The Summer Budget was delivered by the Chancellor of the Exchequer on 8 July 2015. The tax proposals announced in the Budget together with the announcements in the Autumn 2014 statement will be made into law in the Finance Bill 2015 or in secondary legislation. The Finance Bill is currently being debated in Parliament and will become law on receiving Royal Assent in due course.

The notes below provide a summary of the main changes and key points.

Rates and Allowances

The personal allowance and higher rate threshold will be increased from 2015/16 as set out in the table below.

Age allowance for those born before 6 April 1938 will be removed from 2016/17 onwards following the increase in the standard personal allowance.

In summary:

Year Standard                  Basic                     Higher                      Additional
personal                   rate                         rate                         rate of 45%
allowance band – 20% band – 40% on income over
£                           £                                 £                                          £

2015/16                     10,600                 0 – 31,785          31,786 – 150,000            150,000
2016/17                     11,000                 0 – 32,000            32,001 – 150,000            150,000
2017/18                     11,200                 0 – 32,400            32,401 – 150,000            150,000

Tax Lock on income tax, VAT and NIC

The main rates of income tax, the standard (20%) and reduced (5%) rates of VAT and employer and employee Class 1 NIC rates will not be increased above their 2015/16 levels for the duration of this parliament by means of a “tax lock” to be introduced by legislation.

The locked income tax rates of 20%, 40% and 45% will apply to non-savings income in England, Wales and Northern Ireland and UK-wide savings income.

The lock on VAT will prevent the removal of goods/services from the zero rate of VAT and reduced rate of VAT.

Personal Taxation

Dividend Taxation

From 6 April 2016, the 10% dividend tax credit will be abolished. A new annual dividend allowance of £5,000 will be introduced which is separate to the £1,000 allowance for savings (which excludes dividends).

The new tax rates on dividend income will be 7.5%, 32.5% and 38.1% for basic, higher and additional rate taxpayers respectively. The Chancellor has said that “Those who either pay themselves in dividends or have large shareholdings worth typically over £140,000 will pay more tax”.

 

Non-domicile Status

From April 2017, anyone who has been resident in the UK for 15 of the past 20 years will be deemed to be UK-domiciled for all UK tax purposes including IHT. A technical consultation will be published later this year.

Also from 6 April 2017, individuals born in the UK to parents who are domiciled here will no longer be able to claim non-domicile status while resident in the UK, even if under general law they have acquired a domicile in another country.

Individuals affected will be liable to tax on an arising basis on worldwide income and IHT on worldwide personal assets, and the remittance basis can no longer be claimed.

Rent-a-room Relief

From 6 April 2016, the relief will be increased from £4,250 to £7,500 a year.

Residential Landlords – Wear and Tear Allowance

From April 2016, the 10% wear and tear allowance will be abolished. A new relief will operate which allow landlords to deduct the actual costs only when they replace furnishings. Capital allowances will continue to apply for landlords of furnished holiday lettings.

Buy-to-let Landlords: Restriction of Interest Relief

Tax relief will be restricted for finance costs including loan interest for higher rate taxpayers who use loans to finance buy-to-let properties. The restriction will be phased in over four years from April 2017 as shown below and by 2020/21, relief will be restricted to basic rate only:

–          2017/18, deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being eligible at basic rate relief;

–          2018/19, 50% of finance costs will be deductible and 50% will be given as a basic rate tax reduction;

–          2019/20, 25% of finance costs will be deductible and 75% will be given as a basic rate reduction;

–          2020/21, all financing costs will be given as a basic rate reduction.

The above will not apply to properties which meet the criteria of a furnished holiday letting nor to corporate landlords, and only apply to individuals.

This article is based on current legislation and practice and is for guidance only. Specific professional advice should be taken before acting on matters mentioned here.

 

Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene LLP. He can be contacted on 020 7383 3200 or umesh.modi@silverlevene.co.uk