Income Tax and Personal Savings – Budget Report 18 March 2015

 

Income Tax and Personal Savings

Income tax 2015/16 2014/15
Basic rate band – income up to £31,785 £31,865
Starting rate for savings income *0% *10%
Basic rate 20% 20%
Dividend ordinary rate 10% 10%
Higher rate – income over £31,785 £31,865
Higher rate 40% 40%
Dividend upper rate 32.5% 32.5%
Additional rate – income over £150,000 £150,000
Additional rate 45% 45%
Dividend additional rate 37.5% 37.5%
Savings rate limit (savings income) *£5,000 *£2,880
*If an individual’s taxable non-savings income exceeds the starting rate limit, then the starting rate limit for savings will not be available for savings income.
Personal allowances (PA) 2015/16 2014/15
Born after 5 April 1948 £10,600 £10,000
Born between 6 April 1938 and 5 April 1948 *£10,600 *£10,500
Born before 6 April 1938 *£10,660 *£10,660
Married couple’s allowance (MCA) 2015/16 2014/15
Either partner born before 6 April 1935 (relief restricted to 10%) *£8,355 *£8,165
Transferable Tax Allowance 2015/16 2014/15
For certain married couples and civil partners born after 5 April 1935 (relief restricted to 20%) £1,060 –

* Allowances for those born before 6 April 1948 are reduced by £1 for every £2 that adjusted net income exceeds £27,700 (£27,000) to a minimum PA of £10,600 (£10,000) and to a minimum MCA of £3,220 (£3,140).

Where adjusted net income exceeds £100,000, PA is reduced in the same way until it is nil.

The higher personal allowance for those born before 6 April 1938 will be removed with effect from 2016/17, so that everyone regardless of their age is entitled to the same personal allowance.

Tax Shelters 2015/16 2014/15
Venture Capital Trust up to £200,000 £200,000
Enterprise Investment Scheme up to £1,000,000 £1,000,000
Seed Enterprise Investment Scheme up to £100,000 £100,000
Social Investment Tax Relief up to £1,000,000 £1,000,000

Individual Savings Accounts (ISAs) and Child Trust Funds (CTFs)

2015/16 limits:

Overall investment limit £15,240
Junior ISA and CTF limit £4,080

Regulations will be introduced in Autumn 2015, following consultation on technical detail, to enable ISA savers to withdraw and replace money from their cash ISA without it counting towards their annual ISA subscription limit for that year.

From April 2015, existing Child Trust Funds can be transferred to Junior ISAs.

Regulations will be introduced to extend the list of qualifying investments for ISAs and Child Trust Funds to include listed bonds issued by Co-operative Societies and Community Benefit Societies and SME securities that are admitted to trading on a recognised stock exchange, with effect from 1 July 2015. The Government will also consult during Summer 2015 on further extending this list of qualifying investments.

Help to Buy: ISA

The Help to Buy: ISA will be available through banks and building societies and is designed for people saving for their first home. It has the following features:

  • a monthly maximum saving limit of £200 with an opportunity to deposit an additional £1,000 when the account is first opened
  • the Government will provide a tax-free contribution equal to 25% of the total amount saved in a Help to Buy: ISA (so for every £200 saved, the Government will contribute a bonus of £50)
  • the maximum bonus is capped at £3,000 and there will be a minimum bonus amount of £400
  • the bonus will apply to both the amount a person saves into their Help to Buy: ISA and the interest that is built up during the period it is open
  • there is no limit on how long the account can remain open.

For basic rate taxpayers, this will be equivalent to saving free of tax for their first home.

Accounts will be limited to one per person rather than one per home so those buying together can both receive a bonus.

The scheme is available for those saving to buy a first home in the UK worth up to £450,000 in London or £250,000 elsewhere in the UK.

Personal Savings Allowance

With effect from April 2016, a tax-free Personal Savings Allowance is to be introduced for interest income. This will apply for up to £1,000 of a basic rate taxpayer’s savings income and up to £500 of a higher rate taxpayer’s savings income each year. It will not be available for additional rate taxpayers, but will be in addition to the tax advantages currently available to savers from ISAs.

From April 2016 banks and building societies will no longer automatically take 20% in income tax from the interest earned on individuals’ non-ISA savings.

Annuities

Changes will be made with effect from April 2016 to allow people who are already receiving income from an annuity to sell that income to a third party as and when they choose. There will be a consultation on how best to remove the barriers to the creation of a secondary market in annuities.

Pension lifetime allowance

The Government announced its intention to reduce the pension lifetime allowance to £1m with effect from 6 April 2016. Fixed and individual protection regimes will be introduced alongside the reduction in the lifetime allowance to protect savers who think they may be affected by this change. Provisions to increase the allowance in line with CPI from 2018 will be included.

Postgraduate research loans

Loans up to £25,000 will be available for postgraduate PhD and masters research students.

Trivial benefits in kind

With effect from 2015/16 legislation will be introduced to provide a statutory exemption from tax for qualifying trivial benefits in kind costing £50 or less. This will be subject to an annual cap of £300 for office holders of close companies and employees who are family members of those office holders. Corresponding legislation will also be introduced for NICs purposes.

Employment intermediaries

The Government will consult on detailed proposals to restrict tax relief for travel and subsistence, for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and under the supervision, direction and control of the end-user. Any legislative changes would take effect from 6 April 2016.