change to the tax-free dividend allowance in an attempt to address a perceived unfair tax break for Director/Shareholders, reducing the allowance from £5,000 to £2,000 per year with effect from 6 April 2018. 

The reduction in the allowance will increase the tax payable each tax year from April 2018 for shareholders who receive dividends of more than £2,000. This will equate to additional tax of up to £225 for basic rate taxpayers, £975 for higher rate taxpayers and £1,143 for additional rate taxpayers per tax year. 

Director shareholders of private companies should, therefore, consider maximising use of the £5k dividend allowance this year and next before the reductions are introduced.  

Changes to Business Rates

Business owners subject to business rates on their premises may be aware that the next revaluation comes into effect on 1 April 2017, raising serious concerns about the potential for large increases in the bill for some firms.

Today the government announced welcome measures to reduce the financial burden on those hardest hit by the revaluation including:

  • A cap on the increase in business rates on small businesses losing Small Business Rate Relief.
  • Funding for local authorities to issue discretionary support in individual cases facing large increases.
  • A discount for public houses with a rateable value of up to £100,000.

In the 2016 Budget substantial reductions in business rates were announced: the rate of Small Business Rate Relief was doubled, and thresholds of the relief extended to exclude thousands small businesses from payment of rates altogether.

New NS&I Savings Bond

The Chancellor has introduced a new NS&I Investment Bond which will offer a rate of 2.2% over a term of three years. 

It will be available for 12 months from April 2017 to everyone aged 16 and over. The bond will be subject to a maximum investment limit of £3,000 with a minimum investment of £100.

Minor Pension Changes

There were two small changes to pensions included with the Budget small print.

The first is an adjustment to a rule already in place.  The current rule says that where pension benefits from a money purchase scheme have been accessed there is a restriction on the future amounts that can be paid into such schemes to £10,000 per annum.  This £10,000 will be reduced to £4,000 each year from 6 April 2017 onwards.

The second change will affect those considering making a transfer into a QROP (“Qualified Recognised overseas Pension”).  For such transfers after 5 April 2017, unless either the QROPs and the individual are in the same country, or both are within the EEA, or the QROPS is provided by the individual’s employer, there will be a 25% tax charge withheld by the transferring scheme.  For those falling outside these categories, prompt action is required to avoid the charge.

Making Tax Digital (“MTD”)

First let us spend a moment recapping on what MTD is.  By 2020, HMRC want all tax payers to move to a fully digital tax system, but what does this actually mean?  In short by 2020, most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account. These changes will be introduced for some businesses from April 2018, and will be phased-in by 2020, giving businesses time to adapt.

MTD is intended to: -

  • Eradicate form filling; 
  • Eliminate time delays and have the tax system operating much more closely to ‘real time’; and
  • Allows taxpayers access to personalised digital accounts with the information HMRC needs automatically uploaded, bringing an end to the tax return. 

Announced in the Chancellors budget today, in response to concerns expressed by business organisations about the timetable, the government has decided to provide an extra year, until April 2019, before MTD is mandated for unincorporated businesses and landlords with turnover below the VAT threshold (£83,000). This is a welcome deferral for clients that do not currently report on a quarterly basis and this extra time will provide them with more time to prepare for digital record keeping and quarterly updates. 

The government have also confirmed that they will consult on the design aspects of the tax administration system, including interest and penalties, with the aim of adopting a consistent approach across taxes. 

Appropriation of Property from Fixed Assets to Trading Stock

Effective today, where an individual or a company appropriates a property to stock an election under s 161, TCGA 1992 can only be made where there is a gain. This will prevent the conversion of capital losses to trading losses.

Substantial Shareholding Exemption (SSE)

Legislation will be introduced in Finance Bill 2017 to remove the investing company requirement from the SSE rules. This will increase the number of transactions qualifying for exemption on the sale of shares. 

Non Doms

Although Philip Hammond made no further comment in relation to the far reaching tax changes due to take affect from 6 April 2017, we would urge anyone who thinks they might be affected by the non-dom tax changes to get in touch for urgent advice to see how they might avoid the worst impacts of the changes. 

We have helped a number of clients plan in advance of the changes and would be pleased to assist anyone who thinks they may be affected. 

For more information on any of these topics please contact your usual Creaseys advisor or Elizabeth Robertson, Simon Linley or Terry Shephard.