Summer Budget 2015

Tax and Pension Key Points

Personal allowance for income tax to rise to £11,000 next year and £12,500 by 2020, so that people working 30 hours a week on the minimum wage do not pay income tax.

Higher rate 40% tax threshold to rise from £42,385 to £43,000 next year and £43,600 in 2017/18. The government aims to increase the 40% threshold to £50,000 by 2020.

The taxation of dividends is to be radically reformed from April 2016. Dividend tax credits are to be replaced with a new tax-free allowance of £5,000 on dividend income. Rates of dividend tax to be set at 7.5%, 32.5% and 38.1%. Dividend income received by pensions and ISAs will not incur a tax liability.

Inheritance tax threshold increase to £500,000 from £325,000 via the addition of £175,000 ‘family home allowance’, phased in between April 2017-2020 for family homes. It will be restricted for estates over £2m reducing to nil over £2.35m in 2020/21. An ‘inheritance tax credit’ will be made available to individuals who downsize to a less expensive home after 8 July 2015. The £325,000 Nil Rate Band will remain frozen until 2020/21. The additional IHT allowance is not available for lifetime gifts and only applies to transfers to children and grandchildren.

Mortgage interest relief for buy-to-let homebuyers to be restricted to basic rate of income tax between April 2017-20.

Corporation tax to be cut to 19% in 2017 and 18% in 2020.

Permanent non-dom status to be abolished – from April 2017, anyone who has lived in the UK for 15 of the past 20 years will pay same level of tax as other UK citizens.

The new National Living Wage will be introduced in April 2016 for those age over 25, rising from £7.20 per hour to £9 per hour in 2020.

Insurance Premium Tax will rise from 6% to 9.5% from November 2015.

Pensions

The pension Annual Allowance of £40,000 to be reduced for individuals earning over £150,000 from April 2016. They will see their Annual Allowance curbed gradually from £40,000 to £10,000. For every £1 of earnings over £150,000, the annual allowance will reduce by 50p so that those earning £210,000 and above would have an allowance of £10,000.

Pension Input Periods to be aligned with tax years from April 2016 with no option to change them.

The pension Lifetime Allowance will be cut to £1 million from £1.25 million from the 2016-17 tax year. It will be indexed by CPI inflation from 2018/19. Transitional protection is expected for those with pensions above £1m.

Green Paper published on proposals for “a radical change” to pension saving system with a view to making pensions look more like retirement ISAs.

All pension lump sum death benefits over age 75 paid after April 2016 will be taxed at a recipient’s marginal tax rate and not a flat 45%.

No change to salary sacrifice although the government will monitor their effect on the tax take.

There will be a consultation on the pension transfer process and potential cap on pension charges for over 55s to improve consumer access to ‘freedom and choice’.

The proposal for pensioners to sell annuities has been postponed until 2017 to allow more time for consultation and consumer protection. More details expected later in the year.

State pension triple lock to be protected.

ISA Changes

ISA savers will be able to dip into savings and replace them in the same tax year without affecting their annual ISA entitlement from April 2016.

Help to Buy ISA

First time home buyers can take out a Help to Buy ISA from December 2015.

The scheme will provide 25% tax relief on savings up to £12,000 giving potentially £15,000 towards the purchase of a first home. This tax relief is not given at the point of saving in the same way as a pension contribution, but is instead added when the saver buys the home.

The new scheme will be a form of Cash ISA and, in line with current rules, it will not be possible to subscribe to two separate Cash ISAs (Cash & Help to Buy) in the same tax year.

Savings will be limited to a maximum single initial premium of £1,000 and regular savings of £200 each month. And to get the government bonus, property values can be no more than £250,000 (£450,000 for properties in London).

Please note, this article is for information only and does not constitute investment or tax advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise; pension rules and tax legislation are subject to change; we do not give tax advice. If you would like investment or pension advice on your individual circumstances, please do not hesitate to get in touch on 01392 875500 or info@SeabrookClark.co.uk

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