2015 Autumn Statement and Spending Review: key private client announcements

Practical Law UK Legal Update 2-620-2703 (Approx. 23 pages)

2015 Autumn Statement and Spending Review: key private client announcements

2015 Autumn Statement and Spending Review

On 25 November 2015 the Chancellor, George Osborne, delivered his Autumn Statement and Spending Review responding to economic forecasts published by the Office for Budget Responsibility.

This update summarises the most important announcements for private client practitioners. For business tax announcements, see Legal update, 2015 Autumn Statement and Spending Review: key business tax announcements. For all other announcements, see Other announcements. For the views of leading tax experts, see Article, 2015 Autumn Statement and Spending Review: tumbling down the rabbit hole.

Draft legislation for the Finance Bill 2016 is to be published on 9 December 2015. To follow progress of the Bill as a whole and specific measures of interest to private client practitioners, see Private client tax legislation tracker 2015-16.

For information about tax rates and limits of interest to private client practitioners, including information about future rates announced in the Autumn Statement and elsewhere, see Practice note, Tax data for individuals and trustees.

Lifetime planning

Income tax: starting rate for savings income threshold unchanged for 2016-17

The government has confirmed that the amount of an individual's savings income that qualifies for the starting rate of income tax (currently 0%) will remain unchanged at £5,000 for the tax year 2016-17.

The current rate and threshold were announced in the 2014 Budget and took effect from 6 April 2015. For further background on income tax rates and thresholds, see Practice note, Tax data: income tax.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.31.)

Income tax: farmers' averaging period extended to five years

The government confirmed that the Finance Bill 2016 will include legislation extending the averaging period for self-employed farmers to five years with effect from April 2016. Farmers will be given the option to use the extended five-year averaging period or the existing two-year averaging period.

This measure was first announced in the March 2015 Budget and confirmed in the July 2015 Budget, when a consultation document was published seeking views on how the extension should be designed and implemented (see Legal updates, March 2015 Budget: key private client tax announcements: Income tax: farmers' averaging period to be extended to five years and July 2015 Budget: key private client tax announcements: Averaging period for farmers to be extended to five years: consultation). A summary of responses to the consultation has not yet been published. However, as the ability for farmers to choose between averaging periods has not been previously announced, it is assumed that this measure has arisen as a result of the consultation responses.

For information on averaging profits, see Practice note, Income tax: calculation of income profits: Special rules for certain trades. To track progress of this measure, see Private client tax legislation tracker 2015-16: Income tax: farm profits averaging.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.21.)

Income tax: treatment of sporting testimonials

Following a consultation in summer 2015, the government has announced that the Finance Bill 2016 will include legislation to simplify the tax treatment of sporting testimonials. The new treatment will apply to testimonials granted or awarded on or after 25 November 2015 that take place after 5 April 2017.

The legislation will provide that:

All income from sporting testimonials and benefit matches for employed sportspersons will be subject to income tax.
An exemption of up to £50,000 will be available for employed sportspersons with income from testimonials that are not contractual or customary.

The government will introduce separate legislation before 6 April 2017 to ensure that the National Insurance treatment of the income follows the income tax treatment.

The government has not yet published a consultation response.

This measure was first announced in the March 2015 Budget and follows on from HMRC's review of extra-statutory concessions. For HMRC's current guidance, see HMRC: Employment Income Manual: EIM64120. For further background and to follow future developments, see Private client tax legislation tracker 2015-16: Income tax: sporting testimonials.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.18.)

Income tax: exemption for payments to victims of WWII by the Netherlands government

A new income tax exemption will be introduced in the Finance Bill 2016 for certain pension and annuity payments made by the Netherlands government. The exemption will cover payments made to victims of national-socialist and Japanese aggression during World War II and will take effect from April 2016.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.17.)

Welsh income tax: removal of requirement for referendum

The government has announced that it is to legislate to remove the requirement for a referendum to be held before introducing Welsh rates of income tax (as to which, see Practice note, Wales Act 2014: tax aspects: Partial devolution of income tax following "yes vote" in Welsh referendum). This reiterates the government's commitment to income tax devolution and should hasten the introduction of the Welsh rates.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraphs 1.233 and 2.141, 2015 Autumn Statement and Spending Review: The Chancellor's speech and Wales Office and HM Treasury: Press release: A Spending Review that delivers for Wales.)

CGT: reduced payment window for disposals of residential property

The government has announced that it intends to bring forward the date for payment of capital gains tax (CGT) on gains arising from the disposal of residential property. Instead of the current due date of 31 January following the tax year of disposal, tax will be payable within 30 days of completion. This payment date will apply to gains realised with effect from April 2019. Individuals who benefit from the principal private residence exemption will not be affected.

The reasons given for implementing this change include the fact that there is a disparity between the dates on which employees pay income tax under PAYE and the 10 to 22 month period between disposal and tax payment that investors currently enjoy, coupled with a suggestion that individuals who sell a property may either forget to make a return with such a long delay period, or spend the money needed to pay the tax. There is no explanation as to why these factors should be of concern in relation to tax on residential property that has been held as an investment or second home but not in relation to CGT generally.

However, there are clearly other reasons that underlie this further attack on buy-to-let landlords and owners of second homes. In addition to benefitting the Treasury, this accelerated payment date will bring the payment date applying to UK residents in line with that applying to non-residents who sell UK residential property. This measure will remove at a stroke both the potential scope for a challenge on the grounds that UK tax legislation discriminates against non-residents and the difficulties in deciding part way through a tax year whether an individual will or will not be considered non-resident in that year (see Practice note, Capital gains tax: disposals of UK residential property by non-residents).

Although the announcement mentions only CGT, it would not be surprising if a similar date were introduced for the payment of corporation tax on gains on residential property realised by close companies. Draft legislation will be published for consultation in 2016 with legislation to be included in the Finance Bill 2017. Buy-to-let landlords with high borrowings who are intending to reduce their property portfolios in response to the restriction on interest deduction from April 2017 (see Private client tax legislation tracker 2014-15: Income tax: mortgage interest relief) may need to plan their disposals carefully.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraphs 1.290 and 3.76 and HM Treasury: 2015 Autumn Statement and Spending Review: policy costings, pages 14 and 212.)

CGT: entrepreneurs' relief

The government has confirmed that it is considering how best to limit the unintended effects of some of the changes introduced by the Finance Act 2015. Professional bodies have drawn to HMRC's attention the fact that provisions designed to prevent individuals from contriving to fall within the scope of entrepreneurs' relief (ER) on associated disposals unfairly prejudice, among other things, genuine retirements from family companies and partnerships.

A shareholder or partner who disposes of an individual asset owned personally but used by a business qualifies for ER only if the disposal coincides with a substantial reduction in the individual's shareholding or partnership share in the business. For disposals before 18 March 2015, any reduction in partnership share or shareholding at the time of the asset disposal was sufficient to bring the gain on the personal asset within the scope of ER. For disposals after that date, section 169K of the Taxation of Chargeable Gains Act 1992 was amended by section 41 of the Finance Act 2015, to make ER available only if the asset disposal is associated with a reduction in partnership share representing at least 5% of the partnership assets, or with a sale of shares or securities in a personal trading company representing at least 5% of the relevant shares or securities of the company. The problem, however, is that relief is denied if the transfer of the shares or partnership interest is to a person who is associated with the individual or if such a person may acquire the interest in the future.

A further area in which Finance Act 2015 changes have had an impact on structures set up for commercial reasons with no tax avoidance motive is the treatment of joint ventures, where ER is denied in relation to shares in a company whose sole trading income arises from its participation in a joint venture. The effect on a holding company of a trading group that also holds shares in a joint venture is uncertain. Tax advisers will welcome any amendments that restrict the impact of the Finance Act 2015 changes to the avoidance structures that they were intended to target. For background information, see Practice note, Entrepreneurs' relief.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.92.)

ISAs: estate administration, annual limits, Innovative Finance and Help to Buy

The government will include legislation in the Finance Bill 2016 to allow the ISA savings of a deceased person to continue to benefit from tax advantages during the administration of their estate. The government will publish further details in 2016 following technical consultation with ISA providers.

Currently, the ISA wrapper is removed from a deceased person's ISA account when the ISA manager is notified of the death, including when the deceased's surviving spouse or civil partner makes use of their additional allowance corresponding to the value of the deceased's ISAs. The coalition government announced in December 2014 that it would consider extending ISA tax advantages into the estate administration period in the next Parliament, but the Conservative government had not previously indicated whether it intended to pursue this.

The government has also announced that:

The annual subscription limits for ISAs will be the same in 2016-17 as in 2015-16. The main ISA limit will remain at £15,240 and the junior ISA limit at £4,080.
The list of qualifying investments for the new Innovative Finance ISA will be extended in autumn 2016 to include debt securities offered via crowdfunding platforms. The government is still considering the case for including equity crowdfunding. HM Treasury has published a consultation response with further details.

The main Autumn Statement document also states that the new Help-to-Buy ISA will launch on 1 December 2015, as announced in the July 2015 Budget. However, the policy costings document states that there is a three-month delay from the original date of 1 October 2015, which would put the start date at 1 January 2016.

For more information about the tax treatment of ISAs and to follow future developments, see Practice note, Tax data: individual savings accounts and Private client tax legislation tracker 2015-16: ISAs: additional flexibility.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraphs 1.146 and 3.32-3.34, HM Treasury: 2015 Autumn Statement and Spending Review: policy costings, page 218 and HM Treasury: ISA qualifying investments: consultation on whether to include investment based crowdfunding.)

Venture capital schemes: more changes

The government announced that, subject to obtaining state aid approval, it would introduce increased flexibility for replacement capital for the Enterprise Investment Scheme (EIS) and the Venture Capital Trust (VCT) scheme. This appears to reflect the announcement made by the Association of Investment Companies at its annual VCT conference (see Tax news round-up to 17 November 2015: AIC hosts annual VCT conference: more changes?) and government statements made during Finance (No. 2) Bill 2015 Public Bill Committee debates. The changes are expected to be made by way of secondary legislation.

The government also confirmed that all remaining subsidised energy generation activities will become excluded activities for the purposes of the venture capital schemes with effect from 6 April 2016. (The venture capital schemes are the EIS, the Seed Enterprise Investment Scheme (SEIS), the VCT scheme and the social investment tax relief (SITR) scheme). This follows the addition of reserve electricity generating capacity to the list of excluded activities by the Finance (No. 2) Act 2015 (see Legal update, Finance (No. 2) Bill 2015: Commons Report stage government amendments to venture capital schemes (21 October 2015): New excluded activity for EIS, SEIS and VCT regimes).

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraphs 1.151 and 3.23 and HM Treasury: 2015 Autumn Statement and Spending Review: policy costings, page 22.)

Pensions announcements

The Autumn Statement contained the following pensions-related announcements of interest to private client practitioners:

Pensions tax relief consultation. In the July 2015 Budget the government launched a consultation on the system of pensions tax relief. HM Treasury is consulting on whether to make fundamental reforms to the current system, perhaps moving from the current "EET" system, whereby contributions and investment income receive tax relief but pensions are taxed, to a "TEE" system (with a government top-up) where pension payments would be tax-free. The government has confirmed that it will publish its response at the 2016 Budget.
Secondary market for annuities. In the March 2015 Budget the government announced proposals to allow individuals to assign their annuity income stream to a third-party buyer in exchange for a lump sum or an alternative retirement product, provided the original annuity provider agrees to the transaction. A call for evidence on the proposals closed on 18 June 2015, and the 2015 Autumn Statement and Spending Review confirms that the government will publish a formal response in December 2015 with legislation expected in the Finance Bill 2017.
Dependant scheme pensions. Legislation will be introduced to simplify the test that takes place when a dependant's scheme pension is payable. This is expected to be included in the Finance Bill 2016.
Inheritance tax and undrawn drawdown funds. See IHT: designated drawdown pension funds.

For more detail on these measures and links to the source materials, see Legal update, 2015 Autumn Statement and Spending Review: key pensions announcements.

SDLT: increased rates for second homes and buy-to-let properties

From 1 April 2016, higher rates of SDLT will apply to the purchase of additional residential properties (such as second homes and buy-to-let properties) for chargeable consideration exceeding £40,000. The government will publish a consultation document on the policy detail in due course.

The higher rates will be 3% above the current SDLT rates for residential property. Therefore, the following SDLT rates will apply on a progressive basis to acquisitions of such residential property:

£0 to £40,000: 0%
£40,001 to £125,000: 3%.
£125,001 to £250,000: 5%.
£250,001 to £925,000: 8%.
£925,001 to £1.5 million: 13%.
Over £1.5 million: 15%.

Purchasers of additional residential properties will have to effectively opt in to the higher rates by declaring that the acquired property will not be their primary residence.

The increased rates will not apply to corporate or fund purchasers that make significant investments in residential property. The consultation will consider whether the ownership of more than 15 residential properties is appropriate as a "significant investment" for these purposes. The higher rates will also not apply to acquisitions of caravans, mobile homes or houseboats.

(On 1 December 2015, HMRC confirmed to Practical Law that, if the total chargeable consideration for the acquisition of an additional residential property exceeds £40,000, the entire consideration will be subject to SDLT (see Legal update, SDLT: additional rates on acquisitions of additional residential property). Consequently, if the chargeable consideration exceeds £40,000, a 3% rate of SDLT will apply to consideration of £0 to £125,000, and the additional rates set out above will apply on a progressive basis to any consideration exceeding £125,000.)

For information on the current SDLT rates for residential property, which will continue to apply to acquisitions of first homes occupied by buyers, see Practice note, SDLT and residential property.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraphs 1.146 and 3.70 and HM Treasury: Autumn Statement and Spending Review 2015: policy costings, pages 12 and 209.)

SDLT: consultation on deadline for filing and payment

The government announced that it will consult on changes to the SDLT filing and payment process, including bringing forward the deadline for paying SDLT and filing an SDLT return to within 14 days after the effective date. The consultation will take place in 2016 and legislation will be included in the Finance Bill 2017. The changes will come into effect in the 2017-18 tax year.

The current deadline for payment of SDLT and submission of the SDLT return is within 30 days of the effective date (see Practice note, SDLT and contracts for the transfer of land: The effective date). Currently, if a buyer wishes to defer payment of SDLT on contingent or uncertain consideration it must apply to HMRC and state in its SDLT return whether permission for deferral has been granted. This measure will mean that it is imperative that such deferral applications are made as soon as possible after the effective date.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.72 and HM Treasury: Autumn Statement and Spending Review 2015: policy costings, page 13 and 212.)

SDLT: 15% charge: extension of reliefs

The Finance Bill 2016 will include a relief from the 15% rate of SDLT (see Practice note, SDLT: 15% rate on enveloping high-value residential property), for equity release schemes (home reversion plans) and will expand existing reliefs to include certain property development activities and employee occupation not currently covered. These changes are to apply from 1 April 2016.

No further detail is available, but it is understood that the property business relief (see Practice note, SDLT: 15% rate on enveloping high-value residential property: Property business relief) is not sufficiently wide to include certain property development activities that ought properly to be within the ambit of the relief.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.73.)

ATED: extension of reliefs

The Finance Bill 2016 will include a relief from ATED for equity release schemes (home reversion plans) and will extend the reliefs available for property development and properties occupied by employees. These will apply for chargeable periods beginning on or after 1 April 2016.

No further detail is available, but in the case of property development it is understood that the current relief is not sufficiently wide to include certain activities that ought properly to be within its ambit.

For more information on ATED, see Practice note, Annual tax on enveloped dwellings (ATED).

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.73.)

Fund managers' performance-related returns: tax treatment

The government has confirmed that the Finance Bill 2016 will contain legislation determining the tax treatment (income or capital gain) of asset managers' performance awards. An award will be subject to income tax unless the underlying fund undertakes long-term investment activity.

The government launched its consultation on the legislation in the July 2015 Budget. At that time, it was implicit that the final legislation would appear in the Finance Bill 2016: the government stated that it would publish a response document with draft legislation and guidance at the 2015 Autumn Statement, with the legislation taking effect from 6 April 2016. For more detail on the consultation, see Legal update, July 2015 Budget: key private client tax announcements: Tax treatment of fund managers' performance-related returns: consultation.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.90.)

Stamp taxes on share options

The government has announced that shares transferred to a clearance service or depositary receipt issuer as a result of the exercise of an option will be subject to stamp duty or stamp duty reserve tax (SDRT) at a rate of 1.5% of the higher of the market value of the shares or the option strike price. The aim of this measure is to prevent avoidance using "deep in the money" options, which have a strike price significantly below (for call options) or above (for put options) market value. This measure will be included in Finance Bill 2016.

This measure will apply to options entered into on or after 25 November 2015 and exercised on or after the date of the 2016 Budget (see Legal update, Clarified start date for changes to stamp taxes on options).

(For a discussion of the existing stamp duty and SDRT rules regarding issues of shares to a clearance service or depositary receipt issuer, see Practice note, Share issues: tax: Issue of shares to depositary or clearance service.)

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraphs 1.153 and 3.59 and HM Treasury: 2015 Autumn Statement and Spending Review: policy costings, pages 21 and 209.)

After death

Deeds of variation review

The government has announced that it will not introduce new restrictions on how deeds of variation can be used for tax purposes but it will continue to monitor their use. This follows HMRC's review of the use of deeds of variation, launched on 15 July 2015, together with a general call for evidence. For further information on the review, announced by the government in the March 2015 Budget, see Private client tax legislation tracker 2015-16: Deeds of variation review.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.37.)

IHT: designated drawdown pension funds

The government will include legislation in Finance Bill 2016 to ensure that inheritance tax (IHT) will not arise when a pension member designates funds for drawdown but does not draw all the funds before he dies. The effect of the measure will be backdated to cover deaths on or after April 2011.

As currently drafted, an IHT charge could potentially arise under section 12(2ZA) of the Inheritance Tax Act 1984 (IHTA 1984), which concerns omissions to exercise pension rights. This is because it is not clear whether the definition of entitlement in that section includes funds designated for drawdown by the member that are not fully drawn at the date of death.

The statutory clarification will be welcomed by pension scheme members and their advisers. Commentators have criticised the potentially anomalous IHT treatment of funds designated for drawdown but only partially drawn down, since many pension scheme members may have made decisions about their pension benefits based on HM Treasury's September 2014 announcement: that unused drawdown funds left by those dying before the age of 75 would be completely tax free. For background information, see Practice note, DC pension flexibility and inheritance tax: overview: Omissions and drawdown.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.36.)

IHT: exemption for victims of World War II persecution

The government will legislate extra statutory concession F20 which exempts from IHT certain compensation and ex-gratia payments to victims of persecution during the second world war. The legislation, which will include payments made under a recently created compensation scheme known as the Child Survivor Fund, will apply to deaths on or after 1 January 2015 and will be included in Finance Bill 2016.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.35.)

International individuals

Remittance basis: business investment relief consultation

A new consultation will be launched to determine how the current rules on business investment relief should be changed to increase investment in new UK businesses.

Business investment relief was introduced in Finance Act 2012. It is a tax relief for foreign income or capital gains brought to the UK by a remittance basis taxpayer for the purpose of making a commercial business investment in an unlisted company or a company listed on an exchange-regulated market (such as AIM). See Practice note, Remittance basis: business investment relief.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.22.)

Changes to CGT for non-UK residents disposing of UK residential property

The government will include measures in the Finance Bill 2016 to remove, with retrospective effect from 6 April 2015, a double charge that occurs in some circumstances when CGT is calculated on the disposal of UK residential property by non-UK residents. A measure will also be included in Finance Bill 2016, but with effect from 25 November 2015, to correct an omission in the current legislation.

Measures to give HMRC power to prescribe the circumstances where a CGT return is not required by non-UK residents will also be included in the Finance Bill 2016. The government has also announced that it will introduce measures to include CGT among the taxes that it can collect on a provisional basis.

The charge to CGT was extended to non-residents disposing of UK residential property in Finance Act 2015. Given that the non-UK resident CGT charge involves complex computations that potentially interact with other CGT charging and relief provisions such as the annual tax on enveloped dwellings (ATED), principal private residence relief and the annual exemption, it is not surprising that changes have proved necessary.

For more information on the non-UK resident CGT charge for disposals of UK residential property, see Practice note, Capital gains tax: disposals of UK residential property by non-residents.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.75.)

Offshore tax evasion and non-compliance

The government announced that it will consult on a penalty-backed requirement for individuals to correct past offshore non-compliance. Additionally, it confirmed that it is to introduce legislation in the Finance Bill 2016 to implement the following measures:

Strengthened civil deterrents for offshore evaders. These will include increased penalties, a new penalty based on the value of any undeclared asset where the asset consists of the proceeds of evasion and increased naming.
Civil sanctions for enablers of offshore tax evasion. These will include penalties and naming.
A new strict liability criminal offence for failing to declare offshore income and gains.

The government also confirmed that it will introduce a new corporate criminal offence of failure to prevent the facilitation of evasion. It would appear that this offence will not feature in the Finance Bill 2016.

These four measures were consulted on in July 2015 (see Legal update, Tackling offshore tax evasion: HMRC publishes four consultations). We anticipate that a response document will be published alongside the draft Finance Bill 2016 legislation. We are tracking the progress of these measures to implementation in Private client tax legislation tracker 2015-16: Offshore tax evasion: civil and criminal sanctions.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraphs 3.77-3.81.)

Income tax: non-resident participants in Anniversary Games and World Athletics and Paralympics Championships

Income earned by non-UK resident participants in the 2016 London Anniversary Games and the 2017 World Athletics and Paralympics Championships will be exempt from income tax. 2016 will be the last year that such an exemption will be granted to the London Anniversary Games because the Olympics will be held in Rio de Janeiro in 2016.

Without this exemption, section 27 of Income Tax (Earnings and Pensions) Act 2003 and sections 13 and 14 of Income Tax (Trading and Other Income) Act 2005 would impose a UK income tax charge on the income gained as a result of these performances. More significantly, an income tax charge would also arise on a proportionate share of worldwide sponsorship income. This follows a similar exemption extended to foreign athletes competing in the 2015 London Anniversary Games (see Legal update, July 2015 Budget: key private client tax announcements: Non-resident participants in 2015 Anniversary Games) and in the London 2012 Olympics (see Article, London 2012: Tax free talent?).

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.19.)

Charities

Charity Commission funding frozen until 2020

The government has announced that the Charity Commission's funding will be frozen over the next four years. The Commission's current funding for 2015-16 is £20.3 million. It will therefore remain at this level up to 2019-20. Taking into account inflation over the period, this may well translate into a cut in real terms.

William Shawcross, chair of the Commission, has said that:

"This settlement - a freeze, not a cut - is recognition of the importance of the commission's work. The recent high profile charity crises and the damage these have done to trust in charities shows the importance of an effective charity regulator."

However, he also acknowledged that the freeze will put more pressure on the Commission's staff and said that he will continue to discuss with charities how a more sustainable funding base for the regulator might be achieved.

The chief executives of Charity Finance Group (CFG), NAVCA and Small Charities Coalition wrote to the Chancellor ahead of his statement urging him to restore the Commission's budget to its level in 2009-10 and to place it on a long-term footing.

(See HM Treasury: 2015 Autumn Statement and Spending Review, Table 2.25 (at page 109), Charity Commission: Charity Commission funding frozen until 2020 (25 November 2015) and CFG: Investing in effective regulation - letter to the Chancellor (23 November 2015).)

Gift Aid Small Donations Scheme review

The government has confirmed that it will review the Gift Aid Small Donations Scheme (GASDS) to ensure that it is operating as effectively as possible. A call for evidence will be published in December 2015.

From 6 April 2013, eligible charities and community amateur sports clubs (CASCs) have been able to claim top-up payments on small cash donations they receive of £20 or less without having to obtain a Gift Aid declaration or provide any other audit trail back to the donor's tax record. Although administered in the same way as Gift Aid, GASDS is a grant from public expenditure and not a tax relief.

Claims made under GASDS have been much lower than originally estimated by the government (see Private Client news round-up to 1 May 2014: Gift Aid Small Donations Scheme far less popular than expected). This may be due to the complexity of the GASDS rules, which make it difficult for some charities and CASCs to administer. For further information, see Practice note, Gift Aid Small Donations Scheme (GASDS).

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.38.)

Close company loans to participators: charities partial exemption

The government has announced that a measure will be introduced in the Finance Bill 2016 to introduce a partial exemption from the loans to participators rules for certain charity transactions.

The purpose of the rules is to ensure that value is not extracted by individuals from close companies in ways which minimise their personal tax liabilities. Following consultation, the government agreed that some financing transactions entered into by charities do not fit the policy rationale of the rules, as the funds could not end up in the hands of individuals for their personal use. The measure therefore provides a targeted exemption, while providing for the tax charge to continue to apply to charity transactions that fall within the mischief the rules were intended to prevent.

A new subsection 2A will be inserted into section 456 of the Corporation Tax Act 2010 (CTA 2010) to exempt from the charge to tax (in section 455 of CTA 2010) loans or advances made on or after 25 November 2015 by close companies to trustees (corporate or individual) of charitable trusts, where the loan or advance is applied wholly to the charitable purposes of the trust.

Charities can refrain from accounting for any tax charge that arises between 25 November 2015 and Royal Assent to Finance Bill 2016. However, should the measure not be approved by Parliament, they will be liable for the charge under the current law.

For further information about the loans to participators rules, see Practice note, Close companies: tax: Close company loans and benefits to participators.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.39 and HMRC: Corporation Tax: loans to participators, trustees of charitable trusts.)

Business rates review

The government has confirmed that it will report on its review of business rates at the 2016 Budget and that local authorities will be allowed to retain the rates they collect from businesses.

A review of business rates, to investigate how the current system could be modernised, was launched on 16 March 2015 as part of the March 2015 Budget.

Charities and CASCs are entitled to mandatory relief from business rates of 80%, with billing authorities having discretion to grant relief of up to a further 20%. The outcome of the review could, therefore, have a significant impact on the charity sector.

For further information about charity business rates relief, see Practice note, Charities and business rates relief.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 1.219.)

Social investment tax relief: community energy generation u-turn

The government has confirmed that investments in community energy organisations that provide reserve energy generating capacity or generate renewable energy benefiting from other government support will not become eligible for social investment tax relief (SITR) when the SITR scheme is enlarged. It has also announced that all remaining energy generating activities will be excluded from the enlarged SITR.

This is a reversal of promises made by the government in the March 2015 Budget. For further details, see Practice note, Social investment tax relief (SITR): U-turn on community energy generation.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.23.)

Expanding support for social impact bonds

The government will expand support for social impact bonds, investing £105 million over the Parliament to help deal with issues including homelessness, poor mental health and youth unemployment. £80 million of this will be provided to the Cabinet Office to uplift funding for locally designed schemes. For guidance on social impact bonds, see Practice note, Social impact bonds.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraphs 1.285 and 2.168.)

Expansion of National Citizen Service

As part of the Cabinet Office's funding settlement, the government has committed to expand the National Citizen Service to deliver up to 300,000 places by 2019-20, supporting hundreds of charities and third sector providers.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 2.168.)

Further support for military charities from banking fines

The government has committed to use a further £25 million from fines imposed on banks over the next three years to support military charities and other causes.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.11.)

VAT on sanitary products: women's charities fund

The government has announced a new fund to make £15 million a year, equivalent to the annual VAT raised on sanitary products, available to support women's charities over the course of the current Parliament or until it secures an amendment to EU rules to enable the UK to apply a zero rate of VAT for such products.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraphs 1.144 and 3.63.)

Museums and galleries tax relief

The government has announced that it will explore the introduction of a corporation tax relief for museums and galleries, to encourage the sector to create new exhibitions and display their collections to a wide audience.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 1.210, 2.106 and 3.57.)

Consultation on corporation tax relief for contributions to grassroots sport

The government has announced that it will consult, at the 2016 Budget, on expanding the circumstances in which a corporation tax deduction can be made for contributions to grassroots sport.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.58.)

HMRC

GAAR penalties, serial tax avoidance and POTAS measures in Finance Bill 2016

The government confirmed that it is to introduce legislation in the Finance Bill 2016 to implement the following measures:

GAAR penalties and other measures to strengthen the GAAR. The government confirmed that the penalty rate will be 60% of the tax due and that "small" changes would be made to the GAAR procedural rules to improve its ability to tackle marketed avoidance schemes.
Sanctions for serial avoidance. These include increased penalties, special reporting rules, naming and restricting access to tax reliefs.
Extension of the POTAS regime to promoters who market schemes that are regularly defeated.

These measures were consulted on in July 2015 (see Legal update, HMRC consultation on strengthening sanctions for serial tax avoidance. A response document has yet to be published, but it is anticipated that one will be published alongside the draft Finance Bill 2016 legislation.

We are tracking the progress of these measures to implementation, see Private client tax legislation tracker 2015-16: GAAR-related penalties, Deterring serial avoiders and High-risk promoters.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraphs 1.152, 3.83 and 3.84 and HM Treasury: 2015 Autumn Statement and Spending Review: policy costings, pages 26, 210 and 214.)

Digital tax accounts

The government has reiterated its plan to replace annual tax returns with digital tax accounts, first announced as part of the March 2015 Budget (see Private client tax legislation tracker 2015-16: Digital tax accounts). The government intends to make digital tax accounts available for all small businesses and individuals by 2016-17.

Under the government's proposals, certain taxpayers will be required to keep track of their tax affairs digitally, integrating electronic record keeping with online tax reporting using business accounting software, and update the tax information provided to HMRC at least quarterly through their digital tax account. HMRC will ensure the availability of free apps and software that link securely to HMRC systems, and provide support to those who need help using digital technology.

The new requirements are to apply to most businesses, including companies, sole traders, self-employed people, partnerships and landlords. However, they will not apply to employees, or pensioners, unless they have one or more secondary income sources from self-employment or property the gross income from which exceeds £10,000 per year. (It is not clear whether such income of exactly £10,000 a year would lead an otherwise exempt taxpayer to fall inside or outside the new requirements, as the main 2015 Autumn Statement and Spending Review document differs from HM Treasury's policy costings document on this point.)

The new requirements are to apply to income tax and national insurance contributions from April 2018, to VAT from 2019 and to corporation tax from April 2020. In each case, the year before full implementation, the new regime will be tested by a limited number of taxpayers.

The government will consult on the details of the requirements in 2016.

The stated purpose of the requirements is to reduce incidences of errors in tax returns, saving the public money. HM Treasury estimates the savings to the Exchequer as reaching £610 million by 2020-21. The government also states that the introduction of digital accounts will give taxpayers a more convenient, real-time view of their tax affairs, providing them with greater certainty about the tax that they owe.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraphs 1.288, 2.161 and 3.93, and HM Treasury: 2015 Autumn Statement and Spending Review: policy costings, pages 27 and 209.)

Simple assessment

The government has announced that it will publish draft legislation introducing a new procedure to deal with taxpayers with simple tax affairs, who are within self assessment and for whom HMRC holds all the information necessary to calculate their tax liability. HMRC will send taxpayers a calculation that will serve both as an assessment capable of appeal and a legally enforceable demand for payment.

The draft legislation will be included in the Finance Bill 2016 and will come into effect for 2016-17.

The government has also announced that the Finance Bill 2016 will clarify that the time allowed for making a self-assessment is four years from the end of the relevant tax year.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraphs 1.288, 3.96 and 3.99.)

Cash payments and tax compliance: call for evidence

HMRC has published a call for evidence on the role of cash in tax compliance. HMRC seeks views on the following issues (among others):

The extent to which payments in cash facilitate tax non-compliance, in particular, evasion and the hidden economy.
The challenges and opportunities that arise for HMRC's compliance activities from the trend away from cash payments to other forms of payment.

Evidence should be submitted to HMRC by 27 January 2016.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.82 and HMRC: Cash, tax evasion and the hidden economy: call for evidence.)

HMRC's set-off rights to apply in Scotland

The Finance Bill 2016 will contain legislation ensuring that HMRC's general statutory power to offset and collect debt owed to it against its outgoing payments (sections 130-133, Finance Act 2008) covers Scotland as well as the rest of the UK. That power allows HMRC to set off any amounts that are payable (or to be repaid) by it to a person against any sums payable by that person to HMRC.

The government states that the proposed legislation aligns Scotland with the rest of the UK, "as intended in Finance Act 2008". This is a curious statement, however, because section 130 of the Finance Act 2008 clearly extends to "England and Wales and Northern Ireland only" (section 130(10), Finance Act 2008).

For background, see Legal update, Budget 2008: New set-off and debt recovery powers.

(See HM Treasury: 2015 Autumn Statement and Spending Review, paragraph 3.55.)

Tax rates, allowances and thresholds for 2016-17

HM Treasury: Tax and tax credit rates and thresholds for 2016-17 contains a series of tables setting out the main tax rates and allowances for 2016-17 and, in some cases, 2017-18. We will shortly update our tax data resources to reflect the rates and allowances announced in the 2015 Autumn Statement and Spending Review (see Practice note, Tax data for individuals and trustees).

Other announcements

For other 2015 Autumn Statement and Spending Review announcements, see Legal updates:

These legal updates are also available on the Practical Law 2015 Autumn Statement landing page.

Sources

HM Treasury: 2015 Autumn Statement and Spending Review (main HM Treasury document).
HM Treasury: 2015 Autumn Statement and Spending Review: policy costings.
HMRC: Autumn Statement 2015: tax related documents (HMRC's landing page).
HMRC: Main tax announcements for Autumn Statement 2015 (brief summary).
HM Treasury: Tax and tax credit rates and thresholds for 2016-17.
HM Treasury: Chancellor George Osborne's Spending Review and Autumn Statement 2015 speech.
Spending Review and Autumn Statement 2015 (main government landing page).

2015 Autumn Statement and Spending Review: key private client announcements | Practical Law