Finance (No. 2) Bill (HC Bill 155)

Part 1 Income tax

Charge and principal rates etc

1 Income tax charge and rates for 2016-17

(1) 5Income tax is charged for the tax year 2016-17.

(2) For that tax year—

(a) the basic rate is 20%,

(b) the higher rate is 40%, and

(c) the additional rate is 45%.

2 Basic rate limit for 2017-18

(1) In section 4(1)(b) of FA 2015 (basic rate limit for 2017-18) for “£32,400”
substitute “£33,500”.

(2) Accordingly, omit section 6(b) of F(No.2)A 2015 (basic rate limit for 2017-18).

3 5Personal allowance for 2017-18

(1) In section 5(1)(b) of FA 2015 (personal allowance for 2017-18) for “£11,200”
substitute “£11,500”.

(2) Accordingly, omit section 5(b) of F(No.2)A 2015 (personal allowance for 2017-
18).

10Rate structure

4 Savings allowance, and savings nil rate etc

(1) ITA 2007 is amended in accordance with subsections (2) to (12).

(2) In section 6(3)(a) (other rates: savings), after “starting rate for savings” insert
“and savings nil rate”.

(3) 15In section 7 (starting rate for savings)—

(a) the existing text becomes subsection (1),

(b) after that subsection insert—

“(2) The savings nil rate is 0%.”, and”

(c) in the heading, after “starting rate for savings” insert “and savings nil
20rate”.

(4) In section 10(4) (provisions displacing charge at basic, higher and additional
rates), before the entry relating to section 13 insert—

• ““section 12A (savings income charged at the savings nil rate),”.

(5) After section 12 insert—

“12A 25Savings income charged at the savings nil rate

(1) This section applies in relation to an individual if—

(a) the amount of the individual’s Step 3 income is greater than £L,
where £L is the amount of the starting rate limit for savings, and

(b) when the individual’s Step 3 income is split into two parts—

(i) 30one (“the individual’s income up to the starting rate for
savings”) consisting of the lowest £L of the individual’s
Step 3 income, and

(ii) the other (“the individual’s income above the starting
rate limit for savings”) consisting of the rest of the
35individual’s Step 3 income,

some or all of the individual’s income above the starting rate
limit for savings consists of savings income (whether or not
some or all of the individual’s income up to the starting rate
limit for savings consists of savings income).

(2) 40In this section—

Finance (No. 2) BillPage 3

• £A is the amount of the individual’s savings allowance (see
  section 12B),

• “the excess” is so much of the individual’s income above the
  starting rate limit for savings as consists of savings income, and

• 5£X is the amount of the excess.

(3) If £X is less than or equal to £A, income tax is charged at the savings nil
rate (rather than the basic, higher or additional rate) on the excess.

(4) If £X is more than £A, income tax is charged at the savings nil rate
(rather than the basic, higher or additional rate) on the lowest £A of the
10excess.

(5) Subsections (3) and (4) are subject to any provisions of the Income Tax
Acts (apart from section 10) which provide for income to be charged at
different rates of income tax in some circumstances.

(6) Section 16 has effect for determining the extent to which the
15individual’s income above the starting rate limit for savings consists of
savings income.

(7) For the purposes of this section, an individual’s “Step 3 income” is the
individual’s net income less allowances deducted at Step 3 of the
calculation in section 23.

12B 20Individual’s entitlement to a savings allowance

(1) Subsections (2) to (4) determine the amount of an individual’s savings
allowance for a tax year.

(2) If any of the individual’s income for the year is additional-rate income,
the individual’s savings allowance for the year is nil.

(3) 25If—

(a) any of the individual’s income for the year is higher-rate
income, and

(b) none of the individual’s income for the year is additional-rate
income,

30the individual’s savings allowance for the year is £500.

(4) If none of the individual’s income for the year is higher-rate income, the
individual’s savings allowance for the year is £1,000.

(5) The Treasury may by regulations substitute a different amount for the
amount for the time being specified in subsection (2), (3) or (4); and
35regulations under this subsection that have effect for a tax year may be
made at any time before the end of that tax year.

(6) If regulations under subsection (5) reduce any amount, the regulations
may not be made unless a draft of the instrument containing them
(whether alone or together with regulations under subsection (5) which
40increase any amount) has been laid before, and approved by a
resolution of, the House of Commons.

(7) Section 1014(4) (negative procedure) does not apply to regulations
under subsection (5) which increase any amount if—

(a) the instrument containing them also contains regulations under
45subsection (5) which reduce any amount, and

(b) a draft of the instrument has been laid before, and approved by
a resolution of, the House of Commons.

(8) For the purposes of this section—

(a) each of the following is “additional-rate income”—

(i) 5income on which income tax is charged at the additional
rate or dividend additional rate,

(ii) income on which income tax would be charged at the
additional rate but for section 12A (income charged at
savings nil rate),

(iii) 10income on which income tax would be charged at the
dividend additional rate but for section 13A (income
charged at dividend nil rate), and

(iv) income of an individual who is a Scottish taxpayer or
Welsh taxpayer which would, if the individual were not
15a Scottish taxpayer or Welsh taxpayer (as the case may
be), be income on which income tax is charged at the
additional rate, and

(b) each of the following is “higher-rate income”—

(i) income on which income tax is charged at the higher
20rate or dividend upper rate,

(ii) income on which income tax would be charged at the
higher rate but for section 12A (income charged at
savings nil rate),

(iii) income on which income tax would be charged at the
25dividend upper rate but for section 13A (income
charged at dividend nil rate), and

(iv) income of an individual who is a Scottish taxpayer or
Welsh taxpayer which would, if the individual were not
a Scottish taxpayer or Welsh taxpayer (as the case may
30be), be income on which income tax is charged at the
higher rate.”

(6) In section 16(1) (purposes of rules about highest part of income), before the
“and” at the end of paragraph (a) insert—

“(aa) the extent to which a person’s income above the starting rate
35limit for savings consists of savings income,”.

(7) In section 17 (repayment where tax paid at basic rate instead of starting rate for
savings)—

(a) after subsection (1) insert—

“(1A) This section also applies if income tax at a rate greater than the
40savings nil rate has been paid on income on which income tax is
chargeable at the savings nil rate.”, and”

(b) in the heading—

(i) for “basic” substitute “greater”, and

(ii) after “savings” insert “or savings nil rate”.

(8) 45In sections 55B(2)(b) and 55C(1)(c) (individual liable to tax only at certain
rates), after “dividend ordinary rate” insert “, the savings nil rate”.

(9) In section 745(1) (transfer of assets abroad: same rate of tax not to be charged
twice), after “the starting rate for savings” insert “when that rate is more than
0%,”.

(10) In section 828B(5) (individual liable to tax only at certain rates), after “basic
rate” insert “, the savings nil rate”.

(11) In section 989 (definitions for the purposes of the Income Tax Acts)—

(a) at the appropriate places insert—

• 5“““savings allowance” has the meaning given by section
  12B,”, and

• ““savings nil rate” means the rate of income tax specified
  in section 7(2),”, and”

(b) in the entry for “starting rate of savings”, for “has the meaning given by
10section 7” substitute “means the rate of income tax specified in section
7(1)”.

(12) In Schedule 4 (index of defined expressions), at the appropriate places insert—

(13) 15In section 669(3) of ITTOIA 2005 (preventing charge to both income and
inheritance tax: meaning of “extra liability”), for paragraphs (a) and (b)
substitute—

“(a) income charged at the additional rate or the higher rate were
charged at the basic rate, and

(b) 20income charged at the dividend additional rate or the dividend
upper rate were charged at the dividend ordinary rate.”

(14) In consequence of the amendment made by subsection (13)—

(a) in Schedule 1 to ITA 2007 omit paragraph 561,

(b) in Schedule 1 to FA 2008 omit paragraph 59, and

(c) 25in Schedule 2 to FA 2009 omit paragraph 21.

(15) In section 7(6) of TMA 1970 (cases where person not required to give notice of
being chargeable to income tax), after “dividend ordinary rate” insert “, the
savings nil rate”.

(16) In section 91(3)(c) of TMA 1970 (interest adjustments where reliefs given: when
30to ignore relief from higher rates on income paid subject to deduction of tax)
after “basic rate” insert “, the savings nil rate”.

(17) Subject to subsection (18), the amendments made by this section have effect for
the tax year 2016-17 and subsequent tax years.

(18) The amendments in section 669 of ITTOIA 2005, and the repeals made by
35subsection (14), have effect where the tax year mentioned in section 669(1)(b)
of ITTOIA 2005 is the tax year 2016-17 or a later tax year.

(19) The Treasury may, by regulations made by statutory instrument, make such
provision amending, repealing or revoking any provision made by or under
the Taxes Acts as the Treasury considers appropriate in consequence of the
40amendments made by this section; and regulations under this subsection that
have effect for the tax year 2016-17 may be made at any time before the end of
that tax year.

(20) In subsection (19) “the Taxes Acts” means—

(a) the Tax Acts,

(b) TMA 1970, and

(c) TCGA 1992 and all other enactments relating to capital gains tax.

(21) 5A statutory instrument containing regulations under subsection (19) is subject
to annulment in pursuance of a resolution of the House of Commons.

5 Rates of tax on dividend income, and abolition of dividend tax credits etc

(1) ITA 2007 is amended in accordance with subsections (2) to (8).

(2) In section 6(3)(b) (other rates: dividends), before “dividend ordinary rate,”
10insert “dividend nil rate,”.

(3) In section 8 (dividend ordinary, upper and additional rates)—

(a) in the heading, after “The” insert “dividend nil rate,”,

(b) before subsection (1) insert—

“(A1) The dividend nil rate is 0%.”,”

(c) 15in subsection (1) (dividend ordinary rate), for “10%” substitute “7.5%”,
and

(d) in subsection (3) (dividend additional rate), for “37.5%” substitute
“38.1%”.

(4) In section 9(2) (dividend trust rate), for “37.5%” substitute “38.1%”.

(5) 20After section 13 insert—

“13A Income charged at the dividend nil rate

(1) Subsection (2) applies if, ignoring this section, at least some of an
individual’s income would be charged to income tax at the dividend
ordinary rate, the dividend upper rate or the dividend additional rate.

(2) 25Income tax is charged at the dividend nil rate (rather than the dividend
ordinary rate, dividend upper rate or dividend additional rate) on one
or more amounts of the individual’s income as follows—

Step 1

Identify the amount (“D”) of the individual’s income which would,
30ignoring this section, be charged at the dividend ordinary rate.

Rule 1A: If D is more than £5,000, the first £5,000 of D is charged at the
dividend nil rate (rather than the dividend ordinary rate), and is the
only amount charged at the dividend nil rate.

Rule 1B: If D is equal to £5,000, D is charged at the dividend nil rate
35(rather than the dividend ordinary rate), and is the only amount
charged at the dividend nil rate.

Rule 1C: If D is less than £5,000 but more than nil, D is charged at the
dividend nil rate (rather than the dividend ordinary rate).

Step 2

40If D is less than £5,000, identify the amount (“U”) of the individual’s
income which would, ignoring this section, be charged at the dividend
upper rate.

Rule 2A: If the total of D and U is more than £5,000—

• the first £M of U is charged at the dividend nil rate (rather than
  the dividend upper rate), where £M is the difference between
  £5,000 and D, and

• the amounts charged under this Rule and Rule 1C are the only
  5amounts charged at the dividend nil rate.

Rule 2B: If the total of D and U is equal to £5,000, U is charged at the
dividend nil rate (rather than the dividend upper rate), and the
amounts charged under this Rule and Rule 1C are the only amounts
charged at the dividend nil rate.

10Rule 2C: If the total of D and U is less than £5,000 but more than nil, U
is charged at the dividend nil rate (rather than the dividend upper rate).

Step 3

If the total of D and U is less than £5,000, identify the amount (“A”) of
the individual’s income which would, ignoring this section, be charged
15at the dividend additional rate.

Rule 3A: If the total of D, U and A is more than £5,000, the first £X of A
is charged at the dividend nil rate (rather than the dividend additional
rate), where £X is the difference between—

• £5,000, and

• 20the total of D and U,

and the amounts charged under this Rule, and Rules 1C and 2C, are the
amounts charged at the dividend nil rate.

Rule 3B: If the total of D, U and A is less than or equal to £5,000, A is
charged at the dividend nil rate (rather than the dividend additional
25rate), and the amounts charged under this Rule, and Rules 1C and 2C,
are the amounts charged at the dividend nil rate.”

(6) In section 55B(2) (transferable allowance: conditions for entitlement to tax
reduction)—

(a) in paragraph (b) (individual liable to tax only at certain rates), after “the
30basic rate,” insert “the dividend nil rate,”, and

(b) after paragraph (b) insert—

“(ba) if for the tax year the individual is liable to tax at the
dividend nil rate, the individual would for that year
neither be liable to tax at the dividend upper rate, nor be
35liable to tax at the dividend additional rate, if section
13A (dividend nil rate) were omitted,”.

(7) In section 55C(1) (transferable allowance: conditions for entitlement to elect for
reduced personal allowance)—

(a) in paragraph (c) (individual would be liable to tax only at certain rates),
40after “the basic rate,” insert “the dividend nil rate,”, and

(b) before the “and” at the end of paragraph (c) insert—

“(ca) where on that assumption the individual would for the
tax year be liable to tax at the dividend nil rate, the
individual on that assumption would for that year
45neither be liable to tax at the dividend upper rate, nor be
liable to tax at the dividend additional rate, if section
13A (dividend nil rate) were omitted,”.

(8) In section 989 (definitions for the purposes of the Income Tax Acts), after the

entry for “dividend income” insert—

• “““dividend nil rate” means the rate of income tax specified in
  section 8(A1),”.

(9) In section 7 of TMA 1970 (duty to notify HMRC of liability to tax)—

(a) 5in subsection (6) (exception for net payments etc)—

(i) after paragraph (a) insert “or”,

(ii) at the end of paragraph (b), for “; or” substitute a comma,

(iii) omit paragraph (c), and

(iv) in the words after paragraph (c), after “the basic rate” insert
10“, the dividend nil rate”, and

(b) after subsection (6) insert—

“(6A) A source of income falls within this subsection in relation to any
person and any year of assessment if for that year—

(a) all income from the source is dividend income (see
15section 19 of ITA 2007), and

(b) the person—

(i) is UK-resident,

(ii) is not liable to tax at the dividend ordinary rate,

(iii) is not liable to tax at the dividend upper rate,

(iv) 20is not liable to tax at the dividend additional rate,
and

(v) is not charged to tax under section 832 of ITTOIA
2005 (relevant foreign income charged on
remittance basis) on any dividend income.”

(10) 25The amendments made by the preceding provisions of this section have effect
for the tax year 2016-17 and subsequent tax years.

(11) Schedule 1 contains provision for, and connected with, the abolition of
dividend tax credits etc.

6 Structure of income tax rates

(1) 30ITA 2007 is amended in accordance with subsections (2) to (22).

(2) Before section 10 insert—

“9A Overview of sections 10 to 15

The general effect of sections 10 to 15 is outlined in the following
table—

Note: the table does not address the effect of some exceptions referred
to in sections 10 to 15.”

(3) Before section 7 insert—

“6C 25 The default basic, higher and additional rates

The default basic rate, default higher rate and default additional rate for
a tax year are the rates determined as such by Parliament for the tax
year.”

(4) After section 7 insert—

“7A 30The savings basic, higher and additional rates

The savings basic rate, savings higher rate and savings additional rate
for a tax year are the rates determined as such by Parliament for the tax
year.”

(5) In section 6(3) (other rates)—

(a) 35 before paragraph (a) insert—

“(zc) section 6C (default basic, higher and additional rates),”,
and”

(b) after paragraph (a) insert—

“(aa) section 7A (savings basic, higher and additional rates),”.

(6) 40In section 10(2) (income charged at basic rate) omit the words after “at the basic
rate”.

(7) In section 10(4) (provisions displacing charge at basic, higher and additional