The Budget in Brief – what announcements will affect our private clients?

Posted by Sarah Bogard

Senior Solicitor & Chartered Tax Adviser

Mr Osborne’s sixth Budget announced the following tax changes, affecting private individuals:

Income Tax

  • The personal allowance will increase to £10,600 from 6 April 2015 (£10,660 for those born before 5 April 1938), with the proposal for it to increase to £11,000 by 2017/2018. The higher personal allowance for those born before 6 April 1938 will be removed with effect from 2016/2017.
  • The threshold at which the higher rate tax starts to apply is £42,385, to be increased to £43,300 by 2017/2018.

Inheritance Tax

  • The Chancellor announced a report to be published by the Autumn in respect of inheritance tax avoidance through the use of Deeds of Variation.  Deeds of Variation can offer an estate planning advantage for beneficiaries, which can have the effect of a reading back to the date of death for tax consequences if made within two years of death.
  • The inheritance tax nil rate band allowances remains at £325,000 (with the transferable nil rate band allowance continuing to apply in respect of married couples and civil partners).

Savings

Four key measures were announced by the Chancellor, to help those with savings:

  • More pensioners will have access to their annuities, and from next year the 55% minimum tax rate on pension funds will be abolished, and funds will instead be taxed at the marginal rate;
  • A “fully flexible ISA” will be available from 2015/2016 (regulations to be introduced in the Autumn). You will be able to remove funds from an ISA and return them without affecting the annual ISA subscription limit for that year. The ISA allowance for 2015/2016 is £15,240 ( a Junior ISA allowance will be £4,080). The Chancellor announced in his autumn 2014 Statement that a surviving spouse or civil partner can inherit the ISA tax free benefits of their pre-deceased spouse or civil partner. It is an additional allowance equal to the value of the ISA at the holder’s death. The additional allowance can be claimed from 6 April 2015, in respect of the death of an ISA holder on or after 3 December 2014.
  • A “help to buy ISA” will be available from this autumn. For every £200 saved by an individual the Government will top up by a further £50. The maximum bonus available per person is £3,000. The ISA is to be used for the purchase of an individual’s first home situated in the UK, and with a purchase price of up to £250,000 (or £450,000 in London).  If there are joint buyers, each eligible individual can have an account. The accounts will only be available to open for the next four years, but once opened there is no limit on the length of time for the saving.
  • From 6 April 2016 a tax-free Personal Savings Allowance will be introduced. The first £1,000 of savings interest will be tax-free (first £500 for higher rate taxpayers).

Tax Compliance

New criminal offences for tax evasion will be announced tomorrow.

  • The death knell of the annual tax return has been sounded. Tax returns are to be replaced by digital tax accounts for millions of individuals and small businesses. Taxpayer details will be held in one place where information can be updated immediately without the need to complete a tax return. Access to a digital tax account will start for many in early 2016 (five million small businesses and the first ten million individuals) and it is anticipated that by the end of the next Parliament every individual and small business in the UK will have one. It will enable taxpayers to update their information, pay tax and review their tax affairs at any time during the year.  Taxpayers will be able to authorise their agents, such as tax advisers, to manage their digital account for them. This of course does not remove the obligation from the taxpayer to ensure that he pays the right amount of tax and so it will continue to be imperative that tax affairs are monitored and checked by the taxpayer, or via his adviser.
  • Regulations will be published for a new inheritance tax digital service.

A Few Other Announcements

  • The automatic Gift Aid on charitable collections will be increased from £5,000 to £8,000 with effect from 6 April 2016;
  • A cut in the lifetime pension allowance, from £1.25millionto £1million, is to feature in tax legislation in the new Parliament.
  • National Insurance Contributions for under 21s and young apprentices is to be abolished, and the Chancellor announced the proposal to abolish Class 2 NICs for the self-employed in the next Parliament.

The Finance Bill 2015 will be published on 24 March 2015.


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