One of the tax issues that the Conservative Party promised to legislate for, a promise they made during the recent election campaign, was the easing of the Inheritance Tax charge for home owners in the UK. The much publicised change was to take family homes of up to £1m out of Inheritance Tax charge completely.

The Chancellor’s announcement last month confirmed this intention, but it will not happen for some time. The mechanism to achieve this relief is to be called the main residence nil-rate band (MRNB).

This will be set at:

• £100,000 from April 2017
• £125,000 from April 2018
• £150,000 from April 2019
• £175,000 from April 2020

It will then increase in line with Consumer Prices Index (CPI) from April 2021 onwards. 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.

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

The existing nil-rate band will remain at £325,000 from 2018-19 until the end of 2020-21.

The MRNB relief will be available to married couples and civil partners.

The £1m overall relief will not be achieved until April 2020. From this date, on the death of the first spouse or civil partner, if they leave their share in the family home to the surviving spouse or civil partner, this will pass IHT free and the deceased parties’ unused MRNB will pass to the surviving spouse. If the rest of the deceased person’s estate passes to the surviving spouse then their unused nil rate band of £325,000 will also pass to their surviving partner.
On the subsequent death of the survivor, if they leave their home to a direct descendant, their estate may be able to claim a combined MRNB of £350,000 (2 x £175,000) plus £650,000 combined nil rate band (2 x £325,000); a total relief of £1m.

There were a number of measures in the Summer Budget that will impact the taxation of property income. These include:

• the abolition of the 10% wear and tear allowance (see details below);
• the restriction of tax relief to the basic rate (20%) for loan interest on funds raised to purchase residential property for letting. This will be phased in over four years from April 2017; and
• the current £4,250 rent-a-room allowance is to be increased to £7,500 from April 2016.

The abolition of the wear and tear relief will apply from April 2016. It will be replaced by a new replacement furniture relief. The new relief will be available to landlords of unfurnished, part furnished and furnished properties. The relief will not apply to ‘furnished holiday letting’ (FHL) businesses and letting of commercial properties, because these businesses receive relief through the Capital Allowances regime.

The new replacement furniture relief will only apply to the replacement of furnishings. The initial cost of furnishing a property would not be included.

Under the new replacement furniture relief landlords of all non-FHL residential dwelling houses will be able to claim a deduction for the capital cost of replacing furniture, furnishings, appliances and kitchenware provided for the tenant’s use in the dwelling house, such as:

• movable furniture or furnishings, such as beds or suites,
• televisions,
• fridges and freezers,
• carpets and floor-coverings,
• curtains,
• linen,
• crockery or cutlery,
• beds and other furniture

Landlords of furnished residential let property considering the replacement of these qualifying items in the current tax year, 2015-16, may be advised to defer expenditure until after 5 April 2016. In this way they will still maximise their claim to the present wear and tear allowance of 10% of rents for 2015-16, and be able to claim the new replacement furniture relief from 6 April 2016.

If you are an old hand at setting up a new business most of the content of this article will be a timely reminder of the issues you need to cover in your project to-do list. For first timers, use this article as a guide to see you through what can prove to be an exhilarating and challenging adventure.

Planning and research

Your planning and research should at least cover the following issues:

• What does it take to run your own business?
• What skills will you need?
• What do you know about your competitors?
• How much capital will you need to raise?
• What resources will you need, plant, equipment, computers etc?
• Could you start on a part-time basis and delay leaving the day job?
• Can you run your business from home?

Also be aware that none of us operate in a vacuum. What special considerations do you need to look out for taking into account the present economic conditions?

Red tape

There is no doubt that at times you will just have to deal with it. Here are a few tips that may make the process less painful.

• Find out exactly what is required, what forms need to be filled in and when they need to be submitted.
• If you feel that a particular process is beyond your abilities find a professional advisor to help, the cost will generally be recovered by time that you are able to free up to work on your business.
• If you want to complete the online filing or form filling make sure you read the fine print…

Red tape seems to be a necessary evil in our highly organised society. If you do find yourself beating your head against a brick wall, save yourself the headache, get some help.

Tax planning

Whatever you do, don’t underestimate the UK tax system. Be very clear what your obligations are and the ways you can organise your business affairs to save tax. There is no point in planning for your tax liabilities after the event! The time to plan is before you act. This is a really important point. Tax specialists, us included, take no joy in advising tax payers that they could have saved themselves tax if only they had acted in a certain way at some time in the past. The tax system is riddled with deadlines that once passed, deny you tax saving opportunities.

HMRC have started the process of sending formal statements to taxpayers who may have under or over paid Income Tax for 2014-15.

In a recent press release they said:

“We are sending P800s that show an overpayment of tax first, followed by a cheque around a fortnight later. You don’t need to do anything. The whole process should be completed in October.

This automated process ensures those who have had a change in circumstances during the last tax year (2014-15) that was not captured in their tax code have paid no more or less than they should. Any discrepancy could be because the taxpayer changed jobs, had more than one job for a time, a change of company car or received investment income that was not reported during the year.

The vast majority of PAYE taxpayers will have paid the right amount of tax for the year and will not be contacted by HMRC.”

We advise taxpayers who receive a statement, and they are unsure if the figures are correct, to take professional advice – get the numbers checked.

George Osborne has presented his first Budget without regard for coalition partners. The measures he has introduced recognise the need to incentivise individuals and businesses, with the promise to balance the nation’s books and reduce debt. We have summarised below some of the more impactful changes.

Some of the measures are surprising: the introduction of a new National Living Wage for the over 25s of £7.20 per hour from April 2016; reductions in Corporation Tax to compensate employers for possible higher wage bills; and far reaching reductions in many state benefits – including Child Tax Credits.

Our summary of these and other tax changes and fiscal incentives follows:

 

Personal Tax

The Tax Lock

The Government are to legislate to set a ceiling for increases to various taxes. This will ensure that they cannot rise above their 2015-16 levels for the duration of the current parliament. The taxes affected are:

• The main rates of Income Tax.
• The standard and reduced rates of VAT.
• Employer and employee Class 1 National Insurance Contribution (NIC) rates.

The NICs Upper Earnings Limit cannot rise above the Income Tax higher rate threshold and it will not be possible to remove any items from the zero or reduced rate of VAT.

Personal Tax allowance

The personal allowance will be increased to £11,000 from April 2016, with the promise of further yearly increases to meet the Government’s target of £12,500 by the end of the current parliament. The rates for the current and next two tax years are:

• £10,600 for 2015-16
• £11,000 for 2016-17
• £11,200 for 2017-18

Income Tax rate bands

There was significant press commentary prior to the Budget predicting an increase in the threshold at which tax payers are liable to the 40% Income Tax rate. During the term of the current parliament it was promised this would rise to £50,000. As a first step the higher rate threshold will be increased to £43,000 from April 2016. For the current and following two tax years the thresholds are:

• £42,385 in 2015-16
• £43,000 in 2016-17
• £43,600 in 2017-18

If your income before personal allowances exceeds this amount you will be paying 40% Income Tax on the excess (this assumes that you are only entitled to the basic personal allowance).

The threshold at which the 45% rate starts is unchanged at £150,000.

There were no changes to the basic Income Tax rate (20%), the higher rate (40%) and the additional rate (45%).

Dividend tax credit to be abolished

From April 2016 Income Tax payers will no longer be able to claim a deduction for tax credits associated with the receipt of dividends.

In its place, a new Dividend Tax Allowance of £5,000 is to be introduced. If your dividend income is below this allowance you will pay no Income Tax. Dividends received in excess of £5,000 will be taxed as follows:

• 7.5% if you are a standard rate (20%) tax payer
• 32.5% if you are a higher rate (40%) tax payer
• 38.1% if you are an additional rate (45%) tax payer

Abolition of non-domicile status

The Government is to legislate such that, from April 2017, any person who has been resident in the UK for more than 15 of the previous 20 years will be deemed to be domiciled in the UK for tax purposes.

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

IHT – Main Residence Nil-rate Band (MRNB)

A new nil-rate band for IHT purposes is to be introduced. It will be available when a residence is left on death to direct descendants. The amount of the MRNB will be:

• £100,000 in 2017-18
• £125,000 in 2018-19
• £150,000 in 2019-20
• £175,000 in 2020-21

Any unused MRNB can be transferred to a surviving spouse or civil partner. The allowance will still be available if the tax payer downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent amount, up to the amount of the available MRNB, are passed on death to a direct descendant.

From April 2017, estates with a net value of more than £2m will be subject to a reduction of £1 in the available MRNB for every £2 the net estate exceeds £2m.

The basic nil-rate band of £325,000 will remain frozen at this level until April 2021.

Tax credits

As expected, George Osborne has made a few cuts to Tax Credits as part of his plan to reduce public expenditure. The following are the main changes:

• From April 2016, the income threshold that applies to Tax Credits will be reduced from £6,420 to £3,850.
• From April 2016, once a claimant earns above the income threshold, their Tax Credits award will be reduced by 48p for every additional £1 they earn. Presently, the taper rate is 41p for each additional £1 of income.
• The child element in Tax Credits and Universal Credits claims will be restricted to the first two children. There will no longer be awards for third or subsequent children born after 6 April 2017. There will be exceptions for multiple births, disabled children and other exceptional circumstances.
• The in-year income disregard (the amount by which a claimants income can increase in one year as compared to the previous year without affecting eligibility) is to be reduced from April 2016, from £5,000 to £2,500.

Insurance Premium Tax (IPT) hike

From 1 November 2015 IPT is to be increased from 6% to 9.5%

 

Business Tax

Corporation Tax rate

The main rate of Corporation Tax is to be reduced from the current 20% to:

• 19% from 1 April 2017, and
• 18% from 1 April 2020.

These reductions are intended to maintain the UK’s competitive tax position and to compensate employers for the possible increases in their wages costs when the new National Living Wage for the over 25s is introduced from April 2016.

The National Living Wage arrives

It has fallen to a Conservative Government to make the important shift towards the implementation of a National Living Wage (NLW).

The long term goal is to set a rate of £9 per hour by 2020. As a first step, from April 2016, the NLW rate for over 25s will be £7.20.

Corporation Tax payment dates change for larger companies

For accounting periods ending on or after 1 April 2017, companies with taxable profits over £20m will be required to pay Corporation Tax in quarterly instalments in the third, sixth, ninth and twelfth months of their accounting periods.

National Insurance Employment Allowance (EA)

The Government is to increase the EA from April 2016. The allowance is as follows:

• £2,000 for 2015-16
• £3,000 for 2016-17

This means that most employers will not pay the first £3,000 of employers NIC from April 2016.

Annual Investment Allowance (AIA)

The current AIA limit is £500,000. This allows businesses to write off up to this amount in qualifying asset purchases (commercial vehicles, plant and machinery and computers etc.) against their taxable profits.

This is a temporary increase and from 1 January 2016 the maximum was set to revert to the previous permanent level of £25,000. It is now intended to increase this permanent limit to £200,000 from 1 January 2016.

This is a welcome announcement as businesses contemplating investment in qualifying plant and machinery of up to £200,000 will now have more time to make a buying decision, past the end of this year, and not lose a tax advantage.

Tax relief on acquisition of goodwill to be restricted

Acquisitions of goodwill after 8 July 2015 will be subject to restrictions for Corporation Tax relief purposes.

Bank Corporation Tax Surcharge

An 8% supplementary tax is to be levied on banking sector profits from 1 January 2016. The tax will apply before deductions for carried forward losses.

The tax will not apply to the first £25m of profit within a group.

Nuisance calls clampdown

In a welcome announcement, the amount that can be claimed by claims management companies is to be capped. It is hoped that change will discourage cold calling to promote PPI and other similar claims.

Three million new apprenticeships

The Government intends that three million new apprenticeships will be created by 2020. The scheme will be funded by a levy on large employers and firms that commit to training will be able to get back more than they invest.

 

Savers and investors (including property investors)

Wear and Tear Allowance (WTA)

The WTA presently compensates residential landlords by allowing them to deduct 10% of their gross rents received (adjusted for some direct charges) before tax due is computed. The allowance is intended to cover replacements of furnishing made from time to time.

From April 2016, this WTA will no longer be available. In its place the actual replacement cost will be deductible.

Capital allowances will continue to apply for owners of furnished holiday let properties.

HMRC will be issuing technical guidance on this change.

Basic rate restriction for landlord finance costs

Landlords of residential properties will have tax relief on finance charges, such as mortgage interest, restricted to the present 20% basic rate of tax. This will be phased in over four years from April 2017.

Rent-a-room relief increase

From April 2016 the present rent-a-room relief of £4,250 is to be increased to £7,500.

Pensions Lifetime Allowance to be reduced

This allowance is to be reduced from £1.25m to £1m from 6 April 2016.

Transitional arrangements will be in place to protect funds in excess of £1m, ensuring that the change will not be retrospective.

From 6 April 2018 the Lifetime Allowance will be indexed annually in line with the Consumer Price Index.

Pension’s annual allowance reduced for high income earners

The present £40,000 Annual Allowance for pension contributions is to be reduced for high income earners from April 2016.

Those with income in excess of £150,000 will see their allowance tapered down to a minimum of £10,000.

Pensions’ automatic enrolment is not going to go away. Businesses have begun to receive notification of their staging date: the date on which pension arrangement under the scheme should be in place.

According to the Pensions Regulator’s commentary on automatic enrolment:

“The law on workplace pensions has changed. Every employer with at least one member of staff now has new duties, including putting those who meet certain criteria into a workplace pension scheme and contributing towards it. This is called automatic enrolment. It’s called this because it’s automatic for your staff – they don’t have to do anything to be enrolled into your pension scheme. But it’s not automatic for you. You need to take steps to make sure they’re enrolled.”

The stages or tasks you will need to complete by your staging date include:

• Assessment of your workforce to see who is eligible.
• Provide a point of contact.
• Create an action plan.

This will include choosing a pension scheme or checking that your present scheme will qualify.

If you are still unsure what you should be doing, we would be happy to point you in the right direction. As we mentioned at the beginning of this article, this requirement is not going to go away.

The new flexibility, that certain pension pot holders can avail themselves from 6 April 2015, offers more opportunity regarding the funds they have saved. Once you reach minimum pension age, normally 55, you will be able to:

 

• Leave your pension fund invested, no change.
• Enter drawdown, thereby taking some of your money whilst leaving the rest where it is.
• Withdraw cash in one or a number of lump sums.
• Purchase an annuity.
• Go with a combination of all of the above.
• Or take your entire pension pot in one go.

Additionally, from April 2016, people who already have an annuity will be able to effectively sell it on, so that they too can benefit from the pension freedoms announced at last year’s Budget.

Currently, people who have bought an annuity are unable to sell it without having to pay at least 55% tax on the proceeds of the sale. From April 2016, the tax rules will change so that people who already have income from an annuity can sell that when they choose and will pay their usual rate of tax they pay on income, instead of 55%.
With so many options to choose from, and a variety of tax traps to avoid, there has never been a more compelling time to seek professional advice BEFORE you make any decisions.

There were a number of changes to promote savings in the Budget. The main changes are set out below:

Help to Buy ISA

From autumn 2015, a new ISA is being launched that will enable first time buyers to save for their deposit. An initial deposit of £1,000 is allowed with additional monthly savings of up to £200.

The Government will top up these savings by 25% up to a maximum of £3,000 (when deposits by the saver reach £12,000).

The bonus can only be put towards a first time buy of up to £450,000 in London or £250,000 elsewhere.

ISA flexibility

From autumn 2015, ISA savers will be able to withdraw and replace money from their ISAs without using up their ISA subscription limit.

Personal savings allowance

From April 2016, basic rate taxpayers will not have to pay tax on the first £1,000 of interest received on savings, and higher rate (40%) taxpayers will not have to pay tax on the first £500 of interest received. The allowance will not be available to additional rate (45%) income taxpayers.

Premium Bonds investment limit

This limit is increased from £30,000 to £50,000 on 1 June 2015

The National Minimum Wage rates from 1 October 2015, as recommended by the Low Pay Commission (LPC) will be:

   

• a 20p (3%) increase in the adult rate (from £6.50 to £6.70 per hour)
• a 17p (3%) increase in the rate for 18 to 20 year olds (from £5.13 to £5.30 per hour)
• an 8p (2%) increase in the rate for 16 to 17 year olds (from £3.79 to £3.87 per hour)

The National Minimum Wage rate for apprentices will increase by 57p (20%) from £2.73 to £3.30 per hour. The LPC recommended an increase of 2.6% to £2.80 in the apprentice rate.

The Government is also putting employers in control of the funding for apprenticeships by introducing a new digital apprenticeship voucher. Vouchers can be used to reduce or eliminate training costs with appropriate providers.

Apprenticeship vouchers will further simplify things for employers and give them the purchasing power to fund apprenticeship training.

The employer would register their details on a system being developed by the Skills Funding Agency including their type of business, the details of the apprentice and the apprenticeship standard being signed up to. The discounted rate, which could be up to 100% for 16 to 18 year olds, at which employers can purchase training, would be calculated and the employer would be able to pass on the voucher code to the provider that is delivering the training. The provider would then reclaim the value of the voucher from the Skills Funding Agency.

1 April 2015 – Due date for Corporation Tax due for the year ended 30 June 2014.

19 April 2015 – PAYE and NIC deductions due for month ended 5 April 2015. (If you pay your tax electronically the due date is 22 April 2015.)

19 April 2015 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2015.

19 April 2015 – CIS tax deducted for the month ended 5 April 2015 is payable by today.

1 May 2015 – Due date for Corporation Tax due for the year ended 31 July 2014.

19 May 2015 – PAYE and NIC deductions due for month ended 5 May 2015. (If you pay your tax electronically the due date is 22 May 2015.)

19 May 2015 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2015.

19 May 2015 – CIS tax deducted for the month ended 5 May 2015 is payable by today.

31 May 2015 – Ensure all employees have been given their P60s for the 2014-15 tax year.