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'Hot Town, Summer In The City' - The Loving Spoonful, August 1966

09 July 2015

Just a week after the hottest day in memory, things got quite heated in the House of Commons yesterday, when George Osborne gave his second Budget speech of the year, this time under a Conservative government. Some of his announcements generated a great deal of noise from both sides of the House, raising the temperature all round, especially for the Deputy Speaker, who had to stop proceedings numerous times.  The Chancellor spoke of measures to be introduced to clamp down on tax avoidance across the board, and turn up the heat on people who abuse the tax system - giving them 'nowhere to hide'.

The government will invest a further £800 million in this area to recover around £7.5 billion in lost taxes, and this concentrated increase in anti-avoidance activity has the potential to affect more and more people in the coming years, as tax enquiries increase.

Some of the other announcements in the Summer Budget will have an immediate and more direct impact, and the following is an 'at-a-glance' snapshot of some of these:

From April 2016 (or earlier)

  • Rent a room relief - will increase to £7.5k
  • Dividends - the 10% tax credit on dividends will be abolished and replaced by a £5k tax free dividend allowance, with any dividends in excess of £5k being taxed at 7.5% for basic rate payers, rising to 32.5% and 38.1% for higher and additional rate payers.  This is likely to make tax planning involving dividends less attractive.
  • Employment allowance - the NIC allowance will increase to £3k, but will no longer be available where the director of the company is the only employee.
  • Pension contributions/annual allowance - those earning £150k will have the £40k annual allowance for tax relief on pension contributions restricted by £1 for every £2 of income above this limit, to a minimum of £10k.
  • Wear and tear allowance - the existing 10% allowance available to landlords of furnished property will be scrapped, and instead, a scheme will be introduced for both furnished and unfurnished lettings which will allow relief on the replacement cost of furnishings..
  • Annual investment allowance - was due to reduce to £25k from January 2016 but will now be fixed at £200k from that date (from £500k currently - an opportunity for planning before the end of this year!).
  • Personal allowance and the basic rate - the allowance will increase to £11k from April 2016 and the basic rate band will increase to £32k.
  • National Living Wage - those aged 25 and over will be paid at least £7.20 per hour, rising to £9 per hour by 2020.
  • Amortisation of goodwill - corporation tax relief will no longer be available on the amortisation of goodwill (or other intangibles) acquired on or after 8 July 2015.

From April 2017

  • Rental property interest relief - loan interest relief will be restricted to the basic rate of tax, with this change being phased in over four years from April 2017 (will not apply to furnished holiday properties).
  • IHT - an additional 'family home' allowance of up to £175k will be phased in over four years, meaning that, in some cases,up to £1 million could be transferred by a couple free of IHT.  Tapering will reduce this new allowance where total estates are worth more than £2m.
  • Corporation tax - the rate of corporation tax will reduce from 20% to 19%, and then to 18% from 2020.
  • Domicile - permanent non-domicile status will be abolished, and non-domiciled UK residents who live in the UK for at least fifteen out of the last twenty years will no longer be able to utilise special tax rules which limit their liabilities.  Non-domiciled individuals who own UK residential property via overseas entities will no longer be able to obtain a tax advantage.

The future

  • Pension overhaul - a Green Paper will be issued to consult on further pension reforms, with a view to encouraging people to save.
  • Benefits In Kind - a consultation document will be published to look at the tax treatment of benefits and expenses.

It's likely that all of us will be affected by at least one of these changes, so this could be an ideal time to think about tax planning opportunities before new rules come in.  We'll keep you posted on developments as more details of the Budget proposals emerge, so make sure you keep an eye on our website and our LinkedIn,  Facebook and Twitter pages.  If the Summer Budget 2015 has got you hot under the collar, just get in touch with your usual Springfords contact who'll help you cool down!

This is a general guide which is intended to give background information and is not a substitute for taking specific advice based on your particular circumstances.

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