The Summer Budget – 8 July 2015

Budget briefing – Budget 8 July 2015

This is just a very brief summary of some of the key measures in today’s budget which I feel have an impact on the majority of my clients. This isn’t an exhaustive summary or analysis of the budget – there will be plenty of these over the next few days from various sources, I would suggest the BBC or Channel 4 websites.

Personal allowance

This is currently £ 10,600 pa and is to increase to £ 11,000 from 6 April 2016 and is set to rise to £ 12,500 by 2020. The rate of increase from now until 2020 isn’t very great.

Tax bands

Individuals start to pay higher rates of tax (at 40%) once their incomes exceed £ 42,385. This will increase to £ 43,000 from 6 April 2016.

Buy to let landlords

A big change is on the way for any clients with investment property.

At the moment the interest you pay on your mortgage is treated as a fully deductible expense. Your rent less all your expenses (including interest) gives a profit and you pay tax on that profit. This tax is paid at your “marginal rate” i.e. at 20% if you’re a basic rate taxpayer and 40% (or 45%) for higher rate taxpayers. With effect from 6 April 2017 and being brought in over four years, the amount of tax relief that you can claim in respect of mortgage interest will be restricted to 20%. If you are a higher rate taxpayer (or on the threshold), you will pay more tax.

In addition the 10% “wear and tear allowance” is being scrapped and from then on, only the true cost of actual replacements can be claimed.

Dividends

Many clients currently take dividends out of their companies alongside a small salary. This maximises the net cash income for you and reduces the amount of National Insurance that you pay.

Currently dividends have a 10% tax credit attached to them (so a net dividend of £ 900 represents a gross dividend of £ 1,000 and your taxable income is calculated using the £ 1,000 figure). This tax credit is deducted when calculating your tax liability. As a basic rate taxpayer you do not pay any more tax at all. If you are a higher rate taxpayer, there is an additional charge calculated by your tax return of 32½% of the gross amount.

From 6 April 2016 this tax credit no longer applies. The first £ 5,000 of dividends will not be taxable and then you will pay tax at 7½% on the dividends in the basic rate band, then 32½% for the dividend above the higher rate threshold and 38.1% if your income exceeds £ 150,000. This will impact any client taking dividends over £ 5000 pa.

Annual Investment Allowance

Currently businesses can buy assets and receive 100% tax relief on the purchase cost to a maximum of £ 500,000 (until 31 December2015). It then falls to £ 200,000 and is apparently a permanent figure. I suspect this will be permanent…until they decide to change it. If you are considering high value asset purchases make sure you take advice to buy the asset at the appropriate time.

Employment Allowance

At present the first £ 2,000 of employer’s NI doesn’t have to be paid to HMRC – this is called an Employment Allowance. I was expecting this to be withdrawn, however, it is to be increased to £ 3,000 with effect from 6 April 2016.

Corporation Tax

The current rate of corporation tax is 20%. This is to be reduced to 19% from 1 April 2017 and to 18% from 1 April 2020 (just before the next scheduled election!)

Buying a new car?

From 2017 road tax is being reformed. Currently the first and annual road tax is based on CO2 emissions bands. From 2017, the road tax paid on new cars will be geared to the CO2 emissions with a maximum charge of £ 2,000. The annual road tax will now have three bands (zero, standard and premium) based on emissions with “the majority” of cars falling into the medium band and will pay £ 140pa. Higher emissions cars will pay more.

Insurance Premium Tax

From November 2015 the rate of Insurance Premium Tax will increase from 6% to 9½%. That’s an increase of 58%!

General

This blog is purely a brief overview of the main points in the budget as I see them applying to the majority of my clients.

More information can be found online and more specific information will be added to the various websites as the days pass – simply search on Budget 2015.

E&OE

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