In fact, there is a considerable amount that we know will happen, as it has already been flagged up by the government. Plus there is one very significant anniversary, or more accurately a 10-year anniversary, which will be key for estate planners.
A lot of the action takes place in the first half of the year, so here are the highlights.
Budget rumours
Just like Fleetwood Mac, the Budget is well known for rumours. Some well-informed, and some just pure conjecture.
We do know that there is currently a consultation about the proposals to introduce ‘deemed domicile status’ for long-term residents after 15 years of UK tax residence. The responses to that consultation may lead to fine tuning of the proposals in the Budget.
One rumour that does not seem to go away is that there will be restrictions on pensions tax relief – currently costing the government £50bn ($73.5bn, €68.1bn) and rising – not least because of automatic enrolment. Many people were surprised that nothing was said about this in the Autumn Statement, so perhaps the bad news has been held over until this March.
We also know that the government remains concerned about the growth of salary sacrifice arrangements and is considering if any action is necessary. If so, that could also be included.
Proposals for a secondary market in annuities are also being considered and we may hear more about this in March.
Finance Bill
A Finance Bill follows a Budget and we know some of what will be in it, because the government told us in its ‘blue book’, which was published after the Autumn Statement setting out in detail how the chancellor’s plans were to be realised.
Among the provisions included will be:
- New civil penalties for offshore tax evaders and those who enable offshore evasion;
- A new criminal offence for tax evasion;
- A new penalty of 60% of the tax due will be charged in all cases successfully tackled by the general anti-abuse rule (Gaar);
- The government will extend the reliefs available from the annual tax on enveloped dwellings and the 15% higher rate of stamp duty land tax to equity release schemes (home reversion plans), property development activities and properties occupied by employees;
- Changes to which investments are eligible under venture capital trusts;
- ISA savings of a deceased person will continue to benefit from tax advantages during the administration of their estate;
- New legislation will determine exactly when performance awards received by asset managers will be taxed as income or capital gains.
22 March
Ten years is a long time in financial services, but for estate planners a significant event occurred in the Budget on 22 March 2006; the then prime minister Gordon Brown announced a radical change to the taxation of trusts.
From that date, any new flexible power of appointment trusts would be taxed as ‘relevant property’ for inheritance tax (IHT) purposes. This meant that any new non-exempt transfers to such trusts would now be chargeable lifetime transfers and not potentially exempt transfers, as before.
So on each 10th anniversary, they would have to be assessed to see if a ‘principal charge’ to IHT was due – and in any event, if the value of the trust exceeded 80% of the nil rate band at the time, details would have to be reported to HM Revenue & Customs (HMRC). If it is a discounted gift trust, it will be 80% of the discounted gift value.
Ten years on from Brown’s change, on 22 March 2016, professional advisers will need to check their records and tell trustees of their obligations. There may be nothing to do, or paperwork at least, and possibly the payment of tax to HMRC.
