A number of changes to UK Tax law are either underway or at advanced consultation stage that may affect business owners, the self-employed, those in (or planning) flexi drawdown arrangements or near the current Inheritance Tax limits. In this post we summarise the key issues.
Making Tax Digital
The Government has confirmed ‘making tax digital’ will be in force by April 2018. To quote from the Government policy document ‘Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions.’
Some have translated this to mean ‘passing the work of HMRC back to the small business/individual’ but whatever view you may wish to take it is important to note:
- Self-employed people and small businesses will be required to submit quarterly returns online.
- The self-employed, businesses and landlords in employment (and pensioners) with a second business with a turnover of less than £10,000 per annum will be exempt.
- businesses will be permitted to use spreadsheets to record their receipts and expenditure and submit them online.
- accounting income and expenditure on a ‘cash in, cash out basis’ will be extended.
There will be a ‘soft landing’ on fines and penalties with businesses permitted 12 months to adjust to the changes.
Money Purchase Annual Allowance
In principle individuals earning up to £150,000 per annum are allowed to pay a maximum of £40,000 into their pension fund and qualify for tax relief although in practice those earning over £110,000 may have their allowance reduced. The £40,000 limit includes anything paid into the pension fund by the individual, their employer and any third party. There are rules on unused allowances from previous tax years that may be carried forward.
Effective 6 April 2017 if an individual accesses a money purchase pension (for example a pension fund in drawdown) the annual allowance is reduced to £4,000 per annum (Update -3 May 2017 – This change has been dropped by the treasury but may well be re-instated at some point in the future. The allowance has returned to a limit of £10,000 per annum). The rules on how the Annual Allowance limit is applied (and who is exempt) are complex and if concerned it is best to take professional advice.
Inheritance Tax – Main Residence Nil Rate Band
the introduction of the main residence nil-rate band from April 2017 could offer a way to reduce an estate’s tax liability. Currently, If an estate is worth over £325,000 it will be liable for inheritance tax (IHT) although married couples and those in civil partnerships can pass on any unused allowance to their spouse or partner. Currently, the individual’s home and everything in it is included in the inheritance calculation.
The Main residence nil rate band may be set off against the value of the estate from April 2017. In the tax year 2017-18 the family home allowance will be £100,000, increasing thereafter at £25,000 per year to a maximum of £175,000 in the tax year 2020-21. Thereafter, the main residence nil rate band will increase with the Consumer Prices Index (CPI).
The rules surrounding Inheritance Tax are complicated so if it is an area of concern it is best to take appropriate financial advice.
The information in this article does not constitute financial or other professional advice. You should not take action on the basis of this article without seeking regulated independent financial advice that addresses your specific circumstances. Any tax treatment depends on the individual circumstances of each client and this article represents our interpretation of current legislation and HMRC practice as at the date of publication. These may change in future. It is important to note tax planning is not regulated.