Summer Budget 2015 Summary by BlueSKY
As is frequently the case, the Budget generates many Financial Planning opportunities (and headaches!!) and the latest Budget was no exception.
The following provides a simple summary of the key points, but it’s worth noting that it is often the coming days and weeks where we will expect to fully understand the ‘small print’ behind the headlines.
Personal Allowance: £11,000 in 2016/17, aiming at £12,500 by 2020, the threshold rising in line with the minimum wage*.
Higher rate income tax band: £43,000 2016/17, targeting £50,000 by 2020.
*Introduction of a new National Living Wage, from April 2016 £7.20 an hour for over 25s, rising to £9 by 2020 based on 30 hours per week.
There will be introduced by legislation a tax lock to rule out increases in the main rates of income tax, VAT or National Insurance over the course of this Parliament.
A new transferable nil-rate band is to be introduced from April 2017. This will apply when a main residence is passed on death to direct descendants, e.g., children or grandchildren. The allowance will be up to £100,000 in 2017-18, up to £125,000 in 2018-19, up to £150,000 in 2019-20, and up to £175,000 in 2020-21. This is in addition to the inheritance tax nil-rate band of £325,000, which will remain at this level until the end of 2020-21. Any unused main residence nil-rate band will be transferred to a surviving spouse or civil partner and means the effective inheritance tax threshold will rise to £1 million in 2020-21 for a qualifying couple.
The new main residence nil rate band 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 £175,000 in 2020-21, are passed on death to direct descendants.
From April 2016 the Government will remove the Dividend Tax Credit and replace it with a new tax-free Dividend Allowance of £5,000 a year for all taxpayers. Dividend tax rates above this amount are going up from zero to 7.5% for basic rate income tax payers, from 25% to 32.5% for higher rate taxpayers, and from 30.56% to 38.1% for additional rate payers.
The Finance Bill 2015 introduces a tapered reduction in the annual allowance from 6 April 2016, for those with an ‘adjusted income’ of over £150,000. The ‘adjusted income’ definition adds-back any pension contributions, to prevent individuals from avoiding the restriction by exchanging salary for employer contributions.
For those in defined benefit or cash balance arrangements, the value of the employer contribution will be calculated using the normal annual allowance methodology i.e. the pension input amount for the scheme, less the amount of any contributions made by or on behalf the individual during the tax year.
To provide certainty for individuals with lower salaries who may have one off spikes in their employer pension contributions, a net income threshold of £110,000 will apply. If the individual’s net income is no more than £110,000 they will not normally be subject to the tapered annual allowance. However, anti-avoidance rules will apply so that any salary sacrifice set up on or after 9 July 2015 will be included in the threshold definition.
The rate of reduction in the annual allowance is by £1 for every £2 that the adjusted income exceeds £150,000, up to a maximum reduction of £30,000. The carry forward of unused annual allowance will continue to be available, but the amount available will be based on the unused tapered annual allowance.
All pension input periods (PIPs) open on 8 July 2015 are closed on that date, with the next pension input period running from 9 July 2015 to 5 April 2016. All subsequent pension input periods will be concurrent with the tax year from 2016-17 onwards.
There is a new 30-page Green Paper on pensions tax relief released today, as announced in the Chancellor’s Budget speech. Further information in due course.
Buy-to-let mortgage interest tax relief is reducing to 20% by 2020 and “wear and tear allowance” to be replaced by allowance on actual improvement costs.
In addition, the Government will increase the Rent-a-Room relief from £4,250 to £7,500 a year from April 2016.
Residence and Domicile
From April 2017, anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed UK-domiciled for tax purposes.
From April 2017 the Government will also introduce new rules so that everybody who owns residential property in the UK and would otherwise pay inheritance tax on that property cannot avoid paying it by holding it in an offshore structure.
Reducing to 19% in 2017 and 18% in 2020.
National Insurance Contributions
Small firms’ NI contributions will fall, with a £3,000 employment allowance, no longer applicable to companies where the director is the sole employee.
Insurance Premium Tax
Increasing from 6% to 9.5% from November 2015
From September 2017, free childcare entitlement will be doubled from 15 hours to 30 hours a week for working parents of 3 and 4 year olds.
The Equitable Life Payment Scheme, which began making payments in 2011, will close to new claims on 31 December 2015.
From the 2016-17 academic year, maintenance grants will be replaced with maintenance loans for new students from England, paid back only when their earnings exceed £21,000 a year.
Support for Mortgage Interest
Currently, those who receive benefits to help to pay their mortgage interest are able to do so indefinitely with no need to pay anything back. This Budget takes action to convert the Support for Mortgage Interest scheme into a loan, so that home owners repay the financial support they receive.
We hope this summary helps you understand what the Budget changes mean to you.
Please do feel free to contact on of our Advisers if you have any questions, or comment below.