Summer Budget 2015

ABOUT THIS DOCUMENT

This Bulletin is based on our understanding of current and proposed legislation (subject to Royal Assent) and HMRC practice and every care has been taken to ensure it is correct. It is issued by DP Pensions Ltd for use by our SSAS and SIPP clients and their advisers. By its very nature it is a précis and can only be treated as a simplified indication of detailed legislation.
Please note that DP Pensions Ltd is not authorised to give financial advice. We do not know all of your circumstances or details of any other pension schemes of which you are a member. You should contact your financial adviser for help on how these new rules affect you personally.
No responsibility to any third party is accepted if this information is used for any other purpose. The legislation and HMRC practice may change in the future.

THE CHANGES

The key announcements are outlined below:
NON-PENSIONS ANNOUNCEMENTS

  • The tax-free personal allowance will be increased from £10,600 in 2015-16 to £11,000 in April 2016
    • The tax-free personal allowance – the amount people earn before they have to start paying income tax – will increase to £11,000 in 2016-17
    • Increases to the personal allowance since 2010, when it was £6,475, mean that a typical taxpayer will be £905 a year better off in 2016-17
    • The government has an ambition to increase the personal allowance to £12,500 by 2020
  • Reforming dividend tax
    • The dividend tax credit (which reduces the amount of tax paid on income from shares) will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016. Tax rates on dividend income will be increased
    • This simpler system will mean that only those with significant dividend income will pay more tax. Investors with modest income from shares will see either a tax cut or no change in the amount of tax they owe
    • Dividends paid within pensions and ISAs will remain tax-free and unaffected by these changes
  • Taking the family home out of inheritance tax
    • Currently, inheritance tax is charged at 40% on estates over the tax-free allowance of £325,000 per person. Married couples and civil partners can pass any unused allowance on to one another.
    • From April 2017, each individual will be offered a family home allowance so they can pass their home on to their children or grandchildren tax-free after their death. This will be phased in from 2017-18
    • The family home allowance will be added to the existing £325,000 inheritance tax threshold, meaning the total tax-free allowance for a surviving spouse or civil partner will be up to £1 million in 2020-21
    • The allowance will be gradually withdrawn for estates worth more than £2 million
  • The amount people with an income of more than £150,000 can pay tax-free into a pension will be reduced
    • Most people can contribute up to £40,000 a year to their pension tax-free. From April 2016, this amount will be reduced for individuals with incomes of over £150,000, including pension contributions
  • The higher rate threshold will increase from £42,385 in 2015-16 to £43,000 in 2016-17
    • The amount people will have to earn before they pay tax at 40% will increase from £42,385 in 2015-16 to £43,000 in 2016-17
  • Restricting tax relief for wealthier landlords
    • Currently, individual landlords can deduct their costs – including mortgage interest – from their profits before they pay tax, giving them an advantage over other home buyers
    • Wealthier landlords receive tax relief at 40% and 45%. This tax relief will be restricted to 20% for all individuals by April 2020
    • In addition, from April 2016, the ‘wear and tear allowance’, which allows landlords to reduce the tax they pay (regardless of whether they replace furnishings in their property) will also be replaced by a new system that only allows them to get tax relief when they replace furnishings
  • Ending permanent non-dom status
    • Non-domiciled individuals (non-doms) live in the UK but consider their permanent home to be elsewhere. The UK rules allow non-doms to pay UK tax on their offshore income only when they bring it into the UK
    • Permanent non-dom status will be abolished from April 2017. From that date, anyone who’s been resident in the UK for 15 of the past 20 years will be considered UK-domiciled for tax purposes
  • Making sure individuals and businesses pay what they owe
    • The government will continue to clamp down on tax avoidance, planning and evasion, as well as increasing resources for HM Revenue and Customs (HMRC) so they can make sure people pay the tax that’s due. This includes:
      • extra investment between now and 2020 for HMRC’s work on evasion and non-compliance
      • tripling the number of criminal investigations HMRC can undertake into complex tax crime, concentrating on wealthy individuals and companies
      • allowing HMRC to access more data to identify businesses that aren’t declaring or paying tax
      • clamping down on the organised crime gangs behind the illicit trade in tobacco and alcohol
      • stopping investment fund managers from using tax loopholes to avoid paying the correct amount of capital gains tax on their profits from the fund (this is known as carried interest)
      • making sure international companies pay tax on profits diverted from the UK
      • introducing a ‘general anti-abuse rule’ penalty and tough new measures for serial avoiders, including publishing the names of people who repeatedly use failed tax avoidance schemes

PENSIONS ANNOUNCEMENTS

  • Annual allowance for pensions will be tapered away to £10,000
    • For 2016 to 2017 onwards the annual allowance for tax relieved pension savings will be reduced for those with incomes of over £150,000
    • The annual allowance will be reduced by £1 for every £2 of income over £150,000 with a maximum reduction of £30,000, to a minimum of £10,000
    • In advance of the introduction of this tapered annual allowance, transitional rules are being introduced to align pension input periods with the tax year by April 2016 and to protect any savings already made before the Budget from retrospective tax charges. Now all pension input periods open on 8 July 2015 will end on 8 July 2015. The next pension input period will be 9 July 2015 to 5 April 2016 for these arrangements. This means that all existing arrangements on 8 July 2015 will have two or three pension input periods ending in tax year 2015 to 2016, depending on the start date of the open pension input period. For new arrangements that have their first pension input period starting on or after 9 July 2015 and on or before 5 April 2016, the pension input period will start on the normal commencement day and end on 5 April 2016. This means for individuals who made pension savings of more than £40,000 prior to the Budget, on the expectation these savings would be tested against the annual allowance for tax years 2015 to 2016 and 2016 to 2017 will now be only tested against the annual allowance for 2015 to 2016. Transitional rules are therefore also being introduced to ensure that in these circumstances pre-Budget savings of up to £80,000 are protected from an annual allowance charge. From 2016 onwards, HMRC stated pension input periods will continue to exist from 6 April 2016, but they will be aligned with the tax year.
  • Green Paper consultation announced
    • Green Paper published that asks questions, invites views, and takes care not to pre-judge the answer, could include:
      • Pensions taxed like ISAs
      • You pay in from taxed income – and its tax free when you take it out. And in-between it receives a top-up from the government
  • Second hand annuity market delayed until 2017
    • The government wants existing annuity holders to have the freedom to sell their annuity income
    • Plans for a secondary annuities market will be set out in the autumn
    • Implementation will be delayed until 2017 due to industry concerns
  • Pension Wise service extended
    • Following the successful launch of Pension Wise in April 2015, the government is extending access to this free and impartial guidance service to those aged 50 and above
    • There will be a comprehensive nationwide marketing campaign to further raise awareness of the service
  • Salary sacrifice remains under review
    • Salary sacrifice arrangements can allow some employees and employers to reduce the income tax and national insurance that they pay on remuneration. They are becoming increasingly popular and the cost to the taxpayer is rising. The government will actively monitor the growth of these schemes and their effect on tax receipts
  • Making ISAs more flexible
    • March Budget 2015 announced that the government will change the ISA rules in the autumn to allow individuals to withdraw and replace money from their cash ISA in-year without this replacement counting towards their annual ISA subscription limit. This policy will also cover cash held in stocks and shares ISAs. These changes will commence from 6 April 2016
  • Taxation of pensions at death
    • As announced at Autumn Statement 2014, the government will reduce the 45% tax rate that applies on lump sums paid from the pension of someone who dies aged 75 and over to the marginal rate of the recipient from 2016-17

The full Budget can be found here:
https://www.gov.uk/government/publications/summer-budget-2015/summer-budget-2015