News in brief

A quick round up of noteworthy recent developments in private client.

The Budget – high level summary of other key points

Pensions

From 6 April 2020, the annual allowance taper threshold and adjusted income limit will be increased to £200,000 and £240,000 respectively. However, the minimum annual allowance will be reduced from £10,000 to £4,000:

• Those earning below £300,000 of adjusted income will benefit (either because they are now entitled to the full £40,000 annual allowance or even if the allowance is tapered, it is still greater than it is at present)
• Those earning more than £300,000 of adjusted income will see a reduction in their annual allowance (since the tapered allowance will now fall below £10,000, but capped at £4,000).

Top slicing relief in respect of gains on life insurance policies

This applies to persons who realise relevant gains on or after 11 March 2020 and who claim Top Slicing Relief (TSR). It allows the personal allowance to be re-instated within the calculation for TSR, providing additional relief for taxpayers whose entitlement to the personal allowance has been reduced because a gain is included as part of their income. This measure also clarifies the treatment of allowances and reliefs within the TSR calculation by confirming that they must be set as far as possible against other income in preference to the gain (thereby ensuring that the relief is calculated in a fair and consistent way).

Avoidance, policy and administration

A number of statements were made in respect of avoidance and policy measures:

• Loan charge – confirmation that the Government's response and accepted recommendations to Sir Amyas Morse's independent loan charge review will be legislated for in Finance Bill 2020. HMRC has published draft legislation to establish a scheme for refunding voluntary restitution payments made under disguised remuneration loan charge settlement arrangements, together with a draft scheme document for the repayments. The scheme will take effect on royal assent to Finance Act 2020 and claims must be made before 1 October 2021.
• Disguised remuneration schemes – the Government will shortly issue a call for evidence on further action to stamp out further use of these schemes.
• New, ambitious strategy for tackling the promotors of tax avoidance schemes – to be published by HMRC shortly – it will outline the range of policy, operational and communications interventions both underway and in development to drive those who promote tax avoidance schemes out of the market, disrupt the supply chain to stop the spread of marketed tax avoidance and deter taxpayers from taking up the schemes.
• Raising standards in the market for tax advice – there will be a call for evidence on raising standards in the market for tax advice in the spring, with evidence being sought about providers of tax advice, current standards upheld by tax advisors and the effectiveness of the Government's efforts to support those standards, in order to give taxpayers more assurance that the advice they are receiving is reliable.
• HMRC automation – legislation will be introduced to confirm that HMRC may use automated processes to issue taxpayers with notices to file tax returns and penalty notices. This measure will apply prospectively and retrospectively to put beyond doubt that the rules work as designed and intended.
• Investment in HMRC to improve tax compliance – around 1,300 additional staff will be recruited into operational teams in HMRC to improve existing research and compliance risks and improve debt collection capability.

Rate changes for 2020/2021

• Junior ISAs and Child Trust Funds - annual subscription increased to £9,000
• Lifetime allowance for pensions – increased to £1,073,000
• Annual tax on enveloped dwellings - charges will increase by 1.7% in line with inflation from 1 April 2020.
• Capital Gains Tax annual exempt amount – £12,300 for individuals and personal representatives, and £6,150 for trustees.
• National insurance – primary threshold limit and lower profits limit increased to £9,500.

Income Tax

IR35 reforms delayed until 6 April 2021

On 18 March, the Government announced that it would delay implementing its much publicised reforms to IR35 until 6 April 2021, as part of a coordinated action to support businesses and individuals during the Covid 19 pandemic.

IR35 (also known as 'off-payroll working rules'), was originally introduced in 2000 to ensure that someone working like an employee, but through their own limited company, pays broadly the same tax as someone employed directly.

The reforms, which were announced in the 2018 Budget, are designed to tackle non-compliance with the off-payroll working rules. The reforms make medium and large organisations in the private and third sectors responsible for determining the tax status of contractors and ensuring that the right employment taxes are paid. The reforms echo those which have already been implemented in the public sector.

Capital Gains Tax (CGT)

CGT on residential property disposals from 6 April 2020: new online payment and reporting facility

From 6 April 2020, UK residents disposing of UK residential property must report any chargeable gain and pay an estimate of the CGT due within 30 days of completion.

HMRC have confirmed that the new regime applies only to taxable gains accruing on or after 6 April 2020. This means that if contracts are exchanged under an unconditional contract in the tax year 2019/20, but completion takes place on or after 6 April 2020, the 30-day filing requirement does not apply. The gain should be reported in the 2019/20 self-assessment return in the usual way. For these purposes only in the context of CGT 'disposal' means completion.

If exchange of contracts takes place on or after 6 April 2020, or the contract is conditional and the condition is not satisfied until after 6 April 2020, a return will be required within 30 days of completion of the transaction together with a payment on account.

HMRC have announced that it will launch a new online facility in April 2020 for reporting and paying CGT, which can be used by both UK residents and non-UK residents making disposals of residential property from 6 April 2020.

For disposals before 6 April 2020, capital gains are reported as usual in personal tax returns for the year in which the disposal takes place or is deemed to take place.

HMRC news

Official rate of interest reduced

The official rate of interest will be reduced from 2.5% to 2.25% from 6 April 2020. The official rate of interest is used, inter alia, to calculate the tax charge on beneficial loans.

Intestacy

Statutory legacy increased

The statutory legacy (which represents the amount which passes to a surviving spouse or civil partner where the deceased died intestate and also left surviving issue) has, from 6 February 2020, been increased to a new fixed net sum of £270,000 from £250,000.

Where there are no surviving issue on intestacy, the position remains that the entire residuary estate passes to the surviving spouse or civil partner.

Cryptoassets

Cryptoasset guidance updated

On 20 December, HMRC updated its guidance on the taxation of cryptoassets for individuals, to include its view that the location of exchange tokens is to be determined based on the residence of the individual owner.

Consequentially, HMRC view is that an exchange token would be located in the UK for a beneficial owner who is UK resident. Where the individual is also non-UK domiciled, the exchange token would also be within the scope of inheritance tax and any chargeable gains arising on a disposal would not be regarded as foreign for the purposes of the remittance basis of taxation (and so taxable on an arising basis instead).

HMRC state that whilst it has considered other possibilities "at this stage in the development of these tokens [it] has found that a residence basis most accurately fits the majority of transactions." UK resident and non-UK domiciled investors in cryptoassets should consider their tax position following the revised guidance, as well as potentially the position taken in historic tax returns.