Income tax avoidance: Life insurance policies
The chargeable event gain regime provides special rules for applying income tax to investment gains from life insurance policies. These rules apply to each individual policy or contract and provide that the amount of a gain that may be liable to income tax is the difference between the value of benefits paid from a policy and the total of premiums paid into the policy plus certain gains arising earlier in the life of a policy.
There is currently no requirement under these rules that the earlier gains must have been included in the total income of a person liable to any tax under the chargeable event gain regime. For relevant policies and contracts made on or after 21 March 2012 (and existing policies and contracts which are assigned in part or whole, or are used as security for a debt, or into which policyholders choose to pay further premiums, on or after 21 March 2012), changes announced will ensure that when calculating the amount of a chargeable event gain under a policy or contract, a deduction for earlier gains will only be allowed to the extent that those earlier gains are attributable to a person chargeable to tax on gains under the chargeable event gain regime.
Further provisions will be included to ensure that interdependent policies (under which the value of benefits paid from one policy is dependent on premiums paid into another policy) will be treated as a single policy with the current rules applying to that single policy as usual.
Personal Tax Statement
From the 2014/15 tax year the Government will introduce a new Personal Tax Statement for around 20 million taxpayers, including Self Assessment taxpayers and those in Pay As You Earn (PAYE) who receive a coding notice.
The statement will detail the income tax and National Insurance Contributions (NICs) they have paid and their average tax rates. It will also outline how this contributes to public spending, outlining the proportions used for education, health and welfare.
The aim is to improve the transparency of the tax system.
According to sample Treasury calculations, someone earning just over £25,000 would pay £5,700 in direct taxes. Of that, more than £1,900 would go on welfare and pension payments, nearly £1,000 on health and £750 on education. £360 would also be spent on national debt repayments.
General Anti-Abuse Rule (GAAR)
A consultation document will be issued in Summer 2012 with a view to bringing forward legislation in Finance Bill 2013.
The Government insists it is ‘committed to ensuring that this legislation effectively tackles artificial and abusive tax avoidance schemes and that the supporting guidance is practical both for taxpayers and for HMRC’.
Gift Aid small donations scheme
As announced at Budget 2011, the Government will introduce a new Gift Aid small donations scheme from April 2013 to enable charities to claim a Gift Aid style top-up payment on up to £5,000 of small donations, without the need to collect Gift Aid declarations.
Charities will be able to claim the new payment on donations of £20 or less.
Real Time Information (RTI) and PAYE penalties
Currently, employers and pension providers send information about tax, NICs and other payroll deductions to HMRC after the end of each tax year. The result is that HMRC cannot correct mistakes until the employer sends this information. However, under RTI, employers and pension providers will tell HMRC about tax, NICs and other deductions when or before the payments are made.
The Government will consult before the Summer on a new model for PAYE late payment and late filing penalties.
Bank Levy rate
As announced at Autumn Statement 2011, the full rate of the Bank Levy is set at 0.088% from 1 January 2012. In the Budget it was announced that from 1 January 2013 the full rate of the Bank Levy will be increased to 0.105%.
National Loan Guarantee Scheme
Just prior to the Budget the Chancellor launched a new National Loan Guarantee Scheme (NLGS), designed to give smaller businesses greater access to cheaper finance by guaranteeing banks’ own borrowing.
Up to £20 billion of Government guarantees will be provided on unsecured borrowing by participating banks, enabling them to borrow at a cheaper rate. They will then pass on the entire benefit to businesses which, when taking out an NLGS loan, will receive a discount of one percentage point compared to the interest rate that they would otherwise have received from that bank outside the scheme.
The loans are available to all UK businesses with a company group annual turnover of less than £50 million. Banks currently participating in the scheme are Barclays, Santander, Lloyds and RBS, with Aldermore having also agreed to join in principle. Around £5 billion in guarantees will be made available in the first tranche.