UK: Budget 2016: Main Points For Private Clients

Last Updated: 29 March 2016
Article by Eleanor Metcalf and Camilla Wallace

The Chancellor's Budget on 16 March 2016 contained positive news for private clients, with reductions to the capital gains tax ("CGT") rates, extension of CGT entrepreneurs' relief, and the introduction of a lifetime ISA. It was not such good news for property investors and those with second homes who yet again will be penalised, with a CGT surcharge and confirmed higher rates of SDLT. Non-doms will be frustrated that we are not much further forward in understanding how the tax reforms announced in the Summer 2015 Budget and to be implemented from April 2017, will work in practice, but there was one welcome development in respect of the taxation of offshore gains.

Capital Gains Tax

From 6 April 2016, the higher rate of CGT will be reduced from 28% to 20%, and the basic rate reduced from 18% to 10%. This was the main surprise announcement in the Budget for private clients, and is good news for those with stocks and shares portfolios and other investments. Unfortunately, however, the reduced rates will not apply to investors in residential property who will be subject to an 8% surcharge, meaning they will continue to pay CGT at 28% or 18%. This comes as part of a package of recent measures designed to discourage investment in buy-to-let properties and second homes, so as to free up the market for first-time buyers. The reforms to Stamp Duty Land Tax covered below are another example.  Those with carried interests in Private Equity or Hedge Funds will also be subject to the 8% surcharge.

However, trustees and executors, who currently pay CGT at 28%, will benefit from the reduced 20% rate, subject to the surcharge for disposals of residential property (although this is likely to only affect discretionary trusts).

There will be no reduction in the CGT rate for those who pay the Annual Tax on Enveloped Dwellings ("ATED") - broadly, companies and collective investment vehicles holding UK residential property - who will continue to pay at 28%.

Eleanor Metcalf, Head of the Private Client team at Wedlake Bell was quoted in Spear's Magazine and City A.M. on the CGT announcements. Read these articles in full: Spears and City A.M.

Entrepreneurs' Relief

There were concerns ahead of the Budget that the Chancellor would cut the rate of CGT Entrepreneurs' Relief ("ER so the news that he was extending it in some situations was welcome. ER provides a reduced 10% rate of CGT on disposals of certain business assets subject to a capped lifetime allowance.

There were several measures announced but the most significant is the extension of ER to investors in unlisted companies who purchase newly issued shares on or after 17 March 2016, if these are held for a minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gains. Previously, such shareholders could only benefit from ER if they had a 5% holding and were an employee or officer of the company for at least 12 months.

Alongside these positive reforms, was a word of warning that the Government will review the definition of "trading company" for ER purposes to ensure that it operates "effectively". ER only applies to disposals of shares in "trading companies", which usually excludes those involved in property investment. We will need to watch this space to see if the category of eligible companies is further narrowed.

Non-Domiciliaries

The Summer 2015 Budget contained sweeping reforms to the taxation of non-domiciliaries ("non-doms") to come into force from 6 April 2017. These include new rules to deem non-doms as a UK domiciliaries for all UK tax purposes in certain situations, including where they are have been UK resident for 15 of the past 20 tax years; and extending inheritance tax to all UK residential property indirectly held through an offshore structure (commonly used by non-doms). However, as yet we do not have a complete set of draft legislation on the measures, making it impossible to advise non-dom clients with any certainty about the planning that can be carrying out before next year to minimise the personal impact of these reforms.

We had hoped for further details in the Budget, but were sadly disappointed. Instead, it was announced that all legislation for these reforms will be included in Finance Bill 2017 (which we would expect in or around December 2016), leaving only three or four months for affected non-doms to analyse the impact of the measures on their circumstances and put in place any needed planning. This is deeply frustrating given the impact these reforms will have on non-doms' liability to UK tax.

On a more positive note, it was confirmed in the Budget that those who are caught by the new "deemed domicile" rules from April 2017, will be able to rebase their offshore assets at the market value as at 6 April 2017 for CGT purposes, meaning historic gains will not be subject to UK tax.

Wedlake Bell's Private Client team are closely monitoring these developments and will keep our clients updated of any further announcements.

Offshore Tax Liabilities

Further measures were announced in respect of the Government's long-term aim of penalising tax evasion and avoidance, in some case irrespective of whether this is deliberate. These include a 10% increase in minimum civil penalties for deliberate inaccuracies in declaring offshore income and gains and a new criminal offence for failing to declare offshore income and gains even where this was unintentional. The Government will also introduce, in Finance Bill 2017, a new legal requirement to correct past offshore non-compliance within a defined period of time with new sanctions for those who fail to do so. A formal consultation on this will be launched later in 2016.

SDLT higher rates for residential property

It was confirmed in the Budget that higher rates of SDLT on purchases of additional residential properties will apply from 1 April 2016. The higher rates will be 3% above the current SDLT rates and will affect second home owners and buy-to-let landlords unless the property is replacing their "main home". You can read more about the SDLT reforms in our client bulletin here. The detail had been consulted upon prior to the Budget but without the result of any wholesale changes; however, the Budget did announce that purchasers will have 36 months (rather than 18 months) before liability to the higher rates bites in situations where there is a delay between the sale of a main home and purchase of a new one (and vice-versa). Less positively, there will be no exemption from the higher rates for large-scale investors, relief for whom had been hinted at during the consultation.

For more information on whether these reforms will affect you and any trusts you are involved with, please see our bulletin, or contact Michael Ridsdale in the Corporate Tax team or your usual Wedlake Bell adviser.

Pensions

There was much hype before the Budget on what cuts the Chancellor might make to pensions tax relief and allowances but, as leaked to the press beforehand, any radical reforms are on hold for the time being. Instead, the major announcement in respect of pensions is the introduction of a new Lifetime ISA from April 2017 for adults under the age of 40, allowing contributions of up to £4,000 per year (before the holder reaches age 50) with a 25% bonus from the Government. The funds can be used to buy a first home (with a value of up to £450,000) or produce savings for retirement after age 60. As with other ISAs, a Lifetime ISA will be subject to inheritance tax on the holder's death, which will need to be weighed up when deciding whether to use this type of ISA instead of investing into a pension.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Withers LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Withers LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions