1 April
Another change that appears to have fallen beneath the radar of some advisers is that there is a new EU accounting directive, which has affected the basis of accounting for UK companies.
It is effective for accounting periods beginning on or after 1 January 2016 – but early application is permitted, so in practice the first corporate year end where it is used could be 1 April 2016.
This directive has done away with the concept of ‘historical cost’ accounting, which was the basis for a company getting tax deferral on an offshore bond investment. You now have to look at whether any new offshore bond holds ‘complex’ or ‘basic’ financial instruments.
Basic financial instruments are effectively cash deposit and fixed-income funds and tax deferral is still available. All other funds are complex financial instruments, so any increase in value has to be accounted for year on year.
6 April
Some quite radical changes to income tax were announced last year, plus one that predates that. They are:
Dividend allowance – From the next tax year, all taxpayers will have an allowance whereby the first £5,000 of dividends will be tax-free. Above that, basic-rate taxpayers will pay 7.5% tax on the excess, higher-rate taxpayers will pay 32.5% and additional-rate taxpayers will pay 38.1%.
So, some people will be better off, while others may pay more – something that should be ascertained before April in case a change of tax wrapper or indeed, dewrappering – a word I have just invented – is appropriate.
For example, because of the generous allowance (in their situation), a higher-rate taxpayer would need to receive total dividends of more than £21,667 before they paid more tax. Assuming a yield of 3%, that equates to an equity or equity collective portfolio of £722,233.
I hasten to add that the needs of the client and their capacity for loss will also weigh on the decision to ‘wrapper or not’.
Personal savings allowance (PSA) – The PSA is a new allowance that will apply a new 0% rate for up to £1,000 of savings income, provided that you are a basic-rate taxpayer. It will be £500 for higher-rate taxpayers and is not available at all to additional-rate (45%) taxpayers.
At the same time, tax will no longer be deducted at source from bank and building society interest payments.
So does this mean that technically, a taxpayer could receive £22,000 of income from the relevant investments and – because of their personal allowance (£11,000), the 0% starting rate for £5,000 of savings income, the dividend allowance of £5,000 and the £1,000 PSA – get it tax-free? It would appear that the answer is ‘yes’.
In addition, chargeable gains from offshore bonds are treated as savings income and this could open up greater opportunity for washing out tax-free chargeable gains through assignment to non-taxpaying partners or relatives.
The Scottish rate of Income Tax (SRIT) – SRIT will start in the 2016/7 tax year and depending on the decision of the Scottish Parliament, those living north of the border (or closely connected to Scotland) may be paying a higher or lower overall rate of income tax on their earned income.
It does not apply to investment income or investment bond chargeable gains.
