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Anti-avoidance; R&D relief; pensions; venture capital schemes; inheritance tax; trusts; ISAs
Anti-avoidance
The chancellor last week announced several anti-avoidance provisions relevant to large companies. Some of the measures arose as part of the OECD base erosion and profit shifting (BEPS) initiative. Key details are:
- a restriction on the amount of loss relief available to banks;
- the introduction of a diverted profits tax;
- country by country reporting; and
- a measure to address hybrid mismatches.
More general measures include proposals to strengthen the disclosure of tax avoidance schemes (DOTAS) regime; to establish a taskforce aimed at preventing avoiders from circumventing the rules; and to enable HMRC to publish summary information about notified tax avoidance schemes and their promoters.
Research and development relief
Three separate measures were unveiled in the autumn statement in respect of research and development (R&D):
- the rate of the above the line credit will increase from 10% to 11%, and the rate applicable to the small and medium-sized enterprises scheme will increase from 225% to 230%. These rate changes will apply from 1 April 2015;
- qualifying expenditure will be restricted such that the costs of materials incorporated in products that are sold are not eligible, with effect from 1 April 2015;
- a consultation will be launched in January 2015 on the issues faced by smaller businesses when claiming R&D tax reliefs. An advance assurance scheme will be available to small businesses making their first R&D claim.
Pensions
The chancellor confirmed that the 55% charge which currently applies on death to all pension funds held by a person who dies over the age of 75, and on crystallised funds held by those who die under the age of 75 will be abolished.
When an individual dies before age 75, the pension fund, whether crystallised or not, may pass tax free to a nominated beneficiary, and someone dies over the age of 75, the pension fund, when withdrawn, will be taxed at the beneficiary’s marginal rate of income tax or 45% if the funds are taken as a lump sum.
Following an informal consultation, the government has decided that no changes will be made to the upper age limit of 75 for tax relief on pension contributions.
Venture capital schemes
Several measures were announced on venture capital schemes:
- from 6 April 2015the investment limit for social investment tax relief (SITR) is to be increased to £5m a year for each organisation up to a maximum of £15m. The relief will also be extended to small-scale community farms and horticultural activities;
- special purpose vehicles for subcontracted and spot-purchase social impact bonds will be eligible for SITR via secondary legislation in autumn 2015;
- community energy generation undertaken by qualifying organisations will be eligible for SITR and so will cease to be eligible for enterprise investment scheme (EIS), seed enterprise investment scheme (SEIS) and venture capital trusts (VCT). This will take effect following EU approval of the expansion of SITR.
In addition, HMRC will introduce a new digital process from 2016 for investors and companies qualifying for the EIS, SEIS and SITR.#
Inheritance tax
Humanitarian aid workers are to be included in the exemption a general exemption for inheritance tax. The exemption for medals and decorations for valour is to be extended to all decorations and medals awarded to the armed services and emergency personnel, and to awards made by the Crown for achievements in public life.
Trusts
The proposal in the consultation Simplification of Trusts, to introduce a single settlement nil rate band to be shared between all trusts created by the same settlor will not go ahead. HMRC will instead target multiple trusts.
Association of Tax Technicians president, Natalie Miller, said, “This decision will be most welcomed by trustees and professional advisers. Many who responded to the consultation… pointed out that the proposals being put forward did not represent a simplification at all but rather a ‘knee-jerk’ reaction to putting a stop to the use of pilot trusts.”
ISAs
The annual ISA allowance will increase from £15,000 to £15,240 from April 2015. From 6 April 2015, a surviving spouse or civil partner will be granted an additional ISA allowance equivalent to the value of their partner’s ISAs so that the income and capital gains tax free status of the savings may be preserved.
