Budget 2015: A summary of the main provisions

Today the Chancellor of the Exchequer, George Osborne, presented his final budget before the election. Typically pre-election budgets are giveaways but immediately followed by tax raising post-election budgets. This is an opportunity for headlines but whether the measures announced will reach the statute book will depend on the election result.

We set out below our outline view of what the election means for you and your business. As always the devil will be in the detail of the press releases and draft legislation and we will be reviewing them and will provide further updates through our blog.

Economic Summary

  • At 2.6% growth in GDP the UK was the fastest growing major advanced economy in the world in 2014.
  • The trade deficit figures announced last week were the best in 15 years.
  • There is to be more help for trade investment in China.
  • GDP for 2015 was predicted to be 2.3% and is now forecast to be 2.5%, revised up by the OBR against the trends around the world.
  • Unemployment is set to fall to 5.3% by the end of the year.
  • Households are £900 better off a year than in 2010.
  • National debt – the Government is launching a £13 billion sale of the mortgage assets of Northern Rock and Bradford & Bingley and will sell £9 billion worth of Lloyds shares. The proceeds of those sales will be used to pay down the national debt rather than treated as a windfall that could be spent. The target for reducing national debt set in 2010 has been met. In 2010 the deficit was 10% of GDP, and is now 5% of GDP; it is forecast to be 4% in 2015/16 and in 2018/19 a surplus of 0.2% of GDP is forecast.

What the budget means for you

Savings

The present ISA allowance is £15,240 per annum. A new flexi-ISA is to be introduced whereby funds can be taken out of the ISA wrapper and put back in using the same ISA allowance as long as this happens in the same tax year.

A “Help to Buy” ISA to be introduced to help first time buyers and try to tackle the problem of the current low interest rates on savings and high deposits required by lenders. For every £200 saved there will be a £50 top up by the Government up to a maximum of £3000 of relief (so equivalent to basic rate tax relief on ISA contributions for house deposits).

A Personal savings allowance is to be introduced. The first £1,000 of interest earned on savings in a tax year will be tax free (£500 for higher rate taxpayers).

Pensions

The lifetime allowance is to be cut from £1.25 million to £1 million but the allowance will be index linked from 2018/19. There is no reduction to the annual allowance of £40,000 or 100% of earnings whichever is the lower.

5 million pensioners are to be given access to their annuity funds with tax payable at marginal rates on the sale of an annuity rather than the current 55%.

Income Taxes

Personal allowances are set at £10,600 2015/16, £10,800 2016/17, £11,000 2017/18.

The higher rate threshold is to increase above inflation from £42,385 in 2015/16 to £43,300 in 2016/17.

Capital Taxes

A review is to be conducted in relation to Deeds of Variation and tax avoidance through consultation with a report on the outcome of the consultation to be issued in Autumn 2015.

The Inheritance tax death on active service relief is to be extended to more occupations such as police and intelligence services as previously announced.

Capital Gains Tax Entrepreneurs Relief: loopholes are to be closed. Entrepreneurs’ Relief will be denied on a disposal of shares in a company that does not have a significant trade of its own.

Compliance

Self Assessment Tax returns are to be abolished for individuals with information uploaded to individual online digital tax accounts generated from information from banks. It is proposed that by 2020 more than 50 million small businesses and individuals will have a digital tax account. Given the failings in HMRC’s present online offerings we wait to see if, when and how this will work in practice. There are darker issues here in relation to information gathering on our income sources by direct reporting to HMRC and this could encourage the transfer of funds outside of the UK.

Property

For the first time since Stamp Duty Land Tax was introduced in 2003 the rates remain unchanged.

As announced this time last year, the ATED (the “annual tax on enveloped dwellings”) threshold comes down from £2m to £1m on April 1 2015. Companies and other non-natural persons (“NNPs”) owning or having an interest in a dwelling worth more than £1m but less than £2m will be liable to pay £7,000 in ATED unless one of the reliefs can be claimed. Even if a relief can be claimed, the NNP must file an ATED return by 30 April.

The threshold comes down again on 1 April 2016, so that dwellings worth more than £500,000 on that date will fall within the scope of ATED.

Duties

The scheduled fuel duty increase has been cancelled and the duty on beer will be cut by 1 pence a pint whilst the duties on cider and spirits has been cut by 2%. Duty on wine is frozen.

What the budget means for your business

Farmers: averaging of profits can now apply over a five year period rather than two years as previously to enable seasonal fluctuations to be levelled out for farmers’ tax liabilities.

Measures are to be introduced from 1 April 2015 for companies which seek to divert UK profits overseas to avoid tax as announced in the Autumn Statement.

Foreign branch loss set off rules are to be introduced so that businesses cannot take account of foreign branches when calculating VAT on overheads.

There is to be anti avoidance action with regard to travel and subsistence expense claims made by umbrella companies and agencies.

Business rates: a review of Business Rates was announced.

The Annual Investment Allowance boost ends at the end of the year. It will be reduced but not to £25,000 as provided previously and more details will be confirmed in the Autumn Statement.

Enterprise Investment Schemes and Venture Capital Trusts – new rules are to be introduced to ensure compliance with the latest State Aid rules and to increase support to high growth companies.

Banking sector – the bank levy is to be raised to 0.21% and loss relief with regard to compensation payments to customers for mis-selling PPI is to be restricted.

Creative industries: TV and film tax credits are to be made more generous and reliefs are to be extended to orchestras.

Self-employed: Class 2 National Insurance contributions are to be abolished for the self employed and reductions in employers’ National Insurance contributions were announced from the next tax year for those employers who employ a young apprentice.

Corporation tax – No change to the already announced 20% Corporation Tax rate from 2015/16. There has been no increase in the Corporation Tax rate since 1973.

Measures are to be introduced to prevent companies from obtaining a tax advantage by entering contrived arrangements to convert brought forward reliefs into in year deductions.

Conclusion

The Chancellor used the speech to make a few attacks at Labour in particular on Ed Milliband’s Deed of Variation and his two kitchens but beyond the spin there is not a great deal worthy of excitement for winners or losers of today’s Budget.