TAX UPDATE UK · 2019-12-19 · QROPS: Note that in light of statutory instrument 673/2015 Qualifying Recognised Overseas Pensions (QROPS) must designate 70% of an individuals’

F O R F I N A N C I A L A D V I S E R S O N LY, N O T T O B E D I S T R I B U T E D T O C L I E N T S This Tax Update is for general information only and must not be regarded as an offer or invitation to acquire an interest or participate in any offshore bond. Capitalised terms within this document have the meanings given to them in the definitions section of the (UK) Master Technical Guide.

I S S U E D B Y U T M O S T W O R L D W I D E L I M I T E D

TA X U P DAT E F O L L O W I N G T H E B U D G E T S O F 2 015J U LY 2 015

TAX UPDATEUK

This Tax Update is for general information only and must not be regarded as an offer or invitation to acquire an interest or participate in any offshore bond.

3I N C O M E TA X

6P E N S I O N C H A N G E S

7C O R P O R AT I O N TA X

8C A P I TA L G A I N S TA X ( C G T )

9I N H E R I TA N C E TA X ( I H T )

10TA X A V O I D A N C E , P L A N N I N G A N D F A I R N E S S


› From April 2015 to April 2016 an individual can earn up to £42,385 before becoming a higher rate taxpayer.

› This is calculated by adding the available personal allowance, as set out below, to the applicable basic rate tax total.

› Any income which is in excess of £42,385 will be taxed at the higher rate of tax. i.e. 40%.

› From April 2016 the higher rate threshold will increase to £43,000.

› In tax year 2017/2018 the higher rate is set to further increase to £43,600.

Please see the Personal Allowances and Bands of taxable income sections below for more detail:

a) Limit: The personal allowance reduces where the individual’s income is above £100,000; reducing by £1 for every £2 above this limit. This applies regardless of the individual’s date of birth.

b) Transferable tax allowances for married couples: From April 2016 married couples will be able to transfer £1,060 of their Income Tax personal allowance to their spouse or civil partner. This is only available if neither spouse/ partner is a higher or additional rate tax payer. The transferable amount is 10% of the personal allowance in each tax year.

c) ISAs: The ISA limit has been increased to £15,240 and an individual can invest this amount tax free each year. From April 2015 surviving spouses can invest an amount equal to what their spouse held in their own ISA and enjoy the tax benefits previously shared on top of the usual allowance. In addition the Government will be introducing a help to buy ISA scheme whereby the Government will provide up to £3,000 on £12,000 of savings beginning in December 2015.

d) The UK personal allowance for UK non-residents: The UK Government intends to consult on whether and how the allowance could be restricted to UK residents and those living overseas who have strong economic connections in the UK. This issue is still at the consultation stage and no change is expected before April 2017.

e) Personal allowance in the future: The UK will legislate to ensure that once the Personal Allowance has reached £12,500 it will be uprated in line with the minimum wage. Specifically the figure will be maintained to an amount whereby an individual working 30 hours per week and earning the minimum wage would not pay tax.

Personal allowances

2014/2015 2015/2016 2016/2017

Standard Allowance (Born post April

1948)£10,000

aged 67 and under

£10,600aged 67

and under£11,000

Born between 6 April 1938

and 5 April 1948Up to £10,500 aged 67-77 £10,600 aged 67-77 £11,000

Born before 6 April 1938 Up to £10,660

aged 77 and over

Up to £10,660aged 77 and over

Up to £11,060

I N C O M E TA X

Ta x Update – UK | 3


Bands of taxable income

2014/2015 2015/2016 2016/2017

Basic rate (20%) 0 - £31,865 Basic rate (20%) 0 - £31,785 Basic rate (20%) 0 - £32,000

Higher rate (40%)£31,865.01 -

£150,000Higher rate (40%)

£31,785.01 - £150,000

Higher rate (40%)£32,000.01 -

£150,000

Additional rate (45%) Over £150,000



TAX BAND ALLOWANCE

Basic rate Taxpayer £1,000

Higher rate Taxpayer £500

Additional Higher rate Taxpayer £0

Dividends

2015/2016EFFECTIVE TAX RATE

POST TAX CREDIT2016/2017

Basic rate (10%) 0 - £31,785 0% Basic rate (7.5%) 0 - £32,000

Higher rate (32.5%)£31,785.01 -

£150,00025% Higher rate (32.5%)

£32,000.01 - £150,000

Additional rate (37.5%)

Over £150,000 30.56%Additional rate

(38.1%)Over £150,000

› A 10% Dividend tax credit is currently available. As such the gross dividend figure is multiplied by 10/9 before taxation. The result is that basic rate taxpayers are not subject to tax on their dividends.

› The Government announced in the Summer Budget that the 10% Dividend tax credit will be abolished in April 2016.

› Instead the Government will introduce a £5,000 dividend annual allowance.

Savings income

› As of 6 April 2015, a starting rate for savings income has been introduced at 0%.

› The 0% rate will apply to the first £5,000 of savings income only and is deemed as an allowance.

› The allowance is only effectively available when an individual’s total income ranges between £10,600 and £15,600.

› In addition from April 2016 new savings income allowances will be introduced as set out below:

4 | Ta x Update – UK


Special rates for trustees’ income

2014/2015 2015/2016

Standard rate on first £1,000 of income which would otherwise be taxable at

special rates for trustees

Up to 20%, depends on the type of income

Up to 20%, depends on the type of income

Trust rate 45% 45%

Dividend trust rate 37.5% 37.5%

› The Government has proposed to improve tax compliance among wealthy individuals and is beginning a consultation process with regard to enhancing the information reported to HMRC by wealthy UK resident individuals and trustees. HMRC is considering extending its use of dedicated Customer Relationship Managers to individuals with a net wealth of between £10 million and £20 million.

Ta x Update – UK | 54 | Ta x Update – UK


P E N S I O N C H A N G E S

Pension savings – tax relief

2014/2015 2015/2016 2016/2017

Annual allowance £40,000 Annual allowance £40,000 Annual allowance £40,000

Standard lifetime allowance

£1.25MStandard lifetime

allowance£1.25M

Standard lifetime allowance

£1.00M

› The amount of contributions that can be paid into a UK registered pension scheme is unlimited but only a certain figure is tax free. The relevant allowances are set out in the table above.

› The Pension Contribution Income Tax Relief (Annual Allowance) in the 2015/16 tax year is £40,000.

› The Government announced in the Summer Budget 2015 that changes to the Annual Pension Contribution allowance will be implemented from April 2016. The changes will affect high income tax payers earning £150,000 or more per year by reducing the £40,000 allowance by £1 for every £2 of income earned (inclusive of pension contributions) above £150,000. This reduction is limited to a minimum allowance being available of £10,000. i.e. if annual earnings are £210,000 or more the individuals allowance will be £10,000.

› Note that if an individual has an income of £110,000 or less, excluding pension contributions, then the tapered annual allowance will not be applied.

› In addition there is a limit on the amount of savings that an individual can make in all UK registered pension schemes in his/her lifetime (Lifetime Allowance) without triggering an additional tax charge (Lifetime Allowance Charge). This Lifetime Allowance will remain at £1.25 million for the 2015/16 tax year but is expected to decrease in 2016 to £1 million before becoming indexed each year from April 2018 in line with inflation as per the Consumer Price Index (CPI).

› Individuals can utilise up to 25% of a UK registered pension pot as a tax-free lump sum (Pension Commencement Lump Sum (PCLS)).

Increased Pension Flexibility: As of April 2015 individuals aged 55+ can access as much of their defined contribution pensions as they wish. Three options are effectively available to the individual:

a) Lifetime annuity: Individual can purchase an annuity and use a 25% lump sum tax free. The remainder is taxed as per the individuals’ marginal rate of income tax.

b) Flexi-access drawdown: Individual can enter into a drawdown arrangement. No restrictions apply on the amount that can be taken each year and again a 25% lump sum can be taken at the same time the arrangement is set up. The remainder is taxed at the individuals’ marginal income tax rate.

c) Lump sum payment: Individual can acquire the entire pension fund as they wish without the need for an annuity and 25% of same is tax free. The remainder is taxed at the relevant marginal rates. This lump sum payment will be called “uncrystallised funds pension lump sum (UFPLS)”.

› Under 55: If an individual is under the age of 55 and receives income from their pension provider, unless expressly authorised under the particular scheme, they may be deemed to be in receipt of an unauthorised payment and the sum will be taxed at a rate of 55%.

› The Government will not introduce a secondary market for the sale of annuities until 2017-2018.



QROPS: Note that in light of statutory instrument 673/2015 Qualifying Recognised Overseas Pensions (QROPS) must designate 70% of an individuals’ relevant pension pot to provide the individual with an income for life. i.e. the individual cannot effectively benefit from the flexi-access drawdown opportunities above. This measure was highlighted as temporary but no indication has been provided as to when it will be lifted.

Pension tax (age 75 rule): The UK Government will not be amending the age limit at which tax relief is available on pension contributions. This will remain at age 75.

Beneficiary taxation following Pension holder death: From April 2015 an individual can pass on their unused defined contribution pension savings to any nominated beneficiary when they die. If the deceased was under 75 and no payment was taken up prior to 6 April 2015 savings will be transferred tax free. If the deceased was 75+ however the beneficiary will be liable to the marginal rate of income tax if taken as retirement income or a fixed 45% tax rate if the amount is taken as a lump sum.

C O R P O R AT I O N TA X

› The main rate of corporation tax has been reduced to 20% from 6th April 2015.

› It is expected, per the UK Summer Budget, that Corporation Tax will fall to 19% in the 2017/2018 tax year and further fall to 18% in the 2020/2021 tax year.



C A P I TA L G A I N S TA X ( C G T )

Bands of taxable gains and annual exemption

BANDS OF TAXABLE GAINS

(2014/2015)

BANDS OF TAXABLE GAINS

(2015/2016)

ANNUAL EXEMPTION (2014/2015)

ANNUAL EXEMPTION (2015/2016)

Standard rate (applicable to

individuals)18%

Standard rate (applicable to

individuals)18% Individuals £11,000 Individuals £11,100

Higher rate (applicable to

individuals and trustees)

28%

Higher rate (applicable to

individuals and trustees)

28%For most trustees

£5,500For most trustees

£5,500

› A basic rate taxpayer will pay tax at the standard rate of tax (18%).

› A higher rate taxpayer will pay tax at the higher rate of tax (28%).

• In order to calculate whether an individual will pay the higher or standard rate of capital gains tax the following steps should be taken:

i) An individual’s ordinary income should be calculated less the ordinary income personal allowance.

ii) The capital gain is then added to that amount, less any available capital gain annual exemption.

iii) If the net ordinary income plus the net capital gain together amount to a figure within the basic income tax band, i.e. up to £31,785.00, the gain is taxed at 18%.

iv) In the alternative if any amount of the gain, from the combined figure, is in the higher income rate band, i.e. £31,785.01 or more, the gain is taxed at 28%.

› Trustees are always taxed at the higher 28% tax rate.

› Non-Resident individuals/ trusts/ personal representatives will be subject to CGT from 6 April 2015 on any disposal of property located in the UK.

› Private Residence Relief (PRR) on property in other jurisdictions will be restricted if the property is in a jurisdiction where the individual is not tax resident, per the 90 day residency test.



Nil-rate band

› The Nil Rate band for 2015-2016 remains at £325,000. This is the amount that an individual can pass on from their estate each year tax free.

› Spouses can pass their estates to one another tax free at death.

› A Married individual can also utilise the Nil Rate band of a predeceased spouse and therefore could have an allowance up to £650,000.

The available individual allowance predictions are set out below:

YEAR ADDITIONAL NIL RATE BAND FOR RESIDENCE TOTAL NIL RATE BAND

2015-2016 - £325,000

2016-2017 - £325,000

2017-2018 £100,00 £425,000

2018-2019 £125,000 £450,000

2019-2020 £150,000 £475,000

2020-2021 £175,000 £500,000

2021-2022 In line with Inflation £500,000(+/-)

› At the Summer Budget 2015, the Government announced its plans to extend the freeze on the IHT threshold of £325,000 until 2020-2021.

› The excess over the nil-rate band will be subject to an IHT rate of 40%.

› In addition the Government announced that in April 2017 an additional Nil Rate band will be introduced when a residence is passed at death to a direct descendant.

› A married couple have a combined allowance of £1 million, any unused allowance from one spouse will transfer to the other.

› The additional allowance will also remain if an individual downsizes their home or sells their home after 8th July 2015 and assets of an equivalent value are passed on at death.

› A tapered withdrawal will also exist in respect of estates with a value in excess of £2 million.

› From April 2017 any UK based residential property held in an offshore structure will be deemed to be held directly and thus subject to inheritance tax.

I N H E R I TA N C E TA X ( I H T )



Marketed tax avoidance schemes:

The Government still aims to enact tougher measures for serial offenders in respect of tax avoidance schemes. These are said to include special reporting requirements and a surcharge for an incorrectly filed tax return as a result of a tax avoidance scheme. Reliefs may also be restricted against repeat offenders.

Legislation:

Legislation is being considered to widen the scope in respect of scheme promoters and will enable HMRC to issue conduct notices to a wider range of individuals connected to the promoters of a tax avoidance scheme. A 3 year time limit for such notices is also expected to apply.

Disclosure of Tax Avoidance Schemes regime (DOTAS) improvements:

The Government will implement changes to the current DOTAS regime, including:

i) Requirement for employers to notify employees of their involvement in avoidance schemes relating to their employment and notify HMRC of same.

ii) HMRC to have power to identify users of undisclosed avoidance schemes.

iii) Increase penalty for those who do not comply with reporting requirements.

iv) Provide protection to individuals who provide information relating to non-compliance with DOTAS.

v) HMRC to publish information relating to promoters and schemes.

vi) Further details to be provided regarding schemes which must be disclosed and with particular focus on inheritance tax avoidance schemes.

Civil Penalties:

The budget includes a statement setting out that the Finance Bill 2015 will include enhanced civil penalties for offshore tax evasion.

Private equity management fee planning:

From 6 April 2015 legislation will be enacted which ensures that sums which arise to investment managers for their services are charged to income tax.

New rules have been enacted to catch income from the profits on a fund, known as carried interest, from evading the 28% Capital Gains tax rate. Asset managers are deemed to be unable to avoid paying this tax in the future on the carried interest.

TA X AV O I D A N C E , P L A N N I N G A N D FA I R N E S S


C O N TA C T U S

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The information contained in this document is based on Utmost Worldwide’s understanding of UK law and Her Majesty’s Revenue and Customs (HMRC) practice as at 8th July 2015, which may change in the future, and no other jurisdiction. Independent tax advice should always be sought by clients as regards the tax laws of their jurisdiction(s) of residence and/or domicile before investing in an offshore bond. Every care has been taken to ensure the accuracy of the information contained in this document, but Utmost Worldwide can accept no responsibility for any actions taken or decisions made as a result of this document. This document contains general comment/ information only and does not give advice on any particular matter or individual circumstances. This document is not intended for Hong Kong or Singapore residents.

Documents

TAX UPDATE UK · 2019-12-19 · QROPS: Note that in light of statutory instrument 673/2015 Qualifying Recognised Overseas Pensions (QROPS) must designate 70% of an individuals’