Here is a summary of the key tax measures which come into effect from April 2015.
Individuals over 55 now have the flexibility to access their defined contribution pension savings as and when they want, instead of having to take an annuity when they reach retirement age. The first 25% of any lump sum taken will be tax free and the balance subject to tax at the individual’s marginal rate.
Whilst this freedom of choice may sound attractive, it is worth noting that evidence from the USA where flexible drawdown has been available for several years, shows that only circa 19% of individuals take advice on their options at retirement and, as a result, individuals exhaust their pension savings by the age of 83 on average. In addition, HMRC figures indicate that they expect to raise an additional £5bn in tax through the introduction of this measure.
In addition, the tax charges arising on the transfer or draw down of unused defined contribution pensions savings on death have been reduced, such that:
- if an individual dies before the age of 75, any unused defined contribution pension savings can be passed on without triggering a tax charge; and
- if death is after the age of 75, a beneficiary can draw down on the pensions savings at their marginal rate of tax, or 45% if the amount is taken as a lump sum.
Capital Gains Tax for non-residents
Individuals, closely controlled companies and non-resident trusts disposing of UK residential property after 5 April 2015, will be subject to tax on any gains arising after that date. The default position is that the gains arising post 6 April 2015 are calculated based on a rebased market value from 6 April 2015. However there are alternatives available including time apportionment or taking the value over the whole period of ownership. These alternatives, however are subject to differing rules where the ATED applies.
The detail of the legislation and in particular the interaction with any ATED capital gains charge, the ability for non-residents to qualify for PPR on their UK properties and the collection mechanism is complex and is worth close reading to ensure that a client’s tax position is optimised.
The marriage allowance
Married couples where neither spouse is a higher or additional rate tax payer are now entitled to the marriage allowance (previously known as the transferable personal allowance). This allows one spouse to transfer up to 10% of their personal allowance to their spouse, saving the couple a maximum of £212 in tax in 2015/16.
Couples can register for the marriage allowance on GOV.uk website and where an election is made within the tax year it is effective until it is revoked. Alternatively it can be claimed in the tax return, but in this instance it would only be effective for the tax year of the claim.
Where either spouse was born before 6 April 1935, the couple will be entitled to the married couples allowance (which works differently from the marriage allowance) but they will not be entitled to transfer any of their personal allowance to their spouse.
Changes to the remittance basis charge (‘RBC’)
Two changes have been made to the RBC from this April.
- Firstly, for non-domiciled individuals who have been resident in the UK for 12 out of the last 14 years and who claim the remittance basis, the RBC has increased from £50,000 to £60,000.
- Secondly, a new RBC of £90,000 has been introduced for non-domiciled individuals who claim the remittance basis of taxation and who have been resident in the UK for 17 out of the last 20 tax years.
HMRC is also consulting on making a remittance basis claim effective for a minimum of three years, although the final legislation has not been published. If introduced, it is likely that this would take effect from April 2016.
Diverted profit tax
The diverted profit tax (‘DPT’) was previously announced in Autumn Statement 2014. It is designed to counter aggressive tax planning by multinational groups which have put in place arrangements to avoid or reduce a charge to UK corporation tax. The charge, which is not self assessed, is a 25% charge on the profits that are considered to be artificially diverted from the UK. The charge arises in respect of such diverted profits arising from 1 April 2015.
The legislation is very complex but does contains a number of specific exemptions, including one for SMEs, companies with limited UK sales or expenses and for arrangements which give rise to loan relationships only.
Companies have 6 months from the end of their first accounting period ending on or after 1 April 2015 to notify HMRC if they are potentially in scope of the DPT and do not qualify for an exemption. However, notification is not required in a limited number of circumstances specified in the legislation, including if it is reasonable to assume that, although a company is potentially within the scope of DPT, no charge to DPT would arise for the applicable accounting period.
Employment intermediaries reporting requirements
On 6 April 2014, the tax rules changed for employment intermediaries / agencies that engage and supply workers. However, the reporting requirements only came into force on 6 April 2015. Under these, intermediaries must submit quarterly reports providing details of all workers they place with clients where they do not operate PAYE.
The first report, for the period from 6 April to 5 July, must be submitted by 5 August 2015.
The report must be made using HMRC’s template and uploaded onto HMRC systems and should contain the following details:
- The full name, address and postcode of the employment intermediary;
- The worker’s personal details;
- The engagement and payment details; and
- The reason why the intermediary is not operating PAYE. (This must be one of the six possible reasons specified by HMRC).
As this is an area of increasing HMRC attention, it is worth ensuring that the reports made are timely and accurate.
Key corporation tax rates
From 1 April 2015, all companies pay tax at 20% regardless of their size. This means that the complicated associated companies rules, which were used to determine whether a company was liable to corporation tax at the main or marginal rate, are redundant. Consequently these have been replaced with a simpler 51% group company rule which is relevant in limited circumstances, such as the long life asset threshold.
In addition, the research and development reliefs available to companies have been increased with effect from 1 April. SMEs are now entitled to an enhanced CT deduction at 230%, whilst the above the line tax credit (for large companies and companies carrying on R&D on a subcontractor basis) is increased from 10% to 11%.
Changes to the Annual Tax on Enveloped Dwellings (‘ATED’)
A number of changes have been made to the ATED with effect from 1 April 2015.
- A new banding has been introduced for properties valued at over £1m on 1 April 2012 or acquisition if later;
- Significant increases have been made to the annual charge, for example for properties between £2m and £5m the ATED charge for the year ended 31 March 2016 has increased from £15,400 to £23,350 – a 51.6% increase; and
- A new relief declaration return has been introduced. This allows one return to be submitted for each entity per relief, ie if an additional property qualifying for the same relief is acquired, an additional ATED return need not be submitted. In addition, there are transitional rules for the first year which extend the deadline for filing the 2015/16 return to 1 October 2015.
If you require any further information in relation to any of these matters please ring the TaxDesk on 0845 4900 509 and ask for the OMB team.