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The Autumn Statement has introduced a number of changes affecting individuals’ tax affairs and Inheritance Tax and key points are summarised below.
Inheritance Tax - Trusts
Although the government consulted on a single-settlement nil-rate band earlier in the year, this seems to have proved too complex and will not be introduced. Instead, the government will still introduce new rules to target tax avoidance through the use of multiple trusts (providing multiple nil rate bands). However, it is not now known what the rules will be or whether they will be retrospective. It is possible that the new anti-avoidance law will involve widening the definition of “related settlements” and may therefore still render so called “pilot trusts” ineffective to save inheritance tax. The new law may be published later in December.
Inheritance tax – Emergency workers and medals
Members of the emergency services and humanitarian aid workers responding to emergency circumstances whose death is caused or hastened by injury sustained whilst responding to emergency circumstances will be exempt from IHT. This relief will apply for deaths on or after 19 March 2014 and extends the relief previously available to members of the armed forces whose death is caused or hastened by injury whilst on active service.
The government will also extend the existing IHT exemption for medals awarded for valour and gallantry to awards made by the Crown for achievements and service in public life and all decorations and medals awarded to the armed services or emergency services personnel.
Changes have been made to enable an individual’s pension after death to be claimed by any nominated beneficiary tax free in certain circumstances. From April 2015 if an individual dies before reaching age 75, the balance of their defined contribution pension fund, or future annuity payments under a jointly held life annuity, or annuity providing a guaranteed payment period, can be claimed tax free by an eligible beneficiary (anyone the deceased chooses to nominate) as a lump sum or income. This is subject to the beneficiary having received no payment pre 6 April 2015.
If the individual dies over age 75, the balance of their defined contribution pension will be subject to 45% tax if claimed as a lump sum before 5 April 2016, or otherwise at the recipient’s marginal rate of tax.
After a death of a spouse/civil partner after age 75, income from an annuity paid to the surviving spouse/civil partner will be taxed at their own rate.
From 6 April 2015, individuals aged 55 or over can take up to 3 small pension pots of £10,000 as a lump sum from non occupational pension schemes, or an unlimited number from occupational pension schemes, without being subject to a reduced annual pension relief allowance of £10,000.
Non-Domiciled – Income Tax
The annual charge paid by non-domiciled individuals resident in the UK who wish to retain access to the remittance basis of taxation will increase. A new charge of £90,000 will be introduced for those UK residents for 17 of the last 20 years. For individuals UK resident for 12 of the last 14 years, it will increase to £60,000, from £50,000. The charge for individuals UK resident for 7 of the last 9 years will remain at £30,000. The government will also consult on a minimum 3 year term for such an election.
No change will be made to restricting the Income Tax personal allowance for non-UK residents before April 2017, but the government will continue to consult.
For deaths from 3 December 2014, the ISA allowance of the surviving spouse or civil partner will be increased from 6 April 2015 by the value of the deceased’s ISAs on their date of death.
From 6 April 2015, up to £15,240 can be invested in an ISA (an increase from £15,000) in any combination of stocks, shares and cash. Child Trust Funds and Junior ISA limits will be increased to £4,080.
Capital Gains Tax
A tax advantage has been closed down. For transfers of businesses to a close related company from 3 December 2014, individuals will be prevented from claiming Entrepreneurs’ Relief for disposals of the goodwill associated with the business. Tax will be reduced where gains eligible for Entrepreneurs’ Relief are rolled over into investments qualifying for Enterprise Investment Schemes or Social Investment Tax Relief. From 3 December 2014, such will continue to be eligible for Entrepreneurs’ Relief when the gain is realised, reducing the tax rate to 10% from 18% or 28%.
Capital Gains Tax – non UK resident
CGT of 28% for non-UK residents will extend to disposals of residential property (regardless of whether they are owner-occupied or let) from 6 April 2015, for gains accruing after 5 April 2015. However, principal private residence relief may be available, if a non-resident has spent at least 90 days, present at midnight, in the property (or spread across multiple properties, if the individual has more than one). Married couples can split the 90 day occupation between them. Care should be taken to ensure that attempting to obtain PPR does not affect an individual’s residence status.
Currently, non-UK resident trustees are not liable to CGT in the UK. However, from 5 April 2015 a disposal of UK residential property by trustees will be immediately taxable on the trustees in relation to the gain accruing from that date. Any gain accrued before that date will be attributed to benefits received by the UK resident beneficiaries.
For further information please contact either Daniel Curtis (Cambridge) on 01223 461155 or email Daniel by clicking here, Clare Colacicchi (Northampton) on 01604 233233 or email Clare by clicking here or Carolyn Bagley (Milton Keynes) on 01908 247010 or email Carolyn by clicking here.
For more information on our Inheritance Tax services click here. This article is written as an outline guide only and any action should not be based solely on the information given here. Appropriate professional advice should always be taken in specific instances.