The Chancellor’s Budget speech this year managed to include a few entertaining ‘digs’ at Ed Miliband’s domestic and financial arrangements and gives us a good idea of the fiscal path the Conservatives would follow in the next Parliament if they win the election. However, if there is another coalition government or if Labour win, we may find that a different course altogether is taken.
Personal Tax Rates and Allowances
The personal allowance (£10,600) and higher rate threshold (£31,785) for 2015/16 had already been published, but George Osborne announced that the personal allowance would be increased to £10,800 for 2016/17 and £11,000 in 2017/18; with the basic rate band increasing to £31,900 in 2016/17 and £32,300 in 2017/18.
The higher age allowance for older taxpayers will be removed from 2016/17, so that everyone will have the same allowance regardless of their age. The proportion of an individual’s personal allowance that will be available to transfer to a spouse or civil partner will increase to £1,060 but only applies where neither party are higher rate or additional rate taxpayers.
The proportion of an individual’s personal allowance that will be available to transfer to a spouse or civil partner will increase to £1,060 but only applies where neither party are higher rate or additional rate taxpayers.
The Chancellor announced the introduction of a new Personal Savings Allowance from 6 April 2016. For a basic rate taxpayer this will mean that £1,000 of savings income will be exempt from income tax. For higher rate taxpayers the exemption is £500 but the allowance will not be available to additional rate taxpayers. From this date, the deduction of tax at source from banks and building societies will be abolished for all savers.
As previously announced, from April 2015 the savings income tax rate will reduce from 10% to 0% on £5,000 of savings income for taxpayers whose non-savings income, after the personal allowance, is less than £5,000. These last two measures should take many small savers out of the tax net altogether.
The Remittance Basis Charge
For 2015/16 onwards, the additional tax charge paid by a non UK domiciled taxpayer using the remittance basis will be increasing. Depending on how long the taxpayer has been resident, the tax charge applying will be £30,000, £60,000 or a new higher top level of £90,000 if the individual has been resident for 17 out of the last 20 years.
To add to the sweeping pension flexibility previously introduced, the Chancellor will introduce further legislation to allow those already in receipt of an annuity to sell their income rights for a lump sum. However this new found flexibility doesn’t guarantee that there will be a willing buyer or that the price offered will be acceptable!
On pensions, there will be a further reduction in the Lifetime Allowance (LTA) from £1.25 million to £1 million from 6 April 2016. This will mean that the LTA will become an issue for more individuals. However, from 2018 this allowance will be indexed.
No changes were made to the pension contribution annual allowance of £40,000 and, for the time being, higher rate tax relief will continue to be given on contributions of up to £40,000 gross into a pension scheme.
In response to the recommendations of the Office of Tax Simplification and following extensive consultation, the Finance Act 2015 will include legislation to:
- Abolish the £8,500 threshold for benefits in kind. Currently those earning less than this amount are taxed on only certain benefits in kind.
- Introduce a statutory exemption for trivial benefits in kind from 2015/16. These ‘trivial’ benefits will then be exempt from tax and National Insurance, providing the cost of the benefit is less than £50. There will be an annual cap on trivial benefits of £300 for employees of ‘close’ companies.
- Scrap the current system of expenses dispensations. In general there will be an automatic exemption if the employee would have been eligible for a deduction if he had paid the expense himself.
- Make changes to the company car and van benefit in kind rates.
From 1 April 2015 the turnover threshold for VAT registration increases from £81,000 to £82,000 and the de-registration threshold increases from £79,000 to £80,000.
Savings and Investments
Social Venture Capital Trusts – Subject to state aid approval, new legislation will be introduced for Social Venture Capital Trusts. The rate of income tax relief will be set at 30% and as with general Venture Capital Trust investments, dividends and capital gains on disposal will be tax free.
Individual Savings Account (ISAs) – Another welcome measure for savers was the proposal that from Autumn 2015, ISA investors will have the flexibility to withdraw funds and replace funds from their ISAs (within the same tax year) without it counting towards the ISA subscription for the year.
The 2015/16 ISA allowance increases from £15,000 to £15,240.
The Junior ISA and Child Trust Fund limits both increase to £4,080 for 2015/16.
A new ‘Help to Buy’ ISA is to be introduced for first-time home buyers. Under this scheme the Government will provide a £50 bonus for every £200 saved, up to a maximum of £3,000 on £12,000 of savings, providing they are used to purchase a property. Accounts are expected to available from the Autumn and savers will be able to make an initial deposit of £1,000 and monthly savings of up to £200.
Pensioner Bonds – These bonds which are available to the over 65s, will remain on sale until 15 May 2015. The maximum investment in these bonds is unchanged at £10,000.
Premium Bonds – As previously announced the limit will be increased to £50,000 from 1 June 2015.
Capital Gains tax exemption – The annual capital gains tax exemption for 2015/16 will be £11,100.
Inheritance Tax (IHT)
As previously announced the IHT nil rate band has been frozen at £325,000 until 2017/18.
In another little jibe at Ed Miliband’s expense, the Chancellor announced a review into the use of Deeds of Variation as a means of avoiding IHT. Another good reason to ensure your Wills are up to date.
The IHT exemption for armed forces personnel who die on active service will be extended to cover all emergency services personnel, humanitarian aid workers and police officers. This will apply to deaths on or after 19 March 2014.
Farmers Averaging – After much campaigning by the National Farmers Union, from April 2016 the period over which self-employed farmers and market gardeners can average their profits for tax purposes will be extended from two years to five years.
Annual Investment Allowance – This was due to reduce from £500,000 to £25,000 from 1 January 2016. The Chancellor said that he would announce the new limit in the Autumn Statement but promised that this would be set at a much more generous amount than anticipated. While this is good news, it would have been helpful to confirm the level of the allowance now so that businesses could plan for their capital expenditure.
Class 2 National Insurance Contributions – These will be abolished in the next Parliament. This is a long overdue reform and if it had come sooner there would have been no need to introduce the recent changes to the arrangements for its collection.
Corporation Tax – For financial years beginning on 1 April 2016 the rate of corporation tax will be 20%, this is unchanged from the rate for 2015.
Given the current political climate, measures to counter aggressive tax avoidance schemes and tax evasion featured heavily in the Budget speech. Amongst other things, legislation will be introduced to:
- Prevent corporate loss ‘refreshing’
- Tighten the system of the Disclosure of Tax Avoidance Schemes (DOTAS)
- Tougher measures for those who persistently enter into tax avoidance schemes – ‘serial avoiders’
- Apply tax geared penalties to cases tackled by the General Anti-Abuse Rule (GAAR)
- Make further use of ‘accelerated payments’ notices
- Strengthen the Notices to Promoters regime for those who market tax avoidance schemes.
Arguably one of the biggest announcements in the Budget was the death of the annual tax return. The reports of its demise are rather likely to be premature but the Government’s aim is to abolish tax returns for millions of individuals and small businesses through the introduction of digital tax accounts. A ‘roadmap’ setting out the policy and administrative changes will be published later in the year… we will await this with interest.
Please note that this is a brief summary of the proposals in the 2015 Budget and the rules are subject to change. The information given is of a generic nature and is not intended to constitute specific advice. It represents our understanding of law and HMRC practice as at March 2015. Please contact your usual Paradigm Norton adviser if you have any questions or seek professional advice before taking any action.