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Major Tax Changes in Summer 2015 Budget

Having presented his Budget in March of this year, UK Chancellor George Osborne wasted no time following the Conservative victory in the General Election in May to present a second Budget “untainted” by his then Liberal Democrat coalition partners.

There were some very significant changes in the Summer Budget presented today and we highlight the key changes to taxation below and will produce more detailed articles on many of these over the next few days.

Non Dom Changes

  • Anyone resident in the UK for 15 of the last 20 years will no longer be able to use the remittance basis and they will be deemed domiciled for inheritance tax purposes. This means that the £90,000 remittance basis charge payable by those who have been resident for 17 out of 20 years will be redundant as they will be taxable on an arising basis after 15 years. The £30,000 and £60,000 remittance basis charges remain unchanged.
  • A new rule for returning non doms will apply. Anyone who had a domicile in the UK at the date of their birth will revert to having a UK domicile for tax purposes whenever they are resident in the UK, even if under general law they have acquired a domicile in another country.

It is intended for these rules to apply from April 2017.

Non Doms and IHT on UK Residential Property

The Government want to ensure that UK inheritance tax (IHT) is paid on UK residential property, even when the property is held indirectly through an offshore company.

They will amend the rules on excluded property so that trusts or individuals owning UK residential property through an offshore company will pay IHT on its value in the same way as UK domiciled individuals. This will apply to all UK residential property whether it is occupied or let and of whatever value.

This won't apply to other UK assets or non UK assets. It is intended for these rules to apply from April 2017.

Tax Relief for Landlords on Mortgage Interest

Mortgage tax relief for buy-to-let landlords is to be restricted to the basic rate (20%).

The plan is that landlords will receive a basic rate reduction from their income tax liability for the interest.

Landlords will be able to obtain relief as follows:

  • In 2017/18 the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction.
  •  In 2018/19, 50% finance costs deduction and 50% given as a basic rate tax reduction.
  •  In 2019/20, 25% finance costs deduction and 75% given as a basic rate tax reduction.
  • From 2020/21 all financing costs incurred by a landlord will be given as a basic rate tax reduction.

In addition, from April 2016, the 'wear and tear allowance' will also be replaced by a new system that only allows tax relief when landlords replace furnishings.

Main Residence IHT Exemption

From April 2017, each individual will be offered a family home allowance when they pass their home on to their children or grandchildren after their death. This will be phased in from 2017/18 and will be £100,000 in 2017/18, £125,000 in 2018/19, £150,000 in 2019/20, and £175,000 in 2020/21.

Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.

The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.

The family home allowance will be added to the existing £325,000 Inheritance Tax threshold, meaning the total tax-free allowance for a surviving spouse or civil partner will be up to £1 million in 2020/21.

There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2m. This will be at a withdrawal rate of £1 for every £2 over this threshold.

Annual Investment Allowance

The annual investment allowance will be set permanently at £200,000 from January 2016.

Personal Allowance

Tax free personal allowance is to be raised to £11,000 next year. After that, the personal allowance will always rise in line with inflation.

The higher rate threshold is to rise to £43,000 in 2016/17 (from £42,385 in 2015/16)

Rent-a-Room Relief

They will increase the level of Rent a Room relief from 6 April 2016. It will be increased from £4,250 to £7,500 per year.

Corporation Tax

Corporation tax is to be cut to 19% in 2017, followed by a cut to 18% in 2020.

Dividend Tax

There will be significant changes to the tax treatment of dividends. The dividend tax credit which is currently a 1/9 notional tax credit and is offset against income tax will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016. Tax rates on dividend income will be increased as well.

The Chancellor stated that 85% of those with dividends will not pay more, or will have their tax cut. However this applies to portfolio investors. For anyone that's using a company to carry out their trade or investment this will have a dramatic effect on their tax liability.

Pension Tax Relief

As from 6 April 2016 the annual allowance for tax relieved pension savings will be reduced for those with income over £150,000. The annual allowance will be reduced by £1 for every £2 of income they have over £150,000 with a maximum reduction of £30,000.

Please check back over the next couple of weeks for more detailed information on how these changes will affect taxpayers in several areas including:

  • Non Doms and UK residential property from 2017
  • New Interest Rate Deduction Rules for buy to let landlords
  • IHT Nil Rate Bands to exempt some properties up to £1 Million
  • New Dividend Allowance

These will include detailed examples of how the changes will affect your tax bill.

Other tax-related articles can be found elsewhere on this website and on our associated site Link4Business 

 

 

 

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