Budget Summary – 8th July 2015
Jul 15, 2015
Budget & Autumn Statement Key Dates Personal Finance Tax
The latest 2015 budget outlined a significant number of tax plans which the new Conservative government intends to introduce over the next five years. In studying the detail of the changes already announced, and those still to come, this budget will be seen as one of the widest ranging in recent years. The impact of it will doubtless be felt for some considerable time to come.
In order to help you digest the salient points, the managers at Paish Tooth have produced the following summary:
Income Tax, Capital Gains Tax (CGT) and Inheritance Tax (IHT)
- Personal allowance will increase to £11,000 in 2016/17 and to £11,200 in 2017/18
- Higher rate tax threshold will rise to £43,000 in 2016/17 and to £43,600 in 2017/18
From 6 April 2016
- Taxation of dividends to change – the existing 10% notional tax credit has been abolished. Instead the first £5,000 of dividend income each year will be exempt from tax. The excess above will be taxed at7.5% basic rate, 32.5% higher rate and 38.1% additional rate (above £150,000 p.a.).
- Residential landlords – abolition of 10% wear & tear allowance to be replaced by renewal relief for replacing furnishings for furnished and unfurnished lets.
- Home-owners – rent-a-room relief to be increased to £7,500.
- Farmers – averaging of profits increases to 5 years.
- Restricted tax relief on pension contributions made by taxpayers with an income over £150,000. It will be lost on a tapering basis of £1 relief for every £2 of income from 1 April 2016, and annual allowance will reduce from £40,000 to £10,000. Lifetime allowance will be reduced to £1,000,000 from 1 April 2016.
- Savings allowance will be £1,000 for basic rate tax payers and £500 for higher rate tax payers, but will not exist for additional rate taxpayers.
- Tax credits income threshold is now £3,850. The income disregard level (the amount by which income can rise before you have to pay anything back) is now reduced to £2,500,and the taper rate (the mechanism by which the tax credit is proportionally withdrawn) has been increased to 48%.
From 6 April 2017
- Tax relief for residential landlords on mortgage interest, mortgage arrangement fees and interest on loans to buy furniture or fixtures will be restricted to basic rate tax.
- The restriction will be phased in over 4 years – 25% of total finance costs in 2017/18; 50% in 2018/19; 75% in 2019/20 and 100% in 2020/21.
- Non-UK domiciled individuals who have been resident in the UK for 15 out of the last 20 years will now be deemed UK-domiciled for income tax, capital gains tax and inheritance tax purposes. Once deemed to be UK-domiciled, they will then be taxed on worldwide income and gains, and worldwide estate, subject to UK IHT.
- If a non-UK domiciled individual is resident in the UK for less than 15 years, then the remittance basis will still apply for worldwide income. If they are born in the UK but leave and regain their non-UK domiciled status, but then return as a UK resident at a later date, they will automatically revert to being UK domiciled for tax purposes.
- All UK residential property held directly or indirectly by non-UK domiciled persons will be subject to UK IHT.
- There will be, in addition to the IHT nil rate band, a new main residence nil rate band for passing the main residence onto direct descendants. Direct descendants are children and grandchildren but can include step children, adopted children and foster children. This will be staged in as follows: £100,000 in 2017/18; £125,000 in 2018/19; £150,000 2019/20 and £175,000 in 2020/21. Only estates under £2,000,000 will get the full benefit; estates over £2,000,000 will have the relief withdrawn at a rate of £1 for every £2 over.
- Tax credits – there will be no child element for third or subsequent children born after 6th April 2007.
PAYE, National Insurance Contributions (NIC), Corporation Tax (CT) & other taxes
- Corporation tax rate will be reduced to 19% in 2017, and then to 18% by 2020.
- Annual Investment Allowance will increase to £200,000 from 1 January 2016 and will remain at this level for the rest of this Parliament.
- Tax relief for goodwill and intangible costs will be withdrawn for acquisitions from 8 July 2015, but relief will be available for any loss on disposal.
From 6 April 2016
- Employers’ NIC employment allowance will rise to £3,000 (from £2,000). Sole director employee companies will no longer be able to claim this allowance.
- There will be new restrictions on tax relief for travel and subsistence for workers engaged through an intermediary. Detail will follow after consultation.
- New National Living Wage now exists for employees who are 25 or over. The rate is £7.20 per hour (increasing to £9.00 per hour by 2020). This will work alongside National Minimum wage and will be compulsory.
From 1 April 2017
- Vehicle excise duty rates will change for cars registered after 1 April 2017. There will be a flat rate of £140 for all cars, unless either the list price exceeds £40,000 (in which case a £310 supplement will apply for the first 5 years) or the car has zero CO2 emissions (in which case a £0 rate applies). First year rates will vary from £0 to £2,000, depending on emission levels.
In addition to the headlines outlined above, the budget also sets out the Governments plans for more consultation and changes in the future. Examples of this include:
- The Office of Tax Simplification will be asked to review the taxation of small companies and the closer alignment of income tax and national insurance.
- IR35 tax on contractors will again be reviewed “to improve the effectiveness” of the legislation.
- Tax and national insurance on termination payments or golden handshakes are also to be made “simpler and fairer”.
- Pensions tax relief will also be looked at again. The current changes could well be seen as merely interim tinkering.
Whenever the changes are labelled as simpler, fairer or more effective, they invariably mean they are more complex and raise more tax overall. Businesses and individuals will need support and advice to interpret these changes and understand how they will impact on their plans for the future. Remember the team at Paish Tooth is always happy to offer guidance and assist with any queries you may have!