Budget 2015 – summary

This is the second Budget of 2015, but the first that a Conservative-only administration has been able to deliver in the past 20 years. Without the constraints of a Coalition partner, The Chancellor has been able to announce a number of measures promised in the Manifesto, some of which have already been leaked in recent days.

This is the second Budget of 2015, but the first that a Conservative-only administration has been able to deliver in the past 20 years. Without the constraints of a Coalition partner, The Chancellor has been able to announce a number of measures promised in the Manifesto, some of which have already been leaked in recent days.

The Budget was presented with a background of continuing recovery from recession, the economic and political instability in Greece, austerity measures in every country in the EU, but strong signs of recovery in the UK. The Chancellor’s pension reforms announced last year have given a higher-than-expected boost to income tax revenues, and whilst the financial prudence of these changes will be debated for many years, it has given the Chancellor more room for manoeuvre than he might have expected.

Surprisingly, whilst we are thin on detail, a lot was announced today However, it will only be when the draft Finance Bill is published next week that we will be able to fully understand what some of the measures mean. We will, or course, be commenting further once we have seen the detail, but we highlight below the key measures that we consider will directly impact our clients.

Overall, this was a tax-raising Budget, not a tax-cutting Budget. The Chancellor has, in our view, been clever in meeting his Election promises, introducing measures to encourage the low-paid and UK businesses, whilst not being seen to be profligate in his spending

 

Personal tax

• Personal allowance to be increased to £10,60 in 2015/16 to £11,000 in April 2016. This means that anyone earning less than this does not pay income tax at all. The Chancellor said that there is an ambition to increase the PA to £12,500 by 2020, and people working 30 hours a week on the National Living Wage won’t pay income tax at all.
• 40% tax rate now won’t cut in until earnings are £43,000 a year.
• Major changes to tax relief for buy to let properties – mortgage interest relief will be restricted to the basic rate by April 2020. The “wear and tear” allowance will also be reformed so that only replacement expenditure qualifies for tax relief.

 

Dividend tax

• This is a surprise. The dividend tax credit (which reduces the tax payable on income from shares) will be replaced by a new £5,000 tax-free dividend allowance from April 2016. Tax rates on dividend income will be increased overall.

 

 

Inheritance tax (IHT)

• As widely predicted, there is going to be a £1 million nil rate band for IHT in order to permit most family homes to be passed to the next generation free of IHT. This will be effective from 6 April 2017. This will work by introducing a new £175,000 allowance for family homes over and above the current £325,000 nil rate band. There will be a withdrawal of relief for estates worth more than £2million.

 

Pensions tax relief

• The amount that people who earn over £150,000 can pay tax-free into a pension will be reduced
• Consultation paper on tax relief for pensions and the taxation of pension receipts

 

Business tax relief

• The rate of corporation tax will be cut to 19% in 2017 and 18% in 2020, making it the lowest rate of CT in the developed world.

• The annual investment allowance for investment in plant & machinery will be set at its highest ever level of £200,000 as a permanent measure.

• The Employment Allowance will increase by a further £1,000 to £3,000 – this means that businesses will play less employers’ NI.

 

 

Anti-avoidance and non-doms

• As widely expected, there are changes to the taxation of non-domiciliaries. Non-doms who live in the UK will be fully liable to UK tax if they have been tax resident in the UK for 15 of the past 20 years.

• Over £5million is expected to be raised from further crackdown’s on anti-avoidance. In particular, there are changes to the way in which fund managers and similar people are taxed on “carried interest”, and certain specific tax avoidance schemes have been stopped. There is also a suggestion that clever planning using the tax code might be under attack.

• Further strengthening of the “name and shame” policy and investment in HMRC powers to investigate complex tax crime.

 

 

Indirect taxes

• No fundamental changes to CAT or Stamp Duty.

• Vehicle Excise Duty revised to make it fairer and more sustainable. There will be a flat rate of £140 for most cars with a lower and premium rate. Existing cars won’t be affected. Money raised by VED will be ring-fenced (hypothecated) to expenditure on roads etc.

 

 

Other key measures

 

• Consultation on “salary sacrifice” schemes for rewarding employees

• Improve/reform the IR35 legislation for one-man service companies

• Reform of rules to prevent companies from claiming a deduction for the value of “brands” and similar intangibles

• Changes to tax payments dates for very large companies

• Changes to VCT schemes

• Removal of requirement that 70% of SEIS funding be spent before EIS or VCT funding can be used with effect from 6 April 2016

• Averaging period for farmers to be extended from 2 years to 5 years from April 2016