The 2015 budget was the last before the general election in May and therefore an opportunity for the chancellor to promote the party cause and highlight the progress made since the party came to power in the coalition five years ago. While the speech did have a campaigning feel there was a lack of dramatic giveaways that some commentators predicted.
The budget has been received as competent one which takes advantage of the progress made without resorting to tax cuts just prior to the election. There was help for first time buyers and new rules for pensioners; the biggest news on a personal tax level was probably the abolition of the annual tax return for millions of tax payers and small business’s.
Allowances and rates
As expected the personal allowance will continue to rise above the rate of inflation, getting to £11,000 the year after next, given that the allowance in 2010/11 was £6,475 it is clear that significant strides have been made with regard to taking the lowest earners out of tax altogether. In addition the threshold at which people pay basic rate tax will also increase each year meaning the fewer people will be liable to the higher rates of taxation. Another surprise was the increase in the savings personal allowance, which means that from 2016 the first £1,000 of savings income received by a basic rate tax payer will be free of tax, the amount for a 40% tax payer will be £500.
As well as the saving relief, the rules relating to ISA’s will be changed to allow more flexibility and to allow then to withdraw funds during the year and then pay them back in without losing tax relief. There will also be the new buy to let ISA to help first time buyers, where for every £200 saved and used as first time buyer house deposit the government will add £50 up to a limit of £3,000. There are limits on the purchase price of the property also and the bonus will not be paid until the purchase takes place.
Changes to the pension rules will also be introduced the main one being the reduction in the amount you can invest form £1,250,000 to £1,000,000. There will also be rules introduced to allow more flexibility when it comes time to draw your pension and a possibility of revisiting the position for some pensioners who have already purchased annuities.
It was also announced that the annual tax return is on the way out for millions of taxpayers. The aim is to reduce the time tax payers have to spend on tax administration down to 25% of its current level. There is also a move to enable several taxes to be paid at the same time through one account, although you will need to watch you are not paying tax early and receiving no benefit for doing so. These changes will be achieved by everyone eligible having an on line account they can access at any time of the year, income information will automatically be uploaded to the account as it arises so the taxpayer will have a running view of their tax position and impending liabilities. This is a very ambitious project for HMRC particularly when you take into account how error ridden and problematical their previous IT projects have been.
A shock announcement was the early closure of the disclosure facilities in respect of offshore tax avoidance. It is well known that this is an area that HMRC is looking to target as it is likely to prove very profitable for them. The disclosure facilities were set up to encourage tax payers to come forwards on a voluntary basis, in exchange for certain assurances relating to the amount of penalties and the threat of prosecution. It is proposed to replace them with another facility but these will have far less favourable terms applied; therefore the message is clear if you have something to declare you should do it now while these terms are available.
Deeds of variation
The most alarming announcement from a professional point of view relates to review into deeds of variation, this is a normal tool and very useful to a lot of families once a person has died allowing then to alter the estate for practical reasons. HMRC see this as a tax avoidance tool though, and want it closed down. There may be a political element to this announcement as this was the tool used by Ed Miliband the leader of the Labour party to potentially avoid tax on his father’s estate.
Most of the announcements here relate to specific industries and transactions, although the points relating to annual tax returns can be applied to most small businesses who will have the ability to link their accounting systems directly to the tax accounts operated by HMRC, whether this is desirable or not time will tell, but many advisors will be against this move.
There are changes to Entrepreneurs relief but mainly of a technical nature to close off what HMRC see as a misuse of the relief to obtain a tax advantage, the main rules are unchanged.
Some changes have been made to capital allowances regulations in respect of wasting assets which now need to be used in the business rather than just owned by the business, this follows HMRC losing a case relating to a valuable painting.
There have been no changes since the Autumn Statement introduced Stamp Duty reform. This still means that the duty is higher on larger properties than before but there are mitigation schemes available.
ATED and ATED related capital gains tax
The annual Charges are to rise by 50% above inflation as stated in December. From 1st April a £20m+ property held within an “envelope” will pay an annual charge of £218,200. Legislation will be introduced in Finance Bill 2015 to bring down the thresholds for ATED related CGT to £1m from 2015 and to £500,000 from 2016.
Capital gains tax for non-residents
There were no changes here but the tax will start to bite in less than 3 weeks’ time. Clients about to become liable for this tax should think about moving away from this regime sooner rather than later.
Inheritance tax avoidance
There is new anti-avoidance legislation to be introduced to ensure that where property is added to two or more settlements on the same day and after the commencement of those settlements, the value of the added property together with the value of property settled at the date of commencement (that is not already in a related settlement) will be brought into account in calculating the rate of tax for the purposes of ten year charges and for exit.
The some changes in figures:
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For all questions regarding your business in the UK and tax planning, please contact our Business Consultancy team at Law Firm Limited on +44 (0)20 7907 1460 or via email