Finance (No. 2) Bill (HC Bill 190)

Part 1 Income tax, corporation tax and capital gains tax

CHAPTER 1 Charge, rates etc

Income tax

1 5Charge, rates, basic rate limit and personal allowance for 2014-15

(1) Income tax is charged for the tax year 2014-15.

(2) For that tax year—

(a) the basic rate is 20%,

(b) the higher rate is 40%, and

(c) the additional rate is 45%.

(3) For that tax year—

(a) the amount specified in section 10(5) of ITA 2007 (basic rate limit) is
replaced with “£31,865”, and

(b) 5the amount specified in section 35(1) of that Act (personal allowance for
those born after 5 April 1948) is replaced with “£10,000”.

(4) Accordingly for that tax year—

(a) section 21 of that Act (indexation of limits), so far as relating to the basic
rate limit, does not apply, and

(b) 10section 57 of that Act (indexation of allowances), so far as relating to the
amount specified in section 35(1) of that Act, does not apply.

2 Basic rate limit for 2015-16 and personal allowances from 2015

(1) For the tax year 2015-16—

(a) the amount specified in section 10(5) of ITA 2007 (basic rate limit) is
15replaced with “£31,785”, and

(b) the amount specified in section 35(1) (personal allowance) is replaced
with “£10,500”.

(2) Accordingly, for that tax year—

(a) section 21 of that Act (indexation of limits), so far as relating to the basic
20rate limit, does not apply, and

(b) section 57 (indexation of allowances), so far as relating to the amount
specified in section 35(1), does not apply.

(3) In section 34(1)(a) of that Act (introduction), omit “, 36”.

(4) In section 35 of that Act (personal allowance for those born after 5 April 1948)—

(a) 25in subsection (1)(a), for “1948” substitute “1938”, and

(b) in the heading, for “1948” substitute “1938”.

(5) Omit section 36 of that Act (personal allowance for those born after 5 April 1938
but before 6 April 1948).

(6) In section 45(4)(b) of that Act (marriages before 5 December 2005), omit “36(2)
30or”.

(7) In section 46(4)(b) of that Act (marriages and civil partnerships on or after 5
December 2005), omit “36(2) or”.

(8) In section 57 of that Act (indexation of allowances)—

(a) in subsection (1)(a), for “1948” substitute “1938”, and

(b) 35in subsection (4) omit “36(2),”.

(9) The amendments made by subsections (3) to (8) have effect for the tax year
2015-16 and subsequent tax years.

3 The starting rate for savings and the savings rate limit

(1) In section 7 of ITA 2007 (the starting rate for savings) for “10%” substitute “0%”.

(2) 40For the tax year 2015-16 the amount specified in section 12(3) of that Act
(starting rate limit for savings) is replaced with “£5,000”.

(3) Accordingly section 21 of that Act (indexation of limits), so far as relating to the
starting rate limit for savings, does not apply for that tax year.

(4) In section 852 of that Act (power to make regulations disapplying duty to
deduct sums representing income tax), in subsection (2)(a), after “made” insert
5“or is unlikely to be liable to pay any income tax on that person’s savings
income for that tax year”.

(5) The amendments made by subsections (1) and (4) have effect for the tax year
2015-16 and subsequent tax years.

4 Indexation of limits and allowances under ITA 2007

(1) 10ITA 2007 is amended as follows.

(2) In section 21 (indexation of the basic rate limit and starting rate limit for
savings)—

(a) in each of subsections (1), (3) and (3A), for “retail prices index”
substitute “consumer prices index”, and

(b) 15after subsection (5) insert—

“(6) In this section “consumer prices index” means the all items
consumer prices index published by the Statistics Board.”

(3) In section 57 (indexation of allowances)—

(a) in each of subsections (2), (3) and (4), for “retail prices index” substitute
20“consumer prices index”, and

(b) after subsection (6) insert—

“(7) In this section “consumer prices index” means the all items
consumer prices index published by the Statistics Board.”

(4) The amendments made by subsections (2) and (3) have effect for the tax year
252015-16 and subsequent tax years.

Corporation tax

5 Charge for financial year 2015

Corporation tax is charged for the financial year 2015.

6 Small profits rate and fractions for financial year 2014

(1) 30For the financial year 2014 the small profits rate is—

(a) 20% on profits of companies other than ring fence profits, and

(b) 19% on ring fence profits of companies.

(2) For the purposes of Part 3 of CTA 2010, for that year—

(a) the standard fraction is 1/400th, and

(b) 35the ring fence fraction is 11/400ths.

(3) In subsection (1) “ring fence profits” has the same meaning as in Part 8 of that
Act (see section 276 of that Act).

7 Rates for ring fence profits and abolition of small profits rate for non-ring
fence profits

Schedule 1—

(a) sets the corporation tax rates for ring fence profits for the financial year
52015 and future years, and

(b) contains provision about the abolition of the small profits rate for
profits other than ring fence profits.

Capital gains tax

8 Annual exempt amount for 2014-15

(1) 10For the tax year 2014-15 the amount specified in section 3(2) of TCGA 1992
(annual exempt amount) is replaced with “£11,000”.

(2) Accordingly section 3(3) of that Act (indexation of annual exempt amount)
does not apply for that tax year.

9 Annual exempt amount for 2015-16 onwards

(1) 15For the tax year 2015-16 and subsequent tax years the amount specified in
section 3(2) of TCGA 1992 (annual exempt amount) is replaced with “£11,100”.

(2) Section 3(3) of that Act (indexation of annual exempt amount) does not apply
in relation to the tax year 2015-16 (but subsection (1) does not override section
3(3) of that Act for subsequent tax years).

20Capital allowances

10 Temporary increase in annual investment allowance

(1) In relation to expenditure incurred during the period beginning with the start
date and ending with 31 December 2015, section 51A of CAA 2001 (entitlement
to annual investment allowance) has effect as if in subsection (5) the amount
25specified as the maximum allowance (which in the absence of this section
would be £250,000 in relation to expenditure incurred before 1 January 2015
and £25,000 in relation to expenditure incurred on or after that date) were
£500,000.

(2) Schedule 2 contains—

(a) 30provision about chargeable periods which straddle the start date or 1
January 2016, and

(b) amendments of FA 2013.

(3) In this section and that Schedule “the start date” means—

(a) for corporation tax purposes, 1 April 2014, and

(b) 35for income tax purposes, 6 April 2014.

CHAPTER 2 Income tax: general

Exemptions and reliefs

11 Tax relief for married couples and civil partners

(1) ITA 2007 is amended as set out in subsections (2) to (8).

(2) 5After section 55 insert—

“ CHAPTER 3A Transferable tax allowance for married couples and civil partners

Introduction

55A Tax reduction under Chapter

(1) 10This Chapter contains provisions about the entitlement of a spouse or
civil partner to a tax reduction in a case where the other party to the
marriage or civil partnership has elected for a reduced personal
allowance.

(2) A tax reduction under this Chapter is given effect at Step 6 of the
15calculation in section 23.

(3) For the effect of section 809B (claim for remittance basis to apply)
applying to an individual for a tax year, see section 809G (no
entitlement to tax reduction).

Tax reduction

55B 20Tax reduction: entitlement

(1) An individual is entitled to a tax reduction for a tax year of the
appropriate percentage of the transferable amount if the conditions in
subsection (2) are met.

(2) The conditions are that—

(a) 25the individual is married to, or in a civil partnership with, a
person who makes an election under section 55C for the
purposes of this section which is in force for the tax year (“the
individual’s spouse or civil partner”),

(b) the individual is not, for the tax year, liable to tax at a rate other
30than the basic rate, the dividend ordinary rate or the starting
rate for savings,

(c) the individual meets the requirements of section 56 (residence)
for the tax year, and

(d) neither the individual nor the individual’s spouse or civil
35partner makes a claim for the tax year under section 45 (married
couple’s allowance: marriages before 5 December 2005) or

section 46 (married couple’s allowance: marriages and civil
partnerships on or after 5 December 2005).

(d)(d)neither the individual nor the individual’s spouse or civil
partner makes a claim for the tax year under section 45 (married
couple’s allowance: marriages before 5 December 2005) or

(d)(d)section 46 (married couple’s allowance: marriages and civil
partnerships on or after 5 December 2005).

(3) “The appropriate percentage” is the basic rate at which the individual
would be charged to income tax for the tax year to which the reduction
relates.

(4) 5“The transferable amount”—

(a) for the tax year 2015-16, is £1,050, and

(b) for the tax year 2016-17 and subsequent tax years, is 10% of the
amount of personal allowance specified in section 35(1) for the
tax year to which the reduction relates.

(5) 10If the transferable amount calculated in accordance with subsection
(4)(b) would otherwise not be a multiple of £10, it is to be rounded up
to the nearest amount which is a multiple of £10.

(6) If an individual is entitled to a tax reduction under subsection (1), the
personal allowance to which the individual’s spouse or civil partner is
15entitled under section 35 or 37 is reduced for the tax year by the
transferable amount.

(7) If an individual who is entitled to a tax reduction for a tax year under
subsection (1) dies during that tax year, subsection (6) is to be ignored
(but this does not affect the individual’s entitlement to the tax
20reduction).

Election to reduce personal allowance

55C Election to reduce personal allowance

(1) An individual may make an election for the purposes of section 55B if—

(a) the individual is married to, or in a civil partnership with, the
25same person—

(i) for the whole or part of the tax year concerned, and

(ii) when the election is made,

(b) the individual is entitled to a personal allowance under section
35 or 37 for that tax year,

(c) 30assuming the individual’s personal allowance was reduced as
set out in section 55B(6), the individual would not for that year
be liable to tax at a rate other than the basic rate, the dividend
ordinary rate or the starting rate for savings, and

(d) where the individual meets the requirements of section 56
35(residence) for the tax year by reason of meeting the condition
in subsection (3) of that section, the individual meets the
condition in subsection (2) of this section.

(2) The condition is that the individual’s hypothetical net income for the
tax year concerned is less than the amount of the personal allowance to
40which the individual is entitled for that tax year under section 35 or 37.

(3) For the purposes of subsection (2), an individual’s “hypothetical net
income” is the amount that would be that individual’s net income
calculated at Step 2 of section 23 if that individual’s income tax liability
were calculated on the basis that the individual—