On Wednesday 18th March the Chancellor delivered his pre-election Budget statement which although he had promised would not contain any ‘giveaways or gimmicks’ contained quite a few vote-catching proposals.
He announced the abolition of the annual tax return and various enhancements to the ISA savings regime. There was also good news for farmers with an extension to the way that profits can be averaged as well as changes to the pension regime.
Below is our summary and analysis of the main content of the Budget. Note that several of these changes for the 2015/16 tax year were announced previously.
Income Tax Rates & Allowances 2015-16
- The tax personal allowance is to be increased by £600 to £10,600. From the start of this coalition parliament in 2010 the personal tax allowance will have increased by nearly 64% from £6,475. There is a proposal to increase this allowance to £10,800 in 2016-17 and £11,000 the year after.
- The basic rate tax band for 2015-16 will be £31,785. This means that individuals can receive income up to £42,385 before being liable to higher rate income tax. However the number of ‘higher-rate’ taxpayers has increased by around 50% over the last five years.
- The main rates of income tax are unchanged at 20%, 40% and, for income above £150,000, 45%. Where income is above £100,000 the personal allowance is reduced by £1 for every £2 of income over £100,000 until income reaches £121,200 when it disappears completely.
- Income tax on savings income is to be cut to 0% on income up to £5,000 from 6 April 2015. Previously this band stood at 10% on income up to £2,880. Only those individuals with non-savings income of less than £5,000 (after deducting the personal allowance) will benefit with the main beneficiaries likely to be pensioners.
Other Personal Tax Changes
- A £1,060 transferable ‘marriage allowance’ is to be available from 6 April 2015. This will benefit married couples up to £212 where one spouse earns less than the personal tax allowance and the other is a basic rate taxpayer. Applications to register for the marriage allowance can now be made on-line on the HMRC website.
- The annual tax return in its current format is to be abolished. This will be replaced by a digital tax account which individual taxpayers will be able to access online.
- A new ‘Personal Savings Allowance’ is to be introduced from April 2016. This will provide £1,000 of tax free interest for basic rate taxpayers and £500 for 40% higher rate taxpayers.
- A new ‘Help-to-Buy’ ISA is being introduced from autumn 2015. The account will be available to individual first time buyers with the government providing a £50 bonus for every £200 saved. The bonus will be paid on the purchase of a first home.
- Savers who need to access their ISA accounts will be allowed to withdraw funds and replace them without it counting towards the annual limit from autumn 2015. The annual ISA investment limit is to be increased from £15,000 to £15,240 from 6 April 2015.
- The lifetime pension allowance is to be reduced to £1 million from £1.25 million from 2016. This reduction will help to fund a reduction in tuition fees to £6,000 per year.
- From April 2016 people who already receive a pension annuity will be able to sell it for a cash lump sum. The individual’s marginal tax rate will apply to such sums instead of the 55% currently in force.
- The main rate of corporation tax is reduced to 20% from 1 April 2015. This now aligns with the small profits rate with the UK now boasting one of the lowest corporate tax rates of any major world economy.
- Class 2 National Insurance Contributions are to be abolished in the next Parliament. The government also proposes to reform Class 4 NIC and will consult on these reforms later in 2015.
- The current Annual Investment Allowance of £500k is to be reduced from January 2016 but will not fall as far as the previous AIA limit of £25k.
- Averaging of profits for farmers is to be extended to 5 years from the current 2 years.
- The £2,000 NIC Employment Allowance introduced from April 2014 is to continue.
Capital Gains Tax
- The tax-free annual exemption for 2015-16 is to be increased by £100 to £11,100. This provides £22,200 of tax free gains per married couple.
- The main rates of CGT of 18% and 28% are unchanged for 2015-16. Basic rate taxpayers generally pay CGT at 18% but higher rate taxpayers pay at 28%.
- The special entrepreneurs’ relief rate of 10% is also unchanged. This ER rate applies to lifetime gains on the disposal of qualifying business assets up to £10 million.
Inheritance Tax and Estate Planning
- The IHT nil rate band continues to be frozen at £325,000.
- There is to be a review of the use of Deeds of Variation in avoiding IHT following a death.
Value Added Tax
- The compulsory turnover registration threshold is increased from 1 April 2015 from £81,000 from £82,000. The de-registration limit will increase from £79,000 to £80,000.
- The VAT treatment of prompt payment discounts is changing from April 2015. From 1 April 2015 registered traders must account for VAT on the ‘goods’ value of the invoice ignoring any prompt payment discounts which may be offered.
Other Significant Announcements
- The fuel duty increase scheduled for September 2015 has been cancelled. By the end of 2015-16 fuel duty will have been frozen for five years.
- There is to be a reduction in the Severn Bridge Crossings toll post-2018 once the bridges return to public ownership. The higher rate for small vans is to be abolished and aligned with the rate applicable to motor cars.
If you would like to discuss any of the above proposals and how they relate to your individual circumstances then please do not hesitate to email us on firstname.lastname@example.org or ring us on 01633 215 544
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