Budget Summary 2015

The Chancellor George Osborne delivered his Budget Report on 18 March 2015.

Avery Clifton have produced a summary of the report below. The Chancellor’s Report was fairly exhaustive so we have kept the summary brief . Highlights to the Budget include reduction to savings tax, revolutionising the personal tax return, abolishing Class 2 National Insurance Contributions  and reduction in the Annual Investment Allowance for businesses.

Click this link for Budget 2015 Rates and Allowances

Personal Tax

Personal Allowances for 2015/16

From 6 April 2015 the personal allowance will be £10,600.

Income Tax Rate Bands for 2015/16

The thresholds for the rates of income tax are as follows from 6 April 2015:

Income Band                          Income tax rate           Dividend rate
£0 – £31,785                                  20%                               10%
£31,786 – £150,000                     40%                               32.5%
£150,000 +                                   45%                                37.5%

The threshold at which higher rate tax is paid is £42,385.

Married Couples and Civil Partners Transferable Tax Allowance

From April 2015, a transferable tax allowance will be introduced which would allow spouses or civil partners to transfer a maximum of £1,060 of any surplus income tax allowance to their partners. Conditions for making or receiving the transfer are that neither party must be liable to income tax at the higher or additional rate. From 6 April 2016 the transferable amount will be 10% of the personal allowance for those born after 5 April 1938

Tax Simplification – Tax Returns

The government intends to transform the tax system over the next 5 years by introducing digital accounts to remove the need for small businesses and individuals to complete annual tax returns. Further details of these changes will be announced later in 2015.

A new Personal Savings Allowance

A new allowance is being introduced from 6 April 2016 to remove tax on up to £1,000 of savings income for basic rate taxpayers and up to £500 for higher rate taxpayers. To implement these reforms, HMRC will be coding out savings income via PAYE from 6 April 2017.

First time buyers – help to buy ISA

The government is tackling the issue of dwindling first time buyers by introducing an ISA scheme, which will provide payments to each person who has saved into a “Help to Buy ISA” for purchasing their first home. The scheme applies to each individual rather than a home, so couples could gain double benefits. For every £200 the holder of the ISA saves,  the government will pay a £50 bonus up to a maximum of £3,000 on £12,000 of savings.

Business Tax

Corporation Tax Rates

The main rate of corporation tax will reduce by 1% to 20% from 1 April 2015, aligning small company’s rate and the main rate of corporation tax.

Restricting relief for goodwill

Corporation Tax relief for goodwill acquired from a related individual or partnership by a company  will be restricted for acquisitions on or after 3 December 2014.

Annual Investment Allowance (AIA)

The current temporary maximum AIA of £500,000 will return to £25,000 from 31 December 2015 for qualifying capital expenditure.

Class 2 National Insurance contributions (NICs)

The government will abolish Class 2 NICs in the next Parliament, reforming Class 4 NICs to introduce a new contributory benefit test. The government will consult on the detail and timing of these reforms later in 2015.

VAT

From 1 April 2015 the VAT registration threshold will increase from £81,000 to £82,000. The deregistration threshold will increase from £79,000 to £80,000.

Statutory exemption for trivial benefits in kind

Legislation will be introduced in Finance Bill 2015 to provide a statutory exemption from tax and NIC  for certain trivial benefits in kind with a value of £50 or less. An annual cap of £300 will be introduced for office holders of close companies such as directors and employees who are family members of those office holders. These changes will take effect from 6 April 2015.

Qualifying expenses payments

Certain expense payments and benefits in kind provided to employees will be exempt from tax. Legislation for this exemption will be introduced in Finance Bill 2015 and will apply where employees would have been eligible for tax relief if they had incurred and met the cost of the expenses or benefits themselves. This exemption replaces situations where the employer had to either apply to HMRC for dispensation to provide expenses and benefits free of tax and NIC, or to report them to HMRC via P11D forms.

The exemption will not apply, however, where expenses are paid as part of a salary sacrifice arrangement. These changes will have effect from 6 April 2016.

Employment intermediaries – Travel and subsistence rules

The government is looking to restrict tax relief for travel and subsistence for workers engaged through an intermediary, such as an umbrella company or a personal service company, and are under the supervision, direction and control of the end user.  The changes will take effect from 6 April 2016.

Capital gains tax (CGT)

Capital Gains Tax Rates

The annual exemption for 2015/16 will be £11,100.

CGT for non-UK residents disposing of UK residential property

From 6 April 2015 non-UK resident individuals, trusts, personal representatives and narrowly controlled companies will be subject to CGT on gains accruing on the disposal of a UK residential property on or after that date. The rate of tax will be the same as UK tax payers and UK corporates.

Capital Gains Tax entrepreneurs’ relief: restricting tax advantages on incorporation

The government has prevented individuals from claiming ER on disposing goodwill when they transfer the business to a related close company. This change applies to transfers on or after 3 December 2014.

Private residence relief (PRR) on properties located in other jurisdictions

Where a UK tax payer sells a property located in a jurisdiction in which the tax payer is not resident, the government will restrict access to PRR. In this situation,  the property will only be capable of being regarded as the person’s only or main residence for PRR purposes for a tax year where the person meets a 90-day test for time spent in the property over the year.

To discuss implications arising from the Budget Summary 2015  for you or your business please contact us on 0118 907 9224.