After Budget Day and the Autumn Statement, there is now a third important day in the taxation political cycle; Legislation Day. This is the day on which the draft legislation is issued, reflecting the announcements in the previous Budget and Autumn Statement for inclusion in the forthcoming Finance Act.
This year Legislation Day was yesterday and included some important information about new taxation rules.
Firstly we were able to see the exact rules for the new way of taxing dividends. Based on the new rules, and as expected, our clients who trade through a company and remunerate by a basic salary topped up with dividends will see a huge tax hike in January 2018. They may well have to pay tax of around £3,500 in January 2018 with about £1,200 payable every six months after that date.
However, we are reviewing ways of reducing this tax figure, and one way may be to make use of the second important bit of legislation: the new Savings Allowance. This means that basic rate taxpayers will not have to pay tax on the first £1,000 of bank and building society interest received (higher rate taxpayers can receive £500, and additional rate taxpayers [ie people with income in excess of £150,000] nothing). It may be possible to pay interest on director’s loan accounts which are in credit to make use of this new allowance.
Otherwise, this rule may cause problems. A corollary of the rule is that banks are to stop deducting tax at source and so if you are receiving more than the allowed amounts of interest you will owe tax to H M Revenue & Customs. This – as well as making redundant the form R85 – may reduce the amount of annual repayments due to taxpayers.
We are informed that H M Revenue & Customs will be able to keep tabs on our interest as we move into the Digital Age. However, we at robinson+co remain somewhat sceptical, bearing in mind the IT disasters suffered by successive governments.
Another new rule eagerly looked forward to (yes, we are that sad...)is the extension of the Averaging rules for farmers. Firstly it is to be noted that the extension does not apply to creative artists; they have to make do with two year averaging only. Farmers, however, can from 2016/17 choose to average their profits over 5 years. As many Cumbrian farmers face the devastation of their land after the Storm Desmond, this relief may prove to be even more valuable than intended.
A new “Targeted Anti Avoidance Rule” has been legislated. It is no longer going to be possible to close down a company, take the money within it as a capital payment - which means tax at 10% rather than 20% - and then set up a new company trading in a similar trade or profession within 2 years from the winding up of the first company. In the opinion of robinson+co, the ability to do this has always been questionable due to “General Anti Avoidance Rules” but the government clearly sees the need to introduce a specific rule to stop small companies winding up and restarting shortly thereafter.
The complicated rules for the Inheritance Tax main residence relief have also been published and will be addressed by Victoria Bishop, robinson+co’s Tax Partner in a separate article.
Lastly, landlords get a new relief for the replacement of furnishings, appliances and kitchenware within a let residential dwelling house. The news is good news for landlords of unfurnished properties as it means they can now get relief for white goods, curtains and carpets which was not previously available. However, the new rule means that the 10% Wear & Tear Allowance is abolished for the landlords of furnished properties. Instead, all landlords can only claim the actual cost of replacements in the year of replacement.
As ever the effect of the new tax rules will depend on everyone’s individual circumstance and it is therefore important o speak to your normal contact at robinson+co for detailed advice.
We can be contacted by telephone, email, or the “Call Back Request” button on this website.