Emma Ann HughesApr 28 2017

Finance Bill: What went, what stayed and what will come back

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Finance Bill: What went, what stayed and what will come back
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This week saw the Finance Bill receive a trimming down in order to push it swiftly through parliament before the general election on 8 June.

As a result of the government snipping away at the bill, several of the clauses that were “contentious” and advisers had pre-prepared their clients for - such as the changes to the money purchase annual allowance – were culled.

To make sure you know what action you should take for clients now, we have summarised what stayed, what has gone, and of those which are postponed, what is likely to rise phoenix-like post the general election.

Of those clauses staying, the tax rates for this tax year had to remain, Les Cameron, head of technical at Prudential, pointed out. 

All the provisions related to offshore pension schemes, that is the overseas transfer tax charge and the increase in the amount of foreign pension income taxable from 90 per cent to 100 per cent also remain.

The new rules for salary sacrifice, which came into effect from 6 April 2017 were retained but the new rules for termination payments, which were to come into force from 6 April 2018 have gone.

Indeed perhaps more interesting than what was kept in the Finance Bill were the clauses that were removed. 

The headline removal was the reduction in the money purchase annual allowance from £10,000 to £4,000.

The other big removal was the reduction in dividend taxation allowance from £5,000 to £2,000, albeit this was to apply from 2018 to 2019.

Other measures dropped included: the provisions on “making tax digital”; the ability for those who create disproportionate gains on investment bond gains to have their tax bill reassessed on a just and reasonable basis; the new trading and property income allowances of £1,000; various rules related to non-doms including the reduction in the deemed domicile limit from 17 out of 20 years to 15 out of 20 years; and the pension advice allowance, being the increase to £500 of the income tax exemption for employer funded advice, not the ability to take three lumps sums of £500, which has already been legislated for.

Mr Cameron said the key question is what if anything will reappear. 

When introducing the revised bill to the House of Commons financial secretary for HM Treasury, Jane Ellison MP said “the Bill is progressing on the basis of consensus and therefore, at the request of the Opposition, we are not proceeding with a number of clauses. However, there has been no policy change.

“These provisions will make a significant contribution to the public finances, and the government will legislate for the remaining provisions at the earliest opportunity, at the start of the new parliament.”

Mr Cameron said: “With purdah having started and the fact it is for the new government to set/confirm the policy means that it is highly unlikely we will have any clarity on what the post election landscape for the planner will look like.”

But if clients ask will these clauses reappear post election, Mr Cameron said advisers should warn past performance is no guarantee of what will happen in the future, but clauses dropped from Finance Bills pre-election have been re-introduced in a Finance Bill following the election. 

Mr Cameron said these have had retrospective effect from 6 April (or earlier where an announcement to legislate with immediate effect preceded 6 April) previously.

Specific examples are the ‘avoidance using tax arbitrage’ rules which were in the Finance Bill published 24 March 2005, dropped from the Finance Act passed prior to the dissolution of Parliament for the May 2005 election and reinstated in the Finance (No. 2) Act which received Royal Assent on 20 July 2005.

Another example of a measure being dropped, picked up again and back dated were changes to the transfer of business rules for life insurance which were in the Finance Bill published 30 March 2010 , dropped from the Finance Act passed prior to the dissolution of Parliament for the May 2010 election and reinstated in the Finance (No. 2)  Act which received Royal Assent 27 July 2010.

Mr Cameron said: “So we are left with a period of uncertainty. One aspect is that a lot of planning will already have been undertaken on the assumption these rules would become effective as expected.

“Our adviser helpline has already had a few people asking if this means those who have flexibly accessed their benefits can pay £10,000 into their pensions. The answer is unknown.

“Is it better to pay £10,000 and risk a tax charge or pay £4,000 and possibly miss out on some tax relief?

“Presumably, the safest course of action when planning is to assume the rules will reappear as is, monitor developments and then re-plan accordingly.”

Ultimately though as far as the clauses which have been dropped much will depend on what happens after the election. 

Andrew Hubbard, tax consultant at RSM, said: “If there is a return of a Conservative government we would expect that the clauses will be reinstated in a summer finance bill. 

“If there is a change of government all bets are off.”

emma.hughes@ft.com