Summary of minor changes for individuals

Individual Savings Account (ISA) changes

The full allowance for ISA savings increases to £15,240 next year, which was known previously, but new incentives for using them were announced.

As we know, the ISA exemptions can be passed onto a spouse at death and the Chancellor has taken a further step in the Autumn Statement in allowing the deceased’s estate to continue to benefit from the tax advantages, before it’s passed on to the surviving spouse.

In addition with the extension of ISA qualifying investments in Autumn 2016 to include crowd funding platform we continue to see ISAs being sensible tax planning to be considered by all.

Inheritance Tax - Deeds of Variation

The March 2015 budget announced a review of Deeds of Variation. As there is no requirement to register Deeds of Variation the amount they are used and reasons for their use could not be easily quantified. Following a call for information earlier this year today we heard that new restrictions on the use of Deeds of Variation will not be introduced although their use will continue to be reviewed.

Deeds of Variation are often used to correct a poorly drafted Will that may be out of date, not recognising the ever changing needs of the future generations of a growing family. In our experience as post death rearrangements are often driven by non-tax issues the fact that Deeds of Variation remain available for use in the right circumstances is a welcome result.

Business Investment Relief (BIR) 

UK resident, non UK domiciled individuals on the Remittance Basis of Taxation can remit overseas income or gains to the UK tax free to invest in unlisted trading companies. Various conditions have to be met to qualify for the relief but take up of this valuable relief has been relatively low to date.

The Chancellor today announced a consultation on how to change the BIR rules to encourage greater use of the relief to increase investment in UK businesses. In our opinion, this relief is already relatively generous but can be complicated to understand and comply with, which has discouraged its use: simplification and/or extension of the relief, perhaps to investment in unincorporated businesses, is to be welcomed.

Farmer’s averaging

As consulted on earlier this year, the averaging period for self-employed farmers will be extended from 2 to 5 years from April 2016, with farmers having the option of either averaging period. Farmer’s averaging enables farmers to even out fluctuating results and smooth tax payments.

While the Exchequer estimates savings of £30m a year for farming businesses from 2017/18 onwards, very large fluctuations in profits would be needed for the provision to offer real savings.

Entrepreneur’s Relief (ER)

Pleasingly no mention was made of restrictions to Entrepreneur’s Relief, despite recent press commentary that such a generous relief could not survive in its present form.

Indeed the only mention of ER would appear to be a positive one, recognising that restrictions brought in in Finance Act 2015 on claiming ER may have gone too far, preventing ER on certain genuine commercial transactions. No specific detail has been provided but we suspect that this relates to joint ventures where individuals with less than 5% shareholdings may have lost out on relief due to last year’s changes.

Two changes have been announced affecting sportspersons:

All income from sporting testimonials and benefit matches for employed sportspersons will be liable to income tax. However, an exemption of up to £50,000 will be available where the sporting testimonial income is not contractual or customary. This change is sensible and practical, as it enables the lower earning sportsperson to benefit.

Non UK resident competitors in the 2017 World Athletics and Paralympics Championships and 2016 London Anniversary Games will be exempt from income tax on their earnings from the event. Not only will this encourage such competitors to come to the UK to participate, but it is consistent with what happened for the UEFA Champions League Final and the 2012 Olympics.

If you would like advice on the topics raised in this article, please contact Karen Clark or Joan Foster.