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Budget 2015

Our Summary

 

Introduction 

The Chancellor has today delivered his final budget of the current parliament before the general election this May. Following the radical pension changes announced in the Budget 2014, there are further developments giving more freedom for those with annuities and a reduction in the lifetime allowance; both changes being introduced from April 2016. Other notable announcements include some radical changes to ISAs and the introduction of a tax free Personal Savings Allowance.

This summary sets out the main changes to tax rates and allowances for individuals, companies and trustees. It also aims to identify other notable changes which may be of interest to advisers.

Income Tax

  • The tax-free personal allowance will rise to £10,600 from 6 April 2015. Further increases will follow to £10,800 and £11,000 in tax years 2016/17 and 2017/18 respectively.
  • Higher rate tax threshold will rise to £42,385 from 6 April 2015. This will rise in line with the personal allowance, taking it to £42,700 in 2016/17 and £43,300 in 2017/18.
  • Additional rate tax threshold remains at £150,000.
  • From 6 April 2015 the 10% starting rate of tax will be abolished and replaced with a new 0% rate. At the same time the band of savings income that the new 0% rate applies to, will increase from £2,880 to £5,000.
  • A new Personal Savings Allowance will be introduced in April 2016, exempting the first £1,000 of savings income from any tax for basic rate taxpayers and the first £500 for higher rate taxpayers. This exemption will not apply to additional rate taxpayers.
  • The government will extend the period over which self-employed farmers can average their profits for Income Tax purposes from 2 years to 5 years. The government will engage with stakeholders later in the year on the detailed design and implementation of the extension. This measure will come into effect from April 2016 and will be legislated for in a future Finance Bill.

Capital Gains Tax (CGT)

  • As previously announced the annual exempt amount will rise to £11,100 from 6 April 2015.
  • Following consultation the government has confirmed that from 6 April 2015 non-UK resident individuals, trusts, personal representatives and narrowly controlled companies will be subject to Capital Gains Tax (CGT) on gains accruing on the disposal of UK residential property on or after that date. Non-resident individuals will be subject to tax at the same rates as UK taxpayers (28% or 18% on gains above the annual exempt amount). Non-resident companies will be subject to tax at the same rates as UK corporates (20%) and will have access to an indexation allowance.
  • No entrepreneurs’ relief will be granted on the disposal of shares in a company that is not a trading company in its own right. The government will also prevent individuals from claiming the relief on the disposal of personal assets used in a business carried on by a company or a partnership, unless they are disposed of in connection with a disposal of at least a 5% shareholding in the company, or a 5% share in the partnership assets. This affects disposals on or after 18 March 2015.

Inheritance Tax (IHT)

  • IHT nil rate band remains frozen at £325,000 until 2017/18.
  • The Chancellor announced a review of the use of deeds of variation for IHT planning purposes.
  • As announced at Autumn Statement 2014, the government will not introduce a single settlement nil-rate band. It will introduce new rules to target avoidance through the use of multiple trusts and simplify the calculation of trust charges rules. Details will follow in the a future Finance Bill.

Corporation Tax

  • The main rate of Corporation Tax will be set at 21% for the financial year beginning on 1 April 2015, falling to 20% in the year beginning 1 April 2016.
  • The government will increase the rate of the Bank Levy from 0.156% to 0.21% from 1 April 2015. Also in their sights is making banks’ customer compensation expenses non-deductible for Corporation Tax purposes, the government will consult on this change with the aim of legislating in a future Finance Bill.

Pensions

From April 2015:

  • The full Basic State Pension will rise by £2.85 to £115.95 a week.
  • Individuals aged 55 and older will be able to access all their pension savings in defined contribution schemes as a lump sum or a series of income payments via flexi-access drawdown or by taking uncrystallised funds pension lump sums. Payments made over and above their tax free lump sum will be subject to income tax.
  • Free and impartial guidance is available via the government’s Pension Wise website, and further information will be available from Citizens’ Advice Bureaux or the Pensions Advisory Service. Risk warnings will be given by the pension provider where individuals request to take their pension benefits from the provider, without going through a regulated adviser.
  • Generally, payments of benefits on death for those under age 75 will be made free of tax, whether paid as a lump sum or as flexi-access drawdown. Where death occurs on or after age 75, benefits paid as a lump sum will be subject to 45% tax until 2016/17, whereas pension income benefits will be subject to the recipient’s rate of income tax.

From April 2016:

  • The standard lifetime allowance (LTA) will reduce to £1 million. From 6 April 2018 this will be indexed annually in line with CPI.
  • Transitional protections will be available for those who think they may be affected by the reduction in the LTA.
  • Those in receipt of annuity income will, with the agreement of their annuity provider, be able to sell the annuity and take the proceeds, subject to income tax, either as a lump sum or in stages over a number of years. A consultation has been issued alongside the Budget statement.
  • Lump sum death benefits payable on death on or after age 75 will be subject to tax at the recipient’s rate of income tax.

ISAs

  • The annual subscription limit will increase to £15,240 from 6 April 2015, and at the same time the JISA and Child Trust Fund (CTF) subscription limits will increase by £80 to £4,080.
  • Building on the ISA flexibility put in place over the last few years, the Chancellor announced that savers will soon be able to withdraw and replace money in the same tax year without losing the tax advantages. This development should be launched in Autumn 2015, following consultation with ISA providers.
  • Help to buy ISAs will be made available to first time home buyers in Autumn 2015. The government will boost account holders savings by 25% up to a maximum bonus of £3,000, with the bonus being paid when the account holder buys their first home.
  • The government will extend the range of ISA eligible investments in 2015/16 to include listed bonds issued by a co-operative society and community benefit society and SME securities issued by companies trading on a recognised stock exchange. The government will also explore further extending the list to include debt and equity securities offered via crowd funding platforms, and will consult later in 2015 alongside a response to the consultation on how to include peer-to-peer loans.

National Insurance

  • The government intends to abolish Class 2 NICs in the next Parliament and will reform Class 4 to introduce a new contributory benefit test. There will be consultation on the detail and timing of these reforms later in 2015.
  • Employer NICs for under 21 year olds will be abolished from April 2015.

Miscellaneous

  • The government intends to transform the tax system over the next Parliament by introducing digital tax accounts to remove the need for individuals and small businesses to do annual tax returns. This will include new payment processes to enable tax and NICs to be collected through these digital accounts. Further details on the policy and administrative changes needed to deliver this will be published later in 2015.
  • The planned increase to the Premium Bond holding limit to £50,000 will take place on 1 June 2015.
  • The adult minimum wage will increase by 3.1% to £6.70 per hour from October 2015. The apprentice rate will also increase by 57p per hour to £3.30. From October an individual working full time on the adult minimum wage will see their annual salary rise by over £350.
  • Duty on certain types of alcohol has been decreased with 1p off a typical pint of beer, 2% off on spirits and lower strength cider, and a freeze on wine duty.
  • The fuel duty increase that was scheduled for 1 September 2015 (which was to be 0.54p per litre) will be scrapped. By the end of 2015/16 this represents a saving of £9 every time a typical motorist fills their petrol tank.
  • The maximum amount that parents of disabled children will be able to receive to help pay childcare costs has doubled, from £2,000 to £4,000 per disabled child per year.
  • Air ambulances and search and rescue charities (including blood bike charities) will be eligible for VAT refunds effective 1st April 2015.


Inevitably, more issues will arise and further details of changes will emerge as new information becomes available. The Finance Bill will be published on 24 March, although as you can see a number of measures are being deferred for a future Finance Bill. This is in recognition of the short timescale for legislation to be passed before parliament is dissolved on 30 March. In the meantime if you have any questions regarding any of the above, please email technical@sanlam.co.uk

March 2015

Please Remember...

This note is for use by Financial Advisers only. It is not intended for onward transmission to a private customer and should not be relied upon by any other person. Sanlam Investments and Pensions accepts no liability for any action taken or not taken by any individual or firm as a result of the contents of this material. Whilst we have made every effort to ensure the accuracy of this material we cannot accept responsibility for any consequences (financial or otherwise) arising from relying on it.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.