The fact you are looking for, or already receiving advice from us would indicate that a career in financial planning is not for you. We’ve designed our resource centre so that you can dip into subjects or linger on those that interest you most. Nothing beats personal advice in our view but we hope you find the information available here useful.
Summer Budget 2015
George Osborne delivered the first Conservative Party Budget in 18 years on Wednesday, 8th July, 2015. Important new measures set out by the Chancellor include changes to pension tax relief and the arrangements on buy-to-let as well as an increase in the Inheritance Tax threshold to £1 million.
Here’s a summary of the key announcements:
Pensions annual allowance and aligning pension input periods
Most people can contribute or have contributions made on their behalf up to £40,000 a year without suffering a tax charge. From April 2016, this amount will be reduced for individuals with incomes of over £150,000, including pension contributions (employer and employee). Their annual allowance (AA) will be reduced by £1 for every £2 of income they have over £150,000 with a maximum reduction of £30,000 – giving those with income of £210k or above a £10k AA. Carry forward of unused AA will still be available, but only the balance of the reduced AA can be carried forward from any year where a reduced AA applied.
The “adjusted income” used to test whether the £150k limit is exceeded is broadly the total of:
- The individual’s income (without deducting their own pension contributions), plus
- The value of any employer pension contributions made for them (for defined benefits schemes this means calculating the pension input amount – ie annual accrual, in the normal way and then subtracting the amount of employee contributions paid).
The reduced AA won’t however apply where an individual’s net income for the tax year (after deducting their own pension contributions), plus the value of any income given up for an employer pension contribution via a salary sacrifice arrangement entered into after 8th July 2015, is £110k or less.
In advance of the introduction of this tapered annual allowance, transitional rules are being introduced from Budget Day (8th July 2015) to align pension input periods (PIPs) with the tax year by April 2016 and to protect any savings already made before Budget from retrospective tax charges.
The Government has published a technical note providing draft guidance on the transitional rules that apply from Budget Day along with a brief overview of the tapered annual allowance rules. This technical note is based on the draft legislation which is subject to change as it progresses through Parliament.
Lump sum death benefits
Lump sum death benefits paid from registered pension schemes on death after age 75 are taxed at 45% in 2015-16. It was expected that this tax rate would change for lump sums paid from 6th April 2016 onwards so as to be taxed at the recipient’s own income tax rate(s) and this has now been confirmed in the Budget.
Where a lump sum death benefit is taxable it will be subject to the recipient’s marginal rate of tax where the lump sum is paid directly from the pension scheme to an individual who is the ultimate beneficiary. The lump sum will be taxed as pension income and tax will be deducted under PAYE.
The tax charge will remain at 45% where the taxable lump sum death benefit is paid to someone other than an individual who is the ultimate beneficiary, such as a trust or a company.
Strengthening the incentive to save – a consultation on pensions tax relief
The government is consulting on whether there is a case for reforming pensions tax relief to strengthen incentives to save and offer savers greater simplicity and transparency or whether it would be best to keep with the current system.
The consultation closes on 30th September 2015. The government will then consider all responses and publish a ‘summary of responses’ which will set out how it intends to proceed.
The proposed reduction in the lifetime allowance to £1m in 2016-17 will go ahead. It will be indexed in line with the Consumer Price Index (CPI) from 2018-19. Details are awaited of new transitional protection options.
Secondary annuity market
Will be delayed until 2017 to allow more time to ensure the necessary consumer safeguards are in place. More details will be announced in the autumn.
‘Triple lock’ State pension increase promise to continue (ie increased each year by the higher of CPI, earnings increases and 2.5%).
Personal allowance and tax thresholds
From next April there will no longer be an age-related Personal Allowance as the standard Personal Allowance will then overtake the frozen age-related allowance of £10,660. So the same Personal Allowance will apply regardless of age.
|Tax year||Personal Allowance||Basic rate limit||Higher rate threshold|
The dividend tax credit will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016. Dividends that exceed this allowance will be taxed as follows:
|Tax year||Basic rate||Higher rate||Additional rate|
|2016-17 (after £5,000 allowance)||7.5%||32.5%||38.1%|
So in 2016-17, a basic rate taxpayer could potentially have tax free income of up to £17,000 (£11,000 personal allowance plus £1,000 personal savings allowance plus £5,000 dividend allowance) and a higher rate taxpayer £16,500 (personal savings allowance is £500 for higher rate taxpayers).
Some people may also be able to take advantage of the tax free £5,000 savings rate band. With the right combination of income levels and types, tax free income of up to £22,000 is possible. It will be more important than ever to assess an individual’s overall income position in order to take maximum advantage of these tax breaks where possible.
This change will, from 6th April 2016, affect the comparison of the alternative remuneration structures available to directors/shareholders of private businesses – take salary/bonus and pay NI or take dividends with no NI but with the new dividend tax charge.
Rent a Room Relief increase
From 6th April 2016 the level of Rent a Room relief, which provides for tax-free income that can be received from renting out a room or rooms in an individual’s only or main residential property, will increase from £4,250 to £7,500 per year. It also increases the level if an individual rents out rooms in a guest house, bed and breakfast or similar, providing that it is their main residence.
Nil rate band
Legislation will be introduced in the Summer Finance Bill 2015 to provide for an additional main residence nil-rate band for an estate if the deceased’s interest in a residential property, which has been their residence at some point and is included in their estate, is left to one or more direct descendants on death.
The value of the main residence nil-rate band for an estate will be the lower of the net value of the interest in the residential property (after deducting any liabilities such a mortgage) or the maximum amount of the band. The maximum amount will be phased in so that it is £100,000 for 2017-18, £125,000 for 2018-19, £150,000 for 2019-20, and £175,000 for 2020-21. It will then increase in line with CPI for subsequent years.
The qualifying residential interest will be limited to one residential property but personal representatives will be able to nominate which residential property should qualify if there is more than one in the estate. A property which was never a residence of the deceased, such as a buy-to-let property, will not qualify.
A direct descendant will be a child (including a step-child, adopted child or foster child) of the deceased and their lineal descendants so this change will be of no use to those without children.
A claim will have to be made on the death of a person’s surviving spouse or civil partner to transfer any unused proportion of the additional nil-rate band unused by the person on their death, in the same way that the existing nil-rate band can be transferred.
If the net value of the estate (after deducting any liabilities but before reliefs and exemptions) is above £2 million, the additional nil-rate band will be tapered away by £1 for every £2 that the net value exceeds that amount. Anyone with a net estate over £2m will begin to see their property nil rate band reduced until it is completely lost once the estate is over £2.2m (2017/18) £2.25m (2018/19), £2.3m (2019/20) or £2.35m (2020/21).The taper threshold at which the additional nil-rate band is gradually withdrawn will rise in line with CPI from 2021-22 onwards.
The legislation will also extend the current freeze of the existing nil-rate band at £325,000 until the end of 2020-21.
In addition, legislation in the Finance Bill 2016 will provide that where part of the main residence nil-rate band might be lost because the deceased had downsized to a less valuable residence or had ceased to own a residence on or after 8th July 2015, that part will still be available provided the deceased left that smaller residence, or assets of equivalent value, to direct descendants. However, the total amount available will not exceed the maximum available residence nil-rate band. The technical details of how the additional nil-rate band will be enhanced to support those who have downsized or ceased to own their home will be the subject of a consultation to be published in September 2015 ahead of the draft Finance Bill 2016.
The measure will take effect for relevant transfers on death on or after 6th April 2017. It will apply to reduce the tax payable by an estate on death; it will not apply to reduce the tax payable on lifetime transfers that are chargeable as a result of death.
The main residence nil-rate band will be transferable where the second spouse or civil partner of a couple dies on or after 6th April 2017 irrespective of when the first of the couple died.
Replacing ISA withdrawals (cash ISA or cash element of stocks & shares ISA)
The ability to make withdrawals from a cash ISA (or the cash element of a stocks and shares ISA) and replace them within the same tax year without affecting annual subscription limits will go ahead from 6th April 2016.
Any ISA investor could potentially benefit now that transfers between cash and stocks & shares ISAs are possible in either direction, ie. a stocks and shares ISA could be transferred to a cash ISA first before making the withdrawal.
Help to Buy ISA
The Help to Buy ISA is available from 1st December 2015. Gives 25% tax relief on savings up to £12,000 (ie. £3,000 Government contribution if £12,000 saved). The tax relief is only given when the first home is bought. It’s a cash ISA so an investor can’t invest in another cash ISA in the same tax year as a Help to Buy ISA. The maximum single initial premium is £1,000 plus maximum regular savings of £200 per month. Property values can’t exceed £250,000 (£450,000 in London).
Restricting tax relief for wealthier landlords
Currently, individual landlords can deduct their costs – including mortgage interest – from their profits before they pay tax, giving them an advantage over other home buyers. Wealthier landlords receive tax relief at 40% and 45%. This tax relief will be restricted to 20% for all individuals by April 2020.
In addition, from April 2016, the ‘wear and tear allowance’, which allows landlords to reduce the tax they pay (regardless of whether they replace furnishings in their property) will also be replaced by a new system that only allows them to get tax relief when they replace furnishings.
The power will have effect on and after the date of Royal Assent to the Summer Finance Bill 2015. Regulations will be made after Royal Assent and after the informal consultation has concluded. The Regulations are expected to have effect from early 2016.
Insurance Premium Tax
From November 2015 the standard rate of Insurance Premium Tax will be increased from 6% to 9.5%.