March 2015 Budget Highlights

This summary has been prepared very rapidly and is for general information only. The proposals are in any event subject to amendment before the Finance Act is passed and may also be subject to change following the General Election. You are recommended to seek competent professional advice before taking any action on the basis of the contents of this briefing.

Some of the key points of the Budget are:

• During the next parliament, digital tax accounts will be introduced to remove the need for individuals and small businesses to complete annual tax returns. Further details about the policy and administrative changes will be published later in 2015. Over the summer there will also be consultation on a new payment process to enable tax and NICs to be collected via digital accounts.

• The personal allowance will increase to £10,800 in 2016/17 and £11,000 in the following year.

• The higher rate threshold will rise to £42,700 in 2016/17 and £43,300 in 2017/2018.

• The government proposes to abolish self-employed Class 2 national insurance contributions and reform Class 4 NICs to introduce a new benefit test. There will be consultation on the detail and timing of these reforms later in 2015.

• Self-employed farmers will be able to average their profits over five years instead of just two from April 2016.

• From April 2015 there will be a statutory exemption for employees’ trivial benefits-in-kind costing less than £50, as previously announced. An annual cap of £300 will also be introduced for directors and other office holders of close companies and employees who are family members of those office holders.

• From April 2016, the £8,500 threshold below which employees do not pay income tax on certain benefits-in-kind will be removed and replaced with new exemptions for carers and ministers of religion. The current dispensation regime will be replaced with an exemption for certain reimbursed expenses and a statutory framework will be introduced for voluntary payrolling. The new exemptions for reimbursed expenses will not be available if used in conjunction with salary sacrifice.

• A new ISA for first time buyers will offer a government bonus when investors use their savings to purchase their first home. For every £200 that a first time buyer saves, there will be a £50 bonus payment up to a maximum of £3,000 on £12,000 of savings. The bonus will be available for purchases of homes of up to £450,000 in London and up to £250,000 elsewhere. The bonus will only apply for home purchase. The new scheme should be available from autumn 2015.

• The new £5,000 nil per cent starting rate band comes into being in 2015/2016. If your earnings and/or pensions total not more than £10,600 you may be able to register to receive interest without deduction of tax.

• Individuals will be able to withdraw money from their cash ISA and replace it in the year without it counting towards their annual ISA subscription limit for that year. The change will be introduced from autumn 2015, following technical consultation with ISA providers.

• The ISA limit will rise to £15,240 for 2015/2016.

• From April 2016, an individual who is already receiving income from a pension annuity will be able to sell that income to a third party, subject to agreement from their annuity provider. The proceeds of the sale can then be taken directly or drawn down over a number of years and will be taxed at the individual’s marginal rates. The facility will not be available for annuities bought by the trustees of occupational pension schemes. In the hands of any purchaser of the annuity, the income will be taxable as trading income or miscellaneous income.

• Beneficiaries of individuals who die under the age of 75 with a joint life or guaranteed term annuity will be able to receive any future payments from such policies tax free where no payments have been made to the beneficiary before 6 April 2015. The tax rules will also be changed to allow joint life annuities to be paid to any beneficiary. Where the individual was 75 or over at death, the beneficiary will pay income tax at their marginal rates.

• From 6 April 2016 the lifetime allowance for pensions will be reduced from £1.25 million to £1 million. Transitional protection for pension rights already over £1 million will be introduced to ensure the change is not retrospective. The lifetime allowance will then be indexed annually in line with CPI from 6 April 2018. There is no change to the annual allowance, which remains at £40,000.

• From 6 April 2016 the government proposes to introduce a new personal savings allowance to remove tax on up to £1,000 of savings income for basic rate taxpayers and up to £500 for higher rate taxpayers. Additional rate taxpayers will not receive an allowance. As part of these reforms, HMRC will introduce automated coding out of savings income that remains taxable through the PAYE system from 2017/2018, with pilot schemes starting in autumn 2015.

• A new relief will be introduced allowing individuals lending through P2P to offset against other P2P income any losses from loans which go bad, as previously announced. The change will be effective from April 2016 and through self-assessment will allow individuals to make a claim for relief on losses incurred on new loans made from 6 April 2015.

• From 6 April 2015 companies benefiting substantially from subsidies for the generation of renewable energy will be excluded from also benefiting from EISs, SEISs and VCTs, as previously announced. There will be an exception for community energy generation undertaken by qualifying organisations, which will in future become eligible for the Social Investment Tax Relief.

• The capital gains annual exempt amount for 2015/2016 is £11,100.

• Disposals of shares in a company that is not a trading company in its own right will not qualify for capital gains tax entrepreneurs’ relief (ER). This targets certain structures set up under the joint venture rules and ensures that individuals can only benefit from ER if they hold at least a 5% stake directly in a company carrying on a trade. Individuals will also be prevented from claiming ER on the disposal of personal assets used in a business carried on by a company or a partnership, unless they are disposed of in connection with a disposal of at least a 5% shareholding in the company or a 5% share in partnership assets. The changes affect disposals on and after 18 March 2015.

• Gains that are eligible for ER, but are deferred into investments that qualify for the enterprise investment scheme (EIS) or social investment tax relief will remain eligible for ER when the gain is realised. This change, which was announced in the Autumn Statement 2014, benefits qualifying gains on disposals that would be eligible for ER from 3 December 2014.

• Individuals will not be able to claim ER on disposals of goodwill on a transfer of a business to a related close company from 3 December 2014, as previously announced. 

•The government will review the ER treatment of academics who dispose of shares in spinout companies that use intellectual property to which they have contributed.

• Private residence relief will be restricted where a property is located in a jurisdiction in which a taxpayer is not tax resident. In these circumstances the property will only be regarded as the person’s only or main residence for a tax year in which the person meets a 90 day test for time spent in the property over the year.

• Non-UK resident individuals, trusts, personal representatives and narrowly controlled companies will become subject to tax on gains on the disposal of UK residential property after 5 April 2015.

• The IHT threshold remains at £325,000 for 2015/2016.

• The government will review the use of deeds of variation for inheritance tax planning.

• New rules will target tax avoidance through the use of multiple trusts.

• The Annual tax on enveloped dwellings (ATED) charges will increase by 50% above inflation for residential properties worth more than £2 million for the chargeable period 1 April 2015 to 31 March 2016, as announced in the Autumn Statement 2014. The related capital gains tax charge on disposals of properties liable to ATED will be extended from 6 April 2015 to residential properties worth over £1 million and up to £2 million. From 6 April 2016 the charge will apply to residential properties worth over £500,000 and up to £1 million. These changes were announced in the Budget 2014.

• The main rate of corporation tax will be 20% from 1 April 2015, as previously announced, and will stay at 20% for the financial year starting on 1 April 2016.

• The temporary £500,000 annual investment allowance (AIA) comes to an end on 31 December 2015. The Chancellor said that a reduction to £25,000 from 1 January 2016 “would not be remotely acceptable” and it would be set “at a much more generous rate” in the Autumn Statement 2015.

• The government will extend the period over which self-employed farmers can average their profits for income tax from two years to five years from April 2016. The details will be subject to consultation.

• Corporation tax relief will be restricted on goodwill associated with a business that a company acquires from a related individual or partnership from 3 December 2014, as announced in the Autumn Statement 2014.

• A new tax on diverted profits (the ‘Google tax’) will be introduced from 1 April 2015, as announced in the Autumn Statement 2014. The draft legislation has been revised to narrow the notification requirement and some other changes have been made.

• Legislation will be introduced to give the UK power to implement the Organisation for Economic Cooperation and Development (OECD) model for country-by-country reporting. Multinational enterprises will have to provide high level information to HMRC on their global allocation of profits and taxes paid, as well as indicators of economic activity in a country.

• The simplified expenses regime will be amended to ensure that partnerships can fully access the provisions in respect of the use of a home or where business premises are also a home.

• The VAT registration threshold will rise from £81,000 to £82,000 and the reregistration threshold will increase from £79,000 to £80,000. Both changes take effect from 1 April

• The Liechtenstein Disclosure Facility will close at the end of 2015 instead of in April 2016. This is in advance of a new disclosure facility. The existing Crown Dependencies Disclosure Facilities will close at the end of 2015, instead of September 2016, also in advance of a new disclosure facility.

• New legislation covering several aspects of marketed tax avoidance schemes will be introduced. This includes tougher measures targeting ‘serial avoiders’ who persistently enter into tax avoidance schemes which fail and an increase in the deterrent effect of the General Anti-Abuse Rule (GAAR).

• The Disclosure of tax avoidance schemes (DOTAS) rules will be strengthened, notably in respect of inheritance tax. This widens the potential application of advance payment notices.

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