Articles

2015 Budget
20 Mar 2015

 

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With just 50 days before the election, the Chancellor's announcements included a number of tax-saving proposals. The Budget statements are made in the context of a strengthening British economy, helped (as Mr Osborne grants) "by falling world oil and food prices."  His speech declared a national "comeback", with:

 

 

  • A growth in the UK economy of 2.6% in 2014, the fastest in the G7 group of nations.
  • The number of people in work at a historical high.
  • Britain measuring its lowest recorded level of inflation.

 

 

ISA

 

 

Starting 6 April 2015, the limit on the yearly amount that can be invested in an ISA increases by £240 to £15,240.  The annual limit for a junior ISA also increases to £4,080 up £80 from 2014/15.

 

ISA rules will be more flexible from 2015/16.  Previously the limit was measured with regard only to the amount paid into the ISA.  However, under new rules the limit will be measured by net contributions in the year.  It will be possible to draw funds out the ISA and re-invest them, provided the difference between what is invested and what is withdrawn, the same tax year, does not exceed the limit.

 

 

Help to Buy ISA

 

 

A new type of ISA will be available for first time buyers from Autumn this year.  Under the Help-to-Buy scheme, the government will add £50 to the ISA for every £200 contributed by the saver.  An investment can be made up to an overall yearly limit of £15,000.  The maximum is therefore £12,000 contributed by the saver and £3,000 contributed by the government.  The limit is 10% of £150,000 which is the Treasury estimate of about the average UK property price.

 

 

Savings

 

 

The chancellor announced that from 6 April 2016, there will be no tax payable on the first £1,000 of interest income. Currently, 20% tax is deducted at source from most interest, and 40% taxpayers are therefore required to pay back an additional 20% in tax.  The limit is reduced to £500 for higher rate taxpayers so that the relief is no greater for those on higher income.  The measure is expected to relieve 95% of taxpayers from the burden of tax on their interest.

 

 

Pensions

 

 

There is a lifetime allowance on the amount that can be invested, tax free, in a pension.  The value of the pension is measured against this limit when it vests.  A pension usually vests when the pension holder starts drawing on the pension. There is a tax charge on the value of the pension over the lifetime allowance on the vesting date.  The government proposes to reduce the annual limit from £1,250,000 to £1,000,000 from April 2016.

 

A pensioner will also no longer be forced to buy annuity from next April.  In other words, a pensioner will no longer have to receive a fixed annual payment, calculated partly by reference to life expectancy.  Instead pension holders will be able to access their pension funds as cash withdrawals.

 

Under the current rules, a taxpayer would have to pay tax at a rate of 55% when they sell their annuity.  This will be altered so that a taxpayer will pay tax at their marginal rate (for instance, at 20% if a basic rate taxpayer.)

 

 

Personal allowance

 

 

The personal allowance, or the amount of income that a person can receive tax free, is set to increase over the next three years.  With effect from 6 April 2016, the personal allowance will rise to £10,800, a £200 increase from 2015-16.  The personal allowance is also set to rise again to £11,000 on 6 April 2017.

 

 

Basic rate

 

 

So that higher rate taxpayers are no worse off following the personal allowance, an increase the basic rate threshold is also due to rise.  Starting 6 April 2015, an individual must earn £42,385 before paying tax at the higher rate of 40%.  This basic rate tax threshold will rise by £315 in 2016-17, and by £600 in 2017-18.  The basic rate band will therefore be £43,300 in 2017-18.  The escalation in the limit is above inflation and therefore prevents us paying more in real terms, an effect known as fiscal drag.

 

 

Married couples' allowance

 

 

Where a spouse has income less than the personal allowance, they can transfer some of their allowance to their married partner.  Consequently, the married partner can benefit from a higher tax free amount that their spouse is not using.  From 6 April 2015, the amount of allowance that can be transferred will rise to £1,100.

 

 

Class 2 NICs

 

 

Class 2 national insurance is a fixed amount payable by self-employed individuals.  The government has announced that it will abolish this tax from the next Parliament.

 

 

Under 21 NICs

 

 

From next April, there will be no employers' national insurance liability arising from salary paid to an employee under twenty one.

 

 

Company cars

 

 

Where an employer provides a company car, the employee is taxed on this benefit in kind.  The higher the Carbon Dioxide emissions of the car the more benefit the employee is deemed to have received.  This is to encourage companies to provide more fuel efficient work vehicles.  The government announced, that in 2019/20 the rate applicable to low-emission vehicles will be lower than previously announced.  On the other hand, the rate for other vehicles will increase 3%.

 

 

Tax returns

 

 

From early 2016, the government plans to scrap the Tax return, and instead introduce digital tax accounts.  Further details are awaited.

 

 

 

Annual investment allowance

 

 

There is currently an annual allowance in place to enable business to immediately deduct the cost of purchasing assets, such as computer equipment, from taxable profits.  The rate is currently £500,000 but due to fall to £25,000 at the end of this year.  In his speech the chancellor confirmed that this considerable drop will not occur.

 

 

Corporation tax

 

 

As part of a previously announced measure the rate of corporation tax will lower again to 20% from 1 April 2015.  Britain will have one of the lowest company tax rates of any major economy in the world.

 

 

 

2014 Budget
19 Mar 2014

 

Written by

 

Delivered at 12.30 today, the chancellor's fifth budget contains a number of tax incentives for so called 'doers, makers and savers.' A round up of the main changes is explained below.

 

Stamp duty on property worth over £500,000

 

The threshold for stamp duty on residential property purchased via a company will lower from £2 million to £500,000. The new threshold takes effect from midnight (19 March 2014.) The measure provides a further disincentive to owning a property via a company.

 

Up to £2,000 state help with childcare costs

 

From September 2015, families where both parents work will be able to obtain government support for the cost of childcare on any of their children aged 11 or younger. Eligible couples will be able to open an online 'tax-free childcare' account which will be administered by HMRC in conjunction with NS&I. The government will contribute 20 pence for every 80 pence paid into an account. Under new proposals, up to £8,000 can be contributed by parents into the fund. Where the maximum is contributed, £2,000 of childcare subsidy would be obtained.

 

The scheme is open to all parents, except where both parents are earning over £150,000.

 

Parents using a childcare voucher scheme can continue to use the scheme as an alternative until their child reaches 15 years old. This will be particularly beneficially for parents with children between 12 and 15 who have not moved employer.

 

Premium bond limit lifted to £50,000

 

The cap on amounts that can be invested in a premium bond will be raised in June from the current threshold of £30,000 to £40,000. A further increase in the limit to £50,000 will be introduced from 2015/16. Premium bond pay-outs are tax free, but the limit of £30,000 has been in place since 2003.

 

ISAs limit increase to £15,000

 

From 1 July 2014, the limit that can be invested in an ISA will increase from to £11,520 to £15,000 and the full amount can be invested in cash. The previous rules restricted the amount that could be invested in cash (to £5,760 for 2013/14.)

 

Pension annuities to be abolished

 

From 5 April 2015, pensioners will no longer be required to convert their pension into an annuity. Previously, pensioners had to purchase of an annuity from their pension pot on reaching age 75. An annuity is a guaranteed income for life which is based mainly on the value of the pension fund, prevailing interest rates and life expectancy. It is hoped that greater choice for pensioners will improve the competitiveness of annuity products.

 

The alternatives of fixed term annuities or income draw-down may leave surplus funds in the pension to be transferred on death.

 

Most pensioners will have a cap placed on the amount that can be withdrawn. A few pensioners, which sufficient other income, will be able to drawdown unlimited amounts from their pension.

 

10 pence savings rate to be scrapped

 

The budget contained welcome news for low income savers, with the abolition of the 10% tax rate.


Where a person's total income is less than the personal allowance and the starting rate, savings income has been taxed at 10%. For 2013/14 the personal allowance was £9,440 and the starting rate was £2,790. Therefore in 2013/14, an individual with total income of £12,230 of which £2,790 was bank interest, would have a tax liability of £279.

 

Following the budget announcement, a new starting rate of 0% will be introduced for savers and will apply to the first £5,000 of taxable income. This is almost double the current limit.

 

Further rises to the personal allowance

 

The chancellor announced that the personal allowance will increase again to £10,500 on 6 April 2015. However unlike previous increases in the personal allowance there is no corresponding decrease in the amount taxed at the basic rate. Therefore all taxpayers with an income up to £100,000 will benefit. The personal allowance is clawed back when income exceeds £100,000.

 

Social investment and film tax relief

 

From 6 April a 30% tax relief will be available for investment into social enterprise, such as charities and community interest companies. There are increases to film tax relief and tax relief for theatre productions.

 

Annual investment allowance to double

 

The annual investment allowance (AIA) will be increased from £250,000 to £500,000 with immediate effect and until the end of 2015. The AIA determined the amount that can be invested in capital assets and deducted from profits in the year of investment. All but the very largest business will therefore be able to obtain immediate tax relief for capital investment.

 

Abolishing class 2

 

The flat rate of national insurance payable by sole traders and partners will be abolished. The change will reduce an administrative burden on the self-employed.

 

Employment allowance

 

As previously announced the government will be introducing the employment allowance of particular benefit to small business employing staff.

 

With experience in dealing with a range of tax issues, Coman & Co. would be pleased to assist with your tax compliance or tax advice requirements. Please contact us for an initial consultation.

Capital gains tax on property sale
28 Feb 2014

 

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With the London property market soaring, exposure to capital gains tax is sharply on the rise. Tax accountant, Ray Coman replies to the questions this raises.

 

When I sell my property will I have to pay tax?

 

 

You will only pay tax on the sale of property that has not been your home.

 

How much could my tax liability be?

 

 

A gain for tax purposes is the increase in value between buying your house and selling it. This taxable gain can be reduced by costs of purchase, of sale and improvement to the property. Any losses you have made previously, and your annual allowance, currently £10,900, could further reduce the taxable gain. Most of the gain would probably be taxed at 28%.

 

How is my tax reduced if the property used to be my home?

 

 

The proportion of gain during which a property was your Principal Private Residence (PPR) will be exempt from tax.

 

You will be treated for tax purposes as living in the property during certain periods of absence, such as when required to temporarily relocate for work. However, you can only have one PPR at any time. For a final period, you are deemed to live a property, even if you actually lived elsewhere, and did not return to live in it. For properties exchanged before 6 April 2014 the final period is 36 months, however it then reduces to 18 months.


If you let a property that was once your home any gain is further reduced by up to £40,000, per owner.

 

Would I save tax owning a property through a company?

 

 

There is rarely any tax benefit to owning a property in a company. Any gains are subject to corporation tax, and when taking gains out of the company, further tax liability is likely to arise on dividends. A company is not eligible for PPR relief or an annual exemption.

 

Should I transfer the property into joint names with my husband or wife before selling it?

 

An acquiring spouse 'inherits' the actual and deemed periods of occupation of the transferring spouse. Transferring a property can, therefore, save a couple tax. However, a person, or a married couple, can only have one PPR at any time. Therefore, if the transferee spouse was previously a homeowner, the transfer could create a significant tax liability.


Transfers between spouses are exempt from capital gains tax.

 

I had two homes, what happens if I sell one of them.

 

 

The fortunate few who have two homes at the same time could benefit by nominating one of the properties as a PPR.

 

How is my tax position affected if the property market does not increase?

 

If price stagnate, the effectiveness of PPR will diminish. If you sell your home for less than you bought it for, the loss cannot be used to reduce any taxable gains you make in the future.

 

Coman & Co can advise on the tax implications of your property investment plans. Please contact us for a free consultation.

 

Tax rates for 2014-15
06 Apr 2014

 

Written by Ray Coman

 

With a general election fixed for 7 May 2015, this will be the last full tax year of the current coalition. Many of the changes to take effect from today were announced in the 2014 Budget, although some had been scheduled from much earlier. The main changes effective 2014-15 include:

 

 

The changes include good news for savers and people with pensions and further stimulus for business. However, at a time where property and assets values in certain areas have risen sharply, the lack of change in the tax thresholds creates risk for investors.

 

 

In summary, the freeze on capital taxes will expose greater numbers to an increased burden of tax on wealth and property.
 

Coman & co are pleased to offer a summary of the new rates and allowances, which are key references for tax planning in the coming year.  Please contact us for a further discussion about your upcoming tax requirements.

Final period of deemed occupation to reduce
22 Feb 2014

 

Written by Ray Coman

 

As from 6 April 2014 the rules change affecting taxpayers who own property that was previously their home.

 

Each person is entitled to dispose of a property occupied as their home without suffering any capital gains tax. However, for any other property an exposure to capital gains tax arises. The tax system will allow a person to continuing to treat their former home as exempt from capital gains tax during certain periods of absence. These periods are referred to as deemed periods of occupation.

 

One deemed period of occupation is the final period of ownership. The final period of ownership would provide exemption from capital gains tax in the situation where a person has moved home but their pervious place is still on the market. The final period used to be 36 months, but for properties exchanged after 6 April 2014 it will reduce to 18 months.

 

Principal Private Residence relief can significantly reduce a person’s tax liability. The reduction in effectiveness of the relief will increase the potential tax burden on eventual disposal of a property. Please contact Coman & Co if you are concerned about the impact of the proposals on your exposure to capital gains tax.