End of Tax Year Planning

As the end of the tax year approaches (5^th April 2016) and we move into the 2016/17 tax year, there are some major changes to the taxation system that we would like to make our clients aware of.

We have listed the most important points for you to consider below:

Dividends

As of the 6^th April 2016 the notional 10% tax credit which is currently available for UK tax residents on all dividends received will be abolished and this will be replaced with a £5,000 ‘dividend allowance’, meaning the first £5,000 of dividend income received will be free of tax. Dividend income received over this allowance will be taxed at the new rates of 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers, resulting in an effective 7.5% uplift from the current dividend tax rates.

If you receive a significant amount of dividend income from a company, there may be advantages in bringing forward dividends to the 2015/16 tax year to take advantage of the current rates of taxation.

On the contrary if you currently receive low levels of taxable dividend income it may be advantageous to delay dividends until the 2016/17 tax year to make use of the introduction of the £5,000 dividend allowance.

Capital Gains Tax

As of the 6^th April 2016 rates of capital gains tax will be reduced to 10% for basic rate taxpayers and 20% for higher rate tax payers. These rates will not apply to gains made on residential property and carried interest; the old rates of 18% and 28% will continue to apply to these type of gains.

Non UK Domiciled Individuals and the Remittance Basis of Taxation

From the 6^th April 2017 any non-domiciled individual who has been UK resident for more than 15 of the past 20 tax years will be considered ‘deemed domiciled’ in the UK for the three relevant heads of taxation being: income tax, capital gains tax and inheritance tax.

Long term non-domiciled individuals will no longer have the option to be taxed on the remittance basis. The 2016/17 tax year will be key for non-domiciled individuals to plan their affairs tax efficiently with a view to considering the merits of excluded property trust structures, where appropriate, which we continue to regard as effective from a succession planning perspective.

Let Property

2015/16 is the last year in which the 10% wear and tear allowance for furnished let properties will be available; instead from 2016/17 landlords will only be allowed to claim for the actual expenditure incurred on replacing furnishings during the tax year. Therefore, the timing of any furniture purchases should be carefully timed by landlords to maximise the relief available as per the new rules.

From April 2016 the rate of Stamp Duty Land Tax (SDLT) on the purchase of buy-to-let or second properties will rise by 3%. This additional rate will apply to all purchases which complete after the 1^st of April (excluding where contracts were exchanged before 25^th November 2015).

From the 2017/18 tax year loan interest relief for residential property let’s will be restricted. Currently allowable loan interest can be offset against rental profits and therefore relief is given at the highest rate, for an additional rate taxpayer this would be 45%. The new rules, which will be phased in gradually from April 2017 and fully implemented by April 2020, will restrict the amount of allowable interest a landlord can claim against rental profits received to the basic rate of taxation (currently 20%). This will likely impact many clients who have significant residential property portfolios, and may be a catalyst for considering any structuring.

Pension Changes

Under the current rules any individual may contribute £40,000 towards a pension, free of tax, during a tax year (the ‘annual allowance’). As of the 6^th April 2016 individuals who receive income above £150,000 will see their annual allowance reduced by £1 for every £2 above the £150,000, the minimum annual allowance for such individuals will be £10,000. Therefore individuals earning over £210,000 a year will only have a £10,000 annual allowance available to them during the 2016/17 tax year.

Individuals who are in this income band should act to utilise any annual allowances that they have remaining during the 2015/16 tax year, as well as any unused annual allowances from the three previous tax years (2014/15, 2013/14 and 2012/13) before the new rules come into play on the 6^th April 2016.

If you would like to learn more or should have any questions, please do not hesitate to contact any member of the Tax team.

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