This was definitely a Budget to herald a new Government, with some significant changes announced. We highlight below the key announcements made.
• Tax free personal allowance to increase from £10,600 (2015-16) to £11,000 (2016-17); 40% income tax band to increase from £42,385 (2015-16) to £43,000 (2016-17).
• A legislative tax lock to set a ceiling for the main rates of income tax, standard and reduced rates of VAT, employer and employee NIC rates so they do not rise above their current 2015-16 levels.
Dividends – Big Changes!
Dividend tax regime changes from April 2016. We know this area will be very important to many of our clients so we will be releasing more practical detail as it is available. It may be that accelerating dividends before April 2016 will be the advice for many. The key highlights for now are that:
• The current 10p tax credit in each £1 in dividends is to be replaced by a £5,000 tax-free dividend allowance
• The tax rates for dividend income will increase; 7.5% for basic rate, 32.5% for higher rate & 38.1% for additional rate tax payers (currently 0% for basic rate, 25% for higher rate and 30.56% for additional rate tax payers).
IHT – As expected.
• From April 2017 each individual will have a family home allowance so they can pass their home to their children or grand-children tax-free on death. This allowance will be in addition to the existing £325,000 inheritance tax threshold meaning the total tax free allowances for a surviving spouse/civil partner will be up to £1m by 2020-21.
Pensions – yet more change!
• Currently individuals have an annual allowance allowing contributions of up to £40,000 to be made to their pension tax free. From April 2016 a restriction will be phased in reducing the annual allowance to £10,000 for individuals with incomes in excess of £150,000.
• From April 2016 the Lifetime Allowance for tax relief on pension contributions to reduce from £1.25m to £1m.
• Pensions Consultation announced. Government is going to consider whether to make pensions more like ISAs so individuals contribute from income after tax and then have tax free growth and withdrawal. This would contrast from current tax relief on contributions made into scheme, tax free growth and complex rules on withdrawal.
Corporation tax – overall good news for most
• Corporation tax rates to further reduce from 20% to 19% in April 2017 and 18% in 2020.
• Annual Investment Allowance (which gives 100% tax relief on purchase of plant & machinery, vehicles (except cars) and fixtures/fittings) currently set at £500,000 and was going to reduce to just £25,000 as of 1 January 2016 to be set a permanent level of £200,000 from 1 January 2016.
• For accounting periods starting 1 April 2017, corporation tax payments dates to be accelerated for companies with annual taxable profits of £20m or more.
• Consultation on company distributions in Autumn 2015 – could we be going back to old system where companies paid tax on dividends declared which was then claimed as credit against corporation tax liability?
• Corporation tax relief to be restricted on cost of goodwill on acquisitions/ disposals on or after 8 July 2015.
• Employment Allowances to increase from £2,000 to £3,000 from April 2016 but companies with sole employee/director will be prohibited from claiming.
Other issues affecting individuals / landlords
• Tax relief for mortgage interest on residential rental properties to be capped at 20% by April 2020, to be phased in over 4 years.
• New regime for non-domiciled individuals who live in the UK so to remove permanent non-domiciled status from April 2017.
• Changes to rules on investment in VCT and EIS/SEIS companies. Not drastic but give some relaxations with one hand and introduce some restrictions with the other.
We will release more detail and examples as the detail becomes available but please contact Lesley Sutton on firstname.lastname@example.org or 01484 550037 if you have any questions or would like to discuss.