Finance Act 2016: Top Ten

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

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.

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.