The Budget - 19 March 2014

Delivered by George Osborne on 19 March 2014, this was the fifth budget of the Conservative / Liberal Democrat coalition government.  Some of the announcements do not come into effect immediately, many being delayed until April 2015 just before the next General 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 2013 autumn statement as these affect the tax system for 2014-15.

Income Tax

National Insurance

Savings

Corporation Tax

Capital Allowances

Capital Gains Tax

Inheritance Tax

Property taxes

VAT

Child Benefit

Pensions

Tax Collection

Income Tax

The following income tax changes have been announced:

• The personal allowance for tax free income will increase to £10,000, and then to £10,500 from April 2015. 
  
• The higher rate tax threshold (the amount of income above which people pay tax at 40%) will increase from £41,450 to £41,865 from April 2014, a slight increase following the gradual reduction of this figure over the last few years.  It is planned to increases this further in April 2015 to £42,285.
• 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 £120,000 for 2014-15, and for 2015-16 between £100,000 and £121,000.
• The top rate of tax remains at 45% for taxable income exceeding £150,000.
• Reliefs against income tax remain capped at the lower of £50,000 and 25% of income.  For pension contributions the tax relief will be capped at £40,000 from April 2014.
• Age related allowances for people aged over 65 will not be increased.

National Insurance

National insurance remains unchanged for the individual.  The £2,000 annual reduction contributions paid by employers which was announced last year comes into effect from April 2014.

From April 2016 Class 2 National Insurance which is paid by the self employed will be collected via the self assessment system, rather than by the current monthly direct debit.

Savings

The rules affecting ISAs (Individual Savings Accounts) change from July 2014.  There will be a £15,000 annual limit on the amount an individual can invest, but this can be in cash, shares or a mixture.  Peer-to-peer lending will also be included.  No tax is payable on interest earned in these accounts as long as the rules associated with the account are followed.

Corporation Tax

There were no changes announced to the rates of Corporation Tax.  Therefore the main rate falls from 23% to 21% in April 2014, and then to 20% in April 2015 at which point it will be the same for all companies regardless of size.

Companies with profits between £300,000 and £1.5m will continue to pay corporation tax at a rate between the main rate and the small companies rate.

Capital Allowances

The Chancellor announced a doubling of the Annual Investment Allowance for the purchase of certain capital items to £500,000.

The writing down allowance on assets where the Annual Investment Allowance cannot be claimed, reduced to 18% (from 20%) in April 2012.

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 £10,900 was increased to £11,000 from April 2014.

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.

Property Taxes

Stamp Duty Land Tax rates remain unchanged ranging from 0% for properties costing up to £125,000, to 7% for those over £2m. 

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 there is one or more people earning 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 will be 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.

Pensions

The Chancellor announced changes to Defined Contribution Pension schemes.  Until now, people had little choice other than to purchase an annuity at retirement, and over the last few years annuity rates have been very poor.  In the future this restriction will be removed and people will be able to take out whatever they want from their pension pot, but they will be taxed on in the same way as any other income.

Tax Collection

HM Revenue and Customs are likely to get new powers to seize money from bank accounts if £1,000 or more of tax is owed and the taxpayer (or non payer) has been contacted numerous times by HMRC.  The new scheme is known as "Direct Recovery of Debts". Consultation on this starts shortly.

The author has real concerns about this as HMRC frequently make demands for payment of incorrect tax bills.  Should we really give them the power to take tax that it not due?

Summary

The budget was heralded by the Chancellor as "a Budget for the makers, the doers, and the savers".  If the 'Direct Recovery of Debts' goes ahead perhaps it will be remembered for that.

Cookies: This website does not use cookies. No personal data is collected by this website.
Our Website Privacy Notice is available here.