The Personal Allowance
The Chancellor was already moving in the direction of a £12,500 personal allowance with the allowance previously due to rise to £10,800 in 2016-17. However, in the Budget he has now said that the first £11,000 of income will be free from tax from April 2016.
The point at which taxpayers pay higher rate tax of 40% on their income will increase to £43,000 from April. This is the first step on the road to delivering his undertaking that, by 2020-21, nobody earning less than £50,000 will pay higher rate tax.
Major Restructuring of the Taxation of Dividends
It is commonplace for directors of small companies take a small salary and pay themselves a larger amount in dividends from shares in the company. The chancellor will increase the tax on all dividends above a new tax-free threshold of £5,000 from 2016.
From 2016 the dividend system will be restructured so that basic rate taxpayers will pay 7.5% tax on dividends (subject to the £5,000 allowance announced for savings income in the last Budget).
Higher rate taxpayers will pay tax at 32.5%.
Additional rate taxpayers will pay tax at 38.1%.
Pension funds and ISAs will continue to receive dividends tax free.
Radical changes will be introduced from 2017.
An individual who has been resident in the UK for 15 out of the last 20 years will be taxed on worldwide income and gains.
Non-domiciled individuals with UK residential property in overseas structures will no longer avoid a UK inheritance tax charge.
Individuals born in the UK to UK parents will no longer be able to claim non-domicile status.
From 2017 an additional £175,000 allowance will begin to be introduced where the family home is passed to children or grandchildren on death. This means that a couple will be able to pass up to £1m to the next generation without an inheritance tax charge.
A family home allowance of £175,000 in inheritance tax means that ultimately a married couple or civil partners can potentially leave property worth up to £1m to their children without an inheritance tax charge. The change will take effect in stages beginning with a family home allowance of £100,000 in April 2017 and reaching £175,000 by April 2020.
However, we need to see more detail particularly given that those who downsize in later life will get some credit in terms of inheritance tax for doing so.
There is an added complication in these calculations for those in some of the largest homes, or those owning in expensive areas. Over time, the allowance will gradually be taken away from those with estates worth more than £2m.
Restriction on ‘Buy to Let’ interest Paid / Wear & Tear Allowance
Interest relief on rental property will be restricted to the basic rate of tax. The restriction will be phased in over four years, starting from April 2017.
This means that many landlords, who use mortgage interest to reduce their taxable profits, will shortly have less opportunity to do so. Those in London, where rents and property prices are highest, are likely to be hit the hardest.
The share prices of house builders have already taken a hit, partly because a number of homes may be put onto the market by reluctant landlords following the Chancellor’s announcement.
Property companies will doubtless increase in popularity for some.
In addition, from April 2016, the ‘wear and tear allowance’, which allows landlords to reduce the tax they pay will be replaced by a new system that only allows them to get tax relief when they replace furnishings.
Corporation tax will be reduced to 19% in 2017 and further reduced to 18% in 2020.
The Annual Investment Allowance
The annual investment allowance, which was a temporary tax break for firms, will be set at £200,000 permanently from January 2016.
So, there are the bare bones …. & there are certainly planning opportunities on an initial review of the measures !
For more information – https://www.gov.uk/government/news/summer-budget-2015-key-announcements