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Introduction

Yesterday the Chancellor has delivered the first Conservative budget in nearly 20 years. He explained that this Budget sets out a plan for the next 5 years for Britain to keep moving from a low wage, high tax, a high welfare economy; to the higher wage, lower tax, lower welfare economy. Below 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

• Previously announced increases to the tax-free personal allowance and higher rate tax thresholds due in 2017/18 have been brought forward a year.
• Personal allowance will rise to £11,000 in 2016/17.
• Higher rate tax threshold increases to £43,000 in 2016/17.
• In a major change to the taxation of dividends the government will abolish the Dividend Tax Credit from April 2016 and introduce a new Dividend Tax Allowance of £5,000 a year. The new rates of tax on dividend income above the allowance will be 7.5{42972646a1b11d15e0a7a9a6db4fb4925ffa9d0e1fa048d8f6e131eced035707} for basic rate taxpayers, 32.5{42972646a1b11d15e0a7a9a6db4fb4925ffa9d0e1fa048d8f6e131eced035707} for higher rate taxpayers and 38.1{42972646a1b11d15e0a7a9a6db4fb4925ffa9d0e1fa048d8f6e131eced035707} for additional rate taxpayers.
• The government will restrict the relief on finance costs that landlords of residential property can get to the basic rate of income tax. Landlords with larger incomes can currently receive relief at 40{42972646a1b11d15e0a7a9a6db4fb4925ffa9d0e1fa048d8f6e131eced035707} or 45{42972646a1b11d15e0a7a9a6db4fb4925ffa9d0e1fa048d8f6e131eced035707}.
• Rent-a-Room relief will be increased from £4,250 to £7,500 a year from April 2016.

 

Capital Gains Tax (CGT)

• There was little mention of capital gains tax and no changes announced to either the rate of tax or annual exempt amount for individuals.

 

Inheritance Tax (IHT)

• The IHT nil-rate band is currently frozen at £325,000 until April 2018. The government will extend the freeze at £325,000 until April 2021.
• An additional nil-rate band will be introduced when a main residence is passed on death to direct descendants, such as children or grandchildren. This will be £100,000 in 2017/18, £125,000 in 2018/19, £150,000 in 2019/20, and £175,000 in 2020/21 with CPI linked increases thereafter. As with the current nil-rate band, any unused main residence nil-rate band will be transferred to a surviving spouse or civil partner.
• The new main residence nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to £175,000 in 2020/21, are passed on death to direct descendants.
• There will also be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.
• The government will bring forward the point at which an individual who is classed as a non-domicile is deemed domiciled for IHT purposes to being UK resident 15 out of 20 years (currently 17 out of 20 years).The change will be effective from April 2017.
• The government will legislate to ensure that, from April 2017, IHT is payable on all UK residential property owned by non-domiciles, regardless of their residence status for tax purposes, including property held indirectly through an offshore structure.
• As announced in the Autumn Statement 2014, the government will introduce new rules to target avoidance through the use of multiple trusts. It will also simplify the calculation of trust rules. Details will be in the Summer Finance Bill 2015.

 

Corporation Tax

• The corporation tax rate will be cut to 19{42972646a1b11d15e0a7a9a6db4fb4925ffa9d0e1fa048d8f6e131eced035707} in 2017 followed by a further reduction to 18{42972646a1b11d15e0a7a9a6db4fb4925ffa9d0e1fa048d8f6e131eced035707} in 2020.

 

Pensions

• From April 2016, there will be a reduced Annual Allowance for high earners. A Tapered Annual Allowance will be introduced for those with adjusted annual incomes, including the value of any pension contributions, over £150,000. For every £2 of adjusted income over £150,000 the individual’s annual allowance will be reduced by £1, down to a minimum of £10,000 p.a. Individuals with income (excluding pension contributions) of lower than £110,000 will not be subject to a Tapered Annual Allowance. Legislation will also be introduced to align pension input periods with the tax year as well as transitional rules to protect savers who might be adversely affected.
• In order to encourage saving into pensions, the government is consulting on whether pension tax relief should be reformed, perhaps to be more like saving into an ISA, or whether the current system is more beneficial. It is proposed that any reforms would build on the Freedom and Choice in Pensions reforms of the previous government. A consultation paper has been published alongside the Budget Statement with the consultation period running until the end of September 2015.
• The government will also consult on options aimed at making the transfer process from one scheme to another quicker and smoother. This will include looking at any excessive early exit penalties. There may be a cap on such charges for those aged 55 or over.
• Access to Pension Wise is to be extended to those aged 50 and above. There will also be a nationwide marketing campaign to raise awareness of the service.
• Plans for a secondary annuity market are to be set out in autumn 2015, with implementation being delayed until 2017 to ensure that there is a comprehensive offering for consumers.
• Following on from announcements in the Autumn Statement 2014, taxable death benefits from pensions (currently taxed at 45{42972646a1b11d15e0a7a9a6db4fb4925ffa9d0e1fa048d8f6e131eced035707}) will be taxed at the recipient’s marginal rate from 2016/17.
• As previously announced, the Lifetime Allowance will reduce from £1.25m to £1m from April 2016. Transitional protection for those with benefits over £1m will be introduced alongside the reduction so that the change is not retrospective. From 6 April 2018 the Lifetime Allowance will be indexed annually in line with CPI. More information will follow in the 2016 Finance Bill.

 

ISAs

• Help to Buy ISAs will be available for first time buyers to start saving into from 1 December 2015. First time buyers will be able to deposit £200 per month into their Help to Buy ISA at participating banks and building societies. Accounts can be opened with a one off deposit of £1000. The government will boost account holders savings by 25{42972646a1b11d15e0a7a9a6db4fb4925ffa9d0e1fa048d8f6e131eced035707} up to a maximum of £3,000 with the bonus being payable when the individual buys their first home.
• The March Budget 2015 announced that the government will change the ISA rules in the autumn to allow individuals to withdraw and replace money from their cash ISA in-year without this replacement counting towards their annual ISA subscription limit. This policy will also cover cash held in stocks and shares ISAs. These changes will commence from 6 April 2016.
• The government will introduce the Innovative Finance ISA for loans arranged via a P2P platform, from 6 April 2016 and has today published a public consultation on whether to extend the list of ISA eligible investments to include debt securities and equity offered via a crowd funding platform.

 

National Insurance

• The government will increase the annual Employment Allowance from £2,000 to £3,000. This will come into effect from April 2016.
• From April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance.
• The government will consult in autumn 2015 on abolishing Class 2 National Insurance contributions (NICs) and reforming Class 4 NICs for the self-employed.

 

Benefits and Minimum Wage

• A new National Living Wage is to be introduced for those aged 25 and over of £7.20 per hour in April 2016. This is expected to rise progressively to £9.00 per hour in 2020. The initial impact is that those on the National Minimum Wage working 35 hours per week will also see their annual salary rise by over £1,200 from April 2016.
• From April 2016 the income threshold for tax credits will be cut almost in half – from £6,420 to £3,850 p.a. Universal Credit Work Allowances will also be abolished for non-disabled childless claimants.
• The Child Element of tax credits and Universal Credit will no longer be available for third and subsequent children born after 6 April 2017. There will be allowances in the case of multiple births and other exceptional circumstances. In addition to this, the Family Element will no longer be awarded when a first child is born. In housing benefit, the family premium will be removed for new claims and new births from April 2016.
• The household benefit cap (the cap on the amount of benefits out of work families of working age can receive) will be lowered from £26,000 to £23,000 in Greater London and £20,000 outside of London. Most working-age benefits (including Jobseekers Allowance, Employment and Support Allowance, Income Support, Child Benefit, Maternity Allowance etc.) will be frozen for 4 years from April 2016.

 

Miscellaneous

• Salary sacrifice/exchange arrangements, which pre Budget were touted as a possible target, can allow some employees and employers to reduce the income tax and National Insurance that they pay on remuneration. They are becoming increasingly popular and the cost to the Treasury is rising. The government will actively monitor the growth of these schemes and their effect on tax receipts.
• The government will explore the options for requiring motorists with new cars to undergo the first MOT after 4 years rather than 3.
• A new vehicle excise duty (VED) banding system will be introduced for cars registered on or after 1 April 2017. First year rates (FYRs) will vary according to the carbon dioxide emissions of the vehicle. Year 2 onwards will see a flat standard rate (SR) of £140 for all cars except those emitting 0 grams of carbon dioxide per kilometre (gCO2/km), for which the standard rate will be £0. Cars with a list price of over £40,000 when new pay a supplement of £310 per year on top of the standard rate, for five years.
• From 1 November 2015, the standard rate of insurance premium tax (IPT), on general insurance premiums, will be increased by 3.5 percentage points to 9.5{42972646a1b11d15e0a7a9a6db4fb4925ffa9d0e1fa048d8f6e131eced035707}. Policies entered into before 1 November 2015 will continue to be liable to IPT at 6{42972646a1b11d15e0a7a9a6db4fb4925ffa9d0e1fa048d8f6e131eced035707} for a further 4 months until 1 March 2016 when all premiums received by insurers will be taxed at the new rate of 9.5{42972646a1b11d15e0a7a9a6db4fb4925ffa9d0e1fa048d8f6e131eced035707}, regardless of when the policy was entered into.