Income Tax and Personal Savings – The Second Budget 8 July 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 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.

The personal allowance will be increased to £11,000 for 2016/17. The basic rate limit will be increased to £32,000 for 2016/17.

Dividend taxation

From April 2016 the Dividend Tax Credit will be abolished and a new Dividend Tax Allowance of £5,000 a year will be introduced.

The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

Restricting finance cost relief for individual landlords

New legislation will mean that landlords will no longer be able to deduct all of their finance costs from their residential property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

This will be introduced gradually from 6 April 2017.

Reform of the Wear and Tear Allowance

The Government will, with effect from April 2016, replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings.

Rent-a-Room relief

From April 2016 the level of Rent-a-Room relief will be increased from £4,250 to £7,500.

Pensions: reduced Annual Allowance for top earners

For those with income (including the value of any pension contributions) above £150,000, the benefits of pensions tax relief will be restricted by tapering away their Annual Allowance to a minimum of £10,000. This will be effective from 6 April 2016.

In order to facilitate the taper, legislation will also be introduced to align pension input periods with the tax year as well as transitional rules to protect savers who might otherwise be affected by the alignment of their pension input periods.

Eligibility of non-domicile status for UK born individuals

From April 2017, individuals who are born in the UK to parents who are domiciled here, will no longer be able to claim non-domicile status whilst they are resident in the UK.

Abolition of non-domicile status for long domicile residents

Legislation will be introduced so that from April 2017 anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed to be domiciled in the UK for tax purposes. A technical consultation will be published later in the year.

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.

Personal Savings Allowance

As previously announced, 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

As previously announced, 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

Also as previously announced, the Government intends 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.

Income tax, NICs and VAT ‘tax lock’

The Government will legislate to set a ceiling for the main rates of income tax, the standard and reduced rates of VAT, and employer and employee (Class 1) NICs rates, ensuring that they cannot rise above their current (2015/16) levels.

The ‘tax lock’ will also ensure that the NICs Upper Earnings Limit cannot rise above the income tax higher rate threshold; and will prevent the relevant statutory provisions being used to remove any items from the zero rate of VAT and reduced rate of VAT for the duration of this Parliament.