THE 2014 BUDGET
George Osborne delivered his fifth budget on 19th March 2014. Many of his proposals will not take effect until 2015/16.
1. Personal Allowance and Tax Bands
The increase in the personal allowance to £10,000 was announced in the 2013 Autumn Statement. A further increase to £10,500 will apply from 6th April 2015.
The rates of tax applying will be as follows:
Taxable Income 2014/15 2015/16
Up to £10,000 0% 0%
£10,000-£10,500 20% 0%
£10,501-£41,865 20% 20%
£41,865-£42,285 40% 20%
£42,286-£100,000 40% 40%
£100,001-£120,000 60% 60%
£120,001-£121,002 40% 40%
£121,002-£150,000 40% 40%
£150,001 + 45% 45%
From 6th April 2015 an individual will be able to transfer up to 10% of their personal allowance to their spouse or civil partner so long as that person is not a higher rate taxpayer.
2. National Insurance
The rates of National Insurance for 2013/14 will be:
Class 1 Employees NI Employers NI
Up to £7956 0% 0%
£7957-£41,865 12% 13.8%
£41,866 + 2% 13.8%
The rate is increased by 5p per week to £2.75 per week.
The rate is increased by 35p per week to £13.90 per week
The rates will be:
Up to £7956 0%
£41866 + 2%
The first £2,000 per annum of employers National Insurance is waived as an Employer Allowance. From 6th April 2015 no employers NI will be due in respect of employees under 21 who earn up to the upper earnings limit of £42,375.
3. Capital Gains Tax
The annual exemption is increased by £100 to £11000. The rates remain at 18% for basic rate and non taxpayers, and 28% for higher tax payers. The 10% rate for Entrepreneur’s Relief remains with an unchanged lifetime allowance of £10 million.
4. Inheritance Tax
There were no changes to the nil rate band or the rate which remain are £325,000 and 40% respectively.
5. Tax Efficient Investment
A New ISA (known as NISA) will be introduced and will commence on 1st July 2014. The NISA will hold cash and, or shares, and the maximum annual subscription will be £15,000. Between 6th April 2014 and 30th June 2014 the maximum contribution increases from £11,520 to £11,880 of which up to 50% may be in cash.
The maximum contribution to a Junior ISA increases from £3,720 to £3,840 on 6th April 2014 and then to £4,000 from 1st July 2014.
There were no changes to subscription limits to VCT’s, EIS’s or the SEIS. Some limited anti avoidance measures were introduced.
Substantial changes were announced to pension schemes; the most fundamental change is that from 6th April 2015 the requirement to purchase an annuity will be removed. From this date individuals over 55 will be able to draw 25% of their pension funds tax free and pay their marginal rate of tax on any further amounts drawn.
7. Capital Allowances
The annual investment allowance which had been temporarily increased to £250,000 for a two year period due to end on 31st December 2014 has been extended for 1 year and increased to £500,000 for expenditure incurred on or after 1st April 2014 (6th April 2014 for individual and partnerships)
8. The Savings Tax Rate
This has been set at 10% for many years and applies in limited circumstances where a person with savings income has income at or a little above the personal allowance or whose other income comprises dividends. The savings rate will increase from £2,790 to £2,880 from 6th April 2014. From 6th April 2015 this will increase to £5,000 and the tax rate itself will reduce to 0%. Therefore those with modest incomes or with modest incomes and dividends will be able to receive interest free of tax.
9. Tax Avoidance
Users of marketed tax avoidance schemes and those caught under the General Anti Abuse Rules will have to pay the liability assessed by HMRC on being given 90 days notice and then fight their case. Taxpayers who are successful will be refunded the tax they have paid plus interest.
10. Corporation Tax
The main corporation tax rate is reduced to 21% from 1st April 2014 and will drop to 20% from 1st April 2015 to be the same as the small company rate.
The registration and de-registration limits have been increased to £81,000 and £79,000 respectively with effect from 1st April 2014.
Large businesses will welcome the extension and increase of the temporary enhancement of the annual investment allowance.
Those using tax avoidance schemes need to do so very much with their eyes open. Many IT contractors have been convinced to join schemes typically in the Isle of Man and then seen the promoters of those schemes quietly disappear when HMRC have challenged the scheme. Now they will find that they have to pay HMRC upfront.
Perhaps the biggest surprise is the scrapping of the requirement to purchase an annuity from pension funds from April 2015. This will open up some very interesting tax planning opportunities for those in their fifties and early sixties who are still working. Some of these ides will be explored in future blogs.
This document has been produced for general guidance only and does not constitute tax advice. Whilst every care has been taken in its preparation, Warr & Co Limited will not accept liability for any loss incurred as a result of any use made of this document or its contents. We will be happy to offer specific advice to clients when requested. Should you have any queries or wish to discuss any of the points raised please contact Tim Warr, Peter Edwards or Suresh Dhokia on 0161 477 6789.