HM Insights

How will the Budget affect you?

Chancellor George Osborne’s seventh Budget, in July 2015, was a tax raising Budget which rolled out some significant reforms. Here is a summary of the key changes and how they’ll affect you.

1. Inheritance Tax Nil Rate Band

The Inheritance Tax Nil Rate Band (tax free sum) has been frozen at £325,000 since 2009. The Chancellor is proposing to continue this freeze until 2021, but at the same time to introduce a second tax free sum where a house is being passed on to a direct descendant.

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The second tax free sum will not start until April 2017 and it will be phased in over four years. At the outset, in 2017/18, the additional exempt amount will be £100,000 per person, increasing gradually to £175,000 by 2020/21. By 2020, therefore, a married couple who are leaving a house worth at least £350,000 to their child or children will have a total joint Nil Rate Band of £1million (compared with the current £650,000).

To reinforce that this proposal is predominantly designed to help middle class families, there will be a tapered withdrawal of the additional tax free sum for estates worth in excess of £2million.

2. Dividend Allowance

The 10% tax credit that is currently deducted from all dividends is to be abolished and be replaced by a new £5,000 tax free dividend allowance which is to be available to all taxpayers. At the same time, however, the dividend tax rates are being increased to the following:

  • 7.5% for Basic Rate;
  • 32.5% for Higher Rate; and
  • 38.1% for Additional Rate taxpayers.

3. Non- Dom Position

The Government announced a raft of reforms to tighten up the taxation of non-UK domiciled persons (“non-doms”).

  • Anyone who has been UK resident for 15 of the last 20 years will be deemed to be UK domiciled for all UK taxes.
  • If someone was born in the UK or has UK domiciled parents, they will not be able to claim ‘non-dom’ status should they leave the UK and subsequently return.
  • It will no longer be possible for non-dom individuals to hold residential property through an offshore structure to avoid paying UK inheritance tax.

4. Pensions Annual Allowance

The Budget reaffirmed widespread concerns that the government is pressing ahead with restrictions on pension tax relief for those with adjusted incomes in excess of £150,000; including an individual’s own and their employer’s pension contributions.

The Chancellor also declared an intention to introduce more radical pension reforms, principally that pensions will be taxed in a similar manner to ISA’s (being taxed upfront but being tax free when taken out). There is to be a 12-week consultation period on this to encourage debate on the plan.

5. Income tax thresholds

From April 2016, the Income Tax Personal Allowance will rise by £400 to £11,000. The Higher Rate threshold (40%) will also increase from £42,385 to £43,000.

6. Sole Director/Employee Income Tax Relief

From April 2016, where a Director is also the sole employee, it will no longer be possible to claim Employment Allowance. For other companies, Employment Allowance will be raised from £2000 to £3000.

If you have any questions about the Budget or how it affects you please get in touch.