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Summer Budget 2015

Following the general election The Chancellor of the Exchequer presented his second Budget of this year to Parliament on 8th July 2015.

Summaries of the main announcements which affect Small businesses, Contractors / Freelancers, Private individuals and Landlords are outlined below.

All applicable clients will automatically receive an expert and bespoke review (not a standard mail shot) of their tax affairs to identify any specific and relevant tax planning opportunities or restrictions arising from the legislative changes.

The proposals below are subject to change upon the passing of the actual legislation.

Rate and threshold changes

The following changes will apply to the rates announced in the earlier March 2015 budget (Click here).

The government has an aim to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this Parliament. The personal allowance will automatically increase in line with the equivalent of 30 hours a week at the adult rate of the national minimum wage once the personal allowance reaches £12,500.

Dividend taxation

From 2015/16 (6th  April 2016) the 10% dividend tax credit will be abolished and there will be a new dividend tax allowance of £5,000 a year. New rates of tax on dividend income will apply above the allowance as follows:

The overall effect is to increase the current rate of tax on dividends above the new allowance by 7.5%.

For ordinary smaller investors an ISA wrapper may now be more worthwhile to ensure the £5,000 allowance is not wasted on sundry investment income.

Our experts are already working on strategies to avoid this exceptional additional tax burden on limited companies which will revolve around creating an income that is not classed as dividend or NICable benefit in kind and bespoke ‘longer term’ tax planning for the current tax year is now critical for all profitable limited companies.

Corporation Tax rates

The CT rate will be reduced from 20% to 19% from 01/04/17 and to 18% from 01/04/20.


Tax lock provisions

The government will legislate to set a ceiling for the main rates of Income Tax, the standard and reduced rates of VAT, and employer and employee (Class 1) National Insurance contributions rates, ensuring that they cannot rise above their current (2015 to 2016) levels.

In theory these provision can aid in tax planning but the sincerity of the government pledge should not be entirely relied upon.

Wear and Tear Allowance

From April 2016, the Wear and Tear Allowance will be replaced with a new relief that will allow all residential landlords to deduct the actual costs of replacing furnishings. Capital allowances will continue to apply for landlords of furnished holiday lets. The government will publish a technical consultation.

Finance interest tax relief restriction on non corporate landlords

The government will restrict the income tax relief on finance costs that individual landlords of residential property can claim to the basic rate of tax. The restriction will be phased in over 4 years, starting from April 2017.

Finance costs include mortgage interest, interest on loans to buy furnishings, and fees incurred when taking out or repaying mortgages or loans.

The restriction in the relief will be phased in as follows:

This restriction will not apply to landlords of furnished holiday lettings.

Tax planning is essential for all individual landlords and our experts are developing bespoke strategies.

Rent-a-Room relief

The level of Rent-a-Room relief will increase from £4,250 to £7,500 from 6th April 2016.

Tax-free childcare scheme

A new scheme was announced in the earlier March 2015 budget (Click here).

The scheme was scheduled to be launched in autumn 2015 but the launch date has now been deferred to early 2017.

The current system of employer supported childcare will continue to be available for current members. Employer supported childcare will continue to be open to new joiners until the new scheme is available.

Employment allowance

The government will increase the annual Employment Allowance from £2,000 to £3,000. This will come into effect from 6th April 2016. However, where the director of a company is the sole ‘employee’, the company will not be able to claim the allowance from 6th April 2016.

Restriction of CT relief for business goodwill amortisation

The government will restrict the CT relief a company may obtain for the cost of ‘goodwill’ (the reputation and customer relationships associated with a business). This will affect all acquisitions and disposals on or after 8 July 2015.

Restrictions will apply on the treatment of any losses realised on subsequent disposals of goodwill or customer related intangibles which were acquired on or after 8 July 2015. There are no restrictions where a profit is made on a subsequent disposal.

Non-domicile status

From 6th April 2017 an individual who has been resident in the UK for more than 15 of the past 20 tax years will be deemed to be domiciled in the UK for tax purposes. A technical consultation will be published later this year.

From 6th April 2017, individuals who are born in the UK to parents who are domiciled in the UK will no longer be able to claim non domicile status whilst they are resident in the UK.

Lifetime Allowance for pension contributions

The government will reduce the Lifetime Allowance for pension contributions from £1.25M to £1M from 6th April 2016. Transitional protection for pension rights already over £1 million will be introduced alongside this reduction to ensure the change is not retrospective.

The Lifetime Allowance will be indexed annually in line with Consumer Price Index (CPI) from 6th April 2018.

Pension contributions tax relief

All pension input periods open on 8 July 2015 are closed on that date, with the next pension input period running from 9 July 2015 to 5 April 2016.

All subsequent pension input periods will be concurrent with the tax year from 2016/17 onwards.

There will be a consultation on whether and how to undertake a wider reform of pensions tax relief.

Inheritance Tax

An additional nil-rate band when a residence is passed on death to direct descendants will be introduced. This will be £100,000 in 2017 to 2018, £125,000 in 2018 to 2019, £150,000 in 2019 to 2020, and £175,000 in 2020 to 2021. It will then increase in line with CPI from 2021 to 2022 onwards. Any unused nil-rate band will be transferred to a surviving spouse or civil partner. It 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 the value of the additional nil-rate band, are passed on death to direct descendants. This element will be the subject of a technical consultation. 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 IHT nil-rate band is currently frozen at £325,000 until April 2018. The government will continue to freeze the nil-rate band at £325,000 until April 2021.

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. A full detailed consultation will follow later this year.

The government will bring forward the point at which an individual who is classed as a non-domicile is deemed domiciled for IHT tax purposes to 15 out of 20 years. It will also treat individuals who were born in the UK to parents who are domiciled here, as UK domiciled whilst they are in the UK. This aligns inheritance with the changes to the income tax and capital gains tax regime. This will take effect from April 2017.

National Living Wage

A new National Living Wage (NLW) will apply for workers aged 25 and above. From April 2016, the NLW will be set at £7.20 an hour. This rate is 70p higher than the current NMW rate, and 50p above the NMW increase coming into effect in October 2015.

Insurance premium tax (IPT)

The standard rate of IPT will increase from 6% to 9.5% from 1 November 2015 for insurers using the IPT cash accounting scheme. For insurers using the special accounting scheme, premiums relating to policies entered into before 1 November 2015 will continue to be liable to IPT at 6% until 29 February 2016, after which all premiums received by insurers will be taxed at 9.5%.

Where applicable, you could potentially reduce the tax by renewing your cover and paying by annual premium before 1 November 2015.

Controlled Foreign Companies (CFC) loss relief restriction

The government will remove the ability for companies to use UK losses and reliefs against a CFC charge from 8 July 2015.

HMRC debtor and creditor interest rate

The government will set the rate of interest which applies on taxation-related debts payable under a court judgment or order by HMRC to a rate equal to the Bank of England base rate plus 2%. The government will also apply the late payment interest rate of 3% to taxation-related debts owed to HMRC under a court judgment or order. These changes will apply to new and pre-existing judgments and orders in respect of interest accruing on and after 8 July 2015.

Direct recovery of debts

This government will introduce legislation to modernise and strengthen HMRC’s powers to recover tax and tax credit debts directly from debtors’ bank and building society accounts, including funds held in cash ISAs. HMRC claim this measure will be subject to robust safeguards including a county court appeal process and a face-to-face visit to every debtor before they are considered for debt recovery through this measure.

Annual Investment Allowance

The AIA will be increased from £25,000 to £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016.

Time apportionment rules are in place for accounting periods spanning the period of change.