Unlike last year’s far reaching Budget changes, the Chancellor’s final red box before the election didn’t contain too many surprises.
The much heralded new Pension freedom will go ahead as expected, turning conventional wisdom on how to take your retirement funds on its head. This means that sound financial planning advice is even more essential to ensure you use the new flexibility to maximum advantage.
There were announcements on ISAs, savings, tax (and tax avoidance), and some significant new rules affecting specific groups, such as farmers, first time buyers and charities. Here we take a look at the main points affecting individuals:
What should you do?
The personal allowance and higher rate threshold for 2015/16 will increase to £10,600 and £42,385 respectively, as announced last December.
Both, however, are set to increase in the next two tax years:
(Basic rate taxpayers will be better off by £40. Higher rate taxpayers will be better off by £103.)
(Basic rate taxpayers will be better off by a further £40. Higher rate taxpayers will be better off by a further £160.)
As announced last year, from April 2015, the savings rate of income tax will drop to zero (from 10%), and the starting rate band for savings income will increase from £2,880 to £5,000. This is a boost to those with low earned income (less than £15,600) but higher savings income. Those with higher levels of earned income, however, above £15,600, won’t benefit from the increased savings rate band at all.
From April 2016 a proposed new ‘Personal Savings Allowance’ will benefit both basic rate and higher rate taxpayers, irrespective of their level of earned income.
The allowances will be:
Another positive development for savers is that interest will be paid gross, with no deduction of 20% tax at source by their bank or building society from April 2016.
From autumn 2015 savers with Cash ISAs will be able to dip into their savings and replace them, without it counting towards their annual subscription limits, provided that the new contributions are paid within the same tax year the withdrawal is made. These new flexible funding rules are not intended to apply to stocks and shares ISAs.
From autumn 2015 first time home buyers looking to save for their deposit could get tax relief on their savings under the proposed Help to Buy ISA.
The scheme will provide 25% tax relief on savings up to £12,000. This means that someone saving the full £12,000 would see the government add a further £3,000 to their savings, giving them £15,000 towards the purchase of their first home. This tax relief isn’t given at the point of saving in the same way as a pension contribution, however, but is added instead when the saver buys the home.
The new scheme will be a form of Cash ISA and, in line with current rules, it will not be possible to subscribe to two separate Cash ISAs (Cash & Help to Buy) in the same tax year.
Savings will be limited to a maximum single initial premium of £1,000 and regular savings of £200 each month. To qualify for the Government bonus, property values can be no more than £250,000 (£450,000 for properties in London).
The flexibility that a Deed of Variation can currently provide may be under threat after the Chancellor announced a consultation on their use in IHT avoidance. The consultation is due to report its findings in Autumn 2015.
Currently, a will can be changed after an individual’s death, through a legal process known as a Deed of Variation. Often this is combined with the efficient use of exemptions or the nil rate bands in order to make significant IHT savings. It can be used up to two years after death.
If you have received an inheritance within the last two years and are thinking about using this flexibility, you may wish to consider acting now.
The government proposes to abolish self-employed Class 2 national insurance contributions some time in the next parliament.
Self-employed farmers will be able to average their profits over five years instead of just two from April 2016.
Charities will be pleased by the proposed increase in the Gift Aid Small Donation maximum amount from £5,000 to £8,000 from April 2016.
The maximum amount that parents of disabled children will be able to receive under the new childcare scheme starting in the autumn will be increased from £2,000 to £4,000 a year for each disabled child.
From 2019/20 the scale percentage of the list price of company cars that are subject to tax will be increased by 3% up to a maximum of 37% for cars emitting more than 75g/km of CO2.
There will be a 3% differential between the 0–50g/km and 51–75g/km bands and between the 51–75g/km and 76–94g/km bands. The rates for years up to 2018/19 are as previously announced.
The planned increase to the NS&I Premium Bond investment limit to £50,000 will take place on 1 June 2015.
New legislation covering several aspects of marketed tax avoidance schemes will be introduced. This includes tougher measures targeting ‘serial avoiders’ who persistently enter into tax avoidance schemes which fail, and an increase in the deterrent effect of the General Anti-Abuse Rule (GAAR).
The DOTAS rules will be strengthened, notably in respect of inheritance tax. This widens the potential application of accelerated payment notices whereby the tax has to be paid up front and can only be reclaimed if the planning proves to be successful.
This certainly wasn’t a ground breaking Budget from a personal finance perspective, but equally, there was no sting in the tail for us to be concerned about.
Most of the positive news has already been announced in the last Budget or the Autumn Statement.
Like all Budgets, this one provides good reason to review your finances to see exactly how you might be affected.
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