Budget 2014 - Main Report


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Budget 2014 – Main Report



Main Report




For 2015/16 the starting rate of tax which applies to the first £5,000 (increased from £2,880) of taxable savings income (ie after allowances and reliefs) is reduced to zero.

If an individual’s taxable non-savings income exceeds £5,000 then the zero rate will not apply. This is because in calculating tax, savings income “sits on top” of non-savings income. So if, for example, taxable non-savings income were £2,000 then £3,000 of the savings income would suffer tax at the zero rate.

To be able to register for savings income to be paid gross then an individual’s total income must not exceed their personal allowance (£10,500 in 2015/16) plus £5,000. For example, an individual for 2015/16 has a total income of £16,000 made up of earnings of £14,000 and £2,000 of savings income. This individual would pay zero rate tax on £1,500 of their savings income (£15,500 less £14,000 earned income) but cannot register for gross interest as total income exceeds £15,500. £3,500 of other income would suffer tax at 20%.

Self-evidently, anybody who has non-savings income of more than £15,500 cannot obtain the benefit of the zero starting rate on any savings income they have.

For 2015/16 the basic rate limit is fixed at £31,785, and the additional rate will continue to apply to income over £150,000. With the standard personal allowance at £10,500, the higher rate threshold for 2015/16 will be £42,285.

From April 2015, spouses and civil partners will be entitled to transfer £1,050 of their personal allowance to their spouse or civil partner provided the recipient is not subject to income tax at the higher or additional rate. Thereafter the transferable amount will be 10% of the standard personal allowance.

The Government is to consult on targeting whether, and how, personal allowances could be restricted to UK residents and those living overseas in countries which have strong economic ties to the UK.


Changes to the income tax bands

The basic rate limit reduces to £31,865 from 6 April 2014.

The 10% starting rate band for savings income is £1 – £2,880.

Increase in income tax personal allowance for 2014/15

From 6 April 2014 the income tax personal allowance for those born after 5 April 1948 will increase to £10,000. This is an increase of £560 over the allowance for 2013/14.

As the basic rate limit reduces to £31,865, taxpayers who are entitled to the full standard personal allowance will pay 40% tax on income above £41,865 (the higher rate tax threshold, which is the sum of the basic rate limit and standard personal allowance).

Changes to the higher personal allowances for 2014/15 (those born before 5 April 1948)

For the 2014/15 tax year:

people born after 5 April 1938 but before 6 April 1948 will be entitled to a personal allowance of £10,500;

People born before 6 April 1938 will be entitled to a personal allowance of £10,660.

The above two allowances are at the same level as for 2013/14.

• Higher personal age allowances will cease to be available once they are aligned with the standard personal allowance.

These higher allowances are subject to an income limit. Where an individual’s income exceeds the income limit (£27,000 in 2014/15), their personal allowance is reduced by £1 for every £2 above the income limit. However, the higher personal allowance for someone born before 6 April 1948 is not reduced below the amount of the personal allowance for people born on or after 6 April 1948 (£10,000 for 2014/15). There is an exception for people with “adjusted net income’ exceeding £100,000, where a separate reduction of £1 for every £2 of income in excess of £100,000 applies to the individual’s personal allowance, regardless of their age.

It is assumed that the provisions that apply a reduction in the age allowance because of a person’s income will continue to apply in the future until the higher allowances are aligned with the standard personal allowance.

The married couple’s allowance for 2014/15

The married couple’s allowance is £8,165 provided at least one of the couple was born before 6 April 1935.

The total income limit

This is increased to £27,000 as mentioned in 1.2.3 above.

Loss of the personal allowance

Those with an adjusted net income exceeding £100,000 will lose their personal allowance at the rate of £1 for every £2 above the income limit. For 2014/15 this means that those with an adjusted net income of £120,000 or more will lose their entire personal allowance.

1.2.7 Introduction of transferable personal allowance

From April 2015, spouses and civil partners will be entitled to transfer £1,050 of their personal allowance to their spouse or civil partner provided the recipient is not subject to income tax at the higher or additional rate.



The fact that each individual has their own personal allowance and their own starting and basic rate tax bands means that worthwhile overall income tax saving opportunities are available for 2014/15. This is especially so in regard to income that falls between £100,000 – £120,000 which causes the removal of the personal allowance and an effective tax rate of 60% for non-dividend income.

Married couples

For all couples, as a bare minimum, both personal allowances and starting/basic rate tax bands should be used to the full. This is particularly beneficial where income can be legitimately shifted from a higher or additional rate taxpaying spouse to a non, starting or basic rate taxpaying spouse. For those with cash and investments this will usually be facilitated by a transfer of income-producing investments from the higher tax paying spouse to the other.

Any such transfers would usually be CGT and IHT neutral as transfers between spouses living together are treated as transfers on a no gain/ no loss basis for CGT purposes and transfers between UK domiciled spouses (living together or not) are exempt from IHT without limit.

Business owners

Business owners with greater control over “income flow” might consider, in relation to their spouses who are non/lower taxpayers:

employing them (although deductibility of the amount paid would be subject to showing that the expense was incurred wholly and exclusively for the purposes of the trade); or

bringing them fully into partnership (sharing in capital and profits); or

transferring or issuing fully participating shares (ie. shares with rights to capital, voting and income) to them which would carry the right to dividends as a means of tax effectively ensuring that income distributed from the business bears as low a personal tax rate as possible.

They should ensure that, taking account of other income in retirement, eg state pension, each spouse has sufficient pension income to fully utilise their personal allowance.

1.3.4 Those in the age allowance trap

Age allowance applies separately to a husband and wife as does the total income limit of £27,000 above which the allowance reduces. By careful planning both spouses can possibly each qualify for a full age allowance. When investment income falls within the “age allowance trap” it can suffer an effective rate of tax of 30% so reinvestment in non-income producing assets should be considered.

Capital investment bonds, capital growth oriented collectives and ISAs may be attractive as, (subject to guarding against “capital erosion”), “income” can be taken without loss of age allowance. With the insurance-based investment bond (“capital investment bond”), this will commonly be by use of the 5% annual withdrawal facility. In some cases, more than 5% can be taken (without an addition to total income which may impact on the age allowance) provided the first withdrawal is made in the second policy year.

1.3.5 Those with income in excess of £100,000

Where an individual has adjusted net income in the band between £100,000 and £120,000 (or just above £120,000) a part of any non-dividend income in that band will effectively be taxed at 60% because of the cut back in the personal allowance. A contribution to a registered pension plan could, in effect, provide tax relief at the same 60% rate. As part of their planning, such people may also wish to consider independent taxation strategies and reinvestment into tax-efficient investments such as ISAs or capital investment bonds. However, it needs to be borne in mind that no top-slicing relief applies for the purposes of adjusted net income when a capital investment bond is encashed.




Legislation will be introduced, when time permits, to simplify the administrative process for the self-employed by collecting Class 2 NICs alongside income tax and Class 4 NICs. These changes will have effect from April 2016, but customers will start to see the benefits after April 2015.


The Upper Earnings and Upper Profits Limits, beyond which NICs are charged at 2%, increase to £41,865.

The rates for 2014/15 are as follows:-

The Employee’s Primary Class 1 National Insurance rate is 12% on earnings between the Primary Threshold (£153 per week – £7,956 pa) and Upper Earnings Limit (£805 per week – £41,865 pa).

Employees, in addition, pay 2% Primary Class 1 National Insurance on all earnings above the Upper Earnings Limit (£41,865 per annum).

The Employer’s Secondary Class 1 contribution rate on earnings above the Secondary Threshold (£153 per week – £7,956 pa) is 13.8%. This rate applies also to Class 1A and Class 1B contributions.

The self-employed Class 4 rate on profits between the Lower (£7,956 pa) and Upper Profits Limit (£41,865 pa) is 9%.

The self-employed Class 2 flat rate contribution is £2.75 per week.

The self-employed, in addition, pay Class 4 contributions at a rate of 2% on all profits above the Upper Profits Limit (£41,865).

The Class 3 voluntary contribution rate is £13.90 per week.

The Married women’s reduced rate is 5.85%.

From April 2014 every business and charity will be entitled to an annual £2,000 Employment Allowance towards their Class 1 employer’s NICs bill. The Allowance will be delivered through standard payroll software and HMRC’s Real Time Information System. For more details see “Shareholding Directors”.

From 6 April 2015 employers will no longer be required to pay Class 1 NICs on earnings paid up to the Upper Earnings Limit to any employee under the age of 21.

From October 2015 a new Class 3A voluntary NI contribution will be introduced

If a salary is to be taken which avoids both employee’s and employer’s NICs then it should not exceed £7,956 per annum ie. the threshold above which both the employer and employee pay NICs.

A highly effective form of NIC planning for genuine (non-shareholding) employees would be to consider a salary sacrifice arrangement in conjunction with employer contributions to a registered pension plan. Contributions could be boosted by payment of the saved NIC costs as additional pension payments.

There are, of course, a number of other important implications to consider with a salary sacrifice scheme.

Those running their business through a company are likely to seriously consider paying themselves dividends as opposed to salary. The main reason for this will, of course, be that dividends are not subject to NICs. The pros and cons of dividends and salary have been well rehearsed in the past. An analysis of dividends vs salary (together with a consideration of the impact of the new Employment Allowance) is available in the further information section on the Taxation of Shareholding Directors. In addition, a review of the opportunities for payment of salary to working spouses could be beneficial. In any remuneration planning for a spouse it is important that payments, in order to be fully tax deductible, can be justified on the basis of work carried out.

Any planning carried out with a view to taking a spouse into partnership (where appropriate), or issuing shares to a spouse in order to pay dividends, must be carefully discussed with professional advisers.

There may be an additional benefit to incorporation in the shape of the avoidance of the “unlimited” 2% Class 4 NICs on earnings over £41,865 that could be avoided on profits that accrue to a company. NICs could continue to be legitimately avoided, even if the money leaves the company, provided it is paid to the shareholders by way of dividend. Naturally, before taking this important step (incorporating an unincorporated business), there are many other factors to be taken into account and professional advice is essential.



Finance Bill 2014 will include legislation to correct an oversight in the split year rules introduced as part of the statutory residence test to ensure capital gains made by a remittance basis user while they are non-UK resident will not be charged to UK capital gains tax.

Annual Tax on Enveloped Dwellings (ATED) – CGT charge on any gain at 28% to apply to properties worth more than £500,000 up to £2 million. See Tax Avoidance and Property Taxation for more detail.


The annual exempt amount (AEA) for 2014/15 increases to £11,000 (from £10,900) and to £11,100 for 2015/16. The exemption for most trustees will be £5,500 and £5,550 respectively.

For individuals, the rate of capital gains tax (CGT) remains at 18% where total taxable gains and income are less than the income tax basic rate limit (£31,865). The 28% rate applies to gains (or any parts of gains) above that limit. For trustees and personal representatives of deceased persons, the rate of CGT remains at 28%.

The rate of CGT for gains qualifying for entrepreneurs’ relief remains at 10% on

cumulative lifetime capital gains of up to £10 million.

From 6 April 2014 the final period exemption for principal private residence relief will be reduced from 36 months to 18 months.

From April 2015 the Government will introduce capital gains tax on ‘future gains’ made by non-UK residents disposing of UK residential property. A consultation on how to introduce the charge will be published shortly and legislation will be in Finance Bill 2015.

Principal private residence relief

Property which has been an individual’s only or main residence at some time is exempt from

capital gains tax for the final 36 months of ownership – known as the final period exemption.

This rule applies regardless of whether they are occupying the property at the time of sale.

From 6 April 2014 the final period exemption will be reduced from 36 months to 18 months.

Non-residents and UK residential property

From April 2015 the Government will introduce capital gains tax on ‘future gains’ made by

non-UK residents disposing of UK residential property. The change will be subject to


consultation which will be published shortly after Budget day.

3.3.1 Planning for investors: Minimising tax on realised gains

There is an appreciable difference in the rate of CGT paid by higher rate and additional rate taxpayers on the one hand and non/basic rate taxpayers on the other. For married clients, it can therefore be beneficial to ensure that taxable gains are made by the lower taxed spouse where this is possible. Even if both spouses are taxed at the same rate, there may still be the opportunity to use two annual exemptions rather than one.

Transfers between spouses or civil partners living together are made on a ‘no gain/no loss’ basis and are, of course, exempt from inheritance tax. Such transfers should be made on an outright basis with ‘no strings attached.’

The rate of CGT on non-exempt gains is dependent on the level of total taxable income. Action to reduce it could therefore result in a CGT rate that is reduced by 35% (28% to 18%). Higher rate tax relief on a pension contribution continues to be given by the extension of the basic rate band by the gross contribution and so, for some investors will be effective for the purposes of determining whether the 28% or 18% rate of CGT is applicable. Payment of an allowable pension contribution would represent an effective way of providing an indirect CGT benefit for a basic rate taxpayer who realises a chargeable gain which would otherwise take them into higher rate tax. This is because it would result in an equivalent amount of a capital gain that would otherwise be subject to CGT at the higher rate of 28% now being taxed at 18%.

Making use of the annual exemption

This may seem like an obvious planning point but one which can sometimes be missed. The annual exemption is given on a ‘use it or lose it’ basis. So if individuals are relying on certain investments for additional income, re-balancing asset allocation within their investment portfolio could provide the opportunity to use their annual exemption.

In some cases considering a phased sale of shares over two tax years can prove to be beneficial as it is possible to benefit from use of two annual exemptions.

Maximising the use of losses

Despite the recovery in some asset values, some longer-term holdings could still be standing at a loss. Combine this fact, with the higher rates of tax on gains made by higher rate taxpayers and the often-forgotten rules on the tax treatment of capital losses might assume increased importance.

If a taxpayer realised a gain and a loss in the same tax year:

• The loss will be set off against the gain, even if the gain is within the taxpayer’s annual exemption. Some or all of the exemption may therefore be wasted.

However, if the taxpayer carried forward a loss from a previous tax year :

The carried forward loss is only used up to the extent that it reduces their overall gains to the level of the annual exemption.

• The loss is therefore only partly used when necessary with the balance carried forward to set off against later gains.

Care should always be taken before realising gains and the losses together in a single tax year. In particular, care should be taken not to waste the annual CGT exemption.

Planning for business owners:

The entrepreneurs’ relief limit stands at £10m, which on the face of it, continues to increase the appeal of building up the value of a business with a view to realising a low-taxed gain.

Of course, reliance on an individual’s business as the sole or main means of providing financial security in the future may represent an excessively undiversified and, thus, high risk strategy. Business owners contemplating or adopting this route should be encouraged to consider some alternative means of providing for the future including, as appropriate, pensions and other suitable investments so as to diminish risk through diversification.

It is one thing having a hugely beneficial tax regime for gains made on business sale but quite another achieving and realising the gain in the first place!

Principal private residence relief

The Finance Bill 2014 proposes changes to the ability to make use of CGT “flipping”. The final three year period is to be reduced to 18 months, meaning that there will be a much tighter period for individuals to flip the relief between properties. It will still be possible, but realistically only fully effective where properties are retained for a short period. Note, however, that principal private residence relief (PPR) is not available for properties acquired purely as an investment, i.e. with the aim of realising a gain on disposal. In such cases HMRC may argue that any gain on disposal is subject to income tax (ie as a trade) rather than CGT and could seek to invoke this rule where individuals seek to buy and sell properties within the 18 month period.

If the provisions go through, as expected, they will apply to sales where contracts are exchanged on or after 6 April 2014. However, if exchange occurs on or before 5 April 2014 and completion is after this date, the current PPR rules will still apply to the sale, provided completion takes place on or before 5 April 2015. There is therefore an incentive for a quick exchange for those sales that do not anticipate completing until after 6 April 2014.

Non-residents and UK residential property

As non UK residents will be subject to UK capital gains tax on future disposals of UK residential property, those falling into this category should consider seeking advice on whether or not to sell the property now (bearing in mind of course that CGT may well only apply to any increase in value occurring after April 2015) or even potentially transfer it to a company – provided of course, it is valued below £500,000 and not caught by the annual tax on enveloped dwellings and stamp duty land tax – see our section on property tax for more information here.

When the property is later sold however, there could be a liability to corporation tax on any gain at that point unless other planning is carried out to prevent this.




Deposits in a UK bank account which is denominated in a foreign currency are left out of account in determining the value of a person’s estate if the deposit is non-UK domiciled and non-UK resident immediately before their death. Technically, the account is not excluded property but is left out of charge to IHT under section 157 IHTA 1984. This creates an opportunity for people to exploit the new rules on deduction of liabilities.

Legislation will be introduced in Finance Bill 2014 to treat funds held in foreign currency accounts in UK banks in a similar way to excluded property, for the purposes of provisions which restrict how liabilities are deducted from the value of an estate for inheritance tax purposes. This means that if a non UK domiciled individual borrows funds which are then deposited into a foreign currency account in a UK bank, the liability will not be allowed as a deduction from the estate for inheritance tax purposes where death occurs after the date of Royal Assent of Finance Bill 2014.

The Government will consult on extending the existing inheritance tax exemption for members of the the armed forces whose death is caused by injury while on active service to members of the emergency services. Draft legislation will be included in Finance Bill 2015.


Nil rate band

The nil rate band will remain frozen at £325,000 until 2017/2018.

IHT and trusts

For details on the changes in respect of inheritance tax and trusts please see section 10 here.


People affected by IHT

With the nil rate band frozen until at least April 2018, stock markets flourishing and house prices recovering, more and more people will find that there will be a potential liability on their death. It therefore makes sense for such people to take early planning action.

Making use of exemptions


This is a fundamental IHT planning point and one which can often be missed. The key is to remember that there are a number of IHT exemptions which individuals can take advantage of. The most common ones are:

Annual exemption – each individual can give £3,000 per annum and also use the previous year’s exemption if not already used.

Small gift exemption – up to £250 can be given to any number of individuals (note the small gifts exemption cannot be combined with the annual exemption).

Normal expenditure out of income – gift can be made from surplus taxable income provided it doesn’t affect the donors standard of living.

Exemptions are also available on the occasion of a marriage and where gifts are made to a UK registered charity and community amateur sports clubs. Planning in this area can sometimes be overlooked with few people using such exemptions to the full potential.

Using the normal expenditure and annual exemptions through the payment of premiums under life assurance policies held in trust to meet the liability to IHT can be particularly effective.

4.3.3 Other lifetime planning

In some cases it may be possible for individuals to make gifts in their lifetime whether outright or by executing a trust.

The current regime for outright gifts is indeed very favourable especially where the person making the gift is in good health. Outright gifts (whether to another individual/absolute trust) are potentially exempt transfers (PETs) for inheritance tax purposes which means that no IHT is payable at the time the gift is made. Further provided the donor survives for 7 years the whole amount is free of an IHT on the donors’ estate. Also there is no limit on the amount which can be gifted.

Alternatively, where someone wishes to maintain an element of control, consideration could be given to executing a lifetime trust. Most trusts with any element of flexibility are taxable under the relevant property regime, i.e. as a discretionary trust. This means that the trust can be subject to IHT on creation, when capital appointments are made and at each tenth year anniversary. For this reason it is advisable to execute these trusts within the individual’s available nil rate band. And where the settlor is in good health, a cycle of nil rate band use every seven years might represent a very effective means of planning – through appropriate trusts where a degree of retained control is to be retained.

And for those requiring a degree of access as well as control (but without triggering a reservation of benefit) then a form of Loan Trust or Discounted Gift Trust (or a combination) may prove suitable.

When determining the type of trust to use (especially where the trust assets could produce income and capital gains) all aspects of taxation need to be considered in determining suitability.

Note that there are a range of trusts available to cater for each individuals specific needs and proper advice is essential when making any gift to a trust.

4.3.4 Will Planning

Using the Nil rate band

For a person with assets of £325,000 or more, effective use of the nil rate band can result in an IHT saving of £130,000.

Under the transferable nil rate band (TNRB) rules, where a spouse/civil partner dies leaving assets to the survivor, it is possible for the personal representatives to make a claim in respect of the percentage any unused nil rate band within two years from the date of the death of the survivor.

These provisions, apply to anyone who dies on or after 9 October 2007, regardless of when their spouse died (including deaths before 1986 when IHT was introduced).

For a married couple or registered civil partners, this can mean that up to £650,000 (i.e. twice the current NRB threshold) of the combined estate could pass free of IHT. Assets that exceed this value on death will be taxed at 40%.

While it may be reasonable to conclude that couples with combined assets of up to twice the nil rate band, especially those whose main asset is their home, may not need or be interested in IHT planning, others may still be interested in ‘first death nil rate band planning,’ especially given the fact that the nil rate band has been frozen since 2009 and is set to remain so until April 2018. Examples of this may be where it is thought that the value of the assets to be left on first death will increase in value at a rate faster than the expected increase in the nil rate band or where the surviving spouse has already inherited (from an earlier marriage) a 100% multiplier of the nil rate band. Some of the planning solutions for using the nil rate band will involve a discretionary will trust which will absorb some of the TNRB.

Business or Agricultural Property Relief

It is important that reliefs are not wasted on death. And with nothing announced in the Budget to directly affect such reliefs, individuals should be reminded that they exist and the IHT savings that they deliver. Assets which qualify for relief at 100% should if possible be left to children or to a trust on their behalf as opposed to the surviving spouse where the relief would be wasted. Where a business succession plan is in place (resulting in the sale of a business interest by a deceased’s personal representatives and a purchase by the remaining business owners) then estate planning for the deceased’s family receiving the cash proceeds of sale will be beneficial. Any purchase should be made under an option agreement – in order to maintain business property relief. Also, a form of by-pass trust for the deceased’s share in the business may be appropriate to avoid the cash proceeds of sale attracting IHT on subsequent death of the spouse of the business owner.

Leaving assets to Charity

Gifts to UK registered charities are exempt from IHT. Further where someone leaves 10% or more of their chargeable estate to charity, the IHT payable on the remainder of the estate will be at 36% instead of 40%.

4.3.5 Deeds of variation

Where property is inherited, it is possible to redirect the inheritance by deed of variation to achieve immediate IHT savings. Ordinarily the inherited assets accumulate with the taxable estate of the receiving beneficiary who may be wealthy in their own right. Instead of choosing to make a gift of such assets, which could give rise to IHT, the receiving beneficiary could execute a deed of variation to make an immediate IHT saving on their own estate.




5.1.1 Chargeable gains roll-over relief

Proposals are made in relation to companies making a disposal of tangible assets and using the proceeds to acquire intangible fixed assets. The new provisions will:-

prevent companies claiming chargeable gains roll-over relief on the disposal of tangible assets where the proceeds are reinvested in an intangible fixed asset.

adjust the tax cost of the replacement intangible fixed asset for claims made on or after 1 April 2009 and before 19 March 2014, preventing double tax relief being given on any roll-over relief claims already made.

correct an error in the rewriting of legislation in relation to capital gains roll-over relief where the proceeds on the disposal of a tangible asset are reinvested in an intangible fixed asset.

amend the re-written legislation in line with that previously enacted and in line with policy intentions, and

make the tax system fairer and simpler by clarifying the current legislation.

5.1.2 Theatre tax relief

The Government will introduce a new theatre tax relief at 25% for qualifying touring productions and 20% for other qualifying productions, with effect from 1 September 2014. This relief closely mirrors that given for film investment (see below).

5.2 CHANGES ALREADY ANNOUNCED 5.2.1 Corporation tax rates

The main rate of corporation tax will by cut by 2% from 23% to 21% for Financial Year 2014 and by a further 1% to 20% for Financial Year 2015.

The main rate, of course, applies where profits exceed £1.5 million. For companies with profits of less than £300,000 the small profits rate of 20% applies. For companies with profits between £300,000 and £1.5 million marginal relief applies which means that the effective rate of tax on profits that fall between £300,000 and £1.5 m will be 21.25%.

5.2.2 Unification of corporation tax rates

From 1 April 2015, with the exception of oil and gas ring fence profits, all corporation tax profits will be taxed at the rate of 20%. This removes the need for the “associated companies rules”, which are used to determine whether a company is small and therefore taxed at a rate different from the main rate.

However, those rules cannot be entirely repealed, as they are also used for other purposes within the corporation tax regime. It is proposed that they will be replaced with a simpler 51% group test to be used to determine:

the rate at which oil and gas ring fence profits are taxed;

whether a company is entitled to use a simplified method for calculating patent box profits;

how much has been spent by a company on long life assets for capital allowances purposes; and

a company’s requirement to pay corporation tax by quarterly instalments

Amending the loss relief provisions

The existing corporation tax provisions will be amended to ease the rules restricting the availability of relief for corporation tax losses when companies change ownership. The changes will take effect for any changes of company ownership which occur on or after 1 April 2014.

The first amendment will allow a new holding company to be inserted by share for share exchange at the top of a group of companies without this causing a change in ownership for the purposes of the loss relief provisions.

The second amendment will increase the threshold at which the provisions apply to investment companies where there has been a “significant increase in capital” after the

change in ownership. To be regarded as a significant increase, the capital of the company after the change in ownership will now need to exceed the capital of the company before the change by £1m and by at least 25%.

Film tax relief

Previously relief was given at either 25% on limited budget films (with qualifying core expenditure of less than £20m) or 20% on larger budget films. A change has been introduced so that all film production companies can claim relief at 25% for the first £20m of qualifying core expenditure and 20% on amounts thereafter. Additionally, the minimum UK expenditure requirement will reduce from 25% to 10% and the cultural test will be modified. These changes will apply from 1 April 2014, subject to receiving state aid approval.


For companies paying the main or marginal rate of corporation tax, knowing that the rate will reduce by a further 2% by 2014 and to 20% from 1 April 2015 (when the unitary rate of corporation tax (20%) comes into force – see could act as an incentive (subject to
other considerations) to defer taxable income until then and incur deductible expenditure before then at a time when the main rate is higher.

It is worth noting, if a corporate investment of cash on deposit is to be made (and this should only, of course, be considered if business cash needs will be comfortably satisfied and consideration has been given to debt repayment and pension contribution), that dividends from equity-based investment such as collectives, are likely to be tax free if received or reinvested on behalf of a UK company and only capital gains over inflation (based on the RPI) will be subject to corporation tax when the gain is actually realised.

It is, however, reiterated that before any investment is made, professional advice should be taken in relation to the impact that investment (taking funds off deposit) might have on the availability of entrepreneurs’ relief and, for investment in deposit/cash-based investments and life policies (bonds), the impact that the loan relationship rules might have on the annual corporation tax liability of the company.

The rate of corporation tax payable is also likely to have a strong influence on the choice of trading entity for those in business or those considering starting a business. Especially where profits earned from the business exceed (or are expected to exceed) the amounts required by the business owners for personal expenditure, retaining profits inside a company will mean that significantly less tax will need to be paid than if the profits had been earned by the owner as a higher or additional rate tax paying sole trader, partner or member of a LLP.

5.3.1 General Business Planning

With the retention of an additional rate of tax (at 45%) and a higher rate of tax (40%) that is double the small profits corporation tax rate, the balance seems to be firmly in favour of incorporation once profits exceed the higher rate threshold of the business owner(s).

However, for the increasing numbers of individuals “starting their own business”, self-employment remains an easy and natural, low cost choice. For these, the cash accounting option may prove attractive as will other measures targeted to reduce red tape and help to make business life easier.




Annual Investment Allowance

The annual investment allowance (AIA), which gives 100% initial relief for investment in plant and machinery, has been increased to £500,000 (from £250,000) from 1 April 2014 (corporation tax) and 6 April 2014 (income tax) until 31 December 2015. From 1 January 2016 the AIA will decrease to £25,000.

Where a business has an accounting period which spans either the 1 April/6 April 2014 dates or 31 December 2015 transitional relief will be available on a time apportionment basis.

For example, take a company with an accounting period 1 January 2014 to 31 December 2014. The maximum AIA would be

1 January 2014 to 31 March 2014 – £250,000 x 3/12 = £62,500

1 April 2014 to 31 December 2014 – £500,000 x 9/12 = £375,000 Total AIA = £437,500.

Business Premises Renovation Allowance (BPRA)

The changes described in 6.2.3 below become effective from 1 April 2014 (corporation tax) and 6 April 2014 (income tax).

In addition:

A rule will be introduced preventing a claim to BPRA if another form of State aid has been received

The rule, which prevents expenditure on buildings qualifying for relief before they have been unused for a year, will be clarified

Where tax relief is claimed immediately, it will be withdrawn if the work to which it relates is not completed within 3 years

The period in which balancing adjustments must be made if certain events occur will be reduced from seven to five years

Enterprise Zones; enhanced capital allowances

Companies investing in plant or machinery in designated enhanced capital allowance sites in Enterprise Zones will qualify for 100% capital allowances until 31 March 2020.

The period in which businesses investing in new plant and machinery in enhanced capital allowances sites in Enterprise Zones can qualify for 100% capital allowances is extended to 31 March 2020.


Extended capital allowances scheme for energy – saving technologies

The availability of first-year tax credits, for companies surrendering losses attributable to their expenditure on designated energy-saving or environmentally beneficial plant or machinery, has been extended for a further five years from 1 April 2013.

Low emission cars

The 100 per cent first year capital allowance has been extended for businesses purchasing low emission cars for two years from 1 April 2013 except for leased cars.

Business Premises Renovation Allowance

Business Premises Renovation Allowance (BPRA) is a 100% capital allowance that’s available to companies and other taxpayers incurring capital expenditure on bringing qualifying business premises back into business use. The buildings must be in a designated disadvantaged area and unused for over a year.

The BPRA rules will be amended from 6 April 2014 to make it clear that only the actual costs of construction and building work, along with other specified activities, will qualify for relief. Other specified activities are architectural, design, surveying or engineering services, planning applications and statutory fees or permissions. Associated but unspecified activities (such as project management services) will also qualify, but only up to a maximum of 5% of the construction and building costs.

Any expenditure incurred before the renovation starts will be excluded if the building has been in use during the year prior to the date of expenditure. Expenditure will also be excluded if it is incurred on works, services or other matters which are not completed within two years of the date of expenditure.

The rules will, however, be relaxed so that a clawback of allowances on certain events (such as a sale of the building) will not take place if the event occurs more than five years (currently seven years) after the building begins to be used for the purposes of a trade, profession or vocation or otherwise as an office.

All of this effectively means that the amended rules relating to qualifying expenditure will provide greater certainty (regarding the total expenditure qualifying for relief) to those looking to enter into a BPRA project. However, taxpayers who may once have sought to “push the boundaries” as to what does and does not qualify will now have less room for argument with HMRC in respect of future projects.

It is generally considered that any taxpayer who has claimed BPRA in the last few years and is considering selling or granting a long lease out of an interest in property to which a BPRA
attaches will welcome the final change. This is because it brings forward the date on which the sale or grant can take place without triggering a clawback of allowances.

See also: Section 8 Tax Avoidance.


The increase to the AIA may mean the timing of planned business investment ought to be reviewed.

Where relevant, advantage should be taken of the AIA, particularly as the rate of the AIA is scheduled to reduce to £25,000 from 1 January 2016.

Capital allowances will continue to be an important feature of tax life for businesses. Of course, as for any expenditure, businesses should consider carefully the commercial appropriateness of any investment. Especially in the light of the latest proposals, advisers must be fully aware of the capital allowance system so that they can properly advise their business clients on the tax impact of various items of expenditure. Closer to home they may be interested in how capital allowances work for their own business.

In the right circumstances, it may be appropriate to consider an investment in order to obtain a Business Property Renovation Allowance.




Proposals made in the Budget

There were no new changes announced.

Changes already announced

No changes to policyholder taxation were announced in the Autumn Statement.


Proposals made in the Budget

There were no new changes announced.

Changes already announced

No changes to life company taxation were announced in the Autumn Statement.



Near the end of 2013 HMRC estimated that the size of the Tax Gap (the difference between the tax received if the tax system were applied and tax collected as “officially intended” and the tax actually collected) had risen from £32bn to £35bn.

Evasion and crime are by far the biggest contributors to “The Gap” but “avoidance” and “legal interpretation” are also significant contributors.

These facts significantly influence the continued government action to prevent aggressive avoidance, and with strong political motivation, be seen as doing so.



The government remains committed to a fair tax system where everyone contributes to reducing the deficit, and those with the most make the largest contributions. An estimated 28.3% of all income tax receipts come from the top 1% of taxpayers.66 This Budget announces a number of policies (in addition to the significant raft of new anti-avoidance provisions already in the Finance Bill) to enhance the fairness of the tax system further.

Corporate structures for property

As announced at Budget 2012, the government has introduced a number of new measures to discourage placing property in corporate envelopes to avoid stamp duty land tax (SDLT). These apply to residential properties valued over £2 million, and include a new higher rate of SDLT when the property is first ‘enveloped’; a new Annual Tax on Enveloped Dwellings (ATED); and a capital gains tax charge on any gains on disposal of enveloped properties from April 2013.

ATED has raised 5 times the amount forecast for 2013-14, with significantly more properties above £2 million in envelopes than expected. As well as discouraging SDLT avoidance, ATED incentivises commercial activities by providing relief where, for example, a property is rented out.

The government believes that ATED and the associated measures can discourage the use of corporate envelopes to invest in high value UK housing which is left empty or underused while avoiding paying tax. The Budget therefore announces 2 new bands for ATED, to bring properties worth £500,000 to £1 million and £1 million to £2 million into the charge. The ATED-related capital gains tax charge will apply to properties in the new ATED bands. The 15% rate of SDLT that applies to acquisitions of properties by corporate envelopes will also be applied to properties valued above £500,000 with effect from 20 March 2014.

The government recognises that the structure of ATED can create some administrative burdens for genuine property rental, trading and development companies. The government will therefore stagger the introduction of the new ATED bands, with the £1 million to £2 million band coming into effect from April 2015, and the £500,000 to £1 million band coming into effect from April 2016. The government will also consult on possible
simplifications to ATED administration to reduce compliance burdens for genuine businesses.

Accelerated tax payments

At Autumn Statement 2013, the government announced that it would, following consultation, introduce a new requirement for taxpayers to pay disputed tax upfront where the avoidance scheme being used has been defeated in another party’s litigation through the courts (see 8.2.10 below).

Tax avoidance scheme promoters must give HMRC information about schemes they promote under the Disclosure of Tax Avoidance Scheme (DOTAS) rules. Anyone using such a scheme must declare to HMRC they are using a notified tax avoidance scheme. Following consultation, this Budget announces that the government intends to extend the new requirement for taxpayers to pay upfront any disputed tax associated with schemes covered by the DOTAS rules or counteracted under the General Anti Abuse Rule (GAAR).

This new power will remove the cashflow advantage for the taxpayer of holding onto the disputed tax during an avoidance dispute. It will also provide HMRC with additional tools to address a legacy stock of an estimated 65,000 avoidance cases. The new power will only apply to tax avoidance schemes that are disputed by HMRC. The legislation will make it clear that HMRC will only be able to issue an accelerated payment notice where they have first sent the taxpayer an enquiry notice or issued them with a notice of assessment. It is not a new tax demand and does not make any changes to tax liabilities. If the taxpayer subsequently wins their case in the courts, they will be reimbursed with interest.

High risk tax avoidance scheme providers

Following consultation, the Budget confirms the introduction of new rules to allow HMRC to identify and place new obligations and penalties on “high-risk promoters” of tax avoidance schemes. To reflect the extra revenue anticipated from the measures in this Budget, the government will increase HMRC’s compliance yield target by a total of £1.6 billion over the coming 2 financial years.

International action on tax avoidance

The government is committed to working with G20 and OECD partners to prevent multinational companies engaging in aggressive tax planning, by taking forward the 15 point Action Plan to counter Base Erosion and Profit Shifting.67 It is today publishing a position paper which sets out the UK’s priorities for the ongoing work on this global initiative.68 The first outputs are expected this year, including a proposed initiated under the UK’s G8 presidency in 2013 for a country-by-country reporting template to give tax authorities worldwide a clear picture of where multinationals generate profits and pay tax.

The government is committed to completing work on all the actions to the agreed deadlines in 2014 and 2015, and will ensure that changes to the tax rules are implemented in the UK as soon as possible to make sure a fair amount of tax is paid by these businesses.

Alongside working with G20 and OECD partners, Budget 2014 announces action to block arrangements involving payments between companies within a group which transfer profits
to avoid tax. These payments will be disregarded for tax purposes, and companies will pay tax on profits generated in the UK.

The OECD is due to consult on a new rule to address hybrid mismatches, which occur when the tax treatment of a financial instrument or entity differs between countries, allowing for exploitation by multinational groups looking to lower their effective tax rates. The government believes that banks and insurers should not be unfairly advantaged under this rule, and does not see a strong case for a full carve out of their intra-group hybrid capital instruments. However, as part of the consultation, the government will consider whether there should be special rules when these instruments are a direct consequence of regulatory requirements.

VAT avoidance disclosure regime (VADR) improvements

The government will consult on proposed changes to the VADR in order to bring it more in line with the DOTAS regime, including shifting the primary responsibility for disclosure from the users to the promoters of VAT avoidance schemes.

Avoidance schemes involving the transfer of corporate profits

The government will close down tax avoidance schemes, with immediate effect, involving other arrangements to transfer profits to a related company where the arrangements have a main purpose of securing a tax advantage.

The measure blocks tax avoidance arrangements where profits are transferred between companies in the same group for tax avoidance purposes. It does not apply to any arrangement falling within section 695A of the Corporation Tax Act 2009 (CTA 2009) which came into effect from 5 December 2013 and relates specifically to derivative contracts, but it does apply to any arrangements that have been put in place to circumvent that provision.

This measure supports the Government’s objectives of promoting fairness and tackling avoidance in the tax system. It ensures that where profits are transferred between companies for tax avoidance purposes, then corporation tax will be charged as though the profits had not been transferred.


Substantial action against avoidance and evasion had already been announced (and in some cases actioned) before the Budget. The main aspects of these “already announced” changes on tax avoidance and evasion are summarised below. Wherever appropriate planning strategies that could be considered in relation to the change being discussed will be outlined.

8.2.1 General Anti-Abuse Rule (GAAR)

The GAAR has been in full force since July 2013.

Its existence is a significant contributor to the change to the “zeitgeist” surrounding aggressive avoidance. The GAAR, together with continued publicity (including naming and shaming) given to the future of aggressive schemes initiatives to further limit marketed schemes the so-called “accelerated payments” provisions removing a significant element of the cash flow advantages that can result from participating in schemes that fail in the Courts or Tribunals emphasis on information gathering

HMRC success in the Tribunals and Courts (over 80% success apparently) and the, seemingly relentless, continued flow of targeted anti-avoidance legislation operates to severely limit the public’s appetite for aggressive tax avoidance schemes.

It’s early days but the GAAR will be monitored through:

the numbers of abusive schemes disclosed under the avoidance disclosure provisions (DOTAS)

intelligence via disclosure/other sources of attempts to circumvent the measure

the number of potential GAAR cases identified and how many of those cases are authorised for counteraction under the GAAR, with a separate record of cases successfully litigated or settled by agreement using a GAAR challenge and

regular communication with taxpayers and practitioners affected by the measure.

Consideration will be given to evaluating how effective the GAAR has been at discouraging as well as stopping abusive avoidance schemes. To date we have little evidence available to us but this will undoubtedly change over time.


The existence of the GAAR and the other anti-avoidance measures referred to have substantially operated to remove the public and financial planner appetite for aggressive tax avoidance. Planning should, as a result, focus on tried and tested planning centred on financial strategies, and products permitted and contemplated by the legislation and those accepted by HMRC.

The package of measures proposed to take effect (largely) from 6 April 2014 is significant. Where appropriate, as mentioned above, we will set out, at the end of each section, any planning opportunities in relation to the change.

8.2.2 Business Premises Renovation Allowance

Business Premises Renovation Allowance (BPRA) is a 100% capital allowance that’s available to companies and other taxpayers incurring capital expenditure on bringing qualifying business premises back into business use. The buildings must be in a designated disadvantaged area and unused for over a year.

The BPRA rules will be amended from 6 April 2014 to make it clear that only the actual costs of construction and building work, along with other specified activities, will qualify for relief. Other specified activities are architectural, design, surveying or engineering services, planning applications and statutory fees or permissions. Associated but unspecified activities
(such as project management services) will also qualify, but only up to a maximum of 5% of the construction and building costs.

Any expenditure incurred before the renovation starts will be excluded if the building has been in use during the year prior to the date of expenditure. Expenditure will also be excluded if it is incurred on works, services or other matters which are not completed within two years of the date of expenditure.

The rules will, however, be relaxed so that a clawback of allowances on certain events (such as a sale of the building) will not take place if the event occurs more than five years (currently seven years) after the building begins to be used for the purposes of a trade, profession or vocation or otherwise as an office.

All of this effectively means that the amended rules relating to qualifying expenditure will provide greater certainty (regarding the total expenditure qualifying for relief) to those looking to enter into a BPRA project. However, taxpayers who may once have sought to “push the boundaries” as to what does and does not qualify will now have less room for argument with HMRC in respect of future projects.

It is generally considered that any taxpayer who has claimed BPRA in the last few years and is considering selling or granting a long lease out of an interest in property to which a BPRA attaches will welcome the final change. This is because it brings forward the date on which the sale or grant can take place without triggering a clawback of allowances.

Code of Practice on Taxation for Banks

The Government has published a list of those banks that have unconditionally adopted the strengthened Code of Practice on Taxation for Banks. Finance Bill 2014 will provide for HMRC to publish an annual report, from 2015, which will name those banks that have and have not adopted the Code, and may also name any bank that, in HMRC’s opinion, is not complying with the Code.

Broadly speaking, the Code requires all signatory banks, building societies and other relevant entities to commit not to enter into aggressive, unacceptable tax avoidance strategies – regardless of whether they would appear to be within “the letter of the law”.

Although the Code remains voluntary, the introduction of a “naming and shaming” approach

inevitably means the profile and impact of the Code has been raised. In addition, although HMRC has accepted, as a result of the consultation process, the need for an independent reviewer, ultimately HMRC will still hold the final decision on whether a bank has been non- compliant and whether its name should therefore be published on the annual list.


There has been much written about the anti-avoidance provisions proposed in relation to partnerships. Limited liability partnerships — salaried partners

Following the consultation document, “Partnerships: A review of two aspects of the tax rules”, the Government has published draft legislation to tackle what it sees as disguised employment of individuals working as salaried partners in a LLP. The new rules take effect from 6 April 2014.

Currently, members of a LLP are treated for tax purposes as partners rather than employees. HMRC has no objection to this where the individual bears the risks of being a traditional partner, but it wants to remove the automatic presumption of self-employment. The new legislation will treat a salaried partner, who is a member of a LLP, as an employee of that LLP (liable to PAYE and Class 1 NICs) where three conditions are met:

The first condition is that the individual performs services for the LLP in the capacity of a member and it is “reasonable to expect” that the amounts they receive in return are “wholly or substantially wholly disguised salary”. Here a payment is disguised salary if it is a fixed amount, or a variable amount that is not in practice affected by the overall profits or losses made by the LLP.

The second condition is that the individual does not have significant influence over the affairs of the LLP under mutual rights and duties afforded to its members.

The final condition is that the individual’s capital or similar contribution is less than 25% of their disguised salary from the LLP in the tax year under review.

There are also anti-avoidance provisions that will treat an individual as a salaried partner where they provide relevant services to the LLP but are not a member of it nor provide services to a company that is a member of the LLP. However, where an individual is treated as a salaried partner under any of these new provisions, the LLP will be able to claim a deduction for the cost of employing that partner in calculating its taxable profit or loss.


Specialist advice is absolutely essential in relation to the stated changes. If a firm has partners who receive a fixed salary or fixed profit share, there is now a strong risk that those individuals are likely to be taxed as employees from 6 April 2014, imposing PAYE reporting and payment obligations and higher NIC costs from then on. The above conditions will be applied to the individual’s circumstances on 6 April 2014.

If remedial action does prove necessary, there will be a number of tax and partnership implications to consider, so starting the process as soon as possible before April 2014 has been crucial. For example, if it is intended that any affected individuals should continue to be taxed as self-employed, it may be possible to amend partnership agreements to ensure that the variable payment or control conditions are met. Alternatively, where circumstances allow, it may be simplest for the individuals concerned to contribute sufficient capital to the partnership so that the final condition can be met.

Even if no remedial action is required, it will be sensible to begin collating information to enable the LLP to readily substantiate to HMRC that there is no disguised employment within the LLP. Partnership profit allocation — anti-avoidance rules for “mixed member” partnerships

The changes set out in the Finance Bill 2014 draft legislation target profit allocations diverting an individual partner’s profit to a non-individual member (usually a corporate member that is not liable to income tax) of a partnership or LLP. The Government seeks to counter such profit allocations that reduce or defer an individual’s tax liability.

The basis of the proposed rule is that if there are arrangements in place whereby an “excess” amount of the partnership profits are allocated to the non-individual member, HMRC will have the power to reallocate the profits, on a just and reasonable basis, to the individual member for tax purposes. There are also detailed rules to extend HMRC’s reallocation powers to tackle circumstances where individuals try to circumvent the rules by ceasing to be personal members of the firm, but continue to control a non-individual member.

Mirror provisions will also apply for the allocation of losses from a partnership member, which is not chargeable to UK income tax, to members who are subject to UK income tax.

The initial proposals that would have affected partnerships with non-UK resident individual members have been dropped, much to the relief of large international professional services firms.

Before HMRC can invoke its new power to reallocate profits from non-individual to individual partners, a number of conditions must be met.

First, the individud member must have the “power to enjoy” the non-individual member’s share of the profits. The individual member will be regarded as having a power to enjoy those profits if they are connected to the non-individual member (using the normal connected person test – so a partner who is a director or shareholder of a corporate member would be caught). There is a very widely drawn set of circumstances in which the “power to enjoy” condition would be deemed to be met – eg where the individual partner (or any other individual connected to them) can control, directly or indirectly, the non-individual member’s profit share.

Second, there is a commerciality test. This involves considering whether the profit allocated to the non-individual member is an “appropriate” return on the capital or assets it has contributed in the partnership or an appropriate return for the services it provides to the partnership. What is appropriate is to be determined by considering the usual arm’s length return that would apply between unconnected parties – a commercial rate.

The final condition is that it is “reasonable to suppose” that the individual partner’s share of profits is lower (and the non-individual member’s share is higher) than it would have been had the individual partner not been able to enjoy profits allocated to the non-individual member.

The original consultation regarding the new rules proposed that they would apply from 6 April 2014 irrespective of how this impacted an ongoing accounting period. The draft clauses of Finance Bill 2014 contain anti-forestalling provisions that took effect from 5 December 2013, as the main rules now take effect for accounting periods starting on or after 6 April 2014. The rules require that the timing of profit allocation decisions is considered, as well as the dates on which profit shares are paid out.

The draft anti-forestalling clauses target actions that partners may take between 5 December 2013 and the end of their partnership’s accounting period (where this straddles 6 April 2014) to divert profits to a non-individual member of the partnership. For example, where a partnership has an annual accounting date of 30 June 2014, any action between 5 December 2013 and 30 June 2014 to reallocate excess profits to a non-individual member will trigger HMRC’s reallocation powers. The rules enable a recast of the profit shares for all the partners for the accounting year to 30 June 2014, on a “just and reasonable” basis. The profits would be time-apportioned between two deemed periods: 1 July 2013 to 5 April 2014 and 6 April 2014 to 30 June 2014. For the latter period, the individual partners would become taxable on the reallocated profit.

As promised in the initial consultation on these proposals, there will be no reallocation by HMRC for profits treated as arising prior to 6 April 2014, so mixed partnerships will not be subject to the new rules for accounting periods ending on or before 5 April 2014. However, all accounting periods straddling 6 April 2014 may be subject to the new rules for that part of the accounting period after 5 April 2014.


As for the “disguised remuneration” provisions applicable to LLPs (see above) specialist advice on these provisions is essential if they could be relevant to a business. Any “mixed member” firm should seriously consider an “audit” of how they operate against these new provisions. It is advisable to take expert advice on the new rules immediately to assess the scale of the impact. It is widely expected that current profit allocation strategies of many firms will need to be revised, and it may be appropriate to reconsider the purpose of corporate members of such firms. If a corporate member is to be retained in the firm, profit sharing allocations will need to be put on a robust and demonstrably commercial footing.

Firms with accounting dates straddling 6 April 2014 should take specific advice on their position, particularly where profit allocations for the current accounting period have yet to be finalised or are changed. Firms with accounting periods that end before 6 April 2014 should have considered this issue urgently so that new arrangements could be put in place for the accounting period that will end in the 2014/15 tax year.

It may also be that partnership insurance arrangements may also need to be reviewed.

Where no remedial action is required, it will be prudent to collate information to substantiate to HMRC that there are no grounds for a challenge to the partnership profit allocation.

8.2.5 Artificial use of dual contracts by non-domiciles

The Government will legislate to prevent a small number of high-earning, non-domiciled individuals from avoiding tax through the artificial division of the duties of an employment between the UK and overseas. From 6 April 2014 UK tax will be levied on the full employment income where a comparable level of tax is not payable overseas on the overseas contract.

The measure will tax non-domiciles on the overseas employment income it identifies according to the ‘arising’ basis. In other words, the income caught by this measure will cease to be eligible for remittance basis tax treatment.

This measure supports the Government’s objective of making the tax system fairer. It targets and prevents contrived arrangements by a small number of high earning UK resident non- domiciled individuals who create what are typically artificial divisions between the duties of a UK employment and an employment overseas in order to obtain a tax advantage.

Following technical consultation, a number of changes will be made to the legislation to reflect concerns that the initial draft caught arrangements that were not set up for tax avoidance purposes. The legislation will be amended to prevent charges arising on nominal directorships if they (or their associates) own/control less than 5 per cent of the company’s ordinary share capital. The legislation will also be amended to clarify that an income tax charge cannot arise on income related to employment duties performed in tax years prior to 2014-15. The legislation will also take into account employments held for legal/regulatory reasons. Finally, the threshold in the comparative tax rate test will be reduced from 75 per cent to 65 per cent.

This measure will have effect for general earnings and employment-related securities income from an overseas employment and overseas employment income provided through third parties arising on and after 6 April 2014. Income which arises on or after this date but which is related to employment duties performed in a year prior to 2014-15 will not be subject to this legislation.

Section 22 Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) provides that, for remittance basis users, general earnings that are ‘chargeable overseas earnings’ (as defined in section 23) are not subject to tax in the UK unless they are remitted.

Chapter 5A of the same Act applies the remittance basis to taxable specific income from employment related securities that is ‘foreign securities income’. Foreign securities income is determined by sections 41C to 41E.

Section 554Z9 of the same Act applies the remittance basis to employment income from a foreign employer which is provided through a third party. Section 554Z2 sets out the amount of income provided through a third party that is considered to be employment income.

Legislation will be introduced in Finance Bill 2014 to:

take certain ‘overseas’ employment income out of the definition of ‘chargeable overseas earnings’;

take certain employment related securities income out of the definition of ‘foreign securities income’; and

take certain overseas employment income that is provided through a third party out of the calculation of third party employment income to which the remittance basis applies.

This will apply to income associated with an overseas employment where:

an individual has both UK and overseas employment(s) either with the same employer, or where the UK employer is “associated” with an overseas employer;

a UK and an overseas employment ^e “related” to each other; and

the foreign tax rate that applies to the income associated with an overseas employment, calculated in accordance with the amount of foreign tax credit relief available against that income under section 18 of the Taxation (International and Other Provisions) Act 2010, is less than 65 per cent of the UK’s additional rate of tax (currently 45 per cent).

Where income associated with an overseas employment meets all the above criteria in a tax year, then the income that this measure identifies will be taxed in the UK on the arising basis. Foreign tax credit relief available against any UK tax charge will be available in the usual way. Income from each overseas employment will be considered independently – in other words, the income and foreign tax credit relief available for all overseas employments are not aggregated for the purposes of the 65 per cent test.

This measure will not apply to overseas income that falls within the three year period for Overseas Workday Relief set out at section 26 ITEPA 2003. If income associated with an overseas employment falls outside the parameters of this targeted measure, the existing rules will continue to apply.

8.2.6 Employment intermediaries facilitating false self-employment

A consultation document was published on 10 December 2013 to accompany the draft Finance Bill.

The intention is to allow the Government to consider a means to ensure that UK intermediaries being used to facilitate “false” self-employment, by exploiting weaknesses in existing legislation, will no longer be able to do so with effect from 6 April 2014.

Effectively, if individuals are able to categorise themselves as self-employed rather than employees, there is a direct saving of employer’s NICs, PAYE is no longer collected at source and potentially the engager avoids various legal obligations that apply to individuals that are employees.

The Government clearly has a concern that intermediaries (typically agencies) are being used to obtain these advantages and is therefore consulting with a view to closing loopholes in the legislation at some time in the future.

The proposal is to strengthen existing legislation relating to employment agencies by removing the obligation for personal service and focusing on whether the work is subject to supervision, direction or control as to the manner in which the duties are carried out. The likely consequence is that many more individuals will be treated as employees in future.

Where someone is engaged by or through an intermediary there will be a presumption that there is control over that worker. As a consequence, the intermediary contracting with the end user will need to deduct income tax and NICs and will also be obliged to pay employer’s NICs.

If the intermediary does not believe that it is subject to this legislation because there is no control or direct supervision, it will need to keep evidence to confirm that this is the case. The position may change following the consultation (which ran until 4 February) but the intention appears to be to ensure that it is the intermediary, rather than the end user, that is responsible for operating PAYE and NIC.

As well as dovetailing this legislation with that applying to personal service companies and managed service companies, the Government is also considering introducing a targeted anti- avoidance rule to ensure that the legislation works as intended.

8.2.7 Offshore employment through intermediaries

New legislation, to be effective from 6 April 2014, is to be introduced to attack income tax and NIC avoidance schemes that involve the use of offshore companies or employment intermediaries. These schemes are still, it seems, being actively marketed to contractors and employees in the UK.

The perceived mischief applies where workers on the UK continental shelf or in the UK are employed by an offshore intermediary and supplied to an end user by a UK intermediary. The intermediaries and the end user utilise legislation whereby they may not be liable for employers’ NICs and may also avoid making employees’ contributions and income tax deductions, as well as returns to HMRC. In some circumstances the end user may not be aware that an offshore intermediary is involved.

The new legislation is designed to make the UK intermediary which is involved in the supply of the workers their employer for PAYE and NIC purposes unless it has already been acting in this capacity.

There will also be a new certification system in relation to employees who work on the UK continental shelf where someone other than the deemed employer for PAYE and NIC purposes administers those taxes.


Organisations that are currently engaging workers via an intermediary may want to review their arrangements to ensure that the intermediary will be fully compliant with the new legislation. The new rules may also have a financial impact.

Such a review should also encompass any other workers not currently on the payroll, in light of the Government’s announcements about onshore intermediaries and “false” self-employment. The draft legislation is a revision to the original proposals put forward by the Government which could have resulted in end users being held liable for the PAYE and NICs.

Organisations that provide workers to end users will also need to consider how the new rules will impact their business models.

8.2.8 Charity avoidance vehicles

The Government will introduce legislation to amend the definition of a charity for tax purposes to put beyond doubt that entities established for the purpose of tax avoidance are not entitled to claim charitable tax reliefs. The potential for substantial tax avoidance through charities was exposed in the “Cup Trust” case involving contrived arrangements to create substantial tax relief for charitable donations with effectively recycled money. The Government is to consult further on this change.

Company car tax

To protect revenues, and taking effect from 6 April 2014, two technical changes have been made.

First, where there is a conflict between general employment tax legislation and car or van benefits legislation that has previously given rise to an employment tax charge, in future this will be overridden so that a car or van benefit will be taxed.

Second, where payments are made by an employee for the private use of a company car or van, these will only be allowed as an offset for benefits purposes if they are made in the tax year in which the benefit was received.


These changes are technical and should not have a direct impact on most taxpayers. However, those who are using specifically designed avoidance schemes around company cars may suffer. In addition, both employers and employees will need to take much greater care to ensure that, in future, where there is private use of a company car or van, any payment by the employee to the employer is made within the tax year of benefit.

Accelerated tax payments

Last year’s Autumn Statement included plans to instigate a requirement for taxpayers to settle their dispute when they are told that their circumstances are either the same, or much like, one that has been defeated in the Courts.

HMRC has now published the draft legislation to put this in place. Under the proposals, a “follower notice” will be sent to a taxpayer in this position demanding that they amend their tax return or settled the dispute.

In most cases, people will have 90 days to respond to this notice, which will be accompanied by a payment notice. Once this expires, the accelerated payments approach means the taxpayer will have to pay the tax in dispute.

The policy reflects the Government’s view that, during investigations and litigation into avoidance, the tax should sit with the Exchequer, not the taxpayer. This approach will not change the underlying rules and the taxpayer will be free to continue to make their case to the Tribunal or Court. If the taxpayer is successful, the money will be returned with interest.

Changing the economics in this way, so that HMRC holds on to the disputed tax rather than the taxpayer, reflects the reality that most avoidance schemes do not work, as shown by HMRC’s litigation success rate.

Accelerated payments will apply to all taxes and charges covered by the “follower notice”. However, separate legislation is required and will be made to extend the measures to National Insurance contributions.

Applying accelerated payments to “follower notice” cases will alter the economics of taking part in avoidance schemes, but the Government wants to go further.

This is why the January 24 consultation, “Tackling Marketed Tax Avoidance”, includes details of proposals, first announced in the 2013, Autumn Statement, to add to the circumstances where HMRC will seek upfront payments.

The first of these is any disputed tax associated with arrangements that are subject to the disclosure of tax avoidance schemes (DOTAS) provisions.

This regime already gives HMRC valuable early warning of planned avoidance by requiring promoters to notify it about their schemes. Taxpayers participating in a DOTAS scheme are already aware of the consequences that arise from doing so including, initially, the need to disclose the use of that scheme to HMRC. Having to pay the disputed tax upfront will be a further consequence.

The Government also proposes to expand accelerated payments to taxpayers engaged in aggressive schemes – those being investigated under the GAAR. The Government believes it is wrong for such individuals to be able to gain a cashflow advantage, when most taxpayers are paying what is due when it is due.

Subject to the consultation, the Government intends to include the proposals in Finance Bill 2014, to take effect from the date of Royal Assent to Finance Bill 2014.

The proposals will apply to existing avoidance schemes as well as new ones that promoters might put on to the market, and will help send out a clear message to taxpayers: if you try to avoid paying the tax you owe, we will pursue it.

Tackling tax avoidance is a top priority for HMRC. It is determined to meet the challenges put to it by the Government and to drive down incidences.

In tandem with these new legislative measures, HMRC is strengthening its organisational approach to tax avoidance by creating a new counter-avoidance directorate. This new department brings together all the policy-making strengths and operational expertise, allowing HMRC to ramp up their response to marketed tax avoidance, respond quickly to new challenges and pursue existing enquiries into tax avoidance schemes towards faster resolution.



The Chancellor has announced an extension to the package of taxes that affect residential properties held by non-natural persons (other than genuine commercial businesses and other limited categories) to properties worth more than £500,000.

Stamp Duty Land Tax (SDLT)

Finance Act 2012 introduced a 15% rate of SDLT on the acquisition by certain non-natural persons of dwellings costing more than £2 million. Legislation will be introduced in Finance Bill 2014 to reduce this threshold to £500,000.

The new threshold will apply to land transactions where the effective date is on or after 20 March 2014. However the existing £2 million threshold will continue to apply, subject to exceptions, where contracts were entered into before that date.

Annual Tax on Enveloped Dwellings (ATED)

Finance Act 2013 also introduced the ATED on certain non-natural persons owning UK residential property valued at more than £2 million.

From 1 April 2015 a new band will come into effect for properties with a value greater than £1 million but not more than £2 million with an annual charge of £7,000. From 1 April 2016 a further new band will come into effect for properties with a value greater than £500,000 but not more than £1 million with an annual charge of £3,500.

There will be a transitional rule for the £1 million to £2 million band requiring returns to be filed on 1 October 2015 and payment by 31 October 2015.

Capital Gains Tax

All corporate and other ‘envelopes’ affected by the new ATED band will also be subject to

CGT on disposal of the properties held, at a rate of 28%. The extension to the ATED-related CGT charge will take effect from 6 April 2015 for properties worth more than £1 million and not more than £2 million. For properties worth more than £500,000 and not more than £1 million, the extension to the ATED-related CGT charge will take effect from 6 April 2016. In both cases, the charge will apply only to that part of the gain that is accrued on or after the effective date. The balance of any gain will continue to be treated as at present. Legislation on the CGT elements of this measure will be introduced in Finance Bill 2015.

9.2 CHANGES ALREADY ANNOUNCED 9.2.1 Stamp Duty Land Tax (SDLT)

Following the judgment of the Court of Appeal in the cases of The Pollen Estate Trustee Company Limited and Kings College London HMRC (which ruled that, where a charity purchases an interest in land jointly with a non-charity purchaser, the charity can claim relief on its share of the land); legislation will be introduced in Finance Bill 2014 to amend Schedule 8 of Finance Act 2003 (charities relief) to clarify how partial relief will apply.

The changes, which will apply where a charity purchases an interest in land jointly, as tenants in common with a non-charity purchaser, provide that:

relief from SDLT will be available to the extent that the purchaser is a charity, provided that the charity intends to holds its share of the land for qualifying charitable purposes;

the amount of relief available will be based on the lower of the proportion of the total chargeable consideration paid by the charity, or any person connected with them, or the proportion of the chargeable interest held by the charity; and

SDLT, in respect of the non-charity purchasers share in the land, will be chargeable at the rate applicable to the total consideration paid for the property, by both the charity and non-charity purchaser or any persons connected with them.

These changes will have effect for transactions with an effective date on or after the date that Finance Bill 2014 receives Royal Assent.

From April 2015, SDLT will no longer apply to land transactions in Scotland. These will instead be subject to Land and Buildings Transaction Tax (LBTT). Guidance will be available from 2014.

9.2.2 Capital Gains Tax (CGT)

For details on the previously announced changes in respect of property and capital gains tax please see Section 3.


In appropriate circumstances, it may still be possible to acquire and hold a UK residential property within a corporate structure without incurring either the 15% SDLT rate or the ATED if the structure falls within one of the reliefs available. However, this is a complex area of tax planning and professional, bespoke advice is essential.




Other than the confirmation of the announcements made in the Autumn Statement (see below) no new measures have been announced in the Budget.


10.2.1 Trust rates and annual exemption

The CGT annual exemption for trustees will be £5,500 in 2014/15 (subject to dilution where the same settlor has created more than one trust).

The trust rate remains unchanged at 45% and the dividend trust rate at 37.5%. These are the income tax rates that trustees of discretionary trusts pay on income they receive above their standard rate band which is normally £1,000 (and remains at this level in 2014/15).

10.2.2 Trust taxation simplification

As announced in the Government’s Autumn Statement two measures have been included in the draft Finance Bill 214. These relate to:

the treatment of accumulated income within a relevant property trust, AND

the alignment of the filing and tax payment days for relevant property trusts.

The Budget Statement also confirmed that that the Government will consult further on the proposal to split the IHT nil-rate band available to trusts and simplify the trust charges (further measures to be introduced in Finance Bill 2014 and Finance Bill 2015).

(a) Treatment of accumulated income

Legally income waiting to be distributed is not capital and so not relevant property and not subject to IHT on a ten-year charge. However, if income is accumulated by the trustees and is added to the trust capital, then it becomes relevant property from the date of accumulation and will be chargeable to IHT in the normal way.

Where the trustees have not formally accumulated income arising in the trust, but that income has been retained for a long period, it can sometimes be difficult to determine whether or not the income has been accumulated.

In order to deal with this issue the draft Finance Bill provides that income that has neither been paid out nor accumulated for at least 5 years will be treated as part of trust capital for the purposes calculating the 10-year anniversary charge. There are some exceptions to this, e.g. foreign income arising to trusts with non-domiciled settlors. There is normally a  reduction in the charge where the capital has not been in the settlement for the full 10 years, but this reduction will not apply to capital that arises from undistributed income.

Aligning filing and payment dates in respect of periodic and exit charges

The 2013 consultation has shown that many trustees and practitioners find IHT filing and payment dates confusing and inconsistent.

Under the current rules the date by which the trustees must pay any IHT and submit accounts varies depending on when during the year the chargeable event (a 10 year anniversary or an exit) takes place. The trustees then have 12 months to submit the accounts. With effect from 6 April 2014 trustees will have to submit accounts and pay any IHT within 6 months from end of the month in which the chargeable event occurs.

Simplification of trust charges

The third area of IHT simplification that was the subject of the two consultations so far in 2013 and is still not resolved concerns the method of calculating the IHT ten-year anniversary charges on relevant property trusts.

As indicated above the Budget confirms that the Government will consult further on the proposal to split the IHT nil-rate band available to trusts and simplify the trust charges. The latest on this that is available comes from last December’s “Autumn Statement” which dealt with these issues as follows:-

On the subject of simplification of trust charges the Consultation Document proposed the following changes in respect of the calculation of the ten-year periodic charge:-

the settlor’s cumulative total for seven years before they create the trust should not be taken into account in calculating the IHT on the trust;

the rate of IHT payable on the trust should be 0% on the property that falls within the trust’s nil rate band and 6% on the property value in excess of the nil rate band; and

the nil rate band available to a trust should be determined by dividing the current nil rate band by the number of relevant property settlements created by the same settlor that have been in existence in the last 10 years.

So, on the basis of these proposals, if someone had already created four relevant property trusts and those trusts had existed in the last 10 years, the nil rate band available to a fifth discretionary trust in the future would equal one fifth of the nil rate band.

The proposal in point (iii) is the most contentious. If this proposal were implemented then it would effectively neutralise the current “Rysaffe planning” which works on the basis that trusts created on different days are not related for IHT purposes, so each trust prima facie qualifies for a full nil rate band.

The proposal in point (iii) also takes no account of the value of assets held in an existing discretionary trust. This means that a discretionary trust with negligible value could be
entitled to the same share of the nil rate band as a discretionary trust comprised of high value property.

Another point is that, in theory, all active discretionary trusts – whenever created – would be taken into account and this could cause a compliance nightmare for trustees who would need details of all those other trusts.

In the Budget the Government confirmed that there will be further consultation on the proposals to split the IHT nil rate band available to trusts with a view to this change being introduced from 6 April 2015.

Following the Autumn Statement it was expected that these matters would also be dealt with in the Finance Bill 2014. However, clearly the relevant issues are proving more complicated. There may of course be further announcements whilst the Finance Bill is going through Parliament but the major changes are now most likely to be delayed until the Finance Act 2015.

10.2.3 Trusts for vulnerable beneficiaries

The draft Finance Bill 2014 includes the following measures which were announced in the Autumn Statement:

The CGT ‘uplift’ provisions will be extended with effect from 5 December 2013 and the range of qualifying vulnerable beneficiary trusts will be extended from 6 April 2014.

The first measure will extend the capital gains tax (CGT) ‘uplift’ provisions that apply on the death of a vulnerable beneficiary.

The second measure extends the range of vulnerable beneficiary trusts that qualify for special income tax, CGT and inheritance tax (IHT) treatment, namely

extend sections 72 and 73 of the TCGA to include qualifying trusts for disabled beneficiaries where the beneficiary has no entitlement to the income of the trust; and

extend Schedule 1A to FA 2005 to include a person in receipt of the mobility component of DLA at the higher rate or the mobility component of PIP at either the standard or enhanced rate.

The Government will consult further on ways to reform the tax treatment of trusts established to safeguard property for the benefit of vulnerable people.

This extends the reform of these trusts introduced in 2013.

A trust set up for the benefit of a vulnerable person will qualify for favourable tax treatment if it is a ‘qualifying trust’. From 8 April 2013 a consistent test has applied for income tax, capital gains tax and inheritance tax purposes.

Qualifying trusts for vulnerable persons benefit from special tax rules. In essence, the rules:

reduce, following an election and annual claim, the trustees’ tax liability on income and chargeable gains to an amount that, broadly, would be chargeable on the beneficiary if the gains had accrued and/or the income had arisen directly to that person;

extend the annual exempt amount of chargeable gains that applies to trusts to match that available to individuals;

ignore the normal charges to inheritance tax for trusts; instead, the property is treated as part of the beneficiary’s taxable estate on their death.

10.3 PLANNING 10.3.1 Discretionary trusts

The high rates of income tax payable by trustees of discretionary trusts (see above) and the relatively higher rate of CGT (now at 28%) have continued to have a serious impact on the returns available for trust beneficiaries. Even after the reduction in the income tax rates from April 2013, the rates are still higher than for vast majority of individual taxpayers.

As a result, trustees need to be even more careful to incorporate tax efficiency into any investment decisions they make.

In this respect trustees of a discretionary trust could consider:-

Distributing income out of the trust to a “low-to” beneficiary with a view to recovering the high rates of income tax the trustees have already paid.

Subject to the terms of the trust allowing them to do so, appointing a life interest to a low taxpaying beneficiary with a view to ensuring that trust income is taxed on that beneficiary – and without the trustees having to pay high up-front rates of income tax.

Investing for capital growth with a view to, in future, using the trustees’ annual CGT exemption of £5,500. (This exemption will be diluted by the number of non-bare trusts created by the same settlor since 7 June 1978 but the exemption will never be less than £1,100 – 10% of the full individual annual exemption).

An investment in a single premium life assurance investment bond can be tax efficient for trustees because:­- it does not generate taxable income;

it is not subject to CGT in the hands of the investor;

it enables the trustees to draw 5% of the initial investment, for 20 years, with no tax charge at that time;

it permits switching within the bond wrapper without a tax charge at that time; and

– assignment to a beneficiary will not give rise to a tax charge.

Don’t forget that bonds are taxed under the chargeable events legislation.

This means anychargeable event gains are taxed on the settlor of the trust if the settlor is alive and UK resident in the relevant tax year. Otherwise, they are taxed on UK resident trustees at a rate of 45% (less a 20% tax credit for a UK bond).

These rules do not apply to bare trusts. Here, subject to the parental settlor anti-avoidance rule – see below, the person assessed to tax is the beneficiary (regardless of the age of the beneficiary).

On the other hand, if a bond is held in a flexible/discretionary trust and the trustees intend to distribute the encashment proceeds of the bond to a minor beneficiary (or to a parent of a minor beneficiary for the beneficiary’s benefit), it may be better for the trustees to first appoint an absolute right in the trust fund (and the bond) in favour of the intended beneficiary. This would not trigger a chargeable event so that on a subsequent encashment any chargeable event gains of the bond would be taxed on the beneficiary at his/her lower rate of tax.

Care needs to be exercised if the beneficiary is a minor unmarried child of the settlor because in these cases, if chargeable event gains exceed £100 in a tax year, they will be assessed on the parental settlor.

Alternatively, if the intended beneficiary is an adult, the trustees will usually just assign individual segment policies to the beneficiary prior to encashment to achieve the same result.

With all of the above planning ideas, one eye needs to be kept on the relevant anti-avoidance rules, particularly those that apply to settlor-interested trusts. These, of course, do not apply where a single premium bond is the trustee investment.

10.3.2 Setting up a new trust

When setting up a new trust, the prospective settlor needs to carefully consider all the tax implications. Whilst discretionary trusts have become more popular following the changes to the inheritance tax treatment of trusts, the higher income tax rates paid by the trustees of discretionary trusts can be avoided if the trust is an interest in possession trust.

Another possibility, if a discretionary trust still appeals, is to create a settlor-interested trust, by including the settlor’s spouse (but not the settlor) as a potential beneficiary.

This will giveuseful flexibility yet the trust will still be effective for IHT purposes. Historically such trusts have been avoided as income will then be taxed on the settlor and in the past settlors have been taxed more harshly than trustees. However, the position is now reversed. If the settlor is not a 45% taxpayer, then some tax refund can be secured, although the trustees still have the initial liability at the trust rates.

Finally, remember that the trust rates of income tax do not apply to bare trusts and the parental settlement anti-avoidance rules only apply to such trusts for income tax purposes. For CGT, regardless of who the donor is, the gains of a bare trust are assessed on the beneficiary with a full annual exemption – which is £11,000 for tax year 2014/15.

10.3.3 Pilot trusts

As indicated above consultation on the splitting of the nil rate band continues. In the meantime and until the outcome of further consultation, it would seem to be prudent for an individual not to create a series of lifetime pilot relevant property trusts for nominal amounts.

10.3.4 Trusts for vulnerable beneficiaries

The introduction in 2013 of a consistent test that applies across taxes to determine whether or not a trust qualifies for favourable tax treatment was welcome. The further changes being introduced this year confirm that whilst the successive Governments’ general attitude to trusts has not been favourable (if not downright hostile), they see trusts with vulnerable beneficiaries as an exception that continues to qualify for favoured tax treatment. This is a subject that, perhaps, has not been given sufficient attention in the past, but which clearly needs to be borne in mind in any estate planning.




Managing investments (incorporating appropriate asset allocation) to produce acceptable returns, whilst managing risk, takes absolute priority in portfolio planning. However, maximising the tax efficiency to minimise tax on investments can substantially improve the “bottom line” – especially for those who will suffer the 45% additional rate of tax (or the effective 60% rate of tax for those who lose their personal allowance).

Income tax and capital gains tax changes are covered in sections 2 and 4 of this Bulletin respectively.

In addition we also cover life assurance policies and pensions in sections 7 and 13.

In this section we look at:


National Savings Bonds

Venture Capital Trust (VCTs) and Enterprise Investment Scheme (EISs)

Seed Enterprise Investment Scheme (SEIS)

Social Investment Relief

Alternative Investment Market (AIM)

Other investment related changes



From 1 July 2014 ISAs will be reformed into a simpler product, the ‘New ISA’ (NISA), withan overall limit of £15,000 per year. The government is also abolishing the rule that says only half can be saved in cash.

This will give savers complete flexibility to save or invest how they wish, and will benefit over 6 million people previously constrained by the cash and or stocks and shares limits.

To further increase the choice that ISA savers have about how they invest, ISA eligibility will be extended to peer-to-peer loans, and all restrictions around the maturity dates of securities held within ISAs will be removed. The government will also explore extending the ISA regime to include debt securities offered by crowdfunding platforms.

The government will also raise the limits for Junior ISAs and Child Trust Funds from £3,720 to £4,000.

From 1 July 2014, savers aged 16 to 18 will be able to subscribe up to the £15,000 limit to a Cash NISA, but will still be unable to open a Stocks and Shares account.


In the Autumn Statement, it was announced that for tax year 2014/15 the maximum contribution for all qualifying investors would be raised to £11,880 (of which up to £5,940 may be in cash). The Junior ISA subscription limit is similarly increased to £3,840 for 2014/2015 with the same limit applying to the Child Trust Fund (CTF).

Following the announcements in the Budget, these latest increased limits (£15,000 and £4,000) will now apply between 6 April and 1 July 2014. From 1 July 2014, existing ISAs will automatically become NISAs, with a higher limit and more flexibility. Thereafter investors will be able to add further money to the NISA, up to the new £15,000 limit and to the JISA (or CTF) up to the new £4,000 limit.

The Government consultation on options for transferring savings held in Child Trust Funds into Junior ISAs has now ended. The Government’s proposals are being taken forward under the 2014 Deregulation Bill.


The significant increase in the investment limit combined with the increased flexibility of the NISA, while valuable to all who qualify, will be particularly welcome for those who

are higher rate taxpayers

are additional rate taxpayers and/or

are restricted on relievable pension contributions or increased benefits because of existing provision

The value of an ISA (or NISA from July 2014) as a means of investing tax effectively for higher and additional rate taxpayers is well known. Those affected by the reduced annual allowance and restriction of tax relief will appreciate that there is little financial appeal in either making a contribution to a pension arrangement that attracts no tax relief or benefiting from an employer contribution or scheme accrual that triggers a tax charge while paying tax on the emerging pension income at (possibly) 40%/45%. This is especially so where the investor can secure tax free growth and income in the ISA/NISA.

Since 5 August 2013, it has been possible to invest in AIM shares through ISAs. This gives the investor the opportunity to benefit from a double tax break – firstly on the tax-free status of ISAs and then again on death by virtue of business property relief.

The increased upper limit of £15,000 (which will apply from July) equates to £30,000 for a married couple each year and over 10 years, with no increases, equates to £300,000! And it will soon be possible to put a further £4,000 per annum into a Junior ISA for a child who qualifies (although parents and grandparents who require more control over when the child gets access to the investment may prefer to mirror a JISA investment pattern by investing regularly into ordinary (non ISA) collectives subject to a trust or for those with capital into an offshore bond).



Following technical working group discussions on policy options to address the use of share premium accounts to return capital to investors, it has been confirmed that legislation will be introduced in Finance Bill 2014 to prevent VCTs from returning share capital to investors within three years of the end of the accounting period in which the VCT issued the shares. This amendment will take effect in respect of shares on or after 6 April 2014.

Legislation will also be introduced in Finance Bill 2014 to ensure that, notwithstanding the general time limits for making assessments to recover tax, HMRC can withdraw tax relief in all cases if VCT shares are disposed of within 5 years of acquisition.

The Government has also announced an intention to consult on the need to accommodate the use of convertible loans in EIS and SEIS. If any legislation is required it will be included in a future Finance Bill.


The Government signalled in Budget 2013 that it was concerned that particular forms of share buy-back and reinvestment arrangements offered by VCTs were not in keeping with the intention of the legislation. A technical consultation ran from July to September 2013 and draft legislation to combat these arrangements was included in Finance Bill 2014.

The new rules ensure that income tax relief will no longer be available in respect of a subscription for shares in a VCT where the investor has sold shares in that VCT and the sale was conditional upon the subscription, or the subscription was conditional upon the sale, or the subscription was made within six months of the sale. This will also have effect in relation to a subscription for shares in a VCT which is deemed to be a successor or predecessor of the VCT because there has been a merger of VCTs, or a restructuring of a group of companies of which the VCT is a member. The measure will not affect subscriptions for shares where the monies being subscribed represent dividends which the investor has elected to reinvest.

The legislation is also being changed to allow individuals to subscribe for shares in a VCT via a nominee. This will clear the way for VCTs to be purchased via wraps and platforms.

The restrictions relating to share sales and reinvestments will affect claims to relief for investment in VCT shares, by reference to shares issued on or after 6 April 2014; while the change relating to nominee investments will apply in respect of shares issued on or after the date that Finance Bill 2014 receives Royal Assent.


Venture capital trusts (VCTs)

VCTs have a number of tax advantages:-

Up to 30% income tax relief is available on an investment of up to £200,000 per annum into a VCT

Dividend income is tax free, which is a considerable advantage for the higher/additional rate taxpaying investor – especially where the ISA contribution limit has been reached

Capital gains on sale of shares are tax free – very important in an era of high taxation.

Remember, though, VCTs usually carry more investment risk – particularly now that VCTs are able to invest in a wider range of companies.

The fact that investors will soon be able to subscribe for VCT shares through nominees is a big step forward in facilitating the purchase of new VCT shares through platforms.

The new rules on VCT enhanced share buyback will not apply to investors buying shares in a different VCT with the same manager.

Enterprise investment schemes (EISs)

The amount that can be effectively invested in a pension each year has been reduced from £255,000 to just £50,000 currently and will fall further to £40,000 with effect from 6 April 2014. However, three successive governments have improved the enterprise investment scheme (EIS) regime and it is now arguably the most generous tax-efficient investment vehicle available to the UK taxpayer. The tax benefits of an EIS are as follows:

Income tax relief at 30% on investments of up to £1m for the tax year in which the underlying investment is made (subject to claw-back if the investment is sold within 3 years)

No capital gains tax on profits on the sale of shares after a three year holding period

100% inheritance tax relief after two years

CGT deferral relief

Up to 61.5% loss relief (for 45% cent taxpayers on losses made in the 2014/15 tax year). This can be offset against income tax or CGT

An EIS is an investment into shares of an unlisted company and so, by its nature, is a relatively high risk investment. However, certain EIS funds exist that can limit the investment risk.



Legislation will be introduced in Finance Bill 2014 to remove the time limit from SEIS and make it permanent. The legislation will also make permanent the CGT relief for reinvesting gains in SEIS shares. These changes will come into force from Royal Assent to Finance Bill 2014 and, for CGT reinvestment relief, will have effect in relation to re-invested gains accruing to individuals in 2014-15 and subsequent years


Gains accruing in 2013-14 will qualify for CGT relief – if re/invested in the SEIS in either 2013/14 or 2014/15. Relief is limited to half the qualifying re-invested amount.


The SEIS became operational in April 2012. The scheme offers 50% income tax relief on investments of up to a maximum of £100,000, into small start-up companies. For one year only the amount invested in qualifying shares could be offset against capital gains, meaning investors could reduce their capital gains tax bill.

Last year, HMRC confirmed that where an election is made to have some or all of an issue of shares to be treated as though acquired in the tax year immediately preceding that in which they were actually acquired, the shares will also be treated as having been acquired in the earlier tax year.

It was confirmed, at Budget 2013, that an exemption from capital gains tax would also apply where a capital gain arising in 2013/14 is reinvested in SEIS shares in either 2013/14 or 2014/15 (subject to the aforementioned election having been made). The amount that is treated as not being a chargeable gain will be limited to an amount that is equal to half the matched re-invested gain.

With the SEIS and its 50 per cent capital gains tax reinvestment relief to be made permanent, business angels will be able to continue to benefit from the tax advantages offered by the scheme for the foreseeable future.



As announced in the Autumn Statement, a range of new income and capital gains tax reliefs will be introduced in Finance Act 2014 to provide incentives to individuals who make qualifying investments in qualifying social enterprises on or after 6 April 2014. In the Budget, the Chancellor confirmed that where the qualifying conditions are met, income tax relief will be given at 30%. This rate is the same as the rate for the EIS and VCTs.


In the Autumn Statement, the Chancellor confirmed that from April 2014 there will be a new social investment tax relief to encourage individuals to invest in social enterprises. The relief will be available for equity investments (and certain debt investments) in charities, community interest companies and community benefit societies. Certain investments in social impact bonds will also be eligible for relief.

Legislation included in Finance Bill 2014 inserts a new Part in the Income and Corporation Tax Act 2007 which will:

provide for income tax relief to be available to qualifying individuals making qualifying investments in qualifying social enterprises, with details of the eligibility conditions;

apply in respect of subscriptions for shares in the enterprises or certain types of loans to the enterprises;

apply to a limited annual amount of investment per investor, but with investment able to be carried back to the previous year; and

allow enterprises to raise a maximum amount of investment over a period of three years.

The Chancellor confirmed in the Budget that income tax relief will be given at the rate of 30% where the qualifying conditions are met.

Legislation is also included in Finance Bill 2014 to amend the Taxation of Chargeable Gains Act 1992 (TCGA) so that if a sum equal to the amount of a chargeable gain is invested in a social enterprise within a specified time then the individual making the gain and the investment may claim for the gain be treated as accruing (and taxed) when the investment is disposed of and not at an earlier time. This will be subject to conditions concerning inter alia the nature of the investment and the activity of the enterprise.

TCGA will also be amended so that capital gains which are attributable to an increase in value of the social investment itself will not be taxed, providing the investment is held for a minimum period.


Following the announcement of the rate at which relief is to be given, investment in qualifying social enterprises looks set to provide an attractive alternative to those who have historically invested in the EIS and VCTs. The 30 per cent rate is higher than the 25 per cent for 40 per cent rate taxpayers reclaiming when they donate to charity and lower than 31.25 per cent for 45 per cent rate payers using gift aid.



No changes (other than those already announced – see below) were proposed in relation to AIM shares.


At Budget 2013, the Government announced its’ intention to abolish stamp duty on shares in

companies quoted on growth markets such as AIM and ISDX Growth Market from April 2014. Legislation implementing this measure is included in Finance Bill 2014 and will take effect from 28 April 2014.


Investing in AIM shares is generally considered to carry a high degree of risk because the investment is made in small companies. However, shares in companies carrying out a qualifying trade would normally qualify for 100% business property relief once the client has held the shares for at least two years. In light of the IHT rules on deductibility of loans introduced last year, investors should not borrow with a view to investing in AIM shares as IHT relief will be restricted.


Abolishing the 10% rate of tax on savings income

The Chancellor has announced that the 10% rate of tax on savings income will be abolished and replaced with a new 0% rate with effect from April 2015. For more information on this change and the planning opportunities please see Section 2 – Income Tax.

Premium Bonds

The Chancellor has announced at Budget that the cap on investments in Premium Bonds will be lifted for the first time since 2003 – from £30,000 to £40,000. This will come into effect in June 2014.

NS&I will also offer two £1 million prizes per month, rather than one, from August 2014. In the financial year 2015 to 2016 the investment limit on Premium Bonds will be increased to £50,000.

Pensioners’ savings bonds

For people aged 65 or over, the Budget announces that National Savings and Investments (NS&I) will launch a choice of two fixed-rate, market-leading savings bonds, available from January 2015.

While the exact details of the bonds will be finalised in the autumn, the government’s current assumption is that NS&I will offer products which would pay rates of 2.8% gross/annual equivalent rate (AER) on a one year bond and 4.0% gross/AER on a three year bond under current market conditions, with an investment limit of £10,000 per product. These will be taxed in line with all other savings income.

11.7.4 Abolition of Stamp Duty Reserve Tax

The Government announced at Budget 2013 that the special stamp duty reserve tax (SDRT) charge for which fund managers are liable when investors surrender their units in UK unit trust schemes or shares in UK OEICs would be abolished. Legislation to abolish the charge was included in the draft Finance Bill published in December 2013 for consultation. Slightly amended legislation will be included in the final Bill published in March 2014. The new rules may mean that investors in these schemes will benefit from a small improvement in returns from their investments.




The 2014 Budget set out major changes to the way in which benefits may be drawn from a registered scheme. These changes will be effective from 6 April 2015. In the meantime a number of changes have been made to the current rules regarding capped and flexible drawdown and the triviality provisions. A number of changes are also being introduced to help prevent pension liberation. Full details of these and the other pension changes are set out below:

12.1.1 Increased Flexibility of Retirement Benefits From 6 April 2015

With effect from 6 April 2015, members of defined contribution registered pension schemes will, subject to the rules of their scheme permitting have much greater flexibility in how they access their retirement benefits on or after their normal minimum pension age (currently 55).

Members will be able to draw down on their pension savings whenever and however they wish after the age of 55. Any amount they draw down will be treated as income and therefore subject to their marginal rate(s) of income tax in that tax year. The tax-free pension commencement lump sum (usually 25% of an individual’s pot) will continue to be available. The following example, taken from the consultation on this issued alongside the Budget papers, demonstrates how this works:

“Mr D is 66 and has an income of £7,500 per year from his State Pension. He has a defined contribution pot of £100,000 and decides to take £55,000 from his pension pot, which includes his 25% tax-free lump sum (£25,000), to pay off his mortgage. Of the £30,000 above the lump sum, £2,500 will be taxed
at 0% as, together with his State Pension, it falls within his £10,000 personal allowance. The remaining £27,500 would then be taxed at 20%. In year 2, Mr D takes the full £45,000 left in his pension pot. Assuming the tax thresholds remain unchanged in year 2, the first £2,500 and his State Pension will be taxed at 0%, the next £31,865 will be taxed at 20% and the final £10,635 will be taxed at the higher rate of 40%.”

It is interesting to note from this example, that there no longer appears a requirement to take the pension commencement lump sum alongside a relevant pension of an appropriate amount. Although Mr D only withdrew £55,000 of his fund he is still able to take his maximum cash of £25,000, even though this exceeds 25% of the retirement fund being drawn at that time.

The current pension tax rules apply an automatic 55% tax charge where a lump sum death benefit is paid in respect either of a member taking a drawdown pension or where a member dies aged 75 or over with an uncrystallised fund. The government believes that these death benefit rules need to be reviewed. In particular it feels “that a flat 55% rate will be too high in many cases given that everyone with defined contribution pension savings will now have the freedom to enter into drawdown rather than an annuity.”

The government is looking to bring in new legislation so that the normal minimum pension age will in future always be 10 years less than the State Pension Age (SPA). However, this will not be introduced until 2028 when the normal minimum pension age will rise to 57 (10 years less than the then SPA of 67). Thereafter the pension age will increase in line with increases in the SPA.

A new guarantee will be introduced that all individuals approaching retirement with DC pension benefits will be offered free face to face guidance at the point of retirement. A new duty will be introduced for pension providers and trust-based pension schemes, from April 2015, to offer each of their DC members with a ‘guidance guarantee’ at the point of retirement. The guidance will be required to follow a robust set of standards. These standards, and the framework for monitoring compliance with them, will be set by the FCA, in conjunction with the DWP and the Pensions Regulator. The government will provide a development fund of up to £20 million to get this initiative up and running.

Although this new flexibility will only extend to DC benefits, the government is concerned on the effect it may have on DB schemes. In particular it is concerned that members of DB schemes may be tempted to transfer their benefits to a DC scheme to take advantage of the new rules. This could be a particular problem for unfunded public sector DB schemes. Accordingly the government is indicating that it will bring in legislation that will remove the right, other than in exceptional circumstances, for a member of a public sector DB scheme (unfunded or funded) to transfer to a DC scheme. While the government would in principle like to continue to permit transfers from private sector DB schemes to DC arrangements, “it will only consider doing so if the risks and issues around doing so can be shown to be manageable”.

Information is still awaited as to how hybrid schemes will be affected by these changes. 12.1.2 At Retirement Benefit Changes From 27 March 2014

In order to provide greater flexibility in the provision of retirement benefits prior to the introduction of the new rules set out in 12.1.1 above, the government has made the following immediate changes to the current drawdown rules:

• For drawdown years commencing on or after 27 March 2014 the maximum capped drawdown income that can be taken in each drawdown year will be increased from 120% to 150% of the relevant annuity. This will mean, for example, that an individual whose current drawdown pension year commenced on 1 December 2013 (the beginning of his new three year review period), would not be able to take advantage of the higher maximum income until 1 December 2014. The minimum income requirement in respect of any application for flexible drawdown made on or after 27 March 2014 will be reduced from £20,000 pa to £12,000. The government has estimated that an additional 85,000 people will be eligible to access flexible drawdown as a result of this change.

It should be remembered that the legislation only sets out the maximum allowable capped drawdown income. It will, however, be for schemes to decide whether to increase the income to this new maximum amount. When the maximum drawdown was increased from 100% to 120% of the relevant annuity rate from March last year some providers did not immediately allow the drawdown income to be increased to the maximum (then 120%) level permitted by the legislation.

12.1.3 Triviality Payments

The following changes have been made to the triviality provisions:

The triviality commutation lump sum is increased from £18,000 to £30,000 for all commutation periods starting on or after 27 March 2014. This will continue to only being available from age 60.

There will no longer be a requirement to apply a revaluation factor to previously crystallised benefits to determine how much of the £30,000 commutation limit has already been used up in respect of those benefits.

The small personal pension pots triviality limit will be increased from its current £2,000 to £10,000 with effect from 27 March 2014. Up to a total of three (previously two) such payments can be made from an individual’s personal pension arrangements. Such payments can be made in addition to the normal £30,000 trivial commutation limit.

SI 2009/1171 set out a number of other circumstances where trivial commutation payments can be made as authorised payments. The triviality limit in regulation 10 of those regulations has been increased from £18,000 to £30,000, while all of the other triviality limits in Part 2 of these regulations are increased from £2,000 to £10,000. The changes take effect from 27 March 2014. Full details regarding these triviality provisions can be found in our Library Document on Triviality.

Individual Protection

It has been confirmed that no changes have been made to the individual protection provisions in the Finance Bill 2014. Further details concerning individual protection are set out under 12.2.1 below.

Pension Liberation

A number of promoters have set up schemes intended to allow individuals to access some or all of their pension benefits before age 55. To do this, they normally try to register a new pension scheme or use an existing registered pension scheme which the member is encouraged to transfer their pension fund to before it is passed to the member. In some cases, payments are made to the member after age 55, but because they are in the form of a loan, will be unauthorised payments. This is commonly known as ‘pension liberation’ and has significant tax consequences for the member and the scheme administrator. In many cases the member is not told of the tax charges that will apply where these payments are made and therefore they are often left with little or no money after any fees have been deducted in addition to the tax charges due.

Legislation will be introduced in Finance Bill 2014, to amend Finance Act 2004, to give HMRC new powers to help prevent pension liberation schemes being registered and make it easier for HMRC to de-register such schemes. These changes include a new requirement that the main purpose of a pension scheme must be to provide authorised benefits and provision that HMRC may refuse to register a scheme, or de-register an existing scheme if, in HMRC’s opinion, the scheme administrator is not a fit and proper person.

The changes also provide that surrendering pension rights in favour of an employer to fund an authorised surplus payment is subject to tax as an unauthorised payment.

Legislation will also be introduced in the Finance Bill to ensure that regulatory redress in the form of transfers of sums and assets to registered pension schemes under certain orders by the Pensions Regulator or the courts are taxed and relieved, and that independent trustees appointed at the instigation of the Pensions Regulator will not be liable for tax that arose before they were appointed.

These changes will have effect from 20 March 2014, except for the changes relating to the fit and proper person and the regulatory interventions, which will have effect from 1 September

Further details can be found in the Guidance Note, issued by HMRC.

Tax Relief on Personal Contributions

The government will explore with interested parties whether those tax rules, that prevent individuals aged 75 and over from claiming tax relief on their pension contributions, should be amended or abolished.


The government will consult on ways to give equivalent treatment to Qualifying non-UK Pension Schemes (QNUPS) and to UK-registered pension schemes, to ensure fairness and remove opportunities to avoid inheritance tax. Legislation will be introduced in Finance Bill 2015.

Dependants’ Scheme Pension

The government will consult on options to simplify the Dependants’ Scheme Pension rules, to ensure the rules apply fairly, and reduce administrative burdens. Any legislative changes will be in a future finance bill.

Voluntary Class 3A NI Contributions

Further details are to be produced shortly by the DWP regarding the new Class 3A NI contributions, which will enable those who reach SPA before 6 April 2016 to top up their additional state pension benefits. The scheme will be open from October 2015 for 18 months. The pricing will be set at an actuarially fair rate and the maximum additional amount available will be £25 a week.


12.2.1 Reduction in Pension Allowances

Annual allowance to be reduced from £50,000 to £40,000 from tax year 2014/15.

Carry forward allowances for tax years 2011/12 to 2013/14 to remain at £50,000.

• Lifetime allowance to be reduced from £1.5 million to £1.25 million from 2014/15.

Individuals likely to be affected by this can elect for one and/or both of the following

protections, where eligible:

Fixed protection 2014 (FP14), which will enable benefits to be taken with a value of up to the greater of the standard lifetime allowance and £1.5 million without any lifetime allowance charge. An election must be made by 5 April 2014. Protection will normally be lost if, on or after 6 April 2014, the individual accrues further benefits as an active member of a DB scheme or where further contributions are made by or on his behalf to a money purchase scheme. It will therefore often be attractive for an eligible individual to also elect for individual protection.

Only available to those individuals who do not already have enhanced protection, primary protection or fixed protection 2012 (FP12).

Individual protection 2014 (IP), which will be available to individuals with pension savings of more than £1.25 million on 5 April 2014 who do not have primary protection. An individual will be able to elect for both IP and FP14. In such a case, FP14 will take precedence. An individual with enhanced protection or FP12 may also apply for IP, when once again the enhanced protection or FP12 would take precedence. An individual who has elected for both enhanced protection and primary protection will not be able to elect for IP, even where the primary protection is currently dormant.

IP will enable an individual to protect the value of their pension savings of between £1.25 million and £1.5 million as at 5 April 2014 from a lifetime allowance charge. Where an individual has pension savings of more than £1.5 million as at 5 April 2014, IP will be restricted to £1.5 million. The limit will be referred to as the individual’s protected lifetime allowance and be expressed as a monetary amount that will not be increased. If the standard lifetime allowance (SLA) subsequently exceeds the amount of the individual’s IP, IP will cease and his benefits will be assessed against the then SLA.

An individual will be able to continue to pay (or benefit from) further pension contributions, or continue to accrue pension benefits, on or after 6 April 2014 without losing such protection, something generally not possible under FP14. However, if the value of their pension savings exceed their protected lifetime allowance under IP when subject to a lifetime allowance test, the excess will be subject to a lifetime allowance charge (ie 55%, where the excess is taken as a lump sum, or 25% where the excess fund is used to provide taxable income).

To apply for IP an individual will need to complete the application form APSS240. This will be available on the HMRC website when the supporting regulations have come into force, which is likely to be around the middle of August 2014. The form must be received by HMRC before 6 April 2017.

12.2.2 Automatic Enrolment

A further 38,000 employers with between 59 and 499 employees (as at 1 April 2012) will be required to automatically enrol their eligible employees during calendar year 2014.

The following revised earnings thresholds will apply for 2014/15:

Automatic enrolment eligibility earnings trigger £10,000, in line with next tax year’s personal allowance.

Lower qualifying earnings band limit £5,772, in line with 2014/15’s lower earnings limit for NI contribution purposes.

Upper qualifying earnings band limit £41,865, in line with 2014/15’s upper earnings limit and higher rate threshold.

The remaining provisions of the Automatic Enrolment (Miscellaneous Amendments) Regulations 2013 – SI 2013/2556 will be implemented from 1 April 2014. These will also extend the joining window and contribution deadlines for new members from the same date.

The current Pensions Bill, which is expected to receive Royal Assent by Easter 2014, includes powers to exclude certain jobholders (e.g. those with enhanced or fixed protection) from automatic enrolment. This should help to avoid the loss of such protection which would otherwise have occurred where such individuals were automatically enrolled in a scheme and failed to opt out.

The introduction of the proposed charge cap, in respect of money purchase schemes used as qualifying schemes for automatic enrolment purposes, will now be delayed until April 2015 at the earliest, although new charge disclosure requirements were added to the Bill in late February.

12.2.3 State Pensions

The current Pensions Bill contains:

The framework for the new single-tier state pension to be introduced from April 2016.

Provision for periodic reviews of the State Pension Age.

The end of defined benefit (DB) contracting out from April 2016.

A statutory override to permit rule amendments in private sector contracted out DB schemes to allow for the loss of the contracted out rebate from April 2016.

The Government announced in the 2013 Autumn Statement a new guiding principle that people should, on average, expect to spend one-third of their adult life in receipt of state pension. This objective will underpin future reviews of State Pension Age (SPA). The Pensions Bill 2013 already makes provision for the increase in the SPA to 67 to be brought forward to between 2026 and 2028. Under the Pensions Act 2007 the introduction of an SPA of 68 is currently due to be phased in between 2044 and 2046. The new guiding principle means that the Government now expects an SPA of 68 will take effect from the mid-2030s, while a further increase to age 69 will apply from the late 2040s.

The Government announced in the 2013 Autumn Statement that it intends to introduce a new Voluntary National Insurance contribution – Class 3A – that will allow people to top up their Additional State Pension.

The Class 3A option will be made available from October 2015 for a limited period only and will enable eligible individuals to purchase extra Additional State Pension benefits. Each Class 3A contribution will result in the acquisition of a unit of extra pension which will increase the contributor’s Additional State Pension by £1 a week up to a cap of potentially £25.

To be eligible to pay the Class 3A contributions an individual must be entitled to either a Basic State Pension and/or an Additional State Pension and must reach State Pension Age by no later than 5 April 2016, ie before the introduction of the new single tier system.

The Government says that price of Class 3A will be based on an actuarially fair rate and will be calculated using the latest estimates of life expectancy from the Office of National Statistics (ONS). As Class 3A is National Insurance the final price of a unit will be determined by HM Treasury but it will be informed by advice from the Government Actuary.

Prices will reflect the age an individual takes up Class 3A. The Government intends to publish a list showing prices of a unit by age.

Primary legislation will be required to introduce the new Class 3A arrangements and the Government has tabled an amendment to the current Pensions Bill to achieve this.

From April 2014, the Basic State Pension will be increased by 2.7% in accordance with the triple lock (i.e. the higher of average earnings growth (0.9%), CPI inflation (2.7%) and 2.5%). This is an increase of £2.95 per week in the Basic State Pension for a single person, bringing this up to £113.10 per week. The Additional State Pension is (also) to be increased in line with the CPI as at September 2013 (i.e. by 2.7%). The standard minimum income guarantee in Pension Credit will be increased by £2.95 per week, while the Savings Credit threshold will be increased by 4.4%., reducing the maximum savings credit payments by up to 9.6%

12.2.4 New Definition of Money Purchase Pension Benefits

Section 29 of the Pensions Act 2011 included a new inserted section 181B in the Pension Schemes Act 1993, which set out the new definition of money purchase benefits. This ensures that a benefit is only money purchase when it is calculated solely by reference to the assets, meaning that the assets must always suffice to meet the liabilities.

This revised definition, when introduced from April 2014, will have retrospective effect from 1 January 1997. This is to ensure that schemes which treated cash balance benefits and pensions derived from money purchase or cash balance benefits as defined benefits have their past actions validated.

The Government recognises that some schemes may have had a different understanding of money purchase benefits in the past. Therefore it will make transitional, supplementary and consequential Regulations to:

give schemes time to comply with section 29 and meet the necessary legal and funding requirements attached to non-money purchase benefits;

balance protection for members with minimising the impact on schemes by ensuring, in most circumstances, that past decisions do not have to be revisited;

ensure other pensions legislation is aligned with section 29.

Defined Benefit Schemes

Following its 2013 consultation, the Pensions Regulator will issue an updated funding code of practice, which is expected to take effect from July 2014. This will take into account the new objective in the current Pensions Bill to minimise any adverse impact on the sustainable growth of an employer.

Defined Ambition Schemes

The Government is expected to set out its response to its consultation in 2013 and further consult on draft legislation in 2014. Such draft legislation is expected to include new definitions of Defined Ambition and Defined Benefit arrangements and make the necessary changes to the preservation, revaluation, scheme funding, employer debt and PPF levy provisions to enable Defined Ambition arrangements to be introduced.

Transfer of Small Pension Pots

The Government announced in April 2013 that it would be bringing in legislation to introduce the pot follows member transfer provisions for transfers of £10,000 or less. Provisions to achieve this have been included in the current Pensions Bill, and draft regulations are expected to be issued after the Pensions Bill has received Royal Assent. Initially it is expected that this will apply only to pots that have arisen from auto enrolment arrangements.

This will be accompanied by the abolition of short service refunds in respect of DC occupational schemes.

Disclosure of Information

The revised disclosure of information provisions for occupational and personal pension schemes will take effect from 6 April 2014.

The Financial Reporting Council has amended the statutory money purchase illustrations provisions to reflect these regulations.

The new rules introducing inflation adjusted illustrations for personal pensions become mandatory from 6 April 2014 (although these could have been used, where desired from April 2013).


Lifetime Allowance

The reduction in the lifetime allowance from 2014/15 means that individuals who may be affected by this will need:

To consider whether to elect for FP14 and/or IP. This should include individuals aged under 75 in receipt of drawdown benefits, if they feel a future BCE5A or BCE5B test at age 75 may result in their exceeding the reduced £1.25 million lifetime allowance.

As FP14 can only be retained where contributions cease and DB benefit accrual is severely restricted on or after 6 April 2014, any individuals looking to make such an election will need to ensure that contributions/benefit accrual before then are appropriately maximised. The recent confirmation that a future Labour Government will re-introduce the High Income Excess Relief Charge targeting pension tax relief for individuals with earnings in excess of £150,000, will act as a further incentive to maximise contributions now (and into 2014/15).

To consider how best to minimise the value of benefits being tested against the lifetime allowance. For instance, someone aged 55 or over looking to crystallise benefits in the next few years could consider drawing some or all of their benefits in 2013/14 when these will be set against the current £1.5 million lifetime allowance. For example, if an individual crystallised benefits with a value of £500,000 in 2013/14 this would only use up 33.33% of his lifetime allowance whereas if he left this until 2014/15 it would use up 40% of his allowance – a fifth more.

An individual could also consider how the benefits are taken. For example, if he had money purchase benefits, using his fund to purchase a scheme pension rather than a lifetime annuity may reduce the percentage of the lifetime allowance he has used up. Similarly a member of a DB scheme should consider the difference in the lifetime allowance assessed where he draws his benefits solely as a pension or as a tax free cash sum with a reduced pension.

Fixed Protection 2014 or Individual Protection 2014?

What should be taken into account when considering whether an individual should elect for FP14 or IP?

Those with funds over £1.25 million as at 5 April 2014 should claim both. This will be a two stage process because FP14 must be claimed before 6 April 2014, while an IP claim will have to await Royal Assent of next year’s Finance Bill. FP14 will take priority over IP, so in effect the individual claiming both will have a lifetime allowance of:

£1.5 million if no contributions are made and no accrual occurs after 5 April 2014; or

Their total benefit value (between £1.25 million and a £1.5 million cap) as at 5 April 2014 if contributions/accrual takes place.

Opting for both IP and FP14 has no downside and means that if, when benefits are drawn, the total value is below the IP figure, it may be possible to make a top up to that level (see example below). However, remember that a last minute top up can create problems if there is insufficient unused annual allowance and/or relevant UK earnings where personal contributions are involved – not to mention the necessary cash or possibility of the reappearance of the High Income Excess Relief Charge.

Example IP and FP14

Tim had a SIPP with a likely value of £1.6 million as at 5 April 2014. He opted for FP14 before the end of 2013/14 as he had neither primary nor enhanced protection and had missed out on FP12. Contributions ceased, but in August 2014 he also claimed IP. By then the value of his SIPP at 5 April 2014 was known – £1.59 million — so his IP personalised lifetime allowance was the £1.5 million maximum.

The value of his SIPP turns out to be £1.4 million when he comes to draw his benefits three years later, because of difficult market conditions in the interim. As he has IP and sufficient relevant UK earnings he can make a contribution (using carry forward) to his SIPP to bring its value up to £1.5 million. This will mean that FP14 is lost, which will require Tim to report the change to HMRC within 90 days of the contribution. Without the claim for IP, he would be stuck with a £1.4 million ceiling.

Arguably anyone with FP12 should also claim IP. Their position would be exactly the same as Tim in the example, except that their fixed protection lifetime allowance would be £1.8 million rather than £1.5 million. Again it is all about being able to fill a shortfall at retirement without falling back to a £1.25 million lifetime allowance.

For anyone with a benefit value of £1.25 million or less at 5 April 2014, FP14 is the only option as IP has a claim threshold of above £1.25 million.

12.2.3 Transferring to a QROPS

One other quasi-protection option, to reduce the impact of the reduced standard lifetime allowance, which is being proposed in some quarters, is to transfer to a QROPS before 6 April 2014. The transfer will be a benefit crystallisation event (BCE 8), but once that test against the lifetime allowance is undertaken, there should be no further testing of those benefits against the individual’s lifetime allowance. This approach could be viewed as provocative by HMRC and future legislation nullifying this QROPS advantage for those continuing UK residence after transfer is a possibility.

It is worth recalling what was said in the December 2011 statement from HMRC announcing the tightening up of the QROPS regime: ‘The Government expects that individuals …can use the QROPS regime to transfer their pension savings where they leave, or intend to leave, the UK permanently so that they can continue to save to provide an income when they retire…’ [our emphasis]

This was further re-iterated in a note issued by HMRC on 27 November 2013:

“The primary objective of the QROPS regime is to enable individuals leaving the UK permanently to simplify their affairs by taking their pension savings with them to their new country of residence. This is intended to enable them to continue to save to provide themselves with a higher income when they retire. In particular it is not considered desirable for individuals to be able to use a transfer to an overseas scheme to facilitate the withdrawal
of their savings as a large lump sum or to receive more tax relief than would have been available had the pension savings remained in the UK.” [our emphasis]

12.3.4 Annual Allowance

The reduction in the annual allowance from 2014/15 is somewhat softened by the ability to carry forward unused annual allowance of up to £50,000 for each of tax years 2011/12 to 2013/14. The new limit is likely to be particularly onerous on members of DB schemes with long past service. For example, it will only need a real increase in pension entitlement of more than £2,500 to trigger an annual allowance charge (assuming the member had no carry forward entitlement). For the time being the problem may not be that great because many people have experienced sub-CPI inflation (or zero) pay rises, leaving plenty of carry forward headroom. However, if real earnings growth is resumed – as some commentators expect – this safety margin could be rapidly eroded.

In view of the complex pension input period rules, great care needs to be taken where a contribution is paid to ensure that it falls in a pension input period in the desired tax year. For example, a contribution paid on 1 April 2014 to a pension arrangement with a pension input period end date of 30 June would fall in the input period ending 30 June 2014 and therefore be assessed against the individual’s reduced annual allowance of £40,000 in tax year 2014/15.




No specific changes were announced in the Budget.


The small profits rate of corporation tax remains at 20% but the main rate reduces to 21% with effect from 1 April 2014.

The additional rate of income tax (which applies to individuals with income of more than £150,000) remains at 45% (earnings) and 37.5% (dividends). The highest National Insurance contribution rates for 2014/15 are 13.8% (employers) and 14% – 12% plus 2% – for employees.

For 2014/15, there are no changes to the percentage rates of contribution for Class 1, Class 1A, Class 1B and Class 4 NICs but there are changes to all of the thresholds and limits.

The Class 1 Upper Earnings Limit and the Class 4 Upper Profits Limit will be aligned for 2014/15 with the higher rate tax threshold of £41,865.

From April 2014 every business and charity will be entitled to an annual £2,000 Employment Allowance towards their employer NICs bill. The Allowance will be delivered through standard payroll software and HMRC’s Red Time Information System.

No further changes will be made to the taxation of directors/shareholders of loans from close companies.

Income tax relief for qualifying loan interest

Individuals who borrow money to invest in close companies can, provided certain conditions are satisfied, qualify for income tax relief on interest paid. From April 2014, this relief will extend to investments in close companies and employee-controlled companies resident throughout the European Economic Area (EEA).

It is worth remembering that, for IHT purposes, a loan taken to invest in a business qualifying for business property relief (BPR) must be first set against the BPR qualifying property for IHT purposes.

13.2.1 The new employment allowance

The Employment Allowance (EA) starts from the beginning of 2014/15 and will give an employer a credit of up to £2,000 a year against their Class 1 Secondary National Insurance Contributions (NICs). Certain employers are excluded, notably any employer of domestic
staff, such as nannies and gardeners. The Government reckons about 1.25m employers will benefit and that 450,000 of them will have no NICs to pay as a result.

The EA will be claimable via Real Time Information (RTI) and once a claim is made, it will be carried forward to future years. For 2014/15, the £2,000 EA will equate to the employer’s

NIC liability on one employee with annual earnings of about £22,450 ([£22,450 – £7,956] @ 13.8% = £2,000.17).

The EA does not alter the arguments for dividend v salary for a one-person company outside the grasp of IR35. There may be no employer’s NICs, but there will still be employee’s NICs of 12%. Take, for example, someone who draws salary up to the primary and secondary NICs threshold of £153 a week in 2014/15, with the rest drawn as dividends, who wants to pass out an extra £10,000 of profit:

Bonus £ Dividend £
Marginal tax rate 20% 40% 20% 40%
Marginal gross profit 10,000 10,000 10,000 10,000
Corporation tax @ 20% N/A N/A

( 2,000)

( 2,000)
Dividend N/A N/A 8,000 8,000

Employer’s National Insurance

contributions with EA

Gross bonus 10,000 10,000 N/A N/A

Employee’s NICs @ 12%

(1,200) (1,200) N/A N/A
Income tax * (2,000) (4,000)

( NIL)

( 2,000)
Net benefit 6.800 o o00-r


*after allowing for 10% dividend tax credit


The only person who could in theory benefit is a non-taxpayer, for whom 12% NICs is better deal than 20% corporation tax and a non-reclaimable tax credit. However, in practice such circumstances will be rare indeed and only cover a narrow band.

However, the Employment Allowance (EA) may be useful for very small businesses where, for example, a sole trader employs just one person – their spouse. For 2013/14 it makes little sense for the spouse to be paid more than the secondary threshold (£148 a week) because above this level employer’s NIC is payable, with employee’s NICs starting at £149 a week. Any gain in net income has to be considered against the hassle of paying (and deducting) NICs.

In 2014/15 the employee will still be liable for NICs once their earnings exceed £153 a week, but the employer’s NIC liability will be removed by the EA until their sole employee earns more than £431.70 a week.

For example, consider a higher rate taxpaying sole trader who employs their spouse with pay up to the level of the primary (employee) threshold. If the sole trader generates £1,000 extra profit, in their hands it will be worth £580 net after £400 income tax and £20 Class 4 NICs.

Such tax planning must always ensure that the spouse’s level of pay is justifiable. An increase from, say, £7,500 a year to £22,000 a year could well invite HMRC scrutiny. Where the employed spouse has little other income, an increase to make full use of their personal allowance is clearly much more attractive in 2014/15.

13.2.2 Close company loans to participators

The Finance Act 2013 introduced provisions to address perceived areas of abuse with regard to the tax rules that apply to loans to shareholder directors of close companies. It also announced a consultation process to determine whether this system of tax should be amended.

The changes in Finance Act 2013

Because of perceived abuse, the Government took action in the Finance Act 2013 to counter three types of arrangement which the shareholders in some close companies have entered into which seek to circumvent the tax charge under section 455.

The measures taken to deal with this abuse are as follows:

Some close companies have made loans to their shareholders via certain types of intermediary to seek to avoid the section 455 tax charge.

Some close companies have transferred value to their shareholders (either directly or indirectly) in forms which are not loans or advances of money. These would not be caught by section 455 which only applies to loans or advances of money.

Some close companies were exploiting the rules which provide relief where the loan is repaid to the company. These schemes, known as “bed and breakfasting”, generally covered arrangements in which;

The shareholder repays the loan from the close company prior to the point in time when the section 455 charge would have arisen, and the close company then makes a new loan to the participator shortly afterwards.

Alternatively, other loans are repaid after the section 455 tax has been paid on them so that a repayment relief claim can be made and then, shortly afterwards, the shareholder redraws the money with the same result, i.e. the participator still has the funds but has also reclaimed the tax.

To combat the abuses in (iii) above, new provisions (the “30 day rule”) were introduced which deny the tax relief on repayment of the loan if a repayment of more than £5,000 is made to the close company and then, within 30 days, amounts are then redrawn either through a loan or advance of money from the close company or through an extraction of value as described above.

The results of the consultation

As well as introducing these changes in the Finance Act 2013, the Government announced a general review into the way the “tax on loans to participators” operates.

The Government announced in the Autumn Statement that following consultation there will be no further changes to toughen up these rules. This will receive a good response from directors of close companies and their tax advisers.


Pension contributions remain an effective means of reducing tax for the small business – this is especially so currently as the annual allowance reduces to £40,000 for pension input periods ending after 5 April 2014. Where it is possible (and there is still time) to pay more than the current annual allowance of £50,000 advantage should be taken of unused relief from earlier years (see Section 12 – Pensions for more detail).

Any dividend payment from a company will not suffer NICs and so dividends are an attractive means of extracting funds from the company for shareholding directors. This is especially so as the Upper Earnings Limit is reducing to the higher rate tax threshold of £41,865. By taking dividends, the directors “take-home” amount could be increased. However, it is important that a director draws sufficient remuneration to retain entitlement to state benefits.

The variables that have an impact on the relative attraction of dividends and salary as a means of extracting benefits from a company for a shareholding director continue to be:

the NIC rates (personal and corporate)

personal tax rates

the corporate tax rates

For the “one-person” company, at the lower end of remuneration planning, the new

NIC Employment Allowance may make dividend payment slightly less attractive (see above).

Determining the so-called “remuneration strategy” for shareholding directors is an area where a financial adviser can add significant value – especially when working together with the client’s accountant.

with falling profits, there may be a benefit from changing the accounting date to 31 March or 5 April, but beware – restrictions apply if this date has recently changed.

Where a non-taxpaying spouse can be legitimately employed in a business, income of up to £10,000 can be paid in 2014/15 without income tax liability. This will increase to £10,500 in 2015/16. The payment of remuneration should be deductible for the employer provided reasonable services are provided by the employee – deduction being based on the “wholly and exclusively” principle. Earnings would need to be restricted to £7,956 to avoid employer and employee NICs. Where the employer is self-employed, employment of the spouse may well benefit from the new NIC Employment Allowance (see above).

Those planning to sell their trading business, should make sure that any of the company’s non-qualifying (ie non-trading) income or assets do not exceed 20% of the total income or assets of the businesses respectively. This should ensure shares qualify for CGT entrepreneurs’ relief from on an eventual sale. Where entrepreneurs’ relief is available the CGT rate is reduced to 10% on gains of up to £10 million (cumulatively) rather than suffering the top 28% CGT rate. Business owners could consider having at least 5% of ordinary shares and voting rights held by their spouse (or children if they work for the company) so that they too qualify for up to £10 million entrepreneurs’ relief each.




There were no new proposals made in the Budget.


Increasing share incentive plan and save as you earn limits

As announced by the Chancellor in his Autumn Statement on 5 December 2013, the Government has decided to increase limits for share incentive plans (SIPs) and save as you earn (SAYE) or Sharesave option schemes. The changes will take effect from 6 April 2014.

Share incentive plans

The maximum value of free shares will increase from £3,000 to £3,600 and of partnership shares from £1,500 to £1,800 (or no more than 10% of an employee’s salary, if lower). In addition, on the basis of the ratio of up to 2:1, it will also be possible to award matching shares worth up to £3,600.

SAYE savings arrangements

The maximum monthly amount that an employee can contribute to SAYE savings arrangements will be doubled from £250 to £500.


Companies that are already operating SIPs or SAYE share option schemes will now have the opportunity to increase the benefits that they offer to employees.

In addition, other companies might decide that the new limits make these all employee schemes more attractive than in the past, and may wish to consider implementing them (particularly in view of the administrative simplifications that have been introduced – see below).

However, it will still be better for many smaller companies to consider using enterprise management incentive schemes, which have much higher limits (up to £250,000 per employee). This is because these schemes are selective and they can be more directly targeted towards key employees.

Of course, with the additional burdens on business expenditure by the auto-enrolment pensions provisions, some employers may be less enthusiastic to consider adopting any further arrangements that can introduce cost to the business.

14.2.4 Changes to employee share schemes

Following the Office of Tax Simplification (OTS) report, a number of new measures are introduced relaxing the rules for the various tax-advantaged employee share arrangements.

The most significant change sees the replacement of a formal approval procedure for SIPs, SAYE option schemes and company share option plans (CSOPs). From 6 April 2014, a new self-certification structure is to be put in place for all tax-advantaged employee share schemes.

At the same time, the annual return process (for all employment-related securities arrangements, including unapproved plans) is to be overhauled and moved online.

As a separate measure, the current purpose tests for SIP, SAYE and CSOP which determine the purpose of the scheme and prohibit features that are not essential (or reasonably incidental) to that purpose, are to be amended.

This is intended to clarify or simplify certain requirements of schemes, including the provision of information by companies to scheme participants, variations of share capital, company events that are subject to overseas legislation and the exchange of options.


The change to self-certification is likely to be a significant simplification that enables schemes to be implemented far more quickly than in the past. However, the corollary to this is that companies will no longer have the certainty of HMRC’s approval in advance of implementing schemes. In theory, this means that there is a greater risk of subsequent audit and rejection of schemes than in the past.

The simplification of the purpose tests is likely to make schemes easier to implement and a little more attractive in future.

14.2.5 Unapproved employee share schemes

Some recommendations made by the OTS for the improvement of unapproved employee share schemes have also been included in the Finance Bill.

Internationally mobile employees

The planned changes will broadly align the tax rules for securities and options awarded to internationally mobile employees with those in place for other types of employment income. This will involve new rules around relevant periods and provisions for apportionment within these periods between amounts chargeable to tax in the UK and other income. It is also intended that the national insurance contributions (NICs) legislation will be aligned.

Income tax rollover relief

A new relief is to be introduced effective from Royal Assent to Finance Bill 2014 where restricted, nil-paid or partly-paid securities are exchanged for new securities of the same type. Other simplifications are to be introduced at the same time.

Corporation tax relief

At present, where a company is taken over, corporation tax relief on the acquisition of shares ceases to be available from the moment of the takeover. A new relaxation taking affect from the date of Royal Assent to Finance Bill 2014 will allow relief to be available in respect of any shares acquired within a 90 day period following the takeover of a company by an unlisted company, and on shares acquired by an overseas individual seconded to work for a UK company.

Section 222 (ITEPA 2003) deadline

Where an employee fails to make good a PAYE liability arising in respect of employment- related securities within 90 days of the chargeable event, an additional tax charge arises. This deadline is to be moved to 90 days after the end of the tax year in which the event occurs, from 6 April 2014.

Market value of listed shares

From the date of Royal Assent to Finance Bill 2014, a new single method of valuing listed shares will be introduced. This will be based on the closing price of the shares or securities on the relevant trading day.


Since all of these changes are positive and represent relaxations or simplifications, this should make the use of employees’ share incentives more attractive. At the same time, they should remove a number of pitfalls.

14.2.6 Indirect employee share ownership

There are further tax incentives to support “indirect” employee share ownership, ie where the

controlling interest in a company is held on trust for the benefit of employees in general.

There will be a relief from capital gains tax (CGT) or inheritance tax for an individual or close company which sells a controlling shareholding in a trading company to a qualifying trust.

In addition, employees in a company owned by such a trust may receive a quasi-dividend payment of up to £3,600 per annum free of income tax. This payment will be tax-deductible for the company.


Whilst this measure is unlikely to attract immediate attention from businesses, it is a part of a wider, long-term initiative to support alternative ownership models for business (the John Lewis Partnership being the example often given).

Over time, businesses looking at succession planning or more radical approaches to providing employees with a stake in the business may find these changes beneficial.

Employee medical treatment

A new tax relief is to be introduced that will exempt payments of up to £500 per employee where an employer meets the cost of “recommended” medical treatment. This is specifically targeted at situations where there is a recommendation from an occupational health service in order to help an employee return to work after a period of absence due to ill-health or injury.

The recommendation was originally required to be made by the Government Health Welfare Service (HWS) but this has now been extended to include other providers. There are no details yet regarding the length of absence that will be required to trigger the tax relief.

It is likely that this new legislation will be implemented with effect from Autumn 2014. In addition, there will be an associated relief from NIC.


This measure will enable employers to provide some financial assistance to employees to speed up their recovery and return to work. The ability for commercial providers to give recommendations is also a welcome change arising from the consultation process. It should be noted however that the relief is not available if it is offered via a salary sacrifice or flexible benefits arrangement, so the costs incurred will need to be borne by the employer.

Employer loans

The threshold for the exemption from tax on the benefit of small loans will be increased from £5,000 to £10,000 from April 2014.



The Government will correct an oversight in the split year rules that were introduced as part of the Statutory Residence Test legislated in Finance Act 2013. The Finance Bill 2014 will include a provision to ensure that capital gains made by a remittance basis user in the overseas part of a split year of residence are not charged to tax.


No changes were announced in the Autumn Statement.


Whilst no major changes to the domicile and residence rules were announced this year, due to the immense number of changes made over the last few years, those affected should be taking action to reduce their tax exposure. This particularly applies to those who

have been resident in the UK for some years and so may, subject to a remittance basis charge election, find that their overseas income and gains will be taxed an arising year basis (rather than a remittance basis), or have been UK tax resident for a period of years approaching seventeen and so may soon be deemed domiciled for IHT purposes.

For those non-UK domiciliaries who wish to reduce their exposure to income tax and capital gains tax, on overseas investments, they should give thought to the merits of offshore bonds as a legitimate means of avoiding income and capital gains being subject to the arising basis of assessment or causing a non-domiciled individual to consider paying the remittance basis charge to avoid it. Remember though that the normal remittance basis rules apply if a non- UK domicile invests mixed funds into an offshore bond and then remits a withdrawal to the UK. This could cause previously unpaid income tax and/or CGT included in the underlying mixed fund to become payable, even if the withdrawal itself falls within the 5% tax deferred withdrawal allowance.

For those with long term UK residence who are keen to avoid the full impact of IHT on their worldwide assets because they become UK deemed domiciled, they should consider establishing an excluded property trust before such a status is achieved. This can be achieved by creating a discretionary trust and investing in overseas investments (such as offshore bonds and offshore collectives) and certain UK collective investments.



The Budget confirmed a host of measures announced in the Autumn Statement.


16.2.1 Simplifying Gift Aid claims

A new working group will be established by the Government to revise the model Gift Aid Declaration and a simpler joint HMRC/Charity Commission application process to make it easier to understand – in the hope that more charitable donations will be made.

Regulations will be issued on Gift Aid digital which will allow non-charity intermediaries a greater role in operating the scheme from 2015.

16.2.3 Charity tax avoidance vehicles

On 17 March, 2014 HMRC published proposals on how to stop abuse of the charitable tax relief rules.

The Government previously announced that it will introduce legislation to amend the definition of a charity for tax purposes to put beyond doubt that entities established for the purpose of tax avoidance are not entitled to claim charitable tax reliefs. The potential for substantial tax avoidance through charities was exposed in the ‘Cup Trust’ case involving contrived arrangements to create substantial tax relief for charitable donations with effectively recycled money.

The main problem in addressing this issue is that, when a charity is set up and registered, there is no evidence that its purpose is anything other than wholly charitable. It is only later that it becomes clear that the charity was established as part of a contrived tax avoidance arrangement. While existing legislation can be used to attack some schemes, new legislation may help deter others from setting up a charity for tax avoidance purposes. HMRC has provided details of two possible versions of draft legislation which could be used – see A and B below.

Version A – relies on preventing a charity being recognised by HMRC if, in essence, one of the main purposes or results of its establishment is to secure a ‘tax advantage’ rather than ‘tax avoidance.’

However, the sector representatives that HMRC has informally consulted with were concerned that the scope of the ‘purpose’ in this approach could create doubt because, in these cases, it is arguable that one of the main purposes of establishing a foundation is the obtaining of a tax advantage, specifically Gift Aid and other reliefs on donations.

Version B – aims to narrow the purpose test from one of a number of purposes to a single main purpose. Although, this narrower purpose test could make it easier for determined avoiders, to subvert the legislation. They could do this by ensuring that another ostensible, significant purpose exists, whether or not it is to be realised.

While HMRC would welcome any feedback on this draft legislation, there is limited time available as all feedback must be submitted by 11 April 2014.

Social Investment Tax Relief

As announced in the Autumn Statement, legislation will be introduced in Finance Bill 2014 to provide a range of income and capital gains tax reliefs, to provide incentives for investment by individuals in qualifying social enterprises. Income tax relief will be available at 30% of the amount invested. These changes will have effect from 6 April 2014. Draft guidance will be published on 27 March 2014.

Other minor measures

The Budget also announced the following measures:

Review of benefits allowed to donors in order to simplify the rules

Corporation tax relief to be allowed on gifts of cash to Community Amateur Sports Clubs

Minor changes to the Cultural Gift Scheme

Partial relief from SDLT on joint property purchases


Charitable donations enable the taxpayer to make substantial savings whether in lifetime or on death. Income tax savings can be made by extending the basic rate band by the gross amount gifted to charity and it is welcome that this tax relief will continue without limit.

The introduction of a reduced rate of inheritance tax (from April 2012) where 10% or more of the deceased’s net estate is left to charity now also means that it is possible to make further IHT savings through charitable donations.

The Social Investment Tax Relief will be of particular interest to social enterprises looking to raise funds and to individuals looking to invest in them. However, concern has been expressed that there is a risk that the scheme could simply divert funds from Gift Aid donations into Social Investment Tax Relief reducing the amount of new money raised if the relief is too generous.



As announced yesterday and confirmed in the Budget the tax-free childcare costs cap will be increased to £10,000 per child and the scheme will be rolled-out to all eligible families with children under 12 within the first year of foe scheme’s operation.

The Government has consulted on providing additional support for childcare in Universal Credit for families where both parents, or a single parent, pays income tax – further details will be set out at Autumn Statement.

Since 2010 the Government has extended free early education for all three and four year olds to 15 hours and has also rolled this out to 20% of two year olds. This will now be offered to around 40% of two year olds from September 2014.

The Budget announced that the Government will increase compliance checks to European Economic Area (EEA) migrants to ensure that only those who are eligible to receive Child Benefit or Child tax Credit do so.


Childcare Scheme

From Autumn 2015, a new childcare scheme will be introduced to support working families with their childcare costs. The scheme will provide parents with savings worth up to £2,000 per year – compared with the original proposal of £1,200 – by giving basic rate tax relief on the first £10,000 they spend on child care (i.e. £10,000 x 20% = £2,000).

To be eligible under the new scheme, both parents, or a single parent in work, must be each earning less than £150,000 a year and must not already receive support through tax credits or the new universal credit. Support will be provided through a childcare account redeemable at any registered childcare provider.

The existing workplace childcare vouchers scheme which is currently subsidised by the taxpayer, will be closed to new claimants from 2015 and phased out. Employers will be able to continue to set up a childcare voucher scheme until tax-free childcare is launched, meaning there is still an opportunity for employers to enjoy the National Insurance savings which childcare vouchers provide. Parents will be able to sign up for childcare vouchers until August 2015 and they can then continue to order vouchers beyond Autumn 2015, for as long as their employer continues to run the scheme. Some existing scheme members will choose to switch to the new scheme from 2015, as in some cases this will provide higher savings.

Universal infant free school meals (UIFSM)

The Children and Families Bill places a legal duty on state-funded schools in England, including academies and free schools, to offer a free school lunch to all pupils in reception, year 1 and year 2. Subject to Royal Assent, which is expected in March 2014, the duty will
come into force from September 2014. The Government is providing £150million of capital funding in the 2014 to 2015 financial year to support the rollout of UIFSM.

The Government will also provide capital funding to increase capacity in school kitchens as well as funding to enable further education and sixth form colleges to provide free meals to disadvantaged young students, in the way that school sixth forms are already required to do.








Personal allowance – standard



– Born between 6 April 1938 and 5 April 1948



– Born before 6 April 1938



Personal allowance reduced if total income exceeds oo



Married couple’s allowance* – minimum amount



— maximum amount



Maintenance to former spouse *



Age-related allowances reduced if total income exceeds     ^



Employment termination lump sum limit




For 2013/14 and 2014/15 the reduction is £1 for every £2 additional income over £100,000. As a result there is no personal allowance if total income exceeds £120,000 (£118,880 for 2013/14).

* Relief at 10%. Available only if at least one of the couple was born before 6 April 1935.

For 2013/14 and 2014/15 the reduction is £1 for every £2 additional income over the total income threshold. Standard allowance(s) only are available if total income exceeds:-





Taxpayer born between 6 April 1938 and 5 April 1948   [personal allowance]



Taxpayer born before 6 April 1938 [personal allowance]



Taxpayer born before 6 April 1935 [married couple’s   allowance]









Starting rate on savings income- 10%

1 – 2,790

1 – 2,880

Basic rate – 20%

1 – 32,010

1 – 31,865

Maximum tax at basic rate+



Higher rate – 40%



Tax on first £150,000+




Additional rate on income over £150,000



Discretionary and accumulation trusts (except dividends)   °



Discretionary and accumulation trusts (dividends) °



Ordinary rate on dividends



Higher rate on dividends



Additional rate on dividends



High income child benefit charge

1% of benefit per £100 income between £50,000 and £60,000

Assumes 10% band not available.

£6,085 on first £31,865 (£6,123 on first £32,010 in 2013/14) and £53,339 (£53,319 in 2013/14) on first £150,000 if full 10% band is available.

Up to the first £1,000 of gross income is generally taxed at the standard rate ie. 20%, or 10% as appropriate.



The charge is based on a percentage of the car’s “price”. “Price” for this purpose is the list price at the time the car was first registered plus the price of extras.

For cars first registered after 31 December 1997 the charge, based on the car’s “price”, is graduated according to the level of the car’s approved CO2 emissions.

For petrol cars with an approved CO2 emission figure.

CO2 g/km

% of price

subject to tax

CO2 g/km

% of price

subject to tax

CO2 g/km

% of price

subject to tax







75 or less






























































215 +
















The exact CO2 emissions figure should be rounded down to the nearest 5 g/km for levels of 95g/km or more.

For all diesels add 3%, subject to maximum charge of 35%.

There is no charge for any car which cannot produce CO2.


For cars with an approved CO2 emission figure, the benefit is based on a flat amount of £21,700 (£21,100 for 2013/14). To calculate the amount of the benefit the percentage figure in the above car benefits table (that is from 5% to 35%) is multiplied by £21,700. The percentage figures allow for a diesel fuel surcharge. For example, in 2014/15 a petrol car emitting 142 g/km would give rise to a fuel benefit of 21% of £21,700 = £4,557.



1 April 2013

1 April 2014

Standard rate



Annual turnover



limit for registration
Deregistration threshold





Cumulative chargeable transfers [gross] tax rate on death


tax rate in lifetime


2013/14 £

2014/15 £

Nil rate bandt






No limit

No limit






Main exemptions and reliefs





Annual exemption



Principal private residence

No limit

No limit

Chattels exemption



Entrepreneurs’ relief

Lifetime cumulative

Lifetime cumulative

limit £10,000,000.

limit £10,000,000.

Gains taxed at 10%

Gains taxed at 10%


* Reduced by at least 50% for most trusts.



Rates of tax

Individuals:                                                                     18% on gains within basic rate band, 28%for gains in higher or additional rate tax payers

Trustees and personal representatives:                28%


Residential Commercial


£125,000 or less £150,000 or less


Over £125,000 up to £250,000 Over £150,000 up to £250,000


Over £250,000 up to £500,000 Over £250,000 up to £500,000


Over £500,000 up to £1,000,000 * Over £500,000


Over £1,000,000 up to £2,000,000 * N/A


Over £2,000,000 * N/A


* 15% for purchases by certain non-natural persons from 20   March 2014




Year Ending 31 March



Main rate



Small profits rate



Small profits limit



Upper marginal level



Effective marginal rate





2013/14 £

2014/15 £

ISA (to 30 June 2014)
Overall per tax year:



Cash component:



Stocks and shares component:

Balance up to 11,520

Balance up to 11,880

Maximum in cash for 16 and 17 year olds



Junior ISA / CTF



NISA (from 1 July 2014 to 5 April 2015)
Overall per tax year
Cash value of ISA limit

15,000 [2]

For 16 and 17 year olds – cash only

15,000 *

Junior ISA/ CTF

4,000 *




Maximum carry back to previous tax year for income tax     relief






VENTURE CAPITAL TRUST(30% income tax relief)








Lifetime allowance[4]



Lifetime allowance charge: Excess drawn as cash Excess     drawn as income

55% of excess 25% of excess

Annual allowance [5]



Annual allowance charge

20%-45% of excess

Max. relievable personal contribution

100% relevant UK earnings or £3,600 gross if greater


* May be increased under 2006, 2012 and/or 2014 transitional protection provisions ** Subject to three year carry forward of unused allowance


Working and Child Tax Credits will gradually be replaced by Universal Credit, which begins to be phased in in 2014/15. For the time being the main features of the tax credits are:

Child tax credit

Eligibility is assessed on household income.

The claimant must be responsible for one or more children aged 16 or under, or at least one child under age 20 and in full-time non-advanced education.

The family element of the tax credit is £545 per annum.

The child element is £2,750 per annum for each child.

The disabled child element is £3,100 per annum (where relevant).

HMRC will pay the CTC to the main carer for the child.

Working tax credit

The claimant, or one of the joint claimants, must be in qualifying remunerative work.

The amount of WTC will be based on circumstances which are primarily the number of hours worked and the income of the claimant (or joint income for a couple).

24 hours for families with children and workers with a disability. The claimant can be aged 16 or over. One of the couple must work at least 16 hours.

30 hours for workers with no children and no disability. The claimant has to be aged 25 or over.

The basic element of the tax credit is £1,940 per annum.

The couple or lone parent element is £1,990 per annum.

A 30 hour element of £800 per annum is payable where the claimant or one of the claimants works at least 30 hours a week (couples with children may aggregate their hours for this purpose).

A disabled worker element of £2,935 per annum or more is available where the claimant, or his or her partner, has a disability.

For employees, payment will normally be made by their employer with their wages (except the childcare element which is paid direct to the main carer). For the self- employed, payment is made directly by HMRC.

3. Calculating the credits

Lower Earnings     Limit (LEL)

Upper Accrual Point     (UAP)

Upper Earnings     Limit (UEL)

It is necessary first to total the various elements available to arrive at the maximum available amount of tax credits before any reduction on account of income. All elements can be reduced at the rate of 41% (ie. 41p per £1 of income).




the minimum level of earnings at which an employee will qualify for a State Second Pension (S2P). This is also the lower level of earnings which will be used in determining any NI Rebate.

For tax year 2014/15 the Lower Earnings Limit is £111 per week.

the upper level of earnings on which an employee’s S2P entitlement is based (or on which any NI Rebate is determined). For tax year 2014/15 (and S2P’s final year of 2015/16) the Upper Accrual Point is fixed at £770 per week.

the upper level of earnings on which full NICs are charged. The reduced 2% NI contributions will apply to earnings above this level. For tax year 2014/15 the Upper Earnings Limit is £805 per week.

NI Rebate

Th Rebate of employer’s and employee’s National Insurance contributions that is available where an employee is contracted out of S2P via a final salary occupational scheme. This is based on the employee’s earnings between the Lower Earnings Limit (LEL) and Upper Accrual Point (UAP). The rebate is 3.4% (employer) and 1.4% (employee) in respect of the employee’s earnings between the LEL and UAP. Since 2012/13 contracting out has not been possible via a money purchase occupational scheme or a personal pension scheme. Contracting out for final salary related schemes will end from 2016/17.

Primary Threshold

the level of earnings at which employees start to pay Class 1

National Insurance contributions.

For tax year 2014/15 this is £153 per week.

Secondary Threshold

the level of an employee’s earnings at which the employer starts to ay Class 1 National Insurance contributions.

For tax year 2014/15 this is £153 per week.

Employees – Class 1

Contracted in

Nil on first £153 per week (i.e. up to Primary Threshold)

12% of £153.01 per week to £805 per week.

2% on earnings above £805 per week.

Contracted out via final salary occupational scheme

Nil on first £153 per week (up to Primary Threshold)

10.6% of £153.01 per week to £770 per week

12% of £770.01 per week to £805 per week.

2% on earnings above £805 per week.

The employee’s NI Rebate is still payable in respect of the employee’s earnings between the LEL and UAP including those in excess of the LEL and up to and including the Primary Threshold. In the first instance, the Rebate reduces the National Insurance contributions payable by the employee. However, where the National Insurance contribution payable by the employee is reduced to nil, the excess Rebate will be available for the employer to set against his overall National Insurance contribution bill.