Effect of Snap Election on UK Finance Bill
On the 18th April, Theresa May announced that a snap general election was going to take place on the 8th June. She subsequently won by the skin of her teeth, whilst also causing a lot of uncertainty with regards to the 2017 Finance Bill.
Due to the dissolution of parliament before the election, ministers had to rush through changes in legislation before parliament closed for business. This meant that the finance bill was reduced from a record 762 pages to roughly 140, according to the Chartered Institute of Taxation (CIOT).
A lot of the new legislation was regarded as controversial, and hence needed to be thoroughly reviewed by parliament. It is expected that all or most of the clauses that have been dropped are to be reintroduced in a fresh Finance Bill early in the next Parliament.
Some of the most important clauses to be dropped are:
- The reduction of the tax-free dividend allowance (from £5,000 to £2,000)
- The ‘Making Tax Digital’ scheme, which aims to make the tax system more like online banking.
- The reduction of the so-called money purchase annual allowance (from £10,000 to £4,000). This applies to individuals over the age of 55 that have flexibly accessed their pension savings, and cuts the amount that they can save into their pensions. The reduction has been introduced to restrict the extent to which individuals can recycle their pension savings, thus taking advantage of tax relief.
However, some important legislation did still make it through, such as a 25% tax on pensions leaving the UK. This is to create ‘fairness in the tax system’, as UK pensions already benefit from tax relief. You are only exempt from this tax if you are in the same country as the overseas pension scheme, the scheme is in a country in the EEA or if the scheme is an occupational pension sponsored by your employer.
In addition to this, the HMRC stated that ‘Payments out of funds transferred to a QROPS on or after 6th April 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident’. This means that UK tax charges would also apply to a tax-free offshore pension transfer if, within five tax years, an individual becomes resident in another country
The Finance Bill can have some serious implications, especially with the legislation likely to be passed now that the new parliament has been formed. Stay on top of your finances; have an advisor talk you through how the new legislation can affect you.