George Osborne, the Chancellor of the Exchequer, delivered the Budget on Wednesday 19th March. Although the economy has grown more rapidly than had been predicted in the Autumn Statement last year, the Chancellor remains cautious with his predictions for growth in the next couple of years and aims to ensure that growth is built on solid foundations of manufacture and trade, and not on borrowing and inflated property prices. With this in mind the Government’s policy remains to reduce the budget deficit. To encourage growth the Chancellor has presented a Budget intended to reduce personal tax on low to middle income earners in order to stimulate economic activity, with the emphasis on savings, pension re-structuring and the further deterrence of “artificial” tax avoidance schemes.
Personal Taxes and Savings
The personal income tax allowance will rise to £10,500 from 6 April 2015. The basic rate limit will reduce to £31,785, resulting in a higher rate threshold of £42,285.
The transferable tax allowance for non-taxpaying spouses and civil partners will rise from £1,000 to £1,050 with effect from 6 April 2015.
The starting level of savings of individuals with a total income of £15,500 or less on which income tax is chargeable will rise to £5,000 with effect from 6 April 2015 and the rate of tax below this level will be zero.
The annual limits for investment in cash ISAs and share ISAs are to be merged. With effect from 1 July 2014 each individual will be able to invest £15,000 per tax year in ISAs of any sort. At the same time the limit for Junior ISAs will be increased to £4,000 per tax year.
A Pensioners’ Bond for savers aged 60 or older is to be introduced by National Savings and Investments later in the year with proposed guaranteed interest rates of 2,8% on a one-year bond and 4% on a three-year bond. The maximum investment will be £10,000 per bond.
The maximum value of Premium Bonds that can be held by an individual will increase from £30,000 to £40,000 later in the year.
Payment of Class 2 National Insurance Contributions will be merged with payment of self-assessment income tax and Capital Gains Tax.
With effect from 27 March 2014 major changes are to take place in the taxation and withdrawal of pension benefits.
The maximum amount of overall wealth that can be taken as a lump sum will be increased from £18,000 to £30,000.
The maximum amount that can be taken from a capped income drawdown arrangement will be increased from 120% to 150% of an equivalent annuity.
The amount of guaranteed income need to access flexible income drawdown will be reduced from £20,000 per year to £12,000 per year.
The size of a small pension pot that may be taken wholly as a lump sum will be increased from £2,000 to £10,000 and the number of pots from which lump sums can be taken under this rule will increase from two to three.
Any pension funds remaining at the death of the pensioner will be subject to tax at the pensioner’s marginal tax rate instead of the current 55%. This particular piece of legislation is expected to be introduced in April 2015.
Inheritance Tax will be waived on the estates of emergency services personnel who die on active duty. Further details are to be announced.
Tobacco duty will continue to rise at 2% above the RPI.
Tax on most beers will fall by an average of 1p per pint.
Duties on spirits and other drinks in excess of 22% alcohol, and on most cider, will be frozen in cash terms.
The duty escalator for wine, made-wine and high-strength cider will end: duty will therefore rise in accordance with the RPI.
The proposed fuel duty rise in September will not now take place.
The UK element of the Carbon Price Floor will be capped at £18 per tonne of CO2 until 2019-20 and changes will be made in the Carbon Price Support rates for some fuels used in electricity generation.
Support for Businesses
The annual investment allowance for plant and machinery will be increased from £250,000 to £500,000 with effect from 1 April 2014 and extended for a further year to 31 December 2015.
Following the introduction of the Basic Payment Scheme agricultural subsidy, payments under this scheme will be included in the class of assets eligible for roll-over relief from Capital Gains Tax.
Roll-over relief from Capital Gains Tax will be withdrawn for disposal of tangible assets and reinvestment in intangible fixed assets.
The Seed Enterprise Investment Scheme and the associated relief from Capital Gains Tax, which were introduced in 2012 on a temporary basis, are to be made permanent.
The tax credit payable to small and medium-sized enterprises for losses on research and development activities will be increase from 11% to 14.45% with effect from 1 April 2014.
The annual tax on enveloped dwellings – broadly, residential properties held through foreign companies, currently exceeding £2 million in value – will be extended to properties of value in excess of £500,000 with effect from 1 April 2016, with additional bands of £7,000 per year for properties in value between £1 million and £2 million, and £3,500 per year for properties in value between £500,000 and £1 million, being introduced at the same time.
The 15% rate of Stamp Duty Land Tax currently chargeable on the purchase of residential properties of value exceeding £2 million held through companies, partnerships and collective investment schemes for non-commercial reasons will be extended to properties of value in excess of £500,000 with effect from 20 March 2014, but this will not apply where contracts have been exchanged before that date.
Taxpayers who have claimed exemptions or reliefs through the use of tax avoidance schemes that fall within the Disclosure of Tax Avoidance Schemes rules or within the ambit of the General Anti-Abuse Rule will now be required to pay the tax in full before, or at the time of, claiming the exemption or relief. If the exemption or relief is subsequently allowed the tax will be repaid with interest at the supplementary rate. Procedures will be introduced to allow appeals against assessments to payment of tax in advance.
Legislation will be introduced to deny relief for venture capital trusts on the early release of capital by the use of buy-back and reinvestment arrangements.
The legislation preventing deduction of certain debts for the purposes of Inheritance Tax will be extended to cover foreign currency accounts in UK banks, which were previously disregarded.
The contents of this bulletin are for information purposes only and have been compiled from Government publications available on conclusion of the Chancellor’s Budget speech. They are not intended to be exhaustive and the Budget proposals are, in most cases, subject to parliamentary scrutiny. if you require further advice on this year’s Budget you should consult your accountant, solicitor, tax adviser or financial adviser.
Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.