UK Spring Budget 2017

UK Spring Budget 2017.jpgUK Chancellor Philip Hammond delivered his first (and the last) Spring Budget on Wednesday 8th March 2017, which on the whole was a reasonably low key budget.

However, we got a curve ball in the form of the introduction of a charge on transfers to overseas pensions. We are working through the detail, but many UK pension transfers may now be subject to a 25% charge.

With Article 50 being triggered in the near future, will the new Autumn Budget bring a few more surprises?

Pensions

Overseas pension schemes

Legislation will be introduced in the Finance Bill 2017 so that transfers to a Qualifying Recognised Overseas Pension Scheme or ‘QROPS’ requested on or after 9 March 2017 will be taxed at a rate of 25% unless at least one of the following applies:

  • Both the individual and the QROPS are in the same country after the transfer.
  • The QROPS is in one country in the EEA (an EU Member State, Norway, Iceland or Liechtenstein) and the individual is resident in another EEA country after the transfer.
  • The QROPS is an occupational pension scheme sponsored by the individual’s employer.
  • The QROPS is an overseas public service pension scheme as defined at regulation 3(1B) of Statutory Instrument (SI) 2006 No. 206 and the individual is employed by one of the employers participating in the scheme.
  • The QROPS is a pension scheme established by an international organisation as defined at regulation 2(4) of SI 2006 No. 206 to provide benefits in respect of past service and the individual is employed by that international organisation.

Other legislation to be introduced:

  • UK tax charges will apply to a tax-free transfer if, within five tax years, an individual becomes resident in another country so that the exemptions would not have applied to the transfer.
  • UK tax will be refunded if the individual made a taxable transfer and, within five tax years, one of the exemptions applies to the transfer.
  • the scheme administrator of the registered pension scheme, or the scheme manager of the QROPS making the transfer, is jointly and severally liable (with the member) to the tax charge and, where there is a tax charge, they are required to deduct the tax charge and pay it to HM Revenue and Customs (HMRC). This applies to scheme managers of former QROPSs that make transfers out of funds that have had UK tax relief if the scheme is a QROPS on or after 14 April 2017 and at the time the transfer to the former QROPS is received.
  • payments out of funds transferred to a QROPS on or after 6 April 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident.

It will take some time to understand how these changes work in practice. For anyone considering a transfer of a UK pension, it is highly recommended to seek further advice in light of these changes.

Speak to Intelligent Investments today for a comprehensive, no obligation review of your retirement provisions. Email insight@intelligentinvestments.biz

These significant changes are in addition to the changes previously announced.

  • The requirement that at least 70% of a member’s fund must be used to provide an income for life will be removed from the conditions that a pension scheme has to meet to be an ‘overseas pension scheme’ or a ‘recognised overseas pension scheme’, thereby enabling such a scheme to provide flexi-access drawdown.
  • To limit abuse, rules are in place that a tax charge may apply to individuals who have been resident outside the UK for less than five years. This period is to be extended to 10 years.
  • Where a foreign pension or lump sum is paid to a UK resident, 100% of the pension arising will be chargeable to UK tax (to the same extent as if they had been paid from a registered pension scheme).
  • There is a very niche group of overseas individuals who may have pension benefits under Section 615 of ICTA 1988. No new schemes can be accepted from 6 April 2017, and no further contributions can be made to existing schemes from that date.

The Money Purchase Annual Allowance (MPAA)

Regulations were introduced from 6 April 2015 to restrict money purchase pension contributions to £10,000 per annum for individuals who have flexibly accessed pension benefits. The Government consulted on reducing the MPAA to £4,000 per annum and has confirmed that this change will be made with effect from 6 April 2017.

The Government will publish its full response to the consultation on 20 March 2017.

Income tax

Personal allowance

The tax-free personal allowance is being increased to £11,500 in 2017/18.

For higher rate taxpayers, the threshold above which higher earners start paying 40% tax is being increased to £45,000 in 2017/18.

Dividend allowance

From the 2018/19 tax year, the amount of dividend income that is charged at the nil rate will be reduced to £2,000.

Trading and property income allowances

The Government will legislate in the Finance Bill 2017 to create two new income tax allowances of £1,000 each for trading and property income. The allowances can be deducted from income instead of actual expenses.

Tax avoidance

Promoters of tax avoidance schemes (POTAS)

The Finance Act 2015 introduced changes to legislation to ensure that promoters of such schemes could not use associated or other new entities to sidestep the intention of the POTAS legislation. The Government clearly believes that the 2015 legislation didn’t go far enough and they are therefore introducing changes to Part 5 of Schedules 34 and 36 of the Finance Act 2014. The amendment introduces the term ‘significant influence’ to ensure that promoters of schemes cannot re-organise their businesses so that they put a person between themselves and the promoting business. The change provides greater clarity and strengthens the Government’s commitment to crack down on tax avoidance schemes.

Disclosure of indirect tax avoidance schemes

The Government will legislate in the Finance Bill 2017 to strengthen the regime for disclosure of indirect tax avoidance. Scheme promoters will primarily be responsible for disclosing schemes to HMRC in respect of indirect taxes.

Offshore evasion: requirement to correct previous non-compliance

The Government will legislate in the Finance Bill 2017 to apply a new ‘requirement to correct’ for those who have failed to declare UK tax on offshore interests. Tougher sanctions will be applied for those who fail to do this before 1 October 2018.

 

Tax year 2016 to 2017

Tax year 2017 to 2018

Personal taxation

Income tax bands

Basic

£1-£32,000

£1 – £33,500

Higher

£32,001 – £150,000

£33,501 – £150,000

Additional

Over £150,000

Over £150,000

Income tax rates (main rate)

Basic

20%

20%

Higher

40%

40%

Additional

45%

45%

Starting rates for savings income

0%

0%

Income tax rates (dividends)

Basic

7.5%

7.5%

Higher

32.5%

32.5%

Additional

38.1%

38.1%

Income tax allowances

Personal allowance

£11,000

£11,500

Starting rate for savings income

£5,000

£5,000

Dividend allowance

£5,000

£5,000

Personal savings allowance

Basic rate: £1,000
Higher rate: £500
Additional rate: £0

Basic rate: £1,000
Higher rate: £500
Additional rate: £0

Capital gains tax rates

Main rates for individuals

10% / 20%

10% / 20%

Residential property (not otherwise eligible for relief)

18% / 28%

18% / 28%

Capital gains tax allowances

Annual exempt amount

£11,100

£11,300

Inheritance tax

Nil rate band

£325,000

£325,000

Residential nil rate band (RNRB)

£0

£100,000

Rate (estates)

40%

40%

Reduced rate (10% of estate to charity)

36%

36%

Rate (CLTs)

20%

20%

Trusts and estates

Income tax bands

Standard rate band

Up to £1,000

Up to £1,000

Income tax rates

Trust rate

45%

45%

Dividend trust rate

38.1%

38.1%

Capital gains tax allowances

Annual exempt amount

Up to £5,550

Up to £5,650

Capital gains tax rates

Main rate

20%

20%

Residential property (not otherwise eligible for relief)

28%

28%

Corporate

Corporation tax

20%

19%

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