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A Budget is not a Finance Act

Archive for May, 2015

A Budget is not a Finance Act

Tuesday, May 19th, 2015

Big benNot all the contents of the March Budget reached the statue book.

Democratic scrutiny is not always what it seems. Consider this year’s (first?) Budget, presented by the Chancellor on 18 March. It was followed by the issue of a 300+ page Finance Bill on 24 March, which then went through three readings, a committee stage and a report stage in both the House of Commons and the House of Lords before receiving Royal Assent on 26 March.

The same frantic progress occurred five years ago, when the Budget and the election crashed into each other and, with fixed term parliaments, this juxtaposition looks set to be a five-yearly problem. One result which has drawn little comment is the failure of some of Mr Osborne’s announcements to reach the Finance Act 2015. For example:

Income tax The £200 increases to the personal allowance in 2016/17 and 2017/18 became law, but the personal savings allowance, exempting £1,000 of interest from tax for a basic rate taxpayer (£500 if you pay higher rate) did not.

Pensions Although the Chancellor announced a cut in the lifetime allowance to £1m from 2016/17, a move Labour had already proposed, this change was not in the Finance Act. However, the cut is now virtually certain for the next Finance Bill, along with measures to restrict contribution tax relief proposed by both Labour and the Conservatives, albeit on different bases.

The plans to allow existing pension annuities were only put out for consultation and may never become reality, but the move to allow new annuities more flexible death benefits did reach the Finance Act.

Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs) The amendment to the list of qualifying businesses to block virtually any form of subsidised energy generation from 6 April 2015 made the Finance Act cut. However, other changes related to EU state aid rules were only issued in the form of draft legislation – on the same day as the Finance Bill was published.

The patchwork of legislation has created short-term opportunities until the new government is able to bring forward a Budget. Please contact us for more information.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.   

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Child Trust Fund to JISA transfers

Friday, May 15th, 2015

ISAAt long last it has become possible to transfer Child Trust Funds to Junior ISAs.   

One of the first acts of the coalition in May 2010 was to announce an end to the Child Trust Fund (CTF), with no government payments to newborns after 2 January 2011. In November 2011, Junior ISAs (JISAs) were launched as a replacement, but crucially there were no government payments involved.

Children eligible for CTFs (born between 1 September 2002 and 2 January 2011) could not invest in JISAs, which left them – and their parents – in something of a limbo land, as the focus of financial service companies was on the new product, JISAs.

It is a fitting end to this story that one of the final acts of the coalition government was to pass two pieces of legislation which, since 6 April 2015, have allowed a CTF to be transferred into a JISA. If you have a child (or grandchild) with a CTF, a transfer may well be worth considering. CTFs started life in 2004 with very low contribution limits and both their charging structure and investment choice reflected this. Although contribution limits have increased and now match the £4,080 annual figure for JISAs, the old structures have tended to stay in place. A transfer to a JISA could therefore cut costs and broaden investment options. To find out more, please contact us.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of tax reliefs depends on your individual circumstances. Tax laws can change.

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ISA inheritability becomes law

Tuesday, May 12th, 2015

key-stages-imgISAs can now be inherited in limited circumstances.

In last December’s Autumn Statement, one of George Osborne’s surprise announcements was that ISAs would become inheritable by surviving spouses and civil partners. As pension funds can now pass down through generations, the ISA move was a logical step. It was also one of those measures which all Chancellors like: a change which sounds very beneficial, but actually costs little.

The announcement initially caused some confusion because it appeared almost to have been as unexpected to HMRC as anyone else. Eventually some clarity emerged and in the early part of 2015 HMRC issued draft regulations. Two points stood out:

  • Inheritance would not mean simply changing the name of the ISA’s owner. Instead the mechanism would operate by saying the surviving spouse/civil partner could make a contribution equal to the value of the deceased’s ISA at the date of death. That is not too difficult for cash ISAs, but for stocks and shares ISAs fluctuating values could create problems: the contribution permitted may be more or less than the ISA’s value by the time estate is wound up.
  • Although shares and fund holdings could be transferred as part of the contribution, the transfer had to be to an ISA with the deceased’s ISA provider unless they were no longer accepting new contributions.

Fortunately that second point was changed as a result of responses to the draft, although sadly the awkward at-death contribution basis remains. Revised regulations were passed by parliament in its dying days and came into force on 6 April 2015 (for deaths on or after 3 December 2014).

Inheritability adds to the appeal of ISAs and further complicates the pension versus ISA debate. If you can afford it, from an estate planning viewpoint it may now be better to draw retirement income from your ISAs and leave your pensions to accumulate untouched outside the IHT net.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of tax reliefs depends on your individual circumstances. Tax laws can change.

 

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HMRC cannot reject Income Tax rebate claims as ‘Out of Time’

Thursday, May 7th, 2015

taxmanThe Upper Tax Tribunal has ruled that HMRC, contrary to their long-standing position, cannot refuse a taxpayer’s claim for a refund of overpaid tax, even if the claim is made more than four years after the end of the tax year concerned.

In a significant reversal of HMRC policy, the Upper Tribunal has ruled that HMRC has no general right to refuse a taxpayer’s claim for a refund of overpaid tax going back more than four years. The case (Higgs v Revenue & Customs [2015]) concerned self-employed solicitor Andrew Higgs who had failed to submit his self-assessment return for the 2006/07 tax year until November 2011, by which time he had realised that he had overpaid £27,000 in tax for the tax year in question as a result of large payments on account that were made on the basis of the previous year’s income.

HMRC’s policy has always been that s34(1) of the Taxes Management Act 1970 (TMA) sets a time limit on rebate claims, with the effect that no assessment to tax may be made later than four years after the end of the tax year concerned and, accordingly, HMRC refused to process the form or give him a tax rebate.

However, HMRC’s position (which it has held for some years) was rejected by the Upper Tribunal on judicial review. Careful analysis of the legislation found that the s34 time limit was intended to apply only to assessments made by HMRC, while taxpayers have the right to file a self-assessment return many years after the end of the tax year concerned, and are automatically entitled to a rebate of any overpaid tax.

Following the decision, HMRC will now be forced to change its long-standing stance on ‘out of time’ tax rebate claims. However, it is important to note that the decision will be limited to instances where the taxpayer has failed to submit a tax return for the year in question.

Different rules apply to returns submitted on time that are later found to contain inaccuracies.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. 

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