BOOTH AINSWORTH 2015 BUDGET SUMMARY

In a much anticipated budget speech the Chancellor had a difficult balancing act to please an electorate expecting tax cuts, whilst meeting the massive commitment to reduce welfare spending by up to £12 billion.

By spreading the welfare cuts over more than the two years planned, he has created greater scope for some ‘dramatic’ tax saving gestures at the same time as moderating the impact on lower income families.

Inheritance Tax:

A new main residence nil rate band will be phased in increasing the current £325,000 nil rate band to £500,000 for homeowners to pass the family home to direct descendants. For estates including homes with a value of £2 million or more this will be restricted. 

Buy to let properties are excluded from this relief.

Income Tax:

Dividend tax credit replaced by a new £5,000 tax free dividend allowance from April 2016. The new rates of tax on dividend income will be:

• £5,000 to £43,000 – 7.5%
• £43,001 to £150,000 – 32.5%
• £150,001 and over – 38.1%

Tax-free Personal Allowance increased from £10,600 to £11,000 in April 2016 and £11,200 from 2017-18.

Higher rate threshold increased from £42,385 in 2015-16 to £43,000 in 2016-17 and £43,600 in 2017-18.

Pensions:

Lifetime allowance reduced from £1.25m to £1m by 6 April 2016

From 6 April 2016 tapered reductions up to a maximum of £30,000 in the annual pensions allowance for earners over £150k (inclusive of pension contributions). This means an annual pension allowance for some higher earners of only £10,000. 

A net income threshold of £110,000 will apply and if an individual earns below this then the full £40,000 annual allowance will be available to them.

Corporation Tax:

Corporation tax rate reduced to 19% in 2017 and 18% in 2020.

Corporation tax relief for business goodwill amortisation will be withdrawn for all acquisitions and disposals on or after 8 July 2015 

A Bank Corporation Tax Surcharge of 8% on bank profits introduced from 1 January 2016. Corresponding to this the Bank levy rate is to be gradually reduced by more than half by 2021 from its current rate of 0.21% on bank balance sheets. 

Capital Allowances:

Annual Investment Allowance set at a permanent level of £200,000 from January 2016.

Business Tax:

The employer National Insurance contributions employment allowance increased from £2,000 to £3,000 from April 2016.

Levy on large employers to fund 3 million new apprenticeships by 2020.

A compulsory National Living Wage for workers aged 25 and over to be introduced from April 2016 of £7.20 per hour to reach £9 by 2020

Welfare Reform – Tax Credits:

Wide ranging changes in total saving £9.2 billion and including; withdrawal of the child tax credit for more than two children;  a benefits cap reduction by £3,000; reducing the income disregard to £2,500; and freezing most working age benefits for 4 years.

Non-Domicile Status:

From 6 April 2017 the government is introducing changes to withdraw permanent Non Domiciled status. Once classed as a UK resident for more than 15 of the past 20 years an individual will be deemed to be domiciled in the UK for all tax purposes.

This means that from the 16th year the remittance basis will no longer be an option of taxing individuals’ income and Inheritance Tax will be charged on the worldwide personal assets.

Insurance Premium Tax:

From November 2015 the standard rate will increase from 6% to 9.5% affecting most insurances.

Vehicle Excise Duty:

New cars purchased after April 2017 will pay a one off “first year rate” of car tax dependant on the CO2 emissions of the car.

Thereafter car tax will typically be £140 per year except for cars costing more than £40,000 that will pay car tax of £450 per year for the first 5 years

Landlords – Buy To Let:

Individuals receiving rental income on dwelling properties will have relief restricted to the basic rate of income tax for finance costs, i.e. mortgage interest.

Rent a room relief will rise from £4,250 to £7,500 from 06 April 2016.

Anti-Avoidance:

Following consultation which was contested by many as a step too far, direct recovery of debts from taxpayer’s bank, building society and ISA’s accounts will be legislated for.

HM Revenue & Customs funding for criminal investigations will be increased by £60 million to raise 10 times more in tax, they will also invest £300 million in local compliance resources, with the aim of raising £2 billion by 2020-21.

For further information about the budget please contact Peter Williams, Director of Corporate Tax on 0161 475 1582.