Budget 2015 – Comprehensive and Far Reaching
8th July 2015 is likely to prove to be one of the most significant budgets of recent decades, with fundamental changes to the UK tax system and the potential to affect everyone.
Post election budgets are notorious for delivering short sharp shocks to the tax system with the hope that five years will be sufficient for the electorate to forget or at least forgive.
As widely anticipated, Welfare carries £12billion of the fiscal savings with HMRC expecting to find a further £5billion through increased enquiries and other anti-avoidance measures.
Whilst we await the final details on many of the announcements made, we outline below some of the key points:
Corporation Tax Rates will reduce to 19% from 2017 and 18% in 2020.
Dividend Tax Credit A major change in the way dividends are taxed will take effect from April 2016. No longer will dividends attract a notional 10% tax credit. Instead the first £5,000 of dividends will be tax free with the rest taxed at the relevant rate.
• 7.5% for basic rate
• 32.5% for higher rate
• 38.1% for additional rate
For most owner-managed businesses trading through a limited company this is likely to result in a tax increase.
Annual Investment Allowance (AIA)From January 2016 AIA will be reduced from £500,000 pa to £200,000 pa.
Employment Allowance Businesses will be exempt from the first £3,000 of Employers NIC from April 2016; this is up from £2,000. At the same time companies where the director is the sole employee will no longer be able to claim the Employment Allowance.
National Living Wage (NLW) For those over 25 a NLW will be introduced starting at £7.20 an hour in April 2016 and rise to over £9 an hour by 2020.
Trivial Benefits Employee benefits of £50 or less were due to become tax free in April 2015 this measure will now be introduced in April 2016.
While most Whitehall departments will experience further funding cuts HMRC will receive £800m over the course of this parliament to help them to target tax avoidance, evasion and to challenge aggressive tax planning.
As well as tripling criminal investigations HMRC enquiries will target:
• wealthy individuals
• specialist and offshore trusts
• non domiciled
Individuals and trusts with net assets of more than £10m will be appointed their own personal tax man, to help ensure that HMRC has an in-depth understanding of wealthy individuals’ tax affairs and the risks they present.
Those earning over £150,000 pa will have their pension contribution relief restricted. From April 2016 it will be tapered from £40,000 to £10,000. This will have a significant impact on members of final salary pension schemes.
The government has also announced it will consult on further reforms to pension tax relief.
Non-dom status will be abolished for individuals who have been resident in the UK for more than 15 of the previous 20 years.
IHT rules for Non-doms have also been tightened.
Help to Buy ISAs
Going live from 1st December 2015, first time buyers will be able to open accounts with £1,000 and thereafter invest £200 per month. The Government bonus of up to £3,000 will be credited when funds are used to purchase your first home.
Personal Allowances and Rate Bands
The government has set the aim to get personal allowances to £12,500 by 2020. In an attempt to meet this target personal allowance will increase to £11,000 in 2016-17 and then £11,200 in 2017-18.
A similar aim has been set for the higher rate threshold to reach £50,000 by 2020. The higher rate threshold will therefore increase to £43,000 in 2016-17 and £43,600 in 2017-18.
Changes for Landlords
The following changes have been announced for landlords:
Restriction of higher rate relief on rental finance cost (such as loan interest) Tax relief on finance costs will be limited to basic rate. The restriction will be phased in over four years (in 25% increments) from April 2017.
Replacement of wear and tear allowance for furnished propertiesFrom April 2016 wear and tear allowance will be replaced; instead landlords will only be given relief when they replace furnishings. A consultation is expected this summer.
Rent a Room relief increase The first £7,500 of rental income will be tax free where you rent a room in your home; this is up from £4,250 and is to come into effect from April 2016 and includes B&Bs.
The Nil Rate Band (NRB) remains unchanged at £325,000 until 5th April 2021.
The Chancellor announced the introduction of an Additional Nil Rate Band of £100,000 from April 2017 increasing to £175,000 by 2020-21. It will come into effect where a residence is transferred, on death, to a direct descendant. Unused additional allowance will be transferrable to the surviving spouse.
The additional allowance will also be available when a person downsizes or ceases to own a home from 8th July 2015 and assets of an equivalent value are passed, on death, to a descendant. The additional allowance will be tapered for estates in excess of £2m.
This briefing aims to provide an awareness of the topic. It is not intended to constitute advice. No liability is accepted for any omission or inaccuracy. We strongly recommend you always seek our specific advice in relation to each scenario.