Update on Finance Act 2017

Last week, in order to push through Parliament before the general election on 8^th June, the Finance Bill had more than just a trim down. Known as the ‘wash-up’, it is a common occurrence before a General Election. The Opposition has a lot of power in this situation, and only measures which are entirely approved may pass. Anything else will be left for a second, post-election Finance Bill.

In it’s original form, the Bill was the largest in UK history at 762 pages long. The revised, 148-page Bill received Royal Assent on 27^th April and is now the Finance Act 2017.

So, what has been cut?

Making Tax Digital – For now, the MTD initiative has been shelved. MTD was seemingly changing on a weekly basis but the pilot was due to start last month. The current Government have put a lot of time into this plan and believe that it will revolutionise tax, so should they remain in power, MTD will probably be top of the agenda.

Dividend Allowance – The tax-free dividend allowance, that is the threshold at which people must start paying tax on dividend income, was due to be cut from £5,000 to £2,000 in April 2018. This affects more than two million people, and was due to raise between £800m and £900m. For most individuals, it would mean an extra couple of hundred pounds per year, but for those with large portfolios it could mean up to £1,000 extra tax per year. Since this wasn’t to be introduced until April 2018, it would be very easy for a Conservative Government to reinstate this measure.

Pension Contributions – From April 2017, the Money Purchase Annual Allowance (MPAA) was set to reduce from £10,000 to £4,000, and the amount of tax-free pension advice was to rise from £150 to £500. The reduction in MPAA was announced by Phillip Hammond in the Autumn Statement and then confirmed in the Spring Budget 2017. The MPAA restricts the amount of money which can be put back into a pension once benefits have been taken from the savings. A tax charge applies for contributions over the threshold amount. The tax-free advice applies to employer-arranged advice and is to be put towards general financial and tax issues related to pensions. The increase was first announced in the March 2016 Budget. Whilst it seems like a good thing that the threshold would stay at £10,000 should the clause remain to be omitted, there will be a period of uncertainty until we know either way. Hopefully, if the Tories do remain in power, they will have had some time to rethink this measure and will either scrap it completely or at least keep the threshold a little higher than £4,000.

Probate Fees – Probate fees were due to soar as of this month. Whereas the fee used to be either £155 or £215, with exemptions for estates under £5,000, the Government were set to introduce a sliding scale system. This would see some fees reaching a huge £20,000 on the largest estates. The move was deemed extremely controversial when it was first announced, as many saw it as a ‘death tax’ due to the sliding scale approach and sheer amount of money being asked for. It was right on the line of turning a fee into a tax, and many will be relieved that it has been scrapped. A senior Conservative spokesperson has declined to comment on whether this will be reintroduced should they remain in power, however the level of opposition this ‘fee’ has been subjected to should be taken into account. The £300m it was set to collect may have to be found elsewhere…

Non-domiciled Individuals – the original Bill would see that anybody who has been resident in the UK for 15 out of the last 20 years would be UK-domiciled for tax purposes, and could no longer use the remittance basis. The current domicile test is 17 out of the last 20 years. This means they would be subject to income and capital gains tax on all personal worldwide income and gains. Although these rules were omitted from the Bill, it is likely that they would be reinstated regardless of the new Government.

Trading and Property Income Allowance - George Osborne announced two new allowances of £1,000 each in his 2016 Spring Budget, which would be available to be set against sundry income, and property income that doesn’t qualify for rent-a-room relief. These allowances were to apply from 6 April 2017, but they were removed from the Bill. Anyone affected must be careful to record all extra sources of income, however small.

The wash-up was huge, and we have only outlined a few of the main changes above. If the next Government is a Conservative one, then it is extremely likely that some of the clauses will be reinstated. They have the power to backdate them to April 2017, and are likely to do this with several clauses, as they have done before. Specifically, the ‘avoidance using tax arbitrage’ rules which were in the Finance Bill of March 2005, were dropped from the Finance Act before the May 2005 election and reinstated in the Finance (No. 2) Act which received Royal Assent on 20 July 2005.

If you’d like to discuss how these recent changes may affect you and your business, please feel free to give us a call or pop in for a chat.

*All information is correct at the time of writing, and some may be subject to change.