George Osborne has presented his 6th and final Budget before the coming election in May. We have summarised below some of the more impactful changes. As ever, he was caught between the need to rebalance UK plc’s books and sweeten election prospects with Budget giveaways. As far as can be ascertained he resisted the latter strategy in favour of the former.
One of the most surprising announcements was the pledge to simplify tax administration by abolishing the need to file self-assessment returns for millions of individuals and smaller businesses. The Government intends to introduce digital tax accounts to replace this reporting requirement. It is unlikely that this particular change will be made for a few years...
Our summary of other tax changes and fiscal incentives follows:
Personal Tax and miscellaneous matters
Personal Tax allowance
The personal allowance for those born after 5 April 1948 will be increased to:
From 2016-17, there will be one Income Tax personal allowance regardless of an individual’s date of birth.
Income Tax rate bands
There was significant press commentary prior to the Budget predicting an increase in the threshold at which tax payers are liable to the 40% Income Tax rate. The declared higher rate thresholds are:
If your income before allowances exceeds these amounts you will be paying 40% Income Tax on the excess (this assumes that you are only entitled to the basic personal allowance).
The threshold at which the 45% rate starts is unchanged at £150,000.
There were no changes to the basic Income Tax rate (20%), the higher rate (40%) and the additional rate (45%).
Personal savings allowance (PSA)
From 6 April 2016, a PSA will apply to provide exemption of up to £1,000 of a basic rate taxpayer’s savings income, and up to £500 of a higher rate taxpayer’s savings income. The PSA will not be available to additional rate (45%) Income Tax payers.
These benefits will be in addition to the tax advantages offered from ISAs.
From April 2016 people who are drawing an annuity will be able to sell that income to a third party for a capital sum. The change will allow annuity holders to sell their annuities without punitive tax penalties of up to 70%.
To prepare for this flexibility the Government has published a consultation to develop a secondary market in annuities.
Pension’s lifetime allowance
From 6 April 2016 the pension’s lifetime allowance will be reduced to £1m (currently £1.25m).
Trivial benefits in kind
From 6 April 2015 employee benefits costing £50 or less will be exempt for tax purposes. An annual cap of £300 (of combined trivial benefits) will apply to office holders of close (smaller) companies and family members of those office holders.
From the same date the £8,500 threshold for benefits in kind is abolished.
Working tax credits (WTCs)
In order to tighten the eligibility conditions for those claiming WTCs based on their status as a self-employed person, it will be necessary for claimants to demonstrate that their business is viable, or is working towards viability. The test will mirror the principles already set out in tax case law.
Alcohol duty is being reduced from 23 March 2015. This reduction will amount to:
The duty rates on wine not exceeding 22% abv, and sparkling cider of a strength not exceeding 5.5% abv, have been frozen.
Tobacco duty rates
Duties are increased by 2% above the rate of inflation. The price of a pack of 20 cigarettes will increase by 16p.
Vehicle excise duty 2015-16
Rates for cars, vans and motorcycles will increase in line with the Retail Prices Index.
Rates for heavy goods vehicles will be frozen.
From April 2015 a spouse or civil partner, who is not a taxpayer, or who does not pay tax above the basic rate, will be entitled to transfer up to £1,060 of their personal allowance to their spouse or civil partner. This will not advantage higher rate tax payers as the recipient of the transfer cannot be subject to tax at higher than the basic rate. This could result in a saving of up to £212 for the recipient (20% of £1,060 in 2015-16). The limit will increase to £1,080 in 2016-17 and £1,100 in 2017-18.
Corporation Tax rate
The main rate of Corporation Tax from 1 April 2015 is 20%. The main rate and small company rate will be the same from this date dispensing with the need for marginal rate calculations.
National Insurance for under 21s partially abolished
From 6 April 2015 employers with employees under 21 years old will no longer have to pay Class 1 Secondary National Insurance Contributions (NICs) on earnings up to the Upper Secondary Threshold (UST) for those employees.
The zero rate won’t apply to Class 1A or Class 1B NICs. Class 1 Secondary NICs will apply if the employee is earning above the UST.
Capital Gains Tax - Entrepreneurs’ Relief (ER)
Where this relief is linked to the disposal of privately held assets used in a business, to qualify for ER the disposal of these assets must be linked to a significant material disposal of the business. This is defined as at least a 5% shareholding in a company or of a 5% share in the assets of the partnership carrying on the business.
Legislation is also being introduced to prevent claims for ER in respect of gains on shares in certain companies that invest in joint venture companies, or which are members of partnerships. This new provision will deny relief where the investing company has no trade of its own.
Both these changes apply from 18 March 2015.
Entrepreneurs’ Relief on disposal of goodwill
ER is denied in respect of gains on business goodwill where the goodwill has been disposed of to a limited company which is related to the claimant. This change was introduced 3 December 2014 following the Autumn Statement.
Following consultation, the legislation has been amended to allow ER to be claimed if the partners in a firm do not hold or acquire any stake in the successor company.
Capital Gains Tax - wasting assets exemption
From April 2015, the exemption for wasting assets will only be available where the qualifying assets have been used in the seller’s own business.
Van benefits for zero emission vans
From 2020-21 there will be a single benefit charge applying to all vans. This compares with the current £nil rate. The transitional steps will be:
Farmer’s averaging of profits
It is proposed that farmers will be able to average results for Income Tax purposes for up to 5 years, presently only 2 years, from April 2016.
Flood defence relief
Contributions made by companies and unincorporated businesses after 1 January 2015, to flood relief partnership funding schemes, will be deductible for both Corporation Tax and Income Tax purposes. The relief will apply to monetary contributions and for the cost of contributed services.
Landlord’s energy saving allowance (LESA)
LESA will not be extended beyond 31 March 2015, for corporate landlords, and 5 April 2015 for unincorporated landlords of let residential property.
Bank loss relief restriction
The proportion of a bank’s annual profits that can be offset by carried forward losses is to be restricted to 50%. Following consultations an allowance of £25m will be included for groups headed by a Building Society.
Banks’ compensation payments
Although no date was set for its implementation, the Government will consult on making customer compensation payments non-deductible for Corporation Tax purposes.
Bank levy rate increase
The bank levy is to be increased to 0.21% from 1 April 2015.
Film, orchestra and television tax relief changes
VAT registration and deregistration limits
From 1 April 2015:
VAT refunds for charities
From 1 April 2015 charities that provide palliative care will be able to obtain a refund of the VAT they incur in providing these services and also in relation to their non-business activities.
A similar scheme will be introduced for “blood-bike” charities to enable them to recover the VAT incurred on the purchase of goods and services.
Gift Aid Small Donations Scheme
From 6 April 2016 the maximum amount that can be claimed through the scheme will be increased to £8,000. This will allow Charities and Community Amateur Sports Clubs to claim a Gift Aid top up payment of up to £2,000 a year.
Savers and investors
ISAs - increased flexibility
Regulations will be introduced in autumn 2015 to enable savers to withdraw and replace money in their cash ISA accounts without it counting towards their annual ISA subscription limit for that year.
Help to Buy ISA
In order to encourage and support first time house buyers to raise a deposit, the Government is to introduce a Help to Buy ISA from autumn 2015. The essential elements of the scheme are: