Summer Budget in Brief
ABR provides an easy access round-up of key points from the Summer Budget
Pensions: The Chancellor announced a green paper on pensions tax relief. This will look at applying tax to pensions in a similar way to ISAs, where an individual pays in from taxed income but there is no tax to pay when money is taken out and in between it receives a “top up” from government.
The Chancellor said this was part of a wider programme of reforms intended to making pensions fairer and simpler for everyone, to encourage people to start saving for a pension and to get the country saving more.
Pensions tax relief: People earning more than £150,000 a year will see their tax relief on their pension contributions tapered from £40,000 down to £10,000, for those earning £210,00 and over. The devil in the detail is that employer and employee pension contributions will be included in the £150,000 under “adjusted annual incomes”. Last week ex-Pensions Minister Steve Webb called this move “ridiculous” because of the difficulties in planning and the administration of the system where year on year salaries are unknown.
It will require higher earners to look beyond their pensions to a much broader range of tax efficient savings vehicles.
State pension age: Set to rise to 66 in 2020. An automatic mechanism for future increases to be based on regular, independent review of longevity.
Secondary annuity market: The Government also announced Webb’s secondary annuity market due to begin in April 2016 would be pushed back to 2017. Insurance companies and pension schemes that require long-term stable payments were expected to buy the annuities. The Chancellor said the scheme would be delayed as the insurance industry needed more time to be able to deal with the implications and practicalities of trading the products.
Pensions Wise: The age of eligibility to receive guidance for the government’s Pension Wise was dropped to 50. This could see more people make informed decisions, which in turn could lead to more people seeking professional pensions advice.
Personal income tax thresholds: The personal allowance will be increased to £11,000 for 2016/2017 tax year – with a pledge it will be at £12,500 by the end of this parliament. Higher rate band tax rises from £42,385 in 2015/16 to £43,000 in 2016/17.
Inheritance tax: £175,000 property allowance to be added to current £325,000 nil rate band threshold available to individuals, when property is left to children or grandchildren. This increases the nil rate band headline rate for a couple that own their home from £625,000 to £1m.
However, the full additional allowance is introduced in stages: up to £100,000 from 2017/2018 tax year; up to £125,000 in 2018/2019; up to £150,000 in 2019/2020; and £175,000 only in the 2020/2021 tax year.
The additional nil-rate band 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.
The additional allowance only applies to the main residential property, not to second homes or buy-to-let properties.
Tapering will occur for people owning properties over £2m, with those owning property over £2.35m in value seeing no change to IHT rates.
Property tax relief: Buy-to-Let landlords will see their mortgage tax relief tapered back from 40-45% to 20% for all individuals from 2017. This measure is aimed at restoring a balance between those buying property to let and those buying a home. The bank of England recently announced that 15% of new mortgage were for Buy-to-Let purposes. In addition, 10% deductions from profit for wear and tear in rented properties will be replaced by a rule where only actual costs will be deductible.
Permanent non-domicile status to be abolished. The current rules allow some UK resident to pay lower levels of tax if their permanent residence is overseas. Now those resident in the UK for 15 of the last 20 years will have to pay full UK tax. Children born in the UK will no longer be able inherit non-dom status of their parents. A £50,000 charge will be applied to those who have lived in the UK for 12 years.
Corporation tax is to be reduced from the current rate of 20% (introduced from April 2015) to 19% in 2017 and 18% in 2020. Business rate relief for small businesses will be extended to 2016.
Dividend allowance: From April 2016 the dividend tax credit will be abolished and replaced with a flat rate £5,000 tax-free allowance. Above that amount basic rate tax payers will pay 7.5%, higher rate tax payers 32.5%, and additional rate tax payers 38.1%. This will not affect dividends paid within ISAs and pensions.
The Government said that from April 2016 individuals will be able to receive up to £17,000 of income a year tax free, as well as investing £15,240 in an ISA tax free. This will affect business owners who pay themselves via dividends as a more tax efficient method to take income.
Insurance premium tax: This will increase from 6.5% to 9.5% from November 2015.
Budget surplus: The Chancellor announced that Britain would take longer to reach a budget surplus than previously announced. A surplus is not expected to be achieved until 2019/20, a year later than previously advised.