The current low rate of inflation means that the ISA allowances for 2016/17 will be unchanged from the current year (£15,240 for an adult ISA, £4,080 for a Junior ISA).We were pleased when the Government previously announced that surviving spouses can effectively inherit their deceased spouse's ISA and retain the ISA tax advantages. However, the actual administration of these is complex, so we were also pleased that the Chancellor has now announced plans to make changes to allow the ISA savings to continue to benefit from tax advantages during the administration of the estate. This will be introduced in 2016 after consultation with ISA providers.
Deeds of Variation
Deeds of Variation enable alterations to the distribution of a deceased person's estate. Where that change is made within two years of death it is treated for tax purposes as if the deceased made the change themselves. Such changes can assist with ensuring that assets are passed to the correct beneficiaries, as well as with tax planning. The Government announced a review in March, and have thankfully now confirmed that the conclusion of that review is that no change is needed, though they have said they will continue to monitor their use.
As expected, there was no update on the recent pensions tax relief consultation. Full details on this are expected to be announced in the March 2016 Budget. We continue to be of the belief that the current rate of relief for higher rate taxpayers makes pension contributions very attractive, with the remainder of the current financial year representing a finite opportunity to benefit from this.The chancellor also announced the closure of a loophole which could have lead to Inheritance Tax being due on pensions in certain specific circumstances. Whilst HMRC had publicly said that they did not expect to levy Inheritance Tax in these situations, it is reassuring that the legislation is to be changed to clarify this (and be backdated to apply to all deaths since 6th April 2011).
Salary sacrifice is a mechanism whereby an individual receives a lower salary in return for a higher pension contribution from their employer. This can have tax benefits to both employer and employee. However, the Government "remains concerned" about the growth of salary sacrifice arrangements (and the resultant loss of tax revenues to the Chancellor) and is considering what action, if any, is necessary. The government will gather further evidence, including from employers, on salary sacrifice arrangements before making any recommendations.Further detail on creating a secondary annuity market and related consumer protection will be published in December. This new market is to allow those who previously bought an annuity to now sell that annuity and receive a lump sum from which they can then potentially benefit from the new pension freedoms.
Stamp Duty on buy to let and second properties
Following on from previously announced changes to the level of tax relief that a buy to let owner can claim on mortgage interest paid, the Chancellor has further targeted this area as a source of tax revenue. In the Autumn Statement he announced an increase in stamp duty for those buying a second property in England, Wales or Northern Ireland. This will take effect from 1st April 2016 and be charged on purchases of additional residential properties (above £40,000), such as buy to let properties and second homes. The higher rates will be 3 percentage points above the current rates. Whilst this increase is not directly relevant in Scotland (where Land and Buildings Transaction Tax applies instead), it will be interesting to see if the Scottish Government decides to follow suit.
Income tax - age related personal allowance
As announced previously, the personal allowance will increase from £10,600 in 2015/16, to £11,000 in 2016/17 and to £11,200 in 2017/18. As a result, from 2016/17, the age related personal allowance will cease to apply. Previously, those born before 6th April 1938 benefitted from a higher personal allowance.
Eligible investments in VCT, EIS and SEIS
The government announced changes to the excluded activities of the Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCT) and Seed Enterprise Investment Scheme (SEIS). With effect from 30th November 2015, the provision of reserve energy generating capacity and the generation of renewable energy benefiting from other government support will no longer be qualifying activities. However, these changes are not backdated so will not affect existing investments. It will also have no impact on similar investments that are designed to qualify for Business Property Relief and the future potential to reduce an Inheritance Tax liability.
We now await the Scottish Draft Budget for 2016/17 which is due to be published on 16th December, two days before the Scottish Parliament Christmas recess. The date had been selected in order to allow the Scottish Government to consider the contents of the Autumn Statement, specifically the UK Government Spending Review. The main point of general interest in the Scottish Budget Statement is likely to be the announcement on the Scottish rate of income tax (SRIT) which is due to come into effect from 6th April 2016. Will the Scottish Budget create a tax differential across the border? And if it does, then what impact will this have on the flow of people and capital?