Summer Budget 2015
Current Issues | Tax | 8th July 2015
In the first Conservative budget for 18 years Chancellor George Osborne announced a ‘Budget for the working people of Britain’. Whilst the hike in the minimum wage - and rebranding as a living wage - grabbed a lot of the headlines, as usual there were numerous changes which went largely unreported and the conditions which apply to others mean that their impact may not be quite as it first appeared.
Income tax and NIC
|Basic rate band||31,785||32,000||32,400|
|Higher rate threshold||42,385||43,000||43,600|
Income tax and NIC rates are unchanged for 2016/17.
The NIC Upper Earnings / Profits limit will remain aligned with the higher rate threshold.
Dividend tax credits are to be abolished from 6 April 2016. The first £5,000 of dividend income will be tax free. On the excess, basic rate taxpayers will pay 7.5%, higher rate taxpayers 32.5% and additional rate taxpayers 38.1%.
The Government is consulting on the change from April 2016 which will allow farmers to average their profits for tax purposes over five years instead of two.
From 6 April 2016 the annual cap on tax-deductible pension contributions, currently £40,000, is to be reduced by 50% of the excess of 'adjusted income' over £150,000 if the ‘adjusted income’ exceeds £150,000 and the 'threshold income' is over £110,000, save that the minimum annual allowance is £10,000. 'Adjusted income' is income before deducting any pension inputs; 'threshold income' is income net of pension inputs.
Salary ‘sacrificed’ under arrangements made after 8 July 2015 in return for pension contributions is to be added back in calculating ‘threshold income’.
Both adjusted income and threshold income figures are after gifts of land and securities to charity, but neither reflects cash gifts to charity under gift aid. This is assumed to be an oversight, as it is plainly illogical. Both adjusted income and threshold income are also increased by any finance costs in letting residential property attracting only 20% tax relief. It is notable that the new dividend taxation system will reduce dividends by 10% as a component of 'adjusted income'.
To enable the annual allowance restriction to take effect the pension input periods (PIP) for all pension schemes are to be aligned with the tax year. This will make it easier to understand which contributions relate to which tax year, but it creates a complication for 2015/16. This year is split into two input periods at 8 July 2015, with the second input period running from 9 July 2015 to 5 April 2016. This means an individual could pay up to £80,000 in contributions in 2015/16, but only up to £40,000 in each payment period. Also only up to £40,000 of unused allowance can be carried forward from 2015/16 to 2016/17.
Rent-a-room relief is increased from £4,250 to £7,500 from 6 April 2016.
Income tax relief for interest paid by landlords in respect of residential property will be restricted to the basic rate of 20% on:
- 25% of their finance costs in 2017/18,
- 50% in 2018/19,
- 75% in 2019/20, and
- all of such costs thereafter.
The Finance Bill reveals that this is to be achieved by disallowing the appropriate percentage, initially 25%, of finance costs in calculating taxable income and instead giving a tax credit of 20% of the disallowed costs. Thus the disallowed costs are not deducted in arriving at the 'adjusted income' or 'threshold income' relevant in calculating the pensions annual allowance.
From April 2016, the ‘wear and tear allowance’ for furnished lettings will be abolished; with tax relief available only when landlords replace furnishings.
From 6 April 2017 deemed domiciled status will apply for income tax, capital gains tax and for inheritance tax to those non-domiciled who have been resident in the UK for 15 of the past 20 years.
Furthermore, from 6 April 2017 UK inheritance tax is to apply to residential property in the UK that is owned by an offshore company, partnership or other opaque vehicle. There is to be a consultation on the details of this. There will be exceptions similar to those for non-residents' capital gains tax on UK residential property.
For inheritance tax a transferable 'main residence nil rate band' in addition to the existing nil rate band of £325,000 will be available on death after 5 April 2017 in respect of a residence bequeathed to the deceased's descendants. This extra band will be:
- £100,000 for deaths in 2017/18,
- £125,000 for deaths in 2018/19,
- £150,000 for deaths in 2019/20, and
- £175,000 for deaths from 6 April 2020,
in each case reduced by £1 for every £2 that the residence's value exceeds £2 million.
The main residence nil-rate band is also to be available on the death after 5 April 2017 of someone 'downsizing' from 8 July 2015, on assets of an equivalent value, up to the amount of the extra band.
A transferable main residence nil-rate band will be available where the surviving spouse or civil partner of a couple dies after 5 April 2017 irrespective of when the first of the couple died.
Corporation tax rate is to be 19% from 1 April 2017 and 18% from 1 April 2020.
Corporation tax relief for Goodwill acquired from 8 July 2015 is to be denied until it is sold.
For accounting periods (APs) beginning after March 2017, corporation tax payable by companies with annual profits of £20m or more (that threshold being divided by the number of companies in a group) will be due in the 3rd, 6th, 9th and 12th months of their AP.
In calculating the profits of Controlled Foreign Companies arising after 7 July 2015 no deduction is to be available for UK losses and surplus expenses etc.
The annual investment allowance, currently £500,000 is to be £200,000 from January 2016.
The NIC Employment Allowance will increase by £1,000 to £3,000 from April 2016.
Investment managers' carried interest - Where an individual performs investment management services for a collective investment scheme through an arrangement involving one or more partnerships, any sums received after 7 July 2015 in respect of carried interest under that arrangement will constitute a chargeable gain and be subject to capital gains tax. This will cover the entire sum received by an individual, regardless of the items notionally applied to satisfy the carried interest at the level of the partnership or other entity in the fund structure.
A corporation tax surcharge at 8% will apply from January 2016 to the excess over £25m of banking sector profit, calculated without deducting any existing carried-forward losses.
The bank levy rate will be cut from 0.21% to 0.18% in 2016, 0.17% in 2017, 0.16% in 2018, 0.15% in 2019, 0.14% in 2020 and 0.10% in 2021.
Banks are to be denied corporation tax relief on compensation expenditure arising after 7 July 2015
With effect from Royal Assent to the Finance Act 2015 direct recovery of debts due to HMRC from debtors' bank and building society accounts can begin. HMRC will be able to secure payment of tax and tax credit debts directly from debtors’ bank and building society accounts that have a minimum aggregate credit of £5,000 - subject to safeguards.
From November 2015 the standard rate of Insurance Premium Tax will be increased from 6% to 9.5%.
A new system of vehicle excise duty - or 'road tax' is to apply from 2017, with the proceeds to go into a Road Fund dedicated to care of the country's roads!
Specific advice should be obtained before taking action, or refraining from taking action, on any of the subjects covered above. If you would like advice or further information, please speak to your usual Shipleys contact.