Budget Summary - Personal Tax and Miscellaneous Matters

March 20th 2015

George Osborne has presented his 6th and final Budget before the coming election in May. We have summarised below some of the Personal Tax and miscellaneous matters:

Personal Tax allowance

The personal allowance for those born after 5 April 1948 will be increased to:

  • For 2015-16 - £10,600
  • For 2016-17 - £10,800
  • For 2017-18 - £11,000

From 2016-17, there will be one Income Tax personal allowance regardless of an individual’s date of birth.

Income Tax rate bands

There was significant press commentary prior to the Budget predicting an increase in the threshold at which tax payers are liable to the 40% Income Tax rate. The declared higher rate thresholds are:

  • For 2015-16 - £42,385
  • For 2016-17 - £42,700
  • For 2017-18 - £43,300

If your income before allowances exceeds these amounts you will be paying 40% Income Tax on the excess (this assumes that you are only entitled to the basic personal allowance).

The threshold at which the 45% rate starts is unchanged at £150,000.

There were no changes to the basic Income Tax rate (20%), the higher rate (40%) and the additional rate (45%).

Personal savings allowance (PSA)

From 6 April 2016, a PSA will apply to provide exemption of up to £1,000 of a basic rate taxpayer’s savings income, and up to £500 of a higher rate taxpayer’s savings income. The PSA will not be available to additional rate (45%) Income Tax payers.

These benefits will be in addition to the tax advantages offered from ISAs.

Annuity flexibility

From April 2016 people who are drawing an annuity will be able to sell that income to a third party for a capital sum. The change will allow annuity holders to sell their annuities without punitive tax penalties of up to 70%.

To prepare for this flexibility the Government has published a consultation to develop a secondary market in annuities.

Pension’s lifetime allowance

From 6 April 2016 the pension’s lifetime allowance will be reduced to £1m (currently £1.25m).

Trivial benefits in kind

From 6 April 2015 employee benefits costing £50 or less will be exempt for tax purposes.  An annual cap of £300 (of combined trivial benefits) will apply to office holders of close (smaller) companies and family members of those office holders.

From the same date the £8,500 threshold for benefits in kind is abolished.

Working tax credits (WTCs)

In order to tighten the eligibility conditions for those claiming WTCs based on their status as a self-employed person, it will be necessary for claimants to demonstrate that their business is viable, or is working towards viability. The test will mirror the principles already set out in tax case law.

Excise duties

Alcohol duty is being reduced from 23 March 2015. This reduction will amount to:

  • 1p off a typical pint of beer
  • 18p off a typical bottle of spirits
  • 1p off a typical litre of cider

The duty rates on wine not exceeding 22% abv, and sparkling cider of a strength not exceeding 5.5% abv, have been frozen.

Tobacco duty rates

Duties are increased by 2% above the rate of inflation. The price of a pack of 20 cigarettes will increase by 16p.

Vehicle excise duty 2015-16

Rates for cars, vans and motorcycles will increase in line with the Retail Prices Index.

Rates for heavy goods vehicles will be frozen.

Transferrable allowances

From April 2015 a spouse or civil partner, who is not a taxpayer, or who does not pay tax above the basic rate, will be entitled to transfer up to £1,060 of their personal allowance to their spouse or civil partner. This will not advantage higher rate tax payers as the recipient of the transfer cannot be subject to tax at higher than the basic rate. This could result in a saving of up to £212 for the recipient (20% of £1,060 in 2015-16). The limit will increase to £1,080 in 2016-17 and £1,100 in 2017-18.

If you have any queries regarding the budget and what it means for you or your business please contact DSC Chartered Accountants on Harrogate 560547.