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The Finance Bill: the measures that stayed or went, and the ones that may come back


After the announcement of a snap election in June, the Finance Bill 2017 was slimmed down and the cluases most important to the planning world were snapped in two! Les Cameron, Head of Technical, explores.

The Finance (No. 2) Bill received a trimming down in order to ease its passage through parliament further to the decision to hold a general election on 8 June. And the easing worked, as it received Royal Assent at the end of April.

Broadly, it meant an act with several of the clauses in the bill that were perhaps ‘contentious’, removed.

So what’s stayed, what’s gone and of those things gone are they postponed or will they rise phoenix like post-election? The key parts of the bill for the financial planner were Parts 1 and 5. Below, you’ll find a list of the main movers and stayers as they relate to financial planning:

Remained

Gone

Part1

CHAPTER 1 CHARGE AND PRINCIPAL RATES
Income tax charge and rates
1 Income tax charge for tax year 2017-18
2 Main rates of income tax for tax year 2017-18
3 Default and savings rates of income tax for tax year 2017-18
4 Starting rate limit for savings for tax year 2017-18
Corporation tax charge
6 Corporation tax charge for financial year 2018

CHAPTER 2 - INCOME TAX
Employment income
7 Workers’ services provided to public sector through intermediaries
8 Optional remuneration arrangements
11 Taxable benefits: asset made available without transfer
Pension
17 Overseas pensions
18 Pensions: offshore transfers
Investment income
21 Deduction of income tax at source

CHAPTER 5 - PROVISIONS RELATING TO MORE THAN ONE TAX
Employee shareholder shares
45 Employee shareholder shares: amount treated as earnings
46 Employee shareholder shares: abolition of CGT exemption
47 Employee shareholder shares: purchase by company
Disguised remuneration
48 Employment income provided through third parties

PART 5
ADMINISTRATION, AVOIDANCE AND ENFORCEMENT

Avoidance etc
127 Promoters of tax avoidance schemes: threshold conditions etc

Part1

DIRECT TAXES

CHAPTER 1 CHARGE AND PRINCIPAL RATES
Income tax charge and rates
5 Dividend nil rate for tax year 2018-19 etc

CHAPTER 2 - INCOME TAX
Employment income
9 Taxable benefits: time limit for making good
10 Taxable benefits: ultra-low emission vehicles
12 Pensions advice
13 Legal expenses etc
14 Termination payments etc: amounts chargeable on employment income
15 PAYE settlement agreements
Pensions
16 Money purchase annual allowance
Trading and property businesses income
19 Calculation of profits of trades and property businesses
20 Trading and property allowances
Investment income
22 Life insurance policies: recalculating gains on part surrenders etc
23 Personal portfolio bonds
Reliefs relating to investments
24 EIS and SEIS: the no pre-arranged exits requirement
25 VCTs: follow-on funding
26 VCTs: exchange of non-qualifying shares and securities
27 Social investment tax relief
28 Business investment relief

CHAPTER 3 - CORPORATION TAX
Northern Ireland
36 Trading profits taxable at the Northern Ireland rate

CHAPTER 5 - PROVISIONS RELATING TO MORE THAN ONE TAX
Domicile, overseas property etc
41 Deemed domicile: income tax and capital gains tax
42 Deemed domicile: inheritance tax
43 Settlements and transfer of assets abroad: value of benefits
44 Inheritance tax on overseas property representing UK residential property

PART 5
ADMINISTRATION, AVOIDANCE AND ENFORCEMENT

Reporting and record-keeping
120 Digital reporting and record-keeping for income tax etc
121 Digital reporting and record-keeping for income tax etc: further amendments
122 Digital reporting and record-keeping for VAT Avoidance etc
124 Errors in taxpayers’ documents
125 Penalties for enablers of defeated tax avoidance 128 Requirement to correct certain offshore tax non-compliance

Of those clauses remaining, clearly the tax rates for this tax year had to remain! All the provisions related to offshore pension schemes, that is the overseas transfer tax charge and the increase in the amount of foreign pension income taxable from 90% to 100% remain. Likewise, OEIC interest will be paid gross instead of net as planned.

Perhaps more interesting are the clauses removed. The headline removal was the reduction in the Money Purchase Annual Allowance from £10,000 to £4,000 - will it go or stay and will it still be from April 2017? The other ‘biggie’ was the reduction in dividend taxation allowance from £5,000 to £2,000, albeit this was to apply from 2018/19.

Other clauses dropped were:

  • the provisions on ‘making tax digital’;
  • the ability for those who create disproportionate gains on investment bond gains to have their tax bill reassessed on a just and reasonable basis have been removed;
  • the new trading and property income allowances of £1,000;
  • various rules related to non-doms, including the reduction in the deemed domicile limit from 17 out of 20 to 15 out of 20; and
  • the pension advice allowance, being the increase to £500 of the income tax exemption for employer funded advice, not the ability to take three lumps sums of £500, which has already been legislated for.

The key question is what, if anything, will reappear. When introducing the revised bill to the House of Commons, Financial Secretary for the Treasury Jane Ellison MP said, “The Bill is progressing on the basis of consensus and, therefore, at the request of the opposition, we are not proceeding with a number of clauses. However, there has been no policy change. These provisions will make a significant contribution to the public finances, and the government will legislate for the remaining provisions at the earliest opportunity, at the start of the new parliament.”

With purdah having started, and the fact it is for the new government to set/confirm the policy, this means that it’s highly unlikely we’ll have any clarity on what the post-election landscape for the planner will look like.

Will these clauses reappear post-election?

Well, past performance is no guarantee of what will happen in the future! And I suppose the government could change… or change its mind!

But clauses dropped from finance bills pre-election have been re-introduced in a finance bill following the election. These have had a retrospective effect from 6 April (or earlier where an announcement to legislate with immediate effect preceded 6 April) previously.

Specific examples are:

  • the ‘Avoidance using Tax Arbitrage’ rules, which were in the Finance Bill published 24 March 2005, dropped from the Finance Act passed prior to the dissolution of Parliament for the May 2005 election and reinstated in the Finance (No. 2) Act, which received Royal Assent on 20 July 2005; and
  • changes to the Transfer of Business rules for Life Insurance, which were in the Finance Bill published 30 March 2010, dropped from the Finance Act passed prior to the dissolution of parliament for the May 2010 election and reinstated in the Finance (No. 2) Act, which received Royal Assent on 27 July 2010.

So we’re left with a period of uncertainty. One aspect is that a lot of planning will already have been undertaken on the assumption that these rules would become effective as expected.

Our Technical Helpline has already had a few people asking if this means those who have flexibly accessed their benefits can pay £10,000 into their pensions. The answer is unknown. Is it better to pay £10,000 and risk a tax charge or pay £4,000 and possibly miss out on some tax relief?

Presumably, the safest course of action when planning is to assume the rules will reappear as is, monitor developments and then re-plan accordingly.

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About the author

Les Cameron is Head of Technical at Prudential, based in Craigforth, Stirling.

Les covers most areas of financial planning, specialising in the pensions technical arena. Les joined Prudential in 1997 and has held various pensions technical and management roles throughout his career. Les holds the Advanced Diploma of the Personal Finance Society and has a BA in Financial Studies.



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