George Osborne has just delivered his last Budget before election day and whilst some of the measures were expected, such as the increase in the personal allowance, making changes to tax on savings and reforming pensions, there were a few interesting additions. We shall shortly release more information as we digest the press releases, but here’s a brief selection of the matters we think are most likely to affect our clients:
The Chancellor mentioned that as tax reliefs on large pension pots are becoming difficult to sustain, from next year the following changes will come into effect:
- The Lifetime Allowance to be reduced from £1.25m to £1m.
- To protect those still building up pension pots from inflation, from 2018 the Lifetime Allowance is to be indexed.
- There are no current plans to restrict the Annual Allowance of £40,000 for tax relief on pension contributions.
- Changes to the law will allow pensioners to access their annuities, with the 55% tax charge being abolished and tax being charged at the individual’s marginal rate instead.
2. Personal tax
- The personal allowance has been increased to £10,600 for 2015/16 (which is more favourable than the £10,500 announced last year.) It is then expected to rise further to £10,800 in 2016/17 and to £11,000 in 2017/18.
- The higher rate tax threshold, at which taxpayers pay tax at 40%, will rise to £42,700 in 2016/17 and then to £43,300 by 2017/18.
The Budget has included some favourable changes for those who save, including:
- From April 2016 the first £1,000 of interest earned on savings will be completely tax free for basic rate taxpayers, and the first £500 for higher rate taxpayers. Additional rate taxpayers, however, will not benefit from these changes.
- A 'radically more flexible ISA' is to be introduced under which:
- The annual savings limit for ISA is to be increased to £15,240.
- Savers will be able to take money out of their cash ISA accounts and return it prior to the end of the tax year without losing their tax-free entitlement.
- A planned help-to-buy ISA scheme is to be introduced, allowing savers who are saving for a deposit on their first homes to receive a contribution from the government at a rate of £50 for every £200 saved, up to a maximum of £3,000.
4. Tax evasion - the government’s battle continues
- HMRC will have access to more information from 92 countries which have signed up to automatic tax information exchange.
- Liechtenstein Disclosure Facility and other disclosure opportunities are to close earlier than expected at the end of 2015.
- But a ‘last chance’ disclosure on less favourable terms will be available in 2016/17.
5. Tax avoidance - making life fairer
Some areas that the government plans to focus on are:
- Ensuring banks are no longer able to deduct the compensation paid to customers on the mis-selling of PPI insurance against their corporation tax liabilities.
- Amending Corporation Tax rules to prevent contrived loss arrangements.
- Businesses will be prevented from taking account of foreign branches when reclaiming VAT on overheads.
- Closing loopholes to ensure Entrepreneurs’ Relief is only available to those selling significant stakes in businesses. Structures using small indirect stakes to access relief will be targeted.
- Plans to issue more Accelerated Payment Notices and ensuring tax is paid upfront on certain schemes.
- Stopping employment intermediaries from creating additional relief on travel and subsistence expenses by clamping down on agencies and umbrella companies.
- Review and reporting in the Autumn on the avoidance of Inheritance Tax through the use of Deeds of Variations.
6. Other highlights
- Class 2 National Insurance Contributions for the self-employed are to be abolished entirely.
- Annual paper tax returns will also be abolished.
- Creative industries shall be given more generous credits, with more support for the video gaming industry and new credits for orchestras. The government shall also look at ways to provide similar reliefs for local newspapers.
- For the drinkers, another 1p is to come off the pint, with duty on both spirits and cider to come down by 2% and wine duty frozen.
- The tobacco and gaming taxes will remain unchanged.
- Another welcome announcement - the planned fuel duty increase for September has been cancelled!
If you would like to discuss any of the issues raised in the Budget with one of our tax partners, please contact Clare Munro or Phil Moss.