Finance Bill (HC Bill 57)

Part 1 Principal rates etc

Tax lock

1 Income tax lock

(1) 5For any tax year to which this section applies—

(a) the basic rate of income tax shall not exceed 20%,

(b) the higher rate of income tax shall not exceed 40%, and

(c) the additional rate of income tax shall not exceed 45%.

(2) This section applies to a tax year—

(a) 10which begins after the day on which this Act is passed but before the
date of the first parliamentary general election after that day, and

(b) for which income tax is charged.

2 VAT lock

(1) The rate of value added tax for the time being in force under section 2 of VATA
1994 (standard rate) shall not exceed 20% during the VAT lock period.

(2) 5The rate of value added tax for the time being in force under section 29A of
VATA 1994 (reduced rate) shall not exceed 5% during the VAT lock period.

(3) No supply specified in Schedule 7A to VATA 1994 (charge at reduced rate) at
the beginning of the VAT lock period may be removed from it under section
29A(3) of that Act during that period.

(4) 10No goods, services or supply specified in Schedule 8 to VATA 1994 (zero-
rating) at the beginning of the VAT lock period may be removed from it under
section 30(4) of that Act during that period.

(5) In this section the “VAT lock period” means the period beginning with the day
on which this Act is passed and ending immediately before the date of the first
15parliamentary general election after that day.

Personal allowance and basic rate limit for income tax

3 Personal allowance and national minimum wage

(1) After section 57 of ITA 2007 insert—

“57A Personal allowance linked to national minimum wage

(1) 20This section provides for increases in the amount specified in section
35(1) (personal allowance).

(2) It applies in relation to a tax year if—

(a) the adult national minimum wage at the start of the tax year is
greater than it was at the start of the previous tax year, and

(b) 25the amount specified in section 35(1) immediately before the
start of the tax year is at least £12,500.

(3) For the tax year, the personal allowance specified in section 35(1) is to
be the yearly equivalent of the adult national minimum wage at the
start of the tax year.

(4) 30Subsections (1) to (3) do not require a change to be made in the amounts
deductible or repayable under PAYE regulations during the period
beginning on 6 April and ending on 17 May in the tax year.

(5) Before the start of the tax year the Treasury must make an order
replacing the amount specified in section 35(1) with the amount which,
35as a result of this section, is the personal allowance for the tax year.

(6) For the purposes of this section, the “adult national minimum wage”, at
any time, is the single hourly rate of the national minimum wage for a
worker aged 21 years or over which is in force at that time.

(7) For the purposes of this section, the yearly equivalent of the adult
national minimum wage at any time is the amount equal to—

(2) 5In section 57 of ITA 2007 (indexation of allowances), at the end insert—

“(8) This section ceases to have effect in relation to the amount specified in
section 35(1) when that amount becomes (by virtue of this section or
otherwise) an amount of £12,500 or more.””

(3) In section 1014 of ITA 2007 (orders and regulations), in subsection (5)(b), after
10sub-paragraph (ii) insert—

“(“iia) section 57A (personal allowance linked to national
minimum wage),”.”

4 Personal allowance and national minimum wage: Chancellor’s duties

(1) This section applies where the personal allowance for income tax for the time
15being specified in section 35(1) of ITA 2007 is less than £12,500.

(2) Before the Chancellor of the Exchequer announces a proposal to increase that
allowance to an amount which is less than £12,500, he or she must consider the
financial effect of the proposal on a person paid the adult national minimum
wage.

(3) 20If such a proposal is announced, the Chancellor of the Exchequer must make a
statement as to what he or she considers that that financial effect would be.

(4) In this section, “a person paid the adult national minimum wage” is a person
who works for 30 hours a week for a year at the single hourly rate of the
national minimum wage for a worker who is aged 21 years or over.

(5) 25This section ceases to have effect when the allowance referred to in subsection
(1) becomes an amount of £12,500 or more.

5 Personal allowance from 2016

In section 5(1) of FA 2015 (personal allowance from 2016)—

(a) in paragraph (a) (personal allowance for 2016-17), for ““£10,800””
30substitute ““£11,000””, and

(b) in paragraph (b) (personal allowance for 2017-18), for ““£11,000””
substitute ““£11,200””.

6 Basic rate limit from 2016

In section 4(1) of FA 2015 (basic rate limit from 2016)—

(a) 35in paragraph (a) (basic rate limit for 2016-17), for ““£31,900”” substitute
““£32,000””, and

(b) in paragraph (b) (basic rate limit for 2017-18), for ““£32,300”” substitute
““£32,400””.

Corporation tax

7 Rate of corporation tax for financial years 2017-2020

(1) For the financial years 2017, 2018 and 2019 the main rate of corporation tax is
19%.

(2) 5For the financial year 2020 the main rate of corporation tax is 18%.

Capital allowances

8 Annual investment allowance

(1) In section 51A of CAA 2001 (entitlement to annual investment allowance), for
the amount specified in subsection (5) as the maximum allowance (which in the
10absence of this section would be £25,000 in relation to expenditure incurred on
or after 1 January 2016) substitute “£200,000”.

(2) The amendment made by subsection (1) has effect in relation to expenditure
incurred on or after 1 January 2016.

(3) Subsection (2) is subject to paragraphs 4 and 5 of Schedule 2 to FA 2014 (which
15relate to cases involving chargeable periods which begin before 1 January 2016
and end on or after that day).

Part 2 Inheritance tax

Rate bands

9 20Increased nil-rate band where home inherited by descendants

(1) IHTA 1984 is amended as follows.

(2) In section 7(1) (rates at which inheritance tax charged on the value transferred
by a chargeable transfer) after “Subject to subsections (2), (4) and (5) below and
to” insert “section 8D and”.

(3) 25In section 8A(2) (test for whether person has unused nil-rate band on death), in
the definition of M (maximum amount transferable at 0%), after “were
sufficient but” insert “that the maximum amount chargeable at nil per cent.
under section 8D(2) is equal to the person’s residence nil-rate amount and”.

(4) After section 8C insert—

“8D 30Extra nil-rate band on death if interest in home goes to descendants etc

(1) Subsections (2) and (3) apply for the purpose of calculating the amount
of the charge to tax under section 4 on a person’s death if the person
dies on or after 6 April 2017.

(2) If the person’s residence nil-rate amount is greater than nil, the portion
35of VT that does not exceed the person’s residence nil-rate amount is
charged at the rate of 0%.

(3) References in section 7(1) to the value transferred by the chargeable
transfer under section 4 on the person’s death are to be read as
references to the remainder (if any) of VT.

(4) The person’s residence nil-rate amount is calculated in accordance with
5sections 8E to 8G.

(5) For the purposes of those sections and this section—

(a) the “residential enhancement” is—

(i) £100,000 for the tax year 2017-18,

(ii) £125,000 for the tax year 2018-19,

(iii) 10£150,000 for the tax year 2019-20, and

(iv) £175,000 for the tax year 2020-21 and subsequent tax
years,

but this is subject to subsections (6) and (7),

(b) the “taper threshold” is £2,000,000 for the tax year 2017-18 and
15subsequent tax years, but this is subject to subsections (6) and
(7),

(c) TT is the taper threshold at the person’s death,

(d) E is the value of the person’s estate immediately before the
person’s death,

(e) 20VT is the value transferred by the chargeable transfer under
section 4 on the person’s death,

(f) the person’s “default allowance” is the total of—

(i) the residential enhancement at the person’s death, and

(ii) the person’s brought-forward allowance (see section
258G), and

(g) the person’s “adjusted allowance” is—

(i) the person’s default allowance, less

(ii) the amount given by—

30but is nil if that amount is greater than the person’s default
allowance.

(6) Subsection (7) applies if—

(a) the consumer prices index for the month of September in any
tax year (“the prior tax year”) is higher than it was for the
35previous September, and

(b) the prior tax year is the tax year 2020-21 or a later tax year.

(7) Unless Parliament otherwise determines, the amount of each of—

(a) the residential enhancement for the tax year following the prior
tax year, and

(b) 40the taper threshold for that following tax year,

is its amount for the prior tax year increased by the same percentage as
the percentage increase in the index and, if the result is not a multiple
of £1,000, rounded up to the nearest amount which is such a multiple.

(8) The Treasury must before 6 April 2021 and each subsequent 6 April
45make an order specifying the amounts that in accordance with
subsections (6) and (7) are the residential enhancement and taper

threshold for the tax year beginning on that date; and any such order is
to be made by statutory instrument.

(9) In this section—

• “tax year” means a year beginning on 6 April and ending on the
  5following 5 April, and

• “the tax year 2017-18” means the tax year beginning on 6 April
  2017 (and any corresponding expression in which two years are
  similarly mentioned is to be read in the same way).

8E Residence nil-rate amount: interest in home goes to descendants etc

(1) 10Subsections (2) to (7) apply if—

(a) the person’s estate immediately before the person’s death
includes a qualifying residential interest, and

(b) N% of the interest is closely inherited, where N is a number—

(i) greater than 0, and

(ii) 15less than or equal to 100,

and in those subsections “NV/100” means N% of so much (if any) of the
value transferred by the transfer of value under section 4 as is
attributable to the interest.

(2) Where—

(a) 20E is less than or equal to TT, and

(b) NV/100 is less than the person’s default allowance,

the person’s residence nil-rate amount is equal to NV/100 and an
amount, equal to the difference between NV/100 and the person’s
default allowance, is available for carry-forward.

(3) 25Where—

(a) E is less than or equal to TT, and

(b) NV/100 is greater than or equal to the person’s default
allowance,

the person’s residence nil-rate amount is equal to the person’s default
30allowance (and no amount is available for carry-forward).

(4) Where—

(a) E is greater than TT, and

(b) NV/100 is less than the person’s adjusted allowance,

the person’s residence nil-rate amount is equal to NV/100 and an
35amount, equal to the difference between NV/100 and the person’s
adjusted allowance, is available for carry-forward.

(5) Where—

(a) E is greater than TT, and

(b) NV/100 is greater than or equal to the person’s adjusted
40allowance,

the person’s residence nil-rate amount is equal to the person’s adjusted
allowance (and no amount is available for carry-forward).

(6) Subsections (2) to (5) have effect subject to subsection (7).

(7) Where the person’s residence nil-rate amount as calculated under
45subsections (2) to (5) without applying this subsection is greater than
VT—

(a) subsections (2) to (5) have effect as if each reference in them to
NV/100 were a reference to VT,

(b) each of subsections (3) and (5) has effect as if it provided that the
person’s residence nil-rate amount were equal to VT (rather
5than the person’s default allowance or, as the case may be, the
person’s adjusted allowance).

(8) See also—

• section 8H (meaning of “qualifying residential interest”),

• section 8J (meaning of “inherit”),

• 10section 8K (meaning of “closely inherited”), and

• section 8M (cases involving conditional exemption).

8F Residence nil-rate amount: no interest in home goes to descendants etc

(1) Subsections (2) and (3) apply if the person’s estate immediately before
the person’s death—

(a) 15does not include a qualifying residential interest, or

(b) includes a qualifying residential interest but none of the interest
is closely inherited.

(2) The person’s residence nil-rate amount is nil.

(3) An amount—

(a) 20equal to the person’s default allowance, or

(b) if E is greater than TT, equal to the person’s adjusted allowance,

is available for carry-forward.

(4) See also—

• section 8H (meaning of “qualifying residential interest”),

• 25section 8J (meaning of “inherit”),

• section 8K (meaning of “closely inherited”), and

• section 8M (cases involving conditional exemption).

8G Meaning of “brought-forward allowance”

(1) This section is about the amount of the brought-forward allowance (see
30section 8D(5)(f)) for a person (“P”) who dies on or after 6 April 2017.

(2) In this section “related person” means a person other than P where—

(a) the other person dies before P, and

(b) immediately before the other person dies, P is the other
person’s spouse or civil partner.

(3) 35P’s brought-forward allowance is calculated as follows—

(a) identify each amount available for carry-forward from the
death of a related person (see sections 8E and 8F, and
subsections (4) and (5)),

(b) express each such amount as a percentage of the residential
40enhancement at the death of the related person concerned,

(c) calculate the percentage that is the total of those percentages,
and

(d) the amount that is that total percentage of the residential
enhancement at P’s death is P’s brought-forward allowance or,
45if that total percentage is greater than 100%, P’s brought-

forward allowance is the amount of the residential
enhancement at P’s death,

but P’s brought-forward allowance is nil if no claim for it is made under
section 8L.

(4) 5Where the death of a related person occurs before 6 April 2017—

(a) an amount equal to £100,000 is treated for the purposes of
subsection (3) as being the amount available for carry-forward
from the related person’s death, but this is subject to subsection
(5), and

(b) 10the residential enhancement at the related person’s death is
treated for those purposes as being £100,000.

(5) If the value (“RPE”) of the related person’s estate immediately before
the related person’s death is greater than £2,000,000, the amount
treated under subsection (4)(a) as available for carry-forward is
15reduced (but not below nil) by—

8H Meaning of “qualifying residential interest”

(1) This section applies for the purposes of sections 8E and 8F.

(2) In this section “residential property interest”, in relation to a person,
20means an interest in a dwelling-house which has been the person’s
residence at a time when the person’s estate included that, or any other,
interest in the dwelling-house.

(3) Where a person’s estate immediately before the person’s death
includes residential property interests in just one dwelling-house, the
25person’s interests in that dwelling-house are a qualifying residential
interest in relation to the person.

(4) Where—

(a) a person’s estate immediately before the person’s death
includes residential property interests in each of two or more
30dwelling-houses, and

(b) the person’s personal representatives nominate one (and only
one) of those dwelling-houses,

the person’s interests in the nominated dwelling-house are a qualifying
residential interest in relation to the person.

(5) 35A reference in this section to a dwelling-house—

(a) includes any land occupied and enjoyed with it as its garden or
grounds, but

(b) does not include, in the case of any particular person, any trees
or underwood in relation to which an election is made under
40section 125 as it applies in relation to that person’s death.

(6) If at any time when a person’s estate includes an interest in a dwelling-
house, the person—

(a) resides in living accommodation which for the person is job-
related, and

(b) 45intends in due course to occupy the dwelling-house as the
person’s residence,

this section applies as if the dwelling-house were at that time occupied
by the person as a residence.

(7) Section 222(8A) to (8D) of the 1992 Act (meaning of “job-related”), but
not section 222(9) of that Act, apply for the purposes of subsection (6).

8J 5Meaning of “inherited”

(1) This section explains for the purposes of sections 8E and 8F whether a
person (“B”) inherits, from a person who has died (“D”), property
which forms part of D’s estate immediately before D’s death.

(2) B inherits the property if there is a disposition of it (whether effected by
10will, under the law relating to intestacy or otherwise) to B.

(3) Subsection (2) does not apply if under the disposition the property
becomes comprised in a settlement, but in that case B inherits the
property if—

(a) under the disposition B becomes beneficially entitled to an
15interest in possession in the property, and that interest in
possession is an immediate post-death interest or a disabled
person’s interest, or

(b) under the disposition the property becomes settled property—

(i) to which section 71A or 71D applies, and

(ii) 20held on trusts for the benefit of B.

(4) Where the property forms part of D’s estate immediately before D’s
death as a result of the operation of section 102(3) of the Finance Act
1986 (gifts with reservation) in relation to a disposal of the property
made by D by way of gift, B inherits the property if B is the person to
25whom the disposal was made.

8K Meaning of “closely inherited”

(1) In relation to a person’s death, something is “closely inherited” for the
purposes of sections 8E and 8F if it is inherited for those purposes (see
section 8J) by a lineal descendant of the person.

(2) 30The rules in subsections (3) to (8) apply for the interpretation of
subsection (1).

(3) A person who is at any time a step-child of another person is to be
treated, at that and all subsequent times, as if the person was that other
person’s child.

(4) 35Any rule of law, so far as it requires an adopted person to be treated as
not being the child of a natural parent of the person, is to be disregarded
(but this is without prejudice to any rule of law requiring an adopted
person to be treated as the child of an adopter of the person).

(5) A person who is at any time fostered by a foster parent is to be treated,
40at that and all subsequent times, as if the person was the foster parent’s
child.

(6) Where—

(a) an individual (“G”) is appointed (or is treated by law as having
been appointed) under section 5 of the Children Act 1989, or
45under corresponding law having effect in Scotland or Northern