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United Kingdom – Finance (No. 2) Bill Is Published

United Kingdom – Finance (No. 2) Bill Is Published

This GMS Flash Alert reports on some of the important provisions in the recently published U.K. Finance (No. 2) Bill 2016.


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The U.K. government’s Finance (No. 2) Bill 2016 (“the Bill”) was published on 24 March 20161.  The Bill includes the increases to the personal allowance (nil-rate band) and higher-rate tax threshold (in effect from 2017/18), the draft legislation on the Apprenticeship Levy, changes to the deemed domicile rules, and a restriction on tax relief for pension contributions for taxpayers with income over GBP 150,000 (to be introduced from April 2016).

Essentially, the Bill incorporates the changes announced in the Autumn Statement and Spending Review 2015, as well as Budget 2016.2   


The Bill’s provisions aim to tighten the conditions for some tax reliefs, but there are also some simplifications proposed.  This could raise individuals’ tax burdens and thus the costs to employers of international assignees.

However, the changes to the upper threshold for the basic-rate tax band and the rise in personal allowance could serve to slightly lower equalization costs for companies with inbound assignees; for those with larger populations, the cumulative savings may represent a significant saving on total costs.  The savings and dividend exemptions, together with the reduction in capital gains tax, may limit the exposure to U.K. tax on the personal income and gains of most assignees.

For individuals on assignment to the United Kingdom where assignees are subject to U.K. taxation, and for assignees working outside the U.K. but still subject to U.K. taxation, international assignment cost projections and budgeting should reflect the changes described in this newsletter once they come into effect. 

Finance (No. 2) Bill 2016

As mentioned in our Budget 2016 story (see GMS Flash Alert 2016-040, 17 March 2016), the rates and allowances for income tax and National Insurance Contributions (NICs) for 2016/17, including the new Personal Savings Allowance and Dividend Allowance, were confirmed as previously announced. The annual and lifetime allowances for pension savings are also unchanged. The increases to the personal allowance (nil-rate band), and higher-rate tax threshold to take effect from 2017/18 have also been included in this Bill.

The reduced Capital Gains Tax (CGT) rates, which will take effect from 6 April 2016, are also now included in this legislation.  The annual exempt amount remains as previously announced.  As the reduced rates of CGT do not apply to disposals of residential property interests, a schedule defining such an interest for those resident in the U.K. at the time of disposal is included in the legislation.  Please note that the disposal of a nonresident property interest has previously been defined. 

Apprenticeship Levy

The Bill includes draft legislation on the Apprenticeship Levy (announced in the Summer Budget 2015) with no amendment.  The recent Autumn Statement confirmed that the Levy will be set at 0.5 percent of an employer’s ‘paybill’, when it comes into effect in April 2017.  There is a flat allowance against the Levy of £15,000 for all employers. 

The draft legislation for the Apprenticeship Levy had been published earlier this year, providing confirmation of answers to a number of questions that were outstanding.  As expected, the draft legislation confirmed that the National Insurance (NIC) rules would be used as the basis for calculating the employer’s paybill.  In broad terms, this means that the Levy will be calculated on all amounts on which the employer pays Class 1 NIC.  However, where no Employer’s Class 1 NICs are due because the amounts paid fall below the secondary threshold or qualify for the zero-rate applicable to under 21s or to apprentices under 25, these amounts will also be included for purposes of the Levy.  

Also as expected, the draft legislation confirmed that the Levy would be collected through the PAYE system and that the government expected employers to use the existing Real Time Information system to pay the Levy on a monthly basis. 


We are expecting the publication of an employer guide covering the operating model next month and also the publication of further regulations giving more detail on operational matters.  Further updates will be provided once details are available.

As mentioned previously, the Levy is a significant new cost for large employers.  Although the draft legislation provides more detail around the Levy, HM Revenue & Customs (HMRC) and the government have still not revealed all the details. It is to be hoped that the detailed regulations, particularly around the reporting and payment requirements, are made available well in advance of the Levy coming into force, to allow both employers and software providers time to prepare adequately.  

The other big unknown is, of course, how employers will be able to access the funding to support their own training programmes.  The Policy paper published3 states that “employers who are committed to training will be able to get out more than they pay.”  The Budget confirmed that, for employers in England, this will take the form of a 10-percent top-up to Levy payments, but further details are required for the rest of the United Kingdom to see how this will be achieved.  

Reform of “Wear and Tear Allowance” for Landlords

As previously reported, at the Summer Budget 2015 the government announced that from April 2016 the wear and tear allowance would be abolished and replaced with relief for costs actually incurred.  Although a consultation was issued on the changes, the government decided not to make any changes to its proposals and draft legislation was included in the draft Finance Bill 2016.  Only minor amendments have been made to the legislation in Finance (No 2) Bill 2016 and these have no impact on the overall outcome of the legislation. 


Although these measures may not always result in increased tax costs for landlords, it is worth noting that there is an increased administrative burden arising.  Previously, no records were required to be kept in order to claim the wear and tear allowance.  Under the new system, landlords will be required to maintain records and evidence to substantiate any claims for replacement relief made on a tax return.  

Deemed Domicile

As previously reported at the Summer Budget 2015, the government announced a number of potential changes in respect of the taxation of individuals who claim to be non-U.K. domiciled (“non-doms”).  A consultation was issued at that time and that consultation closed in November 2015.

In summary, the government’s proposals introduced changes for two groups of non-doms – long-term U.K. residents and returning U.K.-doms (that is to say an individual born with a U.K. domicile who subsequently acquires a domicile of choice outside the U.K.).  It was proposed that all non-doms who had been resident in the U.K. for at least 15 out of 20 years would become deemed U.K.-domiciled from the start of the next tax year and would be taxed accordingly in the United Kingdom.  For the returning U.K.-dom, it was proposed that he would reacquire his U.K. domicile for the duration of his stay in the United Kingdom.  

CGT/Inheritance Tax

The draft legislation covering inheritance tax (IHT) was published last December and reported on in our coverage of the draft Finance Bill 2016. Draft legislation covering income tax and CGT was published in February 20164 and again, was broadly as expected.  One point worth noting is that for income tax and CGT, a “U.K. returner”’ will be deemed to be domiciled at the point he becomes U.K. tax resident.  This contrasts with the IHT position, which contains a grace period preventing IHT potentially becoming due on worldwide assets when an individual is only resident in the U.K. for a short, temporary period. 


Responses to last year’s consultation questioned whether a similar grace period should also be included for income tax and CGT.  It would seem from the draft legislation that the government has decided against this.

We were originally expecting that the draft legislation would be included in Finance (No. 2) Bill 2016, albeit with further clauses relating to trusts being included in Finance Bill 2017.  We now understand that all legislation will be included in Finance Bill 2017.  These measures are due to take effect from 5 April 2017.  We await the response to the consultation document.  


Although the 2016 Budget did not see the radical reform of the pensions rules that had been anticipated, there are two important pension reforms taking effect from 6 April 2016, which will impact many international assignees (and their employers, to the extent that tax equalisation arrangements apply to those individuals).  These measures were reported on originally in GMS Flash Alert 2015-083 (10 July 2015) and are repeated here because of their timing.  

Reduced Lifetime Allowance

The lifetime allowance for pension savings will be reduced from GBP 1.25 million to GBP 1 million.  Transitional protection for pension rights already exceeding GBP 1 million will be introduced alongside this reduction to ensure the change is not retrospective. 

Reduced Annual Allowance for High Earners

As well as the reduction to the lifetime allowance, a restriction on tax relief for pension contributions for taxpayers with income over GBP 150,000 will be introduced from April 2016.  The GBP 150,000 threshold includes the value of pension savings.  The restriction on tax relief will be achieved through the pro-ration of the Annual Allowance from GBP 40,000 to a minimum of GBP 10,000 for income of GBP 210,000 or more. 


This is a potential additional cost for both employees and employers and should be considered when assignment cost projections and budgets are prepared.  This has the potential to affect both contributions to U.K. and non-U.K. pension schemes and advice should be sought so that the new limits may be applied correctly when calculating the U.K. taxes payable.


1  For, Finance (No. 2) Bill (HC Bill 155), click.  

2  See GMS Flash Alert 2015-144 (2 December 2015) and GMS Flash Alert 2016-040 (17 March 2016).  Also, for Summer Budget 2015, see GMS Flash Alert 2015-083 (10 July 2015).

3  For HM Revenue & Customs “Policy Paper: Apprenticeship Levy,” click.

4  For HM Revenue & Customs, “Personal Tax – Policy Paper: Domicile: Income Tax and Capital Gains Tax,”  click.  


For additional information or assistance, please contact your local GMS or People Services professional or one of the following professionals with KPMG LLP (U.K.):


Marc Burrows

Tel. +44 (0) 20 7694 5930 


Rachel Beecroft

Tel. +44 (0) 20 7311 3356 

The information contained in this newsletter was submitted by the KPMG International member firm in the United Kingdom. 

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