The Budget - 18 March 2015

Delivered by George Osborne on 18 March 2015, this was the last budget of the Conservative / Liberal Democrat coalition government.  Regardless of which party or parties win power in the May General Election there is likely to be another budget in late spring or early summer. Looking at these budget announcements one cannot help wondering how many of them were included to look after the country's economic health, and how many are there simply to gain votes in the forthcoming election. 

This report covers the main taxes and their effect on most people.  It is not intended to be a complete definitive guide to the budget.  All figures are approximate.  If you are looking for a definitive guide then you should try one of the 'Big Four' accountancy firms' websites, or the Financial Times. Alternatively you could try the official budget pages at HM Treasury.

The summary below includes announcements from the budget, but also includes changes announced in earlier budgets and the 2014 autumn statement as these affect the tax system for 2015-16.

Income Tax

National Insurance

Savings

Corporation Tax

Capital Allowances

Capital Gains Tax

Property taxes

VAT

Child Benefit

Pensions

Tax Administration

Income Tax

The following income tax changes have been announced:

• The personal allowance for tax free income will increase to £10,600 in April 2015, to £10,800 in April 2016, and to £11,000 in April 2016.
  
• The higher rate tax threshold (the amount of income above which people pay tax at 40%) will increase by above inflation from £41,865 to £43,300 by April 2017.
• The personal allowance will continue to be reduced for taxpayers with income exceeding £100,000.  The allowance will reduce by £1 for every £2 of income over £100,000.  This has the effect of creating a 60% tax band between £100,000 and £121,200 for 2015-16, £100,000 to £121,600 for 2016-17 and between £100,000 and £122,000 for 2017-18.
• The top rate of tax remains at 45% for taxable income exceeding £150,000.
• The transferable tax allowance for married couples increases to £1,100 from £1,000 for 2015-16.
  

National Insurance

National insurance remains unchanged for individuals.  The £2,000 annual reduction in contributions paid by employers which started in April 2014 continues.

As previously announced, from April 2016 Class 2 National Insurance paid by the self employed will be collected via the self assessment system, rather than by the current monthly or quarterly direct debit.  The Chancellor announced the intention to abolish Class 2 National Insurance during the next Parliament.

Savings

The annual limit on investing in (Individual Savings Accounts) increases from £15,000 to £15,240 for 2015-16.  Savers will now be allowed to withdraw money from their ISA and pay it back in during the same tax year.

A Help to Buy ISA was announced where the government will add £50 for every £200 invested.  This is the equivalent of tax relief at the 20% basic rate.

The first £1,000 (£500 for higher rate tax payers) of interest earned during a tax year on non ISA accounts will be tax free. 

Corporation Tax

There were no changes announced to the rates of Corporation Tax.  Therefore the main rate falls to 20% in April 2015 at which point it will be the same for all companies regardless of size.

As the rate of corporation tax is now the same for all companies there will be no need to calculate marginal relief on profits between £300,000 and £1.5m.

Capital Allowances

No changes were announced to capital allowances.

Capital Gains Tax

The Capital Gains Tax rate for gains made by higher rate taxpayers on non business assets was increased from 18% to 28% from 23 June 2010 by the June 2010 budget.  This rate remains in force.

Entrepreneurs' relief remains unchanged so that the first £10 million of certain types of Capital Gain is taxed at a reduced rate of 10%.  (This was increased from £1m to £2m in the March 2010 budget, to £5m in the June 2010 budget, and to £10m in the 2011 budget).

Capital Gains on business assets not covered by entrepreneurs' relief, and gains made by individuals not paying higher rate tax will continue to be taxed at 18%.

The Annual Exempt Amount of £11,000 was increased to £11,100 from April 2015.

Inheritance Tax

The Inheritance Tax Threshold, the value of an estate after which inheritance tax is paid, remains at £325,000.  It was announced in the 2012 autumn statement that this will remain the case until 2019.

The Chancellor announced a reivew of the use of 'deeds of variation' to avoid inheritance tax.

Property Taxes

Stamp Duty Land Tax rates were overhauled in the 2014 Autumn Statement.  The new rates for individuals are available here.

In 2013 a new 15% rate was introduced on properties costing over £½m purchased through a company.

From April 2013 a Residential Property Tax will be payable by companies on real estate held in a corporate structure.  The annual levy is based on the property value and varies from £15,000 for properties valued at £2m, and increased to £140,000 where the property is valued at £20m.

VAT

There was no change to VAT rates.

The registration threshold (if your annual turnover exceeds this you have to register) rises to £81,000.

Child Benefit

There were no changes to the high income child benefit charge.

The reduction in child benefit for households where one or more people earn over £50,000 came into effect in January 2013 having been announced in the 2011 budget and amended in the 2012 budget. 1% of the child benefit is withdrawn for every £100 the highest earner in the family's income exceeds £50,000, so that no child benefit is paid if income exceeds £60,000.

Tax Administration

The Chancellor announced the end of annual tax returns, to be replaced by 'real-time' online accounts by 2020.  This is supposed to end the annual rush to file tax returns with individuals submitting accounts throughout the year instead. 

So instead of having one deadline to meet every year tax payers will have lots of deadlines throughout the year, no doubt with penalties for failing to meet them.

Although this is a popular announcement (a quick search on the internet shows just how popular this is) the author will be surprised if the reality matches the initial euphoria.

Summary

What will this budget be remembered for?  There was little meat in it so perhaps the abolition of tax returns will be the memorable feature.  If it goes well then an annual burden for millions of taxpayers will disappear, but will it go well?  Time will tell.

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