Summer Budget 8th July 2015
The Chancellor, George Osborne, opened his Summer 2015 Budget on 8 July 2015 with “A bold budget…with big ambitions”, then followed with “we shouldn’t go faster, we should go slower”. So what are we to make of this bold but slow Budget?
Osborne set out Parliament’s intentions to tackle tax evasion and other tax non-compliance by extending HMRC’s resource; a total of £60m to pursue more criminal investigations into wealthy individuals, those with net wealth between £10m-20m with, the aim of raising £600m in tax, a £300m fund for the non-compliance by small and mid-sized businesses, public bodies and affluent individuals with the aim of raising over £2bn in tax, and a further £36m to take on serious non-compliance by trusts, pension schemes and non-domiciled individuals.
The aim is for there to be nowhere for the tax evader to hide, and the government will require accountants and tax advisers, along with “financial intermediaries”, to notify their clients about the penalties for tax evasion and the various options available for full disclosure of all tax irregularities to HMRC (the Common Reporting Standard).
The agenda on evasion was set a number of years ago – and now HMRC has been given some financial muscle behind the strategy.
In addition to the backdrop of making sure the right amount of tax is paid by all there were changes in tax rules for business and individuals which could affect you, see below for more details.
Please call us if you’d like to talk through any of the Summer Budget announcements.
Tax Lock – there is to be a ceiling for the main rates of income tax, the standard and reduced rates of VAT, and NICs rates, ensuring that they cannot rise above their current (2015-16) levels.
Personal allowance increase – an increase the income tax personal allowance from £10,600 in 2015-16 to £11,000 in 2016-17. It will increase to £11,200 from 2017-18.
Higher rate threshold increase – an increase in the higher rate threshold from £42,385 in 2015-16 to £43,000 in 2016-17 and to £43,600 in 2017-18.
Dividend taxation – the abolition of the Dividend Tax Credit from April 2016 and the introduction a new Dividend Tax Allowance of £5,000 a year. The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
Reform of the Wear and Tear Allowance – from April 2016, the government will replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings. Capital allowances will continue to apply for landlords of furnished holiday lets. There will be a technical consultation before the summer.
Restricting finance cost relief for landlords – a restriction of the relief on finance costs for individual landlords of residential property to the basic rate of tax. The restriction will be phased in over 4 years, starting from April 2017.
Increasing the level of the Rent-a-Room relief – an increase in the level of Rent-a-Room relief from £4,250 to £7,500 from April 2016.
Increasing the employer NIC Employment Allowance – an increase in the annual Employment Allowance from £2,000 to £3,000 from April 2016.
Corporation tax rates – A reduction in the corporation tax rate from 20% to 19% in 2017 and 18% in 2020.
Annual Investment Allowance (AIA) – an increase in the permanent level of the AIA from £25,000 to £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016.
Dividend taxation – the abolition of the Dividend Tax Credit from April 2016 and the introduction of a new Dividend Tax Allowance of £5,000 a year. The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
Research and development (R&D) tax credits: universities and charities – the correction of an anomaly in the R&D tax credits legislation so that universities and charities are unable to claim the R&D Expenditure Credit (RDEC), in line with the original intention of the policy. This will apply to expenditure from 1 August 2015.
Restriction of corporation tax relief for business goodwill amortisation – the government will restrict the corporation tax relief a company may obtain for the cost of ‘goodwill’ (the reputation and customer relationships associated with a business). This will affect all acquisitions and disposals on or after 8 July 2015.
Lifetime Allowance for pension contributions –
a reduction in the Lifetime Allowance for pension contributions from £1.25 million to £1 million from 6 April 2016. Transitional protection for pension rights already over £1 million will be introduced alongside this reduction to ensure the change is not retrospective
Reduced Annual Allowance for top earners – a restriction in the benefits of pension’s tax relief for those with incomes, including pension contributions, above £150,000 by tapering away their Annual Allowance to a minimum of £10,000. This policy will come into effect from April 2016. And a consultation on whether and how to undertake a wider reform of pensions tax relief.
Eligibility of non-domicile status for UK born individuals – from April 2017, individuals who are born in the UK to parents who are domiciled here, will no longer be able to claim non-domicile status whilst they are resident in the UK.
IHT on UK residential property of non-domiciles, including non-domiciles who are not UK resident – new legislation to ensure that, from April 2017, IHT is payable on all UK residential property owned by non-domiciles, regardless of their residence status for tax purposes, including property held indirectly through an offshore structure.
IHT and non-domiciles – the government will bring forward the point at which an individual who is classed as a non-domicile is deemed domiciled for inheritance tax purposes to 15 out of 20 years. It will also treat individuals who were born in the UK to parents who are domiciled here, as UK domiciled whilst they are in the UK. This aligns inheritance with the changes to the income tax and capital gains tax regime, taking effect from April 2017.
Inheritance tax and Trusts
IHT and the main residence nil-rate band – an introduction an additional nil-rate band when a residence is passed on death to direct descendants. This will be £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21. It will then increase in line with CPI from 2021-22 onwards. Any unused nil-rate band will be transferred to a surviving spouse or civil partner. It will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants. This element will be the subject of a technical consultation. There will also be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.
IHT and the nil-rate band – the inheritance tax nil-rate band is currently frozen at £325,000 until April 2018. The government will continue to freeze the nil-rate band at £325,000 until April 2021.