Autumn statement 2016 - highlights
This could affect some tax planning schemes currently being promoted which use offshore pensions.
Life insurance policies
The Government will legislate with effect from 6 April 2017 to address the disproportionate charge to income tax that can arise on the part surrender or part assignment of investment based life insurance policies. This announcement is in line with the consultation document published in April 2016.
The current tax regime for life insurance policies allows the policy holder to make a tax free withdrawal of five per cent of the value of the original premium each year. A withdrawal over and above this cumulative five per cent allowance may be treated as a gain but taxed as income, without reference to the underlying gains in the portfolio. The Government has committed to address this. The April consultation document set out three possible ways of doing so and it remains to be seen which of those options will be adopted in the Finance Bill 2017.
The good news is that taxpayers will be able to have historic charges recalculated on a just and reasonable basis.
The Chancellor confirmed that, as indicated in the March 2016 Budget, the Government will give intermediaries a greater role in administering Gift Aid with a view to simplifying the Gift Aid process for online donors. The aim is to reduce the number of Gift Aid declarations that online donors have to make when making multiple donations through the same online giving portals.
The charity sector has been calling for support to increase the uptake of Gift Aid and the government has responded. This measure is in line with the introduction of the Gift Aid Small Donations Scheme (GASDS) from April 2013 which enables charities to claim Gift Aid on small cash donations. The Chancellor also announced that following a review of GASDS, amendments will be made to the scheme to make it fairer and more accessible.
The taxation of different types of remuneration
The Government will review the tax treatment of different forms of remuneration in a bid to remove certain tax breaks. In particular the Government will:
consult on phasing out the advantages of salary sacrifice schemes starting from April 2017. The stated intention is that an employee “buying” a benefit via his employer out of his / her pre-tax salary will, from 2017, will be treated as buying it instead out of post-tax income. Certain arrangements, including pensions and childcare, will be excluded from this clampdown and arrangements in place before April 2017 will be protected until 2018 or 2021, depending on the nature of the benefit;
consult on how benefits in kind (including employer-provided living accommodation as well as other benefits) should be valued, to ensure that arrangements are appropriate and backed by evidence; and
review the use of income tax relief for employees’ business expenses, including those not reimbursed to the employee by the employer.
Employers will need to pay close attention as the proposals develop.
It is possible that any changes to the valuation of benefits could also apply in other situations - for example benefits from offshore trusts. This could have a significant impact on beneficiaries who have for example received loans from offshore trusts or who have the use of art or other chattels owned by such a structure.
It is unlikely that any changes will take effect until 2018.
Tax avoidance and evasion
Taxpayers with offshore assets
Automatic exchange of tax information on a global basis means that, from 2017 onwards, HMRC will receive large amounts of information about the offshore assets and income of UK taxpayers. There will be many more tax enquiries.
In anticipation of this, legislation is to be introduced which will require taxpayers to review their offshore tax affairs and make sure that they have paid all of the tax which is due. If they fail to do so, there will be much higher penalties which may be up to 200 per cent of the unpaid tax plus an additional penalty of up to 10 per cent of the value of any offshore assets where the underpaid tax is more than £25,000.
The precise details have not yet been announced but further information on the Government’s original proposals can be found here.
In order to avoid the higher penalties, it may make sense to review existing offshore structures, particularly if they were set up some time ago or where proper UK tax advice was not taken at the time the structure was established.
Tax avoidance sanctions
There has been a raft of civil and criminal sanctions introduced over the last two years in order to combat tax evasion and tax avoidance. Some of the measures even penalise simple mistakes.
Two further measures are to be introduced. Both measures relate to complex avoidance schemes which are “defeated”. This may mean that a court finds in favour of HMRC but it may also cover situations where a taxpayer decides (for whatever reason) that they do not want to fight the case and so agree to pay the tax.
The first measure is aimed at those who advise on the arrangements or help the taxpayer put them in place – such as lawyers, accountants, tax advisers, banks, trust and company service providers, IFAs, etc.
These “enablers” will be liable to a penalty if the planning is “defeated”. This is likely to mean (and is certainly intended to ensure) that advisers / service providers will be much more cautious in the advice which they give or the help they provide to taxpayers. More information on this proposal can be found here.
The second measure is aimed at the taxpayers themselves and will make it more difficult for them to claim that they have taken reasonable care when submitting their tax returns where they have used a tax avoidance scheme. In future, taking advice from somebody connected with the promoter of the scheme will not be a “reasonable excuse” for a taxpayer getting his tax return wrong and paying too little tax if the scheme is subsequently defeated. Independent advice should however still provide a "reasonable excuse".
Requirement to report offshore structures
There are already certain reporting requirements for service providers involved in helping clients set up offshore structures. These are however relatively narrow.
The Government intends to consult on the possibility of imposing a more general requirement for intermediaries to notify HMRC of any complex offshore structures which they help a client to arrange.
If introduced, this will of course make it more likely that HMRC will raise enquiries in relation to such structures.
Income tax rates and allowances
As previously announced in the March 2016 Budget, the Chancellor confirmed that, in April 2017, the personal allowance would rise by £500 to £11,500 and the higher rate threshold would rise by £2,000 to £45,000 for 2017 / 18.
The Government reconfirmed its commitment to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this Parliament in 2020, after which the personal allowance will rise automatically in line with the CPI.