Budget Seminar - March 2016

Budget Seminar
2016
March 2016

www.francisclark.co.uk
Merger with Princecroft Willis
• 1 April 2016
• 11 partner office
• 120 staff
• Turnover £6.8m
• 2 offices
- Poole
- New Forest

PCW
PCW
Princecroft Willis officesPCW

External recognition
South West Insider Dealmaker Awards 2015
• Corporate Finance Advisory Team of the
Year
• Mark Greaves – Dealmaker of the Year
• Matt Willmott & Nick Tippett shortlisted
for Young Dealmaker of the Year

External recognition
The British Accountancy Awards 2015
• James Twigger - Practitioner of the
Year

Income tax rates and allowances
Rates
2015/16 2016/17
Basic rate 20% 20%
Higher rate 40% 40%
Additional rate 45% 45%
Dividend tax rate (BR) 0% 7.5%
Dividend tax rate (HR) 25% 32.5%
Dividend tax rate (AR) 30.6% 38.1%

Income tax rates and allowances
Allowances
2015/16 2016/17 2017/18
Personal allowance £10,600 £11,000 £11,500
Basic rate band £31,785 £32,000 £33,500
Higher rate threshold £42,385 £43,000 £45,000
Additional rate threshold £150,000 £150,000 £150,000
Personal allowance abated by £1
for each £2 of income from £100,000 £100,000 £100,000
Personal allowance lost at £121,200 £122,000 £123,000
Age allowance - - -

NIC
Class 2 NIC
• Moved to collection via self assessment in 2015/16
• Rate is £2.80 per week
• Abolished altogether from April 2018
Class 4 NIC
• Reform of Class 4 NIC proposed

Dividend taxation
For 2016/17 onwards:
• 10% tax credit abolished
• Each individual entitled to £5,000 dividend allowance
• First £5,000 taxed at 0%
• Dividend allowance does not displace personal allowance but uses up
basic rate band (or higher rate band)
• Dividend allowance not available to trustees
• Higher rates of dividend tax

Dividend taxation (cont.)
Effective tax rates*
2015/16 2016/17 Increase
Basic rate 0% 7.5% 7.5%
Higher rate 25% 32.5% 7.5%
Additional rate 30.6% 38.1% 7.5%
* = taking into account 10% tax credit (2015/16), but ignoring £5,000 dividend allowance (2016/17)

Dividends - Example
2016/17 tax year
William has salary of £40,000
Dividend income of £18,000
How do we calculate his tax liability?

Income slice Cumulative
Personal allowance £11,000 £11,000
0%
Dividend
Non-dividend

£29,000 £40,000
20% Salary
0%
Dividend
Non-dividend

£2,000 £45,000
0% Dividend allowance £5,000 taxed at 0%
Higher rate threshold £3,000 £43,000
£29,000 £40,000
20% Salary
0%
Dividend
Non-dividend

£13,000 £58,000
32.5% Dividend taxed at marginal rate
£2,000 £45,000
0% Dividend allowance £5,000 taxed at 0%
Higher rate threshold £3,000 £43,000
£29,000 £40,000
20% Salary
0%
Dividend
Non-dividend

2016/17 example
• £11,000 of salary is covered by the 2016/17 personal allowance
• Next £29,000 is taxed at 20%
• The basic rate band in 2016/17 is £32,000 so first £3,000 of
dividend allowance uses up remainder of BR band
• Remaining part of dividend allowance, £2,000 uses up first part of
higher rate band.
• Remainder of dividend, £13,000, is taxed at 32.5%

Savings
• 0% savings allowance for first £1,000 of savings income for basic rate
taxpayers
• £500 for higher rate taxpayers
• no allowance for additional rate taxpayers
• From 6 April - banks and building societies - no tax deducted from
interest
• Interest is treated as the top slice of income

Stamp Duty Land Tax (SDLT)
3% surcharge on buy to let residential properties (and second homes)
Main
residence
Second
home or buy
to let
Up to £40,000 Zero Zero
Up to £125,000 Zero 3%
The next £125,000 (the portion from £125,001 to £250,000) 2% 5%
The next £675,000 (the portion from £250,001 to £925,000) 5% 8%
The next £575,000 (the portion from £925,001 to £1.5 million) 10% 13%
The remaining amount (the portion above £1.5 million) 12% 15%

SDLT (cont.)
• 3% surcharge effective for transactions completed from 1 April 2016
• Higher rates of SDLT are not intended to impact:
• if moving from one main residence to another, and
• are disposing of a previous main residence.
• 3 year window allowed – can reclaim additional 3% SDLT if sell
old home within 3 years
• Commercial and mixed use properties unaffected
• No exemption for ‘large’ investors

SDLT surcharge flowchart
Changed from 18
months

Landlords – interest restriction
• From 6 April 2017 landlords of residential property will start to have
the tax deduction for loan interest restricted
• By 2020/21, deduction for loan interest available at basic rate only
Tax deduction Tax reducer at BR
2016/17 100% 0%
2017/18 75% 25%
2018/19 50% 50%
2019/20 25% 75%
2020/21 0% 100%
• Will push some landlords into higher or additional tax band

Landlords – wear and tear allowance
As announced in the Autumn Statement 2015
• From 6 April 2016, wear and tear allowance abolished. This was
relief for 10% net rents.
• Replaced by relief for actual expenditure on items such as furniture,
white goods.
• But only replacement expenditure, not initial cost of acquisition.

Capital Gains Tax
• Annual exemption 2016/17: £11,100
• Capital gain treated as top slice of income
• BIG CHANGE IN RATES
• Basic rate – 18% now 10%
• Higher/additional rate/trusts – 28% now 20%
• Does not include gains on residential property, carried interest and
ATED gains
• 30 day payment window for gains arising on disposals of
residential property from 6 April 2019

Capital Gains Tax – Entrepreneurs’ Relief
• Extension to long term external investors
• 10% rate will apply on unlisted shares in a trading company
• Newly issued, acquired for new consideration after 17 March 2016
• Hold for at least three years from 6 April 2016
• Lifetime cap of £10m

on Associated Disposals
• Privately owned assets used by a business
• Finance Act 2015 changes to combat ‘abuse’ caught normal
succession arrangements
• Entrepreneurs’ Relief now allowed when disposing of business
assets to family member
- aids retirement or reducing participation
• Changes backdated to 18 March 2015

- Joint Ventures and Partnerships
Finance Act 2015 changes introduced to prevent ‘abuse’
E.g. 10 individuals each own 10% of a management company
Management
Co
Trade Co
10 individuals ER?
Pre FA 2015 √
FA 2015 X
Now X
Family
10% 10%
30%
70%

Finance Act 2015 inadvertently caught commercial arrangements
Mr A Mr B
ER qualifying
Pre FA 2015 √
FA 2015 X
Budget ‘16 announcement
- March 2015 onwards √
Trade
Co
100%100%
50% 50%

• New definitions of trading company and trading group
• Treated as carrying on a proportion of the activities of JV
• Claim ER if effective 5% interest and control
Mrs A
20% x 40% = 8% effective control
Co A
Co B
20%
40%

IHT – deemed domicile
• Long term non-dom residents will no longer be able to claim
remittance basis (from 2017)
• Deemed domiciled in UK if resident for 15 of past 20 years
(previously 17 out of 20)
• IHT look through for offshore structures (from 2017?)

IHT – residence nil rate band
• Phased in from 2017 over 4 years (£100k to £175k)
• Means NRB of £1m for many married couples from 2020
• Tapered withdrawal over £2m (before reliefs)
• Residence nil rate band (RNRB) on downsizing – draft clause in
Finance Bill to allow:
• selling and moving into lower value property or
• ceasing to own home
• to make use of RNRB provided they leave assets to that value to
lineal descendants

Digital tax accounts
• HMRC already has information for individual taxpayers about
• employment income
• some dividend and savings income
• From 2016/17 individuals will have their own personal tax accounts
pre-populated
Extended April 2019 and April 2020 to VAT registered business and
companies

Digital tax accounts (cont.)
• From April 2018 self employed and landlords other than those
• employed
• with gross income from self employment or property <£10k
• required to provide quarterly info to HMRC
• No detail around what info to be provided

Digital tax accounts (cont.)
HMRC working with software developers on taxpayer provision of
information
• No detail on info to be provided
• No detail on penalties for filing quarterly reports late or inaccurately
Payment of tax
• Government intends to ‘simplify’/accelerate payments on account
• No detail yet on how this will be done

Contact details
Exeter – Sue Probyn – Tax Partner
01392 667000
sue.probyn@francisclark.co.uk
Plymouth – Gordon Fox – Tax Partner
01752 301010
gordon.fox@francisclark.co.uk
Salisbury – Paul O’Connell – Tax Partner
01722 337661
paul.o’connell@francisclark.co.uk
Taunton - Heather Britton – Tax Director
01823 275925
heather.britton@francisclark.co.uk
Tavistock – Guy Talbot
01822 613355 (01752 301010 from the 1st May)
guy.talbot@francisclark.co.uk
Torquay – Andrew Squires – Tax Partner
01803 320100
andrew.squires@francisclark.co.uk
Truro – Anthony Meehan – Tax Consultant
01872 276477
anthony.meehan@francisclark.co.uk

Company tax
Corporation Tax rate unchanged 1 April 2016 – 31 March 2017 - 20%
Past and future corporation tax rates:
*Small companies rate applied to companies with annual profits <£300k
Abolished with effect from 1 April 2015
Year
commencing
1 April
Main
rate%
Small
profits
rate%*
2010 28% 21%
2011 26% 20%
2012 24% 20%
2013 23% 20%
2014 21% 20%
2015 20% -
2016 20% -
2017 19% -
2018 19% -
2019 19% -
2020 17% -

Dividends – profit extraction
Company dividend -
2015/16
Company dividend -
2016/17
Company salary -
2016/17
Unincorporated -
2016/17
Business profits 100,000 100,000 100,000 100,000
Corporation tax payable (20,000) (20,000) -
Class 1 secondary NIC (12,127)
80,000 80,000 87,873 100,000
Income tax on dividend (24,440) (30,480) - -
Income tax on salary - - (39,543) -
Income tax on profits - - - (45,000)
NIC on profits - - - (2,000)
NIC on salary - - (1,757) -
Net income 55,560 49,520 46,573 53,000
Effective tax rate 44.44% 50.48% 53.43% 47.00%

Company liquidations
• Incentive for capital extraction
• Existing position appear to allow trades to be carried on post
company wind up by sole traders/partnerships without dividend
treatment applying.
• Position changes in respect of distributions post 5 April 2016.
• Attack on phoenix companies but appears to have wider
consequences

Transaction in Securities
• Transactions in securities avoidance rules to prevent income tax
advantage by turning income into capital.
• From 6 April 2016 definition of transactions in securities extended to
include:
• Redemption of share capital
• Distribution on a winding up
Clarification rather than substantial change

Distribution rules
• Income rather than capital treatment applied to distributions on a
winding up if caught by new ITTOIA rules – 3 conditions to be met
1) Close company
2) Carrying on same or similar trade within two years of distribution as that of the company
being wound up. Applies if carrying on trade directly, through a company they control or
through someone with whom they are connected.
3) Main or one of main purposes of the winding up is tax avoidance
• Exemption for liquidation demergers
• Under new rules dividend treatment of distributions subject to self
assessment

Corporation Tax
• Loan to participators charge to increase to 32.5% with effect from 6
April 2016
• Restrictions to tax relief on interest payments capped at 30% of UK
earnings for large companies
• UK tax on offshore property developers UK profits
• Changes to losses regime to increase flexibility but restriction to
utilisation where profits in excess of £5.0m

Miscellaneous
• ESS – restriction of CGT exemption to £100,000 of lifetime gains
• Personal service companies – changes to intermediary legislation
where PSC providing services to public sector bodies
• Termination payments – from April 2018 employers will need to pay
NIC on pay-offs above £30,000 where income tax is also due
• From April 2017 small businesses that occupy property with a
rateable value of £12,000 or less will pay no business rates.
600,000 businesses will pay no rates.

Budget 2016 – Non-residential SDLT
Changes to non-residential SDLT bands and rates effective 17 March 2016
SDLT will be charged at each rate on the portion of the purchase price which falls
within each rate band
The new rates and thresholds for freehold purchases and leases premiums are:

Budget 2016 – VAT
• VAT registration threshold £83,000 from 1 April 2016
(currently £82,000)
• Deregistration threshold £81,000 from 1 April 2016
(currently £80,000)
• Fuel Scale Charges – changes expected from 1 May 2016

Budget 2016 – VAT
• Changes to restrict the availability of the 5% rate on installing
energy saving materials will be included in the Finance Act 2016.
The current intention is that they will come into effect on 1 August
2016.
• HMRC will have the power to hold suppliers such as Amazon and
Ebay jointly and severally liable for VAT in respect goods sold in
the UK by overseas businesses, if those businesses are not
registered in the UK. This should create a more level playing field
for compliant suppliers in the UK.

Budget – Other Indirect Taxes
• Insurance Premium Tax to rise by 0.5% to 10% with proceeds
diverted to flood relief.
• Duty rates frozen on beer, whisky and low strength cider. Wine
and high strength cider duty rise by inflation from 21 March 2016
• Air Passenger Duty to rise for tax years 2016/17 and 2017/18 in
line with RPI
• Increase to gaming duty bands from 1 April 2016
• Landfill tax – increase in rates from 1 April 2016

Brexit
• VAT
• Customs duties – increased cost of exporting goods to EU
members possible
• Re-negotiating of tax treaties with EU member states
• EU savings and parent/subsidiary directions may no longer apply
• Future developments of UK tax law

Contact details
Exeter – Damian Lannon – Tax Partner
01392 667000
damian.lannon@francisclark.co.uk
Plymouth – Gordon Fox – Tax Partner
01752 301010
gordon.fox@francisclark.co.uk
Salisbury – Erin Davies – Tax Director
01722 337661
erin.davies@francisclark.co.uk
Taunton – Adam Kefford – Tax Consultant
01392 667000
adam.kefford@francisclark.co.uk
Tavistock – Guy Talbot
01822 613355 (01752 301010 from the 1st May)
guy.talbot@francisclark.co.uk
Torquay – Paul Collings – Tax Partner
01803 320100
paul.collings@francisclark.co.uk
Truro – Scott Bentley – Partner
01872 276477
scott.bentley@francisclark.co.uk

The Budget -
The Financial
Planning View

www.fcfp.co.uk Twitter.com/francisclarkifa
The Budget
Agenda
• What is changing?
Headlines
Other points of note
• What does it all mean?
Placing the changes in context

What is Changing?
The (financial planning) Headlines
• Lifetime ISAs
Other points of note
• Stamp Duty on Commercial property
• Pension reforms
• Dividend allowance
• CGT
X

What is Changing?
Investments
• ISAs
£20,000 limit from April 2017
Junior ISA limit raised form £4,000 to £4,080
• Lifetime ISAs
Available to under 40s
£4,000 annual limit from April 2017
25% tax ‘bonus’. £4,000 contribution = £5,000 invested
Bonus available until age 50
Completely tax free on withdrawal to buy a first home or after
age 60….but…..

What is Changing?
Investments
• Lifetime ISAs
Withdrawal pre age 60 results in loss of bonus
And interest on that bonus
And a 5% charge
Lifetime ISA subscriptions contribute to the £20,000 overall
allowance

What is Changing?
Pensions
(announced in Autumn statement)
• Lifetime Allowance
Reducing to £1m from £1.25m
(Was £1.8m as recently as 2011/12)
• Pension Tapered Annual Allowance
Reducing the amount high earners can put in a pension
Affects those earning £150,000+
Annual Allowance can be cut to £10,000

What is Changing?
Pensions
• Dependents Pension
Under 23’s receiving dependent's drawdown can continue to
take income even after age 23.
• Salary Sacrifice
Inference is that is will be allowed for pension contributions
• Ill Health retirement
Ill heath payments now taxed at marginal rates for those aged
over 75; 45% rate abolished
(tax free under age 75, where life expectancy is under 12
months)

What is Changing?
Investments
• CGT
Rates reduced by 8%
• SDLT
Rates on commercial property changing to tiered system
Additional 3% will (still) not apply
• Dividend Allowance
£5,000 allowance being introduced
Additional 7.5% charge above this level

What does it all mean?
Lifetime ISAs
• A serious alternative to pensions for those under 40
• Basic rate tax payers - should look at Lifetime ISA
before pensions (after employer contribution
secured) because of tax free pay out
• Higher rate tax payers – decide if 40% tax relief
now is better than tax free pay out in retirement

Lifetime ISAs

Lifetime ISAs
• ‘additional’ savings (after mandatory AE pension
contribution) will be placed in Lifetime ISA
• (Even) greater potential for meaningless AE pots in
retirement
• Pressure on pension scheme providers?
• Will employers re-visit their staff benefits package?

Pensions:
Tapered annual allowance and Lifetime Allowance
• Pensions less attractive for high earners
• Defined benefit schemes are particularly at risk
• Will negatively impact the public sector
Are pensions unattractive?

Pensions:
Tapered annual allowance and Lifetime Allowance
• No! – but the limits mean its harder to get funds in
than before
• Individual Protection 2014 still available!
• Plus new protections from 2016

Pensions:
Dependents pension
• Previously pension funds left to those under 23 had
to be ‘paid out’ by 23rd birthday
• The potential for a ‘tax free fund’ to be passed
down the generations could thus be halted if
passed to a youngster
• This restriction no longer applies
• Makes pensions even more attractive as
inheritance tax savings vehicles

SDLT
• Another good reason to hold commercial property
in a SIPP
• Particularly for owner-managed businesses
• *See previous FCFP presentations…..

CGT
• Makes ‘growth’ investing much more attractive
• All income-mandated portfolios should be reviewed
• ‘yield’ is less important than total return mindset

Dividend Allowance
• Look at portfolios held by husband and wife
• Make use of £5,000 allowances of both –
regardless of marginal tax rate
• Trusts don’t receive an allowance – even more
reason to look at ‘growth’ mandates?
• Trustees should at least review the situation

Contact details
Exeter – Rachel Allen – Chartered Financial
Planner
01392 667000
rachel.allen@francisclark.co.uk
Exeter – Tom Parry– Chartered Financial
Planner
01392 667000
tom.parry@francisclark.co.uk
Plymouth – Richard Wright – Chartered
Financial Planner
01752 301010
richard.wright@francisclark.co.uk
Salisbury – Anne Hills – Chartered Financial
Planner
01722 337661
anne.hills@francisclark.co.uk
Taunton – Ian Townsend – Chartered Financial
Planner
01823 275925
ian.townsend@francisclark.co.uk
Tavistock – Reme Holland – Consultant
01752 301010
reme.holland@francisclark.co.uk
Torquay – Kevin Stoyle – Chartered Financial
Planner
01803 320100
kevin.stoyle@francisclark.co.uk
Truro – Alan Turner – Chartered Financial
Planner & Chairman of FCFP
01872 276477
alan.turner@francisclark.co.uk

www.fcfp.co.uk
No responsibility can be accepted for any action taken as a result of information contained in this
presentation. We therefore strongly recommend that no action should be taken before obtaining
detailed professional advice.
Past performance is not a guide to future returns and the value of investments and income from
them may go down as well as up and an investor may not get back the amount invested.
Francis Clark Financial Planning is a trading style for Francis Clark Financial Planning Limited,
which is authorised and regulated by the Financial Conduct Authority.
Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay, TQ2 7FF.
Registered in England No. 05413603
Exeter Plymouth Salisbury Taunton Tavistock Torquay Truro
This PowerPoint presentation is for general information only and is not intended to constitute professional advice.
Though Francis Clark Financial Planning Ltd is confident on its accuracy, no duty of care is assumed to any direct Recipient of this presentation and no liability is accepted for any
omission or inaccuracy.
Important Statement
Twitter.com/francisclarkifa

(c) copyright Francis Clark LLP, 2016
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Budget Seminar - March 2016

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