Our top ten picks of key measures for SMEs and their owners introduced by the Finance Act 2016.

 Changes to dividend taxation from 6 April 2016

• Notional 10% tax credit is abolished.
• The first £5,000 dividend income received will be tax free regardless of other income.
• Dividends over £5,000 will be taxed at 7.5% (basic rate), 32.5% (higher rate) and 38.1% (additional rate).
• Tax payable on overdrawn directors’ loan accounts (s455 tax) will also increase from 25% to 32.5%.
• See Dividend tax (proposals 2016/17 on)
• See Dividend tax index
• See Directors’ loan accounts: toolkit

Changes to interest taxation from 6 April 2016

• Banks and building societies will pay interest gross.
• A personal savings allowance (PSA) is introduced:
  • Basic rate taxpayers can receive £1,000 interest tax free.
  • Higher rate taxpayers can receive £500 interest tax free.
  • Upper rate taxpayers do not benefit from a PSA.
• The PSA is in addition to the 0% savings rate band which remains at £5,000.
• See Savings income: tax on interest

Changes to capital gains tax rates from 6 April 2016

• Capital gains tax rates (CGT) are cut to
  • 10% for basic rate taxpayers
  • 20% for higher and upper rate taxpayers
• The reduced rate does not apply to
  • Disposals of residential property
  • Carried interest gains
• Special rules apply for mixed-use properties, and properties which have been used for residential purposes for only part of their ownership.
• See CGT 2016: New rates and Residential Property gains

Investors’ relief

• A new CGT relief applying to gains on the disposal of certain investments in ordinary shares.
• The relief reduces the rate of CGT on the gain to 10%.
• There is a lifetime cap of £10 million.
• Shares must be subscribed for in cash and issued on or after 17 March 2016.
• Shares must be held for three years after 6 April 2016 so no claims can be made until 2019/20.
• See Investors’ Relief

Change in calculation of Stamp Duty Land Tax (SDLT)

• From 1 April 2016 an additional 3% will be charged on purchases of additional residential property.
  • There is an exemption when the main residence is being replaced.
  • The additional charge applies to all purchases of residential property by a company.
  • There are special rules for partners and partnerships.
  • A similar charge is introduced for Land and Buildings Transaction Tax (LBTT) in Scotland.
  • See SDLT & residential property: higher rate
  • See LBTT: Additional Dwelling Supplement
• From 17 March 2016 SDLT on non-residential and mixed-use properties will be calculated using a banding system.
  • See Stamp Duty Land Tax: rates & reliefs

Transactions in securities (TIS)

• A targeted anti-avoidance rule (TAAR) is introduced to tax certain distributions on a winding up as income rather than capital.
• The TAAR is intended to combat “phoenixing” when
  • A company is wound up, and
  • Those receiving distributions become involved in a similar trade or activity within two years, and
  • There is a main purpose of avoiding or reducing a charge to income tax.
• Two further changes are made to the TIS rules:
  • The legislation now has a wider application.
  • The process HMRC is required to follow to counteract a tax advantage is changed.
• See Transactions in securities

Introduction of Simple Assessment for 2016/17

• HMRC can send a Simple Assessment notice (S-Ass) to taxpayers setting out their tax liability without the need for them to submit a self-assessment return.
• The S-Ass should set out:
  • The amounts which are chargeable to income tax and capital gains tax, taking into account any relief or allowance that is applicable.
  • The amount payable.
  • How the amount has been calculated.
  • How the amount should be paid.
  • The payment due date.
• An individual receiving an S-Ass is not required to notify chargeability or complete a Tax Return unless there is income or gains that are not included in the S-Ass.
• See Simple Assessment replaces Self Assessment

Replacement Furniture Relief

• From April 2016:
  • The wear & tear allowance for fully furnished properties is withdrawn.
  • The renewals basis for trade tools is repealed.
  • Replacement furniture relief is introduced.
• Relief is given for the replacement costs of domestic items such as furniture, kitchenware or household appliances.
• Replacements should be like-for-like.
• The relief is available for unfurnished and furnished properties.
• See Replacement Furniture Relief

IHT main residence nil rate band (RNRB) and downsizing

• The RNRB was introduced by Finance (no 2) Act 2015 and will be phased in from April 2017.
• Finance Act 2016 introduces a relief for downsizing.
• RNRB will now be available for individuals who:
  • Dispose of their residential property, either entirely or by downsizing, and
  • Leave assets of equivalent value to their direct descendants.
• Relief is available for properties disposed of on or after 8 July 2015.
• See Main Residence Nil Rate Band (RNRB)

Trivial benefits exemption from 6 April 2017

• Trivial benefits are now exempt from income tax and National Insurance if the benefit:
  • Does not cost more than £50
  • Is not cash or cash vouchers
  • Is not connected to a salary sacrifice scheme or contractual obligation
  • Is not provided in recognition of the employee’s service
• There is an annual cap of £300 for directors and office holders, and for members of their family or household who are also employees.
• See Trivial benefits 

  ---

Details of all of what's new in tax for 2016/17 are found in our Finance Acts Rolling Planner.

 

• Prev
• Next