Summer Budget 2015 Summary
Here is a summary of some of the changes announced by the Chancellor of the Exchequer in the Summer Budget, published on 8 July 2015.
It is the government’s objective to raise the personal allowance to £12,500 and the point at which high rate tax applies to £50,000 by the end of Parliament. Therefore, someone working 30 hours a week on the minimum wage (aged 21 or over) will not pay tax.
The government will achieve this by:
- Increasing the person allowance from £10,600 for 2015/16 to £11,000 for 2016/17, and £11,200 for 2017/18
- Increasing the basic rate band from £31785 in 2015/16 to £32,000 for 2016/17, and £32,400 for 2017/18.
There has been an increase in the tax-free “rent-a-room” income from £4,250 to £7,500 for landlords who receive income from lodgers from April 2016.
One of the surprise announcements in the budget was the way dividends are taxed. From April 2016 the 10% tax credit will be abolished and replaced by a £5,000 dividend allowance and increased tax rates.
This £5,000 dividend allowance will be included in the basic rate band.
A comparison of the effective tax rates (after personal/dividend allowances) is as follows:
Now April 2016
0% 7.5% Basic Rate
25% 32.5% Higher Rate
30.6% 38.1% Additional Rate
The Annual Investment Allowance (AIA) is a 100% first-year allowance for capital expenditure incurred by businesses. This was due to be reduced to £25,000 from £500,000 from 1 January 2016. However, AIA will now reduce to £200,000 and will remain at this level for the foreseeable future.
The Employment Allowance Credit for Employer’s NIC will rise from £2,000 to £3,000 from April 2016.
Businesses will no longer be able to deduct goodwill amortisation in calculating their taxable profits. However, it should be noted that this will not apply to goodwill acquired prior to 8 July 2015.
The government have introduced restrictions to tax relief for finance costs for landlords. Landlords will no longer be able to deduct finance costs (i.e. interest) when calculating rental profits. Instead, relief will be provided as a Basic Rate Tax Credit (BRTC) to reduce the resulting tax liability.
EIS, SEIS, and VCT Changes
An individual will no longer qualify for SEIS relief if they already hold shares in that company. This will not apply where:
- all the existing shares were under SEIS, or
- at lest some of their shares were under SEIS and invested prior to the new rules coming into force
VCTs and EISs will not longer be able to use qualifying funds to buy other businesses, and a new cap of £12,000,000 for the total EIS/VCT investment that a company may get in its lifetime has been introduced. This increases to £20,000,000 for knowledge-intensive companies.
Long-Term Resident Non-Doms
From April 2017, if a non-dom individual has been resident in the UK for 15 out of the last 20 years they will be deemed to be domiciled in the UK for all tax purposes. They will therefore pay tax on their worldwide income and inheritance tax on their worldwide assets.
The rules will apply from 2017 to a person who is then UK resident, i.e. there is a retroactive effect.
On ceasing to be UK resident, there will be a five year period when they will remain ‘deemed domicile’ in the UK. Likewise, individuals with a UK domicile who leave the UK and acquire a foreign domicile will only lose their UK domicile five years after acquiring that domicile if they have been resident for over 15 years.
Additionally, individuals who are UK domiciled at birth will automatically be domiciled in the UK for future years in which they are resident here.
Main Residence Nil Rate Band
The government have introduced an additional Main Residence Nil Rate Band (MRNRB) which will apply on death from 6 April 2017. It will apply where an individual’s home is passed to a direct descendent only and any unused amount can be transferred to a surviving spouse. The value of the home will be relieved by the MNRB first before the normal nil rate band (currently £325,000).
The main residence nil rate bands will increase as follows:
- 2017/18 – £100,000
- 2018/19 – £125,000
- 2019/20 – £150,000
- 2020/21 – £175,000
Onwards the MRNRB will rise with the Consumer Price Index.
For estates with a net value of over £2,000,000 the MRNRB will be subject to a tapered withdrawal.
The relief will also apply to homes that have been downsized or converted to cash after 8 July 2015. Therefore, if an individual downsizes or sells their home in order to fund care fees, they should still be able to benefit from the change.
Inheritance Tax for Non-Doms
From 6 April 2017 all UK residential property (whether or not commercially let) which is owned directly or indirectly by non-doms will be within the IHT charge. The proposed change will affect property owned in a non-UK company wither by the non-dom or via a trust.
Going forwards HMRC will have the power to directly recover debts from individuals who have failed to pay tax. It will apply to minimum aggregate debts of £5,000 owed and will apply once it has received Royal Assent.
From 6 April 2016, there will be a tapered annual allowance for high earners at a rate of £1 for every £2 of their income in excess of £150,000 to a minimum of £10,000. This applies to taxpayers who earn net taxable income of more than £110,000 per annum and £150,000 including pension contributions from their employers.
Pension input periods are to be standardised with the tax year, as a result of which the 2015/16 tax year has a transitional annual allowance rule whereby the potential maximum annual tax allowance is £80,000 – £40,000 for the period between 6 April 2015 and 8 July 2015, and £40,000 for the period between 9 July 2015 and 5 April 2016.
HMRC will introduce a new all-encompassing disclosure facility in 2016 for individuals who are evading tax. However, the terms will not be as generous as previous facilities. HMRC will start to receive information on offshore accounts from 2017 under the Common Reporting Standard.