On Wednesday 3 December, the Chancellor presented his autumn statement, some selected highlights of which we want to bring to your attention.
Countering tax anti-avoidance
We can all perfectly legally organise our tax affairs to minimise taxation within the rules and we advise our clients in this area as a regular part of our work.
However the Government have been dogged in countering what they see as aggressive anti-avoidance tax schemes. This should not be confused with our rights to plan our affairs as mentioned in the paragraph above.
The Chancellor revealed his view of anti-avoidance with the comment that he wants, “low taxes, but taxes will be paid…”
A number of measures were put in place to counter anti-avoidance :-
Enterpreneurs relief (which means a tax rate of only 10%) will no longer be claimable on goodwill transferred into a company on incorporation
Corporation tax relief is restricted on goodwill acquired into a company on incorporation
The above represented perfectly legal potential tax-saving measures and were not an aggressive method of tax planning. Clearly and unfortunately, the Government have realised that an advantage was available to taxpayers there and have removed it.
Special purposes “B share schemes” which turned dividends into capital gains for investors will not be effective from 6 April 2015
Off-shore sheltering of profits from tax by the large multi-nationals who trade here will be ignored, with their profits arising from operations in the UK being taxed in the UK
The rules on the disclosure to HMRC of tax avoidance schemes will be further strengthened
Serial tax avoiders using the above schemes will be discouraged by consideration to the imposition of financial costs and more stringent monitoring and reporting requirements on their affairs
Stamp Duty Land Tax
The unfair single rate applying to the whole property, depending on where it falls within the banding has been abolished. Instead stamp duty on residential property will be paid using graduated rates like income tax, with the duty being charged only to the part of the purchase price which falls within each band –
Up to £125,000 0%
£125,001 to £250,000 2%
£250,001 to £925,000 5%
There are new 10% and 12% rates after that. For those that exchanged but did not complete prior to the change can use the new rates if they choose. It is expected that 98% of buyers will pay less SDLT.
The Chancellor reiterated the Government’s commitment to the pension reforms published in the Budget. He also confirmed the recent announcement to abolish the 55% tax charge which currently applies on death to all pension funds held by a person who dies over the age of 75 and on crystallised funds of those under that age.
The new proposals are –
For those dying below 75, the fund passes to a nominated beneficiary tax free
For those dying over 75, the fund will be taxed at the beneficiary’s marginal rate of tax
Starting rate of tax for savings income
From 6 April 2015, the maximum amount of an individual’s savings income that can qualify for the starting rate of tax for savings will be increased to £5,000 from £2,880, and this starting rate will be reduced from 10% to nil. These rates are not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income) exceeds the starting rate limit.
Class 2 National Insurance contributions (NIC)
From 6 April 2015 liability to pay Class 2 NIC by the self employed (not company owners) will arise at the end of each year. Currently a liability to Class 2 NIC arises on a weekly basis.
The amount of Class 2 NIC due will still be calculated based on the number of weeks of self-employment in the year, but will be determined when the individual completes their self assessment return. It will therefore be paid alongside their income tax and Class 4 NIC. For those that wish to spread the cost of their Class 2 NIC, HMRC will retain a facility for them to make regular payments throughout the year. The current six monthly billing system will cease from 6 April 2015.
Those with profits below a threshold will no longer have to apply in advance for an exception from paying Class 2 NIC. Instead they will have the option to pay Class 2 NIC voluntarily at the end of the year so that they may protect their benefit rights.
Employer National Insurance contributions (NIC) for the under 21s
From 6 April 2015 employer NIC for those under the age of 21 will be reduced from the normal rate of 13.8% to 0%. For the 0% rate to apply the employee will need to be under 21 when the earnings are paid.
This exemption will not apply to earnings above the Upper Secondary Threshold (UST) in a pay period. The weekly UST is £815 for 2015/16 which is equivalent to £42,385 per annum. Employers will be liable to 13.8% NIC beyond this limit.
A very merry Christmas and prosperous new year to you, from all of us at BAYLISS WARE
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