Following today’s Budget, despite rumours of significant changes to both Inheritance Tax and Capital Gains tax, it was a quieter Budget day than it could have been for Personal Tax at BHP. The majority of changes were ones that have been suggested for some time, and others were more focused on making tax simpler for the individual.
The top 5 highlights from a personal tax perspective are as follows:
Basis Period Reform
The Budget confirmed that from 5 April 2024 all unincorporated businesses will be taxed on the profits arising on a tax year basis. This change affects all sole traders, partnerships and other unincorporated entities with trading income such as trading trusts and estates as well as non-resident companies with trading income charged to Income Tax. This replaces the current system where businesses are taxed on the accounting period ending in a tax year. The 5 April 2024 start dates aligns with the new start date for Making Tax Digital for Income Tax, and 2023/24 will be the transitional year. The profits taxed in 2023/24 will be the period from the end of the accounting period that was taxed in 2022/23 through to 5 April 2024, less the overlap being carried forward. This transition results in higher profits for 2023/24, the government is legislating to automatically spread the transitional period additional profits over a period of five years. A business will have the ability to elect out of spreading and accelerate the charge by treating additional amounts as arising in the tax year. For these purposes, 31 March and 5 April will be treated as equivalent.
Capital Gains Tax (CGT): property payment window
From today (27 October), UK tax resident individuals and trusts will have 60 days to report and pay the corresponding Capital Gains Tax after completing on certain disposals of UK residential property. This has increased from the previous window of 30 days from completion. For non-UK residents disposing of property in the UK, this deadline will also increase from 30 days to 60 days.
Where UK residents dispose of mixed-use property, the 60-day payment window will only apply to the residential element of the property gain.
Dividend rates
Today’s Budget confirmed the 1.25 percentage point increase on the dividend tax rate from 6 April 2022.
The dividend rates will be as follows:
- Dividends falling in the basic rate band will be taxed at 8.75%,
- Dividends falling in the upper rate band will be taxed at 33.75%
- Dividends falling in the additional rate band or dividends received by a trust will be taxed at 39.35%
There has been no change or abolition to the dividend allowance of £2,000.
The Health and Social Care Levy
The Budget has confirmed the new 1.25% Health and Social Care Levy (the Levy) to fund investment in the NHS and social care will, as expected, take effect from 6 April 2022. The Levy will apply to all of the UK for those subject to Class 1 and Class 4 National Insurance contributions. It will not apply to those paying Class 2 or Class 3 National Insurance.
From 6 April 2022, the Levy will mean a 1.25 percentage point increase in the national insurance rates. From 6 April 2023, the national insurance rates will return to their current levels. The 1.25% Levy will be formally separated and apply to the earnings of individuals working above State Pension age.
Taxation of public service pension reform remedy
This will affect individuals who were members of public service pension schemes on or before 31 March 2012 and at any time between 1 April 2015 and 31 March 2022. Legislation will be introduced to mitigate the impact on individuals affected by the age discrimination identified in the 2015 public service pension schemes (the ‘McCloud’ case).
For example, a provision will be made regarding:
- providing an exemption to a tax charge on the compensation an individual may receive if, following the remedy, they are owed money
- allowing an individual to protect their pension rights from lifetime allowance charges calculated on the higher of the two pension choices available to them
- additional annual allowance to be available so that an individual will not pay more annual allowance charge than they would have done if they had accrued their chosen benefits in the relevant tax years
- Where a scheme has paid lifetime allowance or annual allowance charges on behalf of the individual, but that accrual is now under a different scheme, for the payment to be deemed to have been paid by the latter scheme
- Ensuring that payments of pensions and lump sums that would have been authorised payments had they been made at the relevant time are treated as meeting the conditions to be authorised.
If you’re unsure of how the Budget will impact you, speak to a member of the team today!
