Spring Budget 2017 Summary
Chancellor Philip Hammond delivered his first and last Spring Budget on Wednesday 8 March 2017. With Brexit looming on the horizon, the Chancellor’s speech was cautious and measured, with few changes made to the current tax measures already in place. More will be expected in the Autumn Budget with the triggering of Article 50 at the end of March and Brexit negotiations to follow. Emphasis was placed on making the tax system fair, sustainable and competitive, particularly in relation to employed and self-employed individuals.
The key tax budget proposals include:
National Insurance Contributions: Class 4 NICs for the self-employed will increase by 1% from April 2018 to 10% and a further 1% in 2019 to 11%. This will move towards an alignment of the tax rates between the self-employed and employed. As previously announced Class 2 NICs will be abolished from 2018.
Dividend rates and allowances: From April 2018 the tax-free dividend allowance will fall from £5,000 to £2,000.
No changes were announced to the tax rates on dividends, which remain at 7.5% for basic rate taxpayers, 32.5% for higher rate payers and 38.1% for additional rate payers.
Making Tax Digital: There will be an increase in the cash entry threshold to £150,000 for unincorporated businesses and landlords. The start date for quarterly digital reporting has been deferred by one year for businesses and landlords falling below the VAT threshold until April 2019.
Other tax budget proposals of note include:
Income Tax Allowances: The personal allowance will increase to £11,500 from April 2017 and the higher rate threshold increased to £45,000 (unless you are living in Scotland – £43,000).
VAT: The registration and deregistration thresholds will increase by £2,000 to £85,000 and £83,000 respectively from 1 April 2017.
Personal Service Companies: There will be continued review of the application and status of those operating through a personal service company.
Trading and property allowances: Two new income tax allowances have been introduced of £1,000 each. These operate as a deduction from that particular form of income, rather than expenses incurred.
Interest Restriction for Buy To Let Landlords: Tax relief on interest payments is being restricted from April over the next four years, with relief being restricted fully to basic rate from 2020.
Pension Contributions: No change to higher rate tax relief or the Annual Allowance. But the money purchase annual allowance, which applies to those already in drawdown, will reduce from £10,000 to £4,000 from April 2017.
Salary Sacrifice and employment benefits in kind: No changes, other than those previously announced, which were to remove the income tax and NI advantages on those benefits provided under salary sacrifice. There are transitional rules in place for arrangements entered into before 6 April 2017.
Termination Payments: Alignment of the income tax and employers National Insurance on termination payments. No change to £30,000 exemption for income tax but employers National Insurance is now payable on the excess. Non-contractual PILON’s will be treated as earnings and Foreign Service Relief will be abolished from April 2018.
Inheritance Tax: Nil rate band remains the same at £325,000 per person. The main residence nil rate band is being phased in from April 2017 at £100,000, rising to £175,000 by 2020. The rate remains unchanged at 40%.
Foreign Pensions: The tax treatment of foreign pensions will be aligned with UK pensions; the 10% exemption will be removed from 6 April 2017.
Domicile: New deemed domicile rules for income tax and capital gains tax for individuals who have been resident for 15 out of the past 20 years. Existing non-doms will be able to segregate income and gains within their mixed funds.
UK Residential Property: UK residential property held by non-resident trusts and/or non-resident companies will become exposed to UK inheritance tax from 6 April 2017, creating an overnight exposure at up to 40%.
Offshore Property Developers: Profits from trading in and developing on land in the UK have been subject to UK taxes since 8 March 2017 and the legislation is being amended to include this in the 2017 Finance Act.
Corporation Tax Rates: No changes to the planned reduction in rates, falling to 19% from April 2017 and to 17% from April 2020.
Substantial Shareholdings Exemption: From April 2017 the investing company requirement will be removed and a more comprehensive exemption for companies owned by institutional investors will be introduced.
Loss Relief Reform: Flexibility for the use of carried forward losses but a restriction where the group profits are above £5m.
Corporation Tax interest deduction: A limit will be placed on large companies to limit tax deductions of greater than £2m interest expenses.
Trading stock: Removal of the ability to move losses on capital assets into more flexible trading losses.
Annual Tax on Enveloped Dwellings: The ATED charges are increasing from 1 April and a revaluation is required on all properties within the charge, this will determine the ATED band they fall into from April 2018.
Insurance Premium Tax: Rate to rise by 2% to 12% on insurance products from June 2017
Tax Avoidance: There will be a strengthening of sanctions and deterrents aimed at reducing tax avoidance, in particular offshore tax avoidance.
Social Investment Tax Relief: Amendments to the requirements for qualification under the relief are being made to reduce the number of full-time employees, exclude certain activities and use of money raised. The amount of investment available will increase after 6 April to those still qualifying.