Married couples and civil partners can gift each other assets and there will be no Inheritance Tax (IHT) charge on the lifetime gift as long as the recipient is domiciled in the UK.

However, transfers to others that are not covered by the reliefs listed at the end of this article, are treated as potentially chargeable lifetime gifts or transfers (PETs). The gifts can be included in the estate of the donor if they were made less than 7 years before the date of death.

If the person making the gift gave away more than £325,000 in gifts in the last 7 years of their life, and this includes the gift to you, you may be required to pay any IHT directly attributable to the gift. Otherwise, IHT is paid by the estate.

IHT is payable at the following rates on PETs made between the date of the gift and date of death:

• Less than 3 years –  40%
• 3 to 4 years – 32%
• 4 to 5 years – 24%
• 5 to 6 years – 16%
• 6 to 7 years – 8%

These rates may be reduced if the deceased qualified for a reduced rate of IHT.

Gifts that aren’t charged to IHT include:

Annual exemption

Up to £3,000 of gifts made each year. The £3,000 exemption from the previous year may also be available, if not used in that year.

The following allowances are generally in addition to this.

Wedding gifts

There’s no Inheritance Tax on a wedding or civil partnership gift worth up to:

• £5,000 given to a child
• £2,500 given to a grandchild or great-grandchild
• £1,000 given to anyone else

The gift must be given on or shortly before the date of the wedding or civil partnership ceremony.

Gifts up to £250

There’s no Inheritance Tax on individual gifts worth up to £250. You can give as many people as you like up to £250 each in any one tax year.

You can’t give someone another £250 if you’ve given them a gift using a different exemption, e.g. the £3,000 annual exemption.

If you give someone more than £250 in a tax year, the whole amount counts – the first £250 is not exempt.

Regular gifts from the giver’s income

There’s no Inheritance Tax on gifts from the deceased’s income (after they paid tax) as long as the deceased had enough money to maintain their normal lifestyle. These gifts include:

• Christmas, birthday and anniversary presents
• life insurance policy premiums
• regular payments into a savings account

Payments to help with living costs

There’s no Inheritance Tax on gifts to help with other people’s living costs if they’re made to, for example:

• an ex-husband, ex-wife or former civil partner
• a relative who’s dependent on them because of old age, illness or disability
• a child (including adopted and step-child) under 18 or in full-time education

Charities

There’s no Inheritance Tax on gifts to charities, museums, universities or community amateur sports clubs.

Political parties

There’s no Inheritance Tax on gifts to political parties that have either:

• 2 members elected to the House of Commons

1 member elected to the House of Commons and received at least 150,000 votes in a general election.

Under new rules, initially announced in the 2015 Budget, farmers will be able to average their profits for Income Tax purposes from two years to five years.

This change will help farmers with fluctuating profits better manage risk and level out the impact of tax on their farming profits. For example, they may avoid paying tax at higher income rates in one year, when in the next few years they may have significantly lower profits.

In recent times market conditions, driven by the impact of global volatility, make it difficult to budget for tax costs.

Chancellor George Osborne is reported as saying:

“A resilient and thriving food and farming industry is fundamental to the success of the UK economy. This government recognises the challenges our farmers face from volatile markets and we are absolutely committed to supporting them.

Today’s reforms will provide farmers with additional security to plan and invest for the future, allowing them to spread profits over a longer period of time. Over 29,000 farmers can benefit from the changes, saving an average of £950 a year.

The fairer tax system for famers is among a number of reforms to taxes, National Insurance allowances and others measures coming into effect today to back hard work, support savers and economic security at every stage of life.”

As well as having the new option to average tax over five years, farmers will also retain the choice to average profits over two years. The dual option, announced in December, follows industry feedback in consultation over how to deliver the extension to five years. It became evident that the two-year option was well understood and had provided significant relief to farmers dealing with financial pressures and should be retained.

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1 April 2016 – Due date for Corporation Tax due for the year ended 30 June 2015.

19 April 2016 – PAYE and NIC deductions due for month ended 5 April 2016. (If you pay your tax electronically the due date is 22 April 2016.)

19 April 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2016.

19 April 2016 – CIS tax deducted for the month ended 5 April 2016 is payable by today.

19 May 2016 – PAYE and NIC deductions due for month ended 5 May 2016. (If you pay your tax electronically the due date is 22 May 2016.)

19 May 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2016.

19 May 2016 – CIS tax deducted for the month ended 5 May 2016 is payable by today.

31 May 2016 – Ensure all employees have been given their P60s for the 2015-16 tax year.

In a further bid to encourage savings for a first property purchase, or retirement, a new ISA is being launched from April 2017 – the Lifetime ISA.

It will be available from April 2017 for adults under the age of 40. They will be able to contribute up to £4,000 per year, and receive a 25% bonus from the government.

Funds from the Lifetime ISA, including the government bonus, can be used to buy a first home at any time from 12 months after the account opening, and be withdrawn from age 60. There will be penalties for early withdrawals.

The government also announced that the overall annual ISA subscription limit will be increased to £20,000 from 6 April 2017.

CGT rates have been significantly reduced from April 2016.

The rates at which capital gains are taxed depend on where they would fall to be taxed for Income Tax purposes if they were added to income. This would determine whether the gains would fall to be taxed at basic or higher rates, or part and part.

• If at basic rates, gains will now be taxed at 10% instead of £18%
• If at higher rates, gains will now be taxed at 20% instead of 28%.

These reductions will not apply to residential property sales of second homes or buy-to-let properties – the 2015-16 rates of 18% and 28% will continue to apply.

There is also a surprising change to Entrepreneurs’ Relief (ER). It is being extended to afford relief to investors in non-quoted companies. The revisions will introduce the following change to legislation:

“The extension to ER, introducing investors’ relief, will apply to gains accruing on the disposal of certain qualifying shares by individuals (other than employees and officers of the company). In order to qualify for relief, a share must:

• be newly issued, having been acquired by the person making the disposal on subscription for new consideration
• be in an unlisted trading company, or unlisted holding company of trading group
• have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016
• have been held continually for a period of three years before disposal

The rate of CGT charged on the qualifying gain will be 10%, with the total amount of gains eligible for investors’ relief subject to a lifetime cap of £10 million per individual. Rules will ensure that this limit applies to beneficiaries of trusts.

Because the relief is designed to attract new capital into companies, avoidance rules set out in the legislation will ensure that shares must be subscribed for by individuals for genuine commercial purposes and not for tax avoidance purposes.

This is a welcome change, and one that should stimulate interest from investors in smaller concerns that would otherwise struggle to attract inward investment.

Up to 5 April 2016, directors who overdrew their loan accounts in a company ran the risk of an additional 25% Corporation Tax charge if the debt remained outstanding nine months after their company’s trading period end.

The tax can be claimed back, but not until there is a repayment of the debt. From a cash flow point of view this can be a hefty penalty, and makes this type of temporary cash extraction by shareholder directors, unattractive.

The Treasury has decided to tighten the screw.

Legislation has been introduced in the Finance Bill 2016 to specifically link the rate of tax chargeable on loans or advances to, or arrangements conferring benefits on, participators made by close companies to the higher dividend rate. The rate will be increased from 25% to 32.5%. The new rate will apply to loans made or benefits conferred on or after 6 April 2016.

This is a 30% increase in the tax charge. A company that allows a director or shareholder to maintain an overdrawn loan, taken out after 6 April 2016, for say £50,000, still unpaid after the nine month deadline, will incur a corporation charge of £16,250 instead of £12,500.

Companies affected would do well to revisit the cash flow implications.

From 1 April 2016, individuals who purchase additional residential properties, second homes or buy-to-let properties will pay an additional 3 percentage points above the existing SDLT rates. The higher rates will apply to property purchases in England, Wales and Northern Ireland. The additional rates are:

• £0 – £125k: 3%
• £125k – £250K: 5%
• £250k – £925k: 8%
• £925k – £1.5m: 13%
• Over £1.5m: 15%

This will add a considerable on-cost for landlords and families that venture into multiple property acquisitions. Without this change, a residential property purchased for £250k would have had a SDLT charge of £2,500. Under the new rates this will increase to £10,000.

Properties purchased for under £40,000, caravans, mobile homes and houseboats will be excluded from the higher rates. Furthermore, small shares in recently inherited properties will not be considered when determining if the higher rates apply.

The budget also clarifies when companies making residential property purchases will be subject to this additional SDLT charge.

In the lead up to the budget it had been speculated that significant, incorporated property businesses would be able to avoid the increase. It would appear that this is not to be.

In the notes to the budget it is clearly stated:

“Companies purchasing residential property will be subject to the higher rates, including the first purchase of a residential property.”

Accordingly, setting up a new company for each property acquisition or transferring existing portfolios into corporate structures will not allow landlords to avoid the additional rates of SDLT on post April 2016 acquisitions.

Indirectly, these changes will also affect sellers of residential property as the SDLT increases may dissuade marginal buyers from purchasing. Will we see affected house prices falling?

In Scotland, property purchases are subject to the Land and Buildings Transaction Tax (LBTT), and from April 2016 a similar 3% will apply to purchases of additional property. The additional rates of LBTT in Scotland are:

• Less than £145k: 3%
• £145k to £250k: 5%
• £250k to £325k: 8%
• £325k to £750k: 13%
• Over £750k: 15%

The surcharge applies to the full purchase price above an initial threshold of £40,000.

A few surprises in the latest budget announcements that include: tax allowances for micro-business owners, a levy on soft drinks manufacturers, a reduction in the rates of Capital Gains Tax and a doubling of business rates relief for smaller concerns.

Our summary of these and other tax changes for 2016-17 and future years follows.

Personal Tax and miscellaneous matters

Personal Tax allowance

From 2016-17, there will be one Income Tax personal allowance regardless of an individual’s date of birth.

• For 2016-17 the allowance is set at £11,000, and
• For 2017-18 at £11,500

Income Tax rate bands

The Chancellor confirmed his intention to remove taxpayers from the higher rate of Income Tax by increasing the levels at which taxpayers start to pay higher or additional rate taxes. The levels for the next two years are:

• For 2016-17 – £43,000
• For 2017-18 – £45,000

If your income before allowances exceeds these amounts you will be paying 40% Income Tax on the excess (this assumes that you are only entitled to the basic personal allowance).

The threshold at which the 45% rate starts is unchanged at £150,000.

For yet another year there were no changes to the basic Income Tax rate (20%), the higher rate (40%) and the additional rate (45%).

Capital Gains Tax (CGT) reduction

From April 2016, CGT on the disposal of chargeable assets, apart from residential property, is reduced to:

• 10% from 18% on disposals that form part of the basic rate band.
• 20% from 28% on disposals that form part of the higher rate band.

The existing rates (18% and 28%) will continue to apply to disposals of residential property subject to this tax and carried interest. Gains on a disposal of your home will continue to be exempt.

Entrepreneurs’ relief extended to include investors

Entrepreneurs’ relief (ER) will be extended to external investors in unlisted trading companies. This new investors’ relief will apply a 10% rate of CGT to gains accruing on the disposal of ordinary shares in an unlisted trading company held by individuals, that were newly issued to the claimant and acquired for new consideration on or after 17 March 2016, and have been held for a period of at least three years starting from 6 April 2016. A person’s qualifying gains for this investors’ relief will be subject to a lifetime cap of £10 million.

Entrepreneurs’ relief on disposal of goodwill relaxed

Legislation will be introduced in Finance Bill 2016 to allow ER to be claimed in respect of gains on goodwill where the claimant holds less than 5% of the shares, and less than 5% of the voting power, in the acquiring company. This ‘holding condition’ will replace a previous requirement that the claimant must not be a ‘related party’ in relation to the company.

Relief will also be due where the claimant holds 5% or more of the shares or voting power if the transfer of the business to the company is part of arrangements for the company to be sold to a new, independent owner.

Miscellaneous pension changes

A number of minor changes are being included to the pension’s tax rules to ensure that they operate as intended following the introduction of pension flexibility in April 2015. The changes will:

• remove the requirement that a serious ill-health lump sum can only be paid from an arrangement that has never been accessed
• replace the 45% tax charge on serious ill-health lump sums paid to individuals who have reached age 75 with tax at the individual’s marginal rate
• enable dependents with drawdown or flexi-access drawdown pension who would currently have to use all of this fund before age 23 or pay tax charges of up to 70% on any lump sum payment, to continue to access their funds as they wish after their 23rd birthday
• remove the rule on paying a charity lump sum death benefit out of drawdown pension funds and flexi-access drawdown funds where the member dies under the age of 75 because the equivalent tax-free payment may be made as another type of lump sum death benefit
• enable money purchase pensions in payment to be paid as a trivial commutation lump sum
• enable the full amount of dependent’s benefits to be paid as authorised payments where there are insufficient funds in a cash balance arrangement when the member dies

These changes will apply from the day after the Finance Bill 2016 receives Royal Assent later this year.

Excise duties

The duty on beers, spirits and most ciders will be frozen this year. The duty rates on wine will increase by RPI inflation from 21 March 2016.

Tobacco duty rates

Duty rates on all tobacco products will increase by 2% above the retail price index with a further 3% increase on hand-rolling tobacco, which will rise by 5% above RPI.
The changes to tobacco duty took effect from 6pm, 16 March 2016.

Fuel duty

There will be no increase in fuel duties. At the end of 2016-17 this will be the 6th year fuel duty has been frozen.

Transferrable allowances

The maximum amount of free personal allowance that can be transferred between spouses is increased to £1,100 in 2016-17 and £1,150 in 2017-18.

Lifetime ISA

From April 2017, any person under 40 will be able to save into a new Lifetime ISA.

Up to £4,000 can be saved each year and savers will receive a government bonus of 25% – that is a bonus of up to £1,000 a year.

Some or all of the money can be used to buy a first home, or it can be kept until age 60.

Accounts will be limited to one per person rather than one per home, so two first time buyers can both receive a bonus when buying together. If a saver has a Help to Buy ISA it can be transferred into the Lifetime ISA in 2017, or savers can continue saving into both, but it will only be possible to use the bonus from one to buy a house.

After your 60th birthday you can take out all the savings tax-free. You can withdraw the money at any time before you turn 60, but you will lose the government bonus (and any interest or growth on this). You will also have to pay a 5% charge.

ISA limit to rise April 2017

The present ISA savings limit of £15,240 will rise to £20,000 from April 2017.

Small business tax changes

Corporation Tax rate

The main rate of Corporation Tax from 1 April 2016 remains at 20%.

• From 1 April 2017 the rate is set to reduce to 19%
• From 1 April 2020 to 17%.

New stamp duty rates for commercial property acquisitions

From 17 March 2016, the way in which stamp duty is calculated on commercial property acquisitions will be changed. Instead of higher rates being applied to the total cost on a slab basis, the following rates will apply on a graduated basis.

The rates are:

• Up to £150,000 no stamp duty is due
• From £150,001 to £250,000 the rate is 2%
• Above £250,000 the rate is 5%

Buyers of commercial property worth up to £1.05m will pay less stamp duty as a result of this change.

Business rates reductions

A 100% relief is currently available if a business occupies a property with a rateable value of £6,000 or less.

From April 2017, small businesses will be able to claim a similar 100% relief if they occupy property with a rateable value up to £12,000. Taper relief will apply for properties valued between £12,000 and £15,000.

It is estimated that this will mean 600,000 small businesses will no longer pay business rates.

Non-monetary transactions are taxable

From budget day, 16 March 2016, any trading or property income received in non-monetary form have to be included as income for tax purposes. This confirms previous tax cases on this issue.

Insurance premiums to rise?

The standard rate of Insurance Premium Tax is being increased from 9.5% to 10% from 1 October 2016. This will likely result in increased premiums.

The increase in the tax will be used to fund new flood defences.

Employer’s NIC on termination payments

From April 2018, certain employee payoffs, for example termination payments in excess of the tax free £30,000 where Income Tax is also due, will be subject to an employers’ National Insurance charge.

For employees, payments up to £30,000 will remain tax free and they will not suffer an additional National Insurance charge.

Class 2 NIC to be abolished

The Class 2 NIC charge is to be abolished from April 2018. The self-employed will continue to pay the existing Class 4 contributions from this date. Class 4 contributions will be reformed such that the self-employed can continue to build entitlement to the State pension and other contributory benefits.

Two new tax allowances

The Chancellor has introduced two new tax allowances for micro-business owners. The £1,000 exemption from tax will apply to:

• People who make up to £1,000 from occasional jobs such as selling goods they have made, and
• The first £1,000 of miscellaneous income from property, for example renting a driveway.

Incorporated property businesses to pay increased stamp duty

In an attempt to create a level playing field, the Chancellor has clarified, by amending legislation, that individuals are subject to the 3% SDLT supplement if they purchase more than one property, and companies on all residential property purchases even the first such purchase. Here’s what the Budget notes say on this issue:

“If, at the end of the day of the transaction, an individual owns 2 or more properties and has not replaced their main residence, the higher rates will apply. Purchasers will have 36 months to either claim a refund from the higher rates, or before the higher rates will apply, in the event that there is a period of overlap or a gap in ownership of a main residence. Companies purchasing residential property will be subject to the higher rates, including the first purchase of a residential property. Properties purchased for under £40,000, caravans, mobile homes and houseboats will be excluded from the higher rates. Furthermore, small shares in recently inherited properties will not be considered when determining if the higher rates apply.”

Zero-emission van’s benefit change deferred

Existing legislation, that applies the level of the van benefit charge for zero-emissions vans at 20% of the charge for conventionally fueled vans has been extended to the tax years 2016-17 and 2017-18.

This defers the planned increase to 40% of the van benefit charge for conventionally-fueled vans to 2018-19.

The van benefit charge for zero emission vans will be 60% of the van benefit charge for conventionally fueled vans in 2019-20, 80% in 2020-21 and 90% in 2021-22.

From 2022-23, the van benefit charge for zero emission vans is 100% of the van benefit charge for conventionally-fueled vans.

Diesel fuelled company cars’ 3% supplement retained

The 3% supplement that is added to the benefit in kind calculation for drivers of diesel fuelled company cars was due to expire 5 April 2016. The Finance Bill 2016 will now include a provision that retains this supplement indefinitely.

Trivial benefits in kind

Where the cost of providing a qualifying, “trivial benefit” for an employee is less than £50, it will no longer be required to disclose this as a benefit in kind from 6 April 2016.

There is an annual cap of £300 if the payments are made to directors or other office holders of a small company, or their employees who are relatives or members of their household.

Travel expense claims

From 6 April 2016, it will no longer be possible for workers engaged through an employment intermediary to claim for home to work travel expenses.

This regularises the established principal in the UK tax system that such regular commute costs between home and work cannot be claimed for tax purposes.

EIS, SEIS and VCTs: exclusion of energy generation

Investments in companies that engage in energy generation activities will be excluded from the tax advantaged Enterprise Investment Schemes, Seed Enterprise Scheme and Venture Capital Trusts. This will affect shares or holdings issued on or after 6 April 2016.

Use of home for business purposes by partners

The simplified expenses regime has been fully extended to include partnerships from April 2016. Where more than one property is used by partnerships for business and as a home then any claim for the simplified expense deduction for all such properties will be allowed.

VAT registration and deregistration limits

From 1 April 2016:

• Registration threshold increased to £83,000
• Deregistration threshold increased to £81,000

Larger company measures

Closing tax avoidance loopholes

In response to increasing demands from a number of directions the Chancellor has endeavoured to close a number of loopholes used by multinationals to avoid paying tax in the UK, on profits earned in the UK. They include:

• Rules to prevent multinationals avoid paying tax in any of the countries they do business, an avoidance technique called hybrid mismatches.
• Introducing rules to increase the tax take when companies make outbound royalty payments. Generally, these are fees paid for using intellectual property such as patents and copyrights.
• Ensuring that offshore property developers are taxed on their UK profits.

The oil and gas industry

A £1bn tax support package has been announced that will effectively abolish Petroleum Revenue Tax – a tax on profits from oil fields approved before 1993 – and by dramatically reducing the supplementary charge on oil and gas extraction.

Soft drinks levy

From April 2018, manufacturers of soft drinks will be subject to a levy based on the sugar content of their products.

The basic rate will apply to drink with a sugar content in excess of 5 grams per 100 millilitres, with a higher rate for drinks on more than 8 grams per millilitre.

The levy will not apply to milk-based drinks or fruit juices.

The Treasury will use the proceeds of the levy to double the primary PE and sport premium. They will increase money provided to schools for this purpose to £320m per annum.

Since the recent announcement of various changes to the taxation of unincorporated property businesses, there has been renewed interest in incorporation: would it be possible to shelter property income and capital gains inside the lower Corporation Tax regime?

Unfortunately, this apparent quick-fix for property business owners is fraught with dangers for the unwary. For example:

• Stamp Duty Land Tax (SDLT): a transfer of an investment property by an individual to a limited company is normally a chargeable transfer for SDLT purposes if the previous owner and the company are considered to be connected for tax purposes. SDLT would be payable based on the market value of the properties transferred. In certain circumstances, the transfer of property from a partnership to a limited company can be made free of SDLT considerations.
• Capital Gains Tax (CGT): since the Ramsay case, HMRC now accept that property investment can be considered a business, as long as the involvement of the owners represents more than just a “modest” quantity of activity. If, therefore, an existing unincorporated property business meets this more than modest criteria, the potential CGT liability when property is transferred into a limited company can be rolled over into the base cost of the shares issued on transfer. If not, landlords may face a significant CGT bill when they transfer property to a company.

There is also the end game to consider, what will happen when landlords want to retire and sell off their properties. If they have incorporated successfully, the cash that remains after property disposals and Corporation Tax has been paid, will presumably be required by the shareholders. If they subsequently withdraw this cash pool from the company, they will incur additional Income Tax, if not CGT charges. Taken together, these Corporation Tax and extraction tax costs could possibly exceed the tax costs of a similar, but unincorporated, property business.

The message is clear, tread carefully. Each unincorporated property business should consider the short and long term tax costs of incorporation before proceeding. Landlords should take professional advice before acting…