Finance Act 2016 Receives Royal Assent

October 12th, 2016

The “financial planner relevant” measures that made it through the Finance Act.

So, at last, the Finance Bill 2016 received Royal Assent on 15th September and became the Finance Act 2016.  There had been some conjecture that Royal Assent wouldn’t be given until sometime in October, not far ahead of the next autumn Statement which is set for 23rd November.

Given the tumultuous events of earlier this summer – the referendum outcome and the new government – there was some genuine concern that some of the provisions of the Bill might be reviewed, amended and possibly even dropped.

The key determinants of any such action were thought to be how the economy fared post referendum and of course the new government’s philosophy in relation to the resulting fiscal measures. Well, the economy has performed pretty well post referendum by all accounts.  There are, of course, serious question marks as to the future once we are any clearer on “what sort of Brexit” we get but for now things are not too bad.  And we know that the new chancellor, Phillip Hammond, wants to take a more measured approach to tax policy.  We also know that the new government have dropped George Osborne’s “zero deficit by 2020” goal.

So what made it through to final legislation in the Finance Act?  Well, most of what was in the Bill actually.

We knew in August (updated consultation on the reform to the taxation of non-domiciles) that the introduction of a new 15 years of residence deemed domicile provision (for all taxes) and some other related measures would all be deferred out of the draft 2016 Finance Bill to the 2017 Finance Bill. In the referred to further consultation it was stated “Budget 2016 announced that the whole package of reforms to the non-dom regime would be legislated in Finance Bill 2017 because the government believes that the changes will be better legislated as a single package.  These include the deeming provisions, for which draft legislation has previously been published.”

So that said, let’s remind ourselves of the provisions of relevance to financial planners that did make it through to the Finance Act 2016.  It has to be said that there’s some pretty relevant stuff and it all takes effect from 6 April 2016 unless stated otherwise.

The personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers – nil for additional rate taxpayers – is introduced delivering 0% tax on the relevant amounts of savings income.

The removal of deduction of tax at source for deposit takers.  This revolutionises the cash flow consequences of interest payments and receipts.

The dividend nil rate is introduced delivering  tax free dividends of up to £5,000 pa for individuals, the abolition of grossing up and tax credits, and rates of 7.5% (for basic rate taxpayers), 32.5% (for higher rate taxpayers) and 38.1% (for additional rate taxpayers and trustees) for dividends in a tax year that exceed the dividend allowance.  This has important consequences for investors, SME owners and trustees.

The standard lifetime allowance falls from £1.25m to £1m from 6th April 2016.  CPI based increases to the LTA are introduced from April 2017. Sch 4 of the Act introduces Fixed Protection 2016 and Individual Protection 2016.

The corporation tax rate for 2020 is scheduled to reduce to 17%.  The (unitary) rate will fall to 19% in 2017.  Our low CT rates will undoubtedly be presented as a powerful contributing reason why business should stay in the UK even post Brexit.

The capital gains tax rate reductions have been enacted.  Gains made from 6th April 2016 will be charged at 20% (down from 28%) for higher and additional rate taxpayers and trustees and at 10% (down from 18%) for basic rate taxpayers.  Gains made on the sale of residential property that is not the disposer’s main residence will remain assessable at the previous (unreduced) rates i.e 18% and 28% as appropriate.

The downsizing provisions in relation to the residence nil rate band are also enacted.  These contribute to the already labyrinthine provisions on this, far too complicated, relief.