This was a forward-looking Budget, with much of the content based on the assumption that the current Government will pick up where it left off, after the General Election on 7 May 2015.
The sweeteners for voters include; a cut in duty on beer, cider and spirits, including whisky. The tax on road fuel is frozen, but the tax and NI charges for having the private use of a company car or van are set to increase above the levels which had already been predicted.
There are two changes to entrepreneurs’ relief which take effect immediately, but those should not affect people who are selling significant stakes in their businesses.
For the future the Chancellor promised to increase the tax-free personal allowance up to £11,000 and introduce a new tax-free savings allowance of £1,000, but not until April 2016 at the earliest. Class 2 NIC is set to be combined with Class 4 NIC, which will be a simplification for the self-employed.
The promised abolition of annual tax returns to be replaced by an online tax account may sound attractive, but HMRC’s track- record of mixing up figures submitted under RTI does not bode well for such an ambitious project.
We have organised the coverage below into future promises, which can only happen after the General Election, and immediate changes which take effect from 18 March 2015, or from April 2015.
This newsletter is a summary of the key tax points from the Budget, based on the documents released on 18 March 2015. It is possible that a different position will be shown by the draft legislation which is due to be published on 24 March 2015. We will keep you informed of any significant developments.
|Born after 5 April 1948||£10,000||£10,600|
|Born after 5 April 1938 before 4 April 1948||£10,500||£10,600|
|Marriage allowance ( also for civil partners) born after 5 April 1935||–||£1,060|
|Born before 6 April 1938||£10,660||£10,660|
|Minimum married couples allowance*||£3,140||£3,220|
|Maximum married couples allowance*||£8,165||£8,355|
|Blind person’s allowance||£2,230||£2,290|
|Income limit for allowances for age related allowances||£27,000||£27,700|
|Income limit for standard allowances||£100,000||£100,000|
* Given where one partner was born before 6 /4/1935, as 10% reduction in tax liability
|Standard allowance for all||£10,800||£11,000|
|Marriage allowance ( also for civil partners) born after 5 April 1935||£1,080||£1,060|
|Income limit for standard allowances||£100,000||£100,000|
The rates of the married couples allowance for people born before 6 April 1935 and the blind person’s allowance will be set according to the rise in inflation in the years to September 2015 and 2016.
Income tax bands and rates
|Savings rate: 10%/ 0%||0 – £2,880||0 – £5,000|
|Basic rate: 20%||0 – £31,865||0 – £31,785|
|Higher rate: 40%||£31,866 – £150,000||£31,786 – £150,000|
|Additional rate: 45%||Over £150,000||Over £150,000|
The higher rate and basic rate thresholds can be increased by paying personal pension contributions or gift aid donations.
|Savings rate: 0%||0 – £5,000||TBA|
|Basic rate: 20%||0 – £31,900||0 – £32,300|
|Higher rate: 40%||£31,901 – £150,000||£32,301 – £150,000|
|Additional rate: 45%||Over £150,000||Over £150,000|
(limits from 1 July 2014)
|Shares and cash ISA||£15,000||£15,240|
|Junior ISA and Child Trust Fund||£4,000||£4,080|
With effect from 1 July 2015 the types of investments that can be included with an ISA or child trust fund account will be expanded to include bonds issued by co-operative societies and community benefit societies, and possibly investments made under peer to peer lending arrangements.
The Government will consult on changes that will allow investors to withdraw money from their ISA and replace it within a tax year, without that replacement money counting towards their annual ISA investment limit.
Another idea is to help first time buyers save for a deposit to buy their first home. From late 2015 savers who do not own their own home will be able to open special “help to buy ISA”. For each £200 they save the Government will contribute into the ISA a further £50, up to a maximum of £3000. The help to buy ISA can be kept open for up to four years and can be used to buy a home for the saver to live in (not let out) that costs up to £450,000 in London or up to £250,000 outside London.
A third change to the tax on savings will be to exempt from tax the first £1,000 of bank and building society interest for basic rate taxpayers each year. Higher rate taxpayers will be eligible to receive £500 of tax free bank interest per year. Additional rate taxpayers will not benefit from this savings allowance. This allowance will apply in addition to tax free savings in ISAs from 6 April 2016.
There are no immediate changes to tax relief for pension contributions. The annual allowance remains at £40,000 for 2014/15 and 2015/16. Although where the taxpayer has started to draw their pension benefits from a defined contribution (money purchase) scheme in excess of the tax-free amount, their annual allowance may be reduced to £10,000.
The lifetime allowance, which governs how much can be sheltered from tax within a taxpayer’s pension funds, is set at £1.25 million for 2014/15. This allowance is not changed for 2015/16.
From 2016/17 it is proposed that the lifetime allowance should be reduced to £1 million, but after that the allowance will be increased with the rate of inflation. Taxpayers will be able to protect their personal level of lifetime allowance by making an election.
From 6 April 2016 it is proposed that people who have already purchased pension annuities will be able to cash-in those annuities when they choose.
There is no immediate change announced to the application or rates of inheritance tax for individuals. The nil rate band has been frozen at £325,000 until 6 April 2018.
Draft legislation to prevent the use of multiple trusts to avoid inheritance tax was published on 10 December 2014. This legislation will not form part of the next Finance Bill but will be consulted on further alongside rules to simplify the calculation of 10-year charges by trusts.
The Government will review the use of deeds of variation for inheritance tax avoidance purposes. This does not mean anything will change. There have been reviews of the use of deeds of variation before and nothing has happened.
CGT on homes
People who are not tax-resident in the UK do not pay UK capital gains tax when they sell a property in the UK, although the gain may well be taxed in the country where the individual is tax-resident.
From 6 April 2015 any gain made on the disposal of a UK residential property will be taxable in the UK, whether or not the owner is resident in the UK. Non-resident owners will only be taxable on the amount of the gain that accrued from 6 April 2015 onwards, and will pay tax at the same rates as they would if UK resident: 18% or 28% for individuals or 20% for companies. A non-resident individual will be eligible to claim a tax exemption for their main home in the UK if they spend at least 90 midnights in that home in the UK during the tax year. Spending in excess of 90 days in the UK could make the individual tax-resident in the UK for the tax year in question.
Entrepreneurs’ relief (ER) applies a 10% rate of capital gains tax to gains made on the disposal of all or part of a business, shares in the shareholder’s personal company, and from assets which were used in the business or company. This last category is called an associated disposal if the disposal happens at around the same time that the shareholder or business owner sells their shares in the company or interest in their partnership.
Until now the law has not specified what percentage of the company or partnership the person must dispose of in order to get ER on the associated disposal of another business asset. From 18 March 2015 the individual will have to sell (or give away) at least 5% of the company’s shares or at least a 5% interest in the partnership for an associated disposal of a business asset to qualify for ER.
This change should not affect people who are planning to sell their whole company or partnership, or a significant stake (over 5%) in that business.
One of the conditions for achieving ER on the sale of a company’s shares is that the company must be a trading company or the holding company of a trading group. From 18 March 2015 there is a minor change to the definition of what counts as a trading group: the activities of joint venture companies are excluded. This is designed to catch artificial arrangements where the shareholder holds their interest in the business mostly through a joint venture and not directly in the trading company.
A wasting asset is an item of moveable plant or machinery which generally decreases in value over time. In very rare circumstances the value of such assets may appreciate over time, examples could include high quality musical instruments, or fine art pictures. If the item is used for a trade, the increase in its value may escape CGT when it is sold.
The law is to be changed to ensure that the item must be used in the owner’s trade to qualify for this potential tax exemption, and not lent briefly to another person in order to attract the tax exemption.
The Landlord’s Energy Saving Allowance worth up to £1,500 for the cost of insulation installed in let properties will not be available beyond 31 March 2015 for corporate landlords. This allowance will cease to be available on 5 April 2015 for unincorporated landlords.
Anti-avoidance provisions take effect from 26 February 2015 to restrict to nil the expenditure qualifying for plant and machinery capital allowances in a sale and leaseback or connected-party transaction. This rule will apply where the person disposing of the asset, or a person connected with them, acquired the asset without incurring capital expenditure or an arm’s length amount of revenue expenditure.
Certain farming businesses have had a tough time recently. Currently farmers can average out their income over two years for income tax purposes, so they pay tax on the average result for two years. The Government will consult on changing this averaging period to five years to take effect from 6 April 2016.
The list of designated energy-saving and water-efficient technologies qualifying for an Enhanced Capital Allowance will be updated during the summer 2015, subject to state aid approval.
Businesses can benefit from 100% tax deduction in the year of purchase for the cost of capital items which are covered by the Annual Investment Allowance (AIA). This allowance has an annual limit per business or group of companies of £500,000, but is set to reduce to £25,000 on 1 January 2016. The Government will review the level of the AIA during the Autumn statement in 2015, and expects to keep the AIA limit at a “generous level”.
Rates for 2015/16:
|Class||Weekly or annual earnings||Rates|
|Employer’s class 1 above primary threshold||Above £156pw||13.8%|
|Employer’s class 1 for employees aged under 21||£156 to £815pw||0%|
|Employee’s class 1 not contracted out||From £155 to £815pw||12%|
|Employee’s additional class 1||Above £815pw||2%|
|Married woman’s rate*||From £155 to £815pw||5.85%|
|Self-employed class 2 (per week) above||Above £5,965pa||£2.80|
|Share fishermen class 2 (per week)||–||£3.45|
|Volunteer development workers class 2||–||£5.60|
|Class 3 ( per week)||–||£14.10|
|Self-employed class 4||From £8,060 to £42,385pa||9%|
|Self-employed class 4 additional rate||Above £42,385pa||2%|
*only available for women who made a valid married woman’s election before 11 May 1977.
Class 2 and class 4
The Government will consult on combining these two classes of national insurance which are both paid by the self-employed. Currently paying class 4 NIC does not allow the payer to qualify for any state benefits, such as the state pension or maternity allowance. It is likely that the contributory attribute of class 2 will be carried into the reformed class 4 NIC.
Corporation tax rates
All corporation tax rates are harmonised at 20% with effect from 1 April 2015, with the exception of rates for ring fence trades in the oil and gas industry. The corporation tax rates for the financial year that begins on 1 April 2016 will also be set at 20%.
From 18 March 2015 Companies will be prevented from using losses brought forward where those losses have arisen due to an artificial or contrived arrangement. This could affect some arrangements already in place, but it is unlikely to impact on companies who have not used any form of tax avoidance scheme.
Diverted profits tax
This new corporate tax, also known as “Google tax” is due to apply to international companies who divert profits from the UK to jurisdictions where those profits are taxed at a lower rate. It is due to come into effect from 1 April 2015 at a rate of 25%. However, the reporting requirements for this new tax have been narrowed so that companies who are not due to pay the tax do not have to provide information to HMRC.
Exclusions are also introduced for companies operating in the oil and gas industries.
Children’s TV tax relief
A new tax relief for companies that make children’s TV programmes will be introduced from 1 April 2015. This will cover programmes, including game shows and competitions, aimed at children aged under 15.
High-end TV tax relief
This tax relief was introduced from 1 April 2013 and includes relief for animation and well as drama and documentaries. The cultural test for this tax relief is to be adjusted so it aligns with the British Culture test for films tax relief. The minimum amount of core expenditure which must be spent in the UK is reduced from 25% to 10% for expenditure incurred on and after 1 April 2015.
Film tax relief
The tax relief currently applies at the rate of 25% for the first £20 million of qualifying core expenditure and at 20% for any excess expenditure. If the production company makes a loss that loss can be surrendered for a payable tax credit worth 20% or 25% of the loss. From 1 April 2015, or from the date when this change gets state aid approval, the payable tax credit will be 25% for all qualifying films.
This new tax relief for companies which run orchestras will apply from 1 April 2016. The details have not been announced but it is likely to follow the structure of relief for theatre companies.
The VAT rates and thresholds are as follows:
|From:||1 April 2015||1 April 2014|
|Acquisitions from EU member|
states, registration and
The Chancellor promised the end of the annual tax return for individuals and small businesses. In its place the taxpayer will have an online tax account which will be pre-populated by HMRC from figures received from other sources, such as from banks and employers.
This is a very ambitious target, in view of the problems experienced by employers with incorrect PAYE accounts populated by figures returned under RTI. However, if the digital tax accounts can be completed with accurate figures from other sources it could save a lot of automatic penalties for filing late tax returns.