The Budget - 8 July 2015

This was the first budget of the Conservative Government after five years of coalition.  Delivered by George Osborne on 8 July 2015 just a few months after the March budget, this budget was described by the Financial Times as "one of the most radical and ambitious budgets in years".

This report covers the main changes to 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.

Changes to the taxation of dividends and to tax relief on buy to let mortgage interest will affect many small businesses and entrepreneurs, and these are included below.

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

Income Tax

Dividends

National Insurance

Corporation Tax

Capital Allowances

Capital Gains Tax

Property taxes

Buy to Let Mortgage Interest

VAT

Landlords

Child Benefit

Income Tax

The following income tax changes have been announced:

• The personal allowance for tax free income which increased to £10,600 in April 2015 will increase 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 £42,385 to £43,000 in April 2016.
• 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, and between £100,000 and £122,000 for 2016-17.
• 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.

Dividends

The Chancellor announced a complete rethink of the taxation of dividends to take effect from April 2016. The tax credit will be replaced by a £5,000 tax-free dividend allowance and dividends not covered by this will be taxed at 7½% for basic rate taxpayers and 32½% for higher rate taxpayers.

This change will impact on taxpayers with large amounts of dividend income, primarily people with large share portolios and people with small companies.

National Insurance

National insurance remains unchanged for individuals.  The £2,000 annual reduction in contributions paid by employers which started in April 2014 increases to £3,000 from April 2016.

Corporation Tax

The rate of Corporation Tax will reduce from its current 20% to 19% on 1 April 2017 and then to 18% on 1 April 2020.

The amortisation of goodwill purchased after the date of the budget (8th July 2015) will not be allowed as a deduction against corporation tax.

Capital Allowances

The Annual Investment Allowance which has varied enormously over the last few years will be set at a "permanent level" of £200,000 in January 2016.  

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

An additional £350,000 family home allowance will be phased in over four years from April 2017, taking the total allowance for a couple to the promised £1m.

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 is now £82,000.

Landlords

The Chancellor announced two changes to the taxation of lettings income.  

Mortgage interest relief for buy to let mortgages willonly be relieved at the basic rate of tax with this change being phased in over four years commencing in April 2017.

The 10% wear and tear allowance available for furnished lets will stop from April 2016.  Landlords will have to make a claim when they replace furnishings.

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.

Summary

Changes to the taxation of dividends and landords will probably be seen as tax increases whilst the inheritance tax changes and small changes to tax allowances are reductions.  As usual the budget was a balancing act; redistributing wealth.

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