By Nicole Booth, Forth Capital
The Chancellor of the Exchequer delivered his first Conservative Budget on 8th July 2015. The key measures affecting private clients are highlighted below.
Income Tax
The personal allowance will rise to £11,000 in 2016/17, and to £11,200 in 2017/18. The government plans to raise the personal allowance to £12,500 by 2020 so that people working 30 hours a week on the minimum wage do not pay income tax.
The higher rate threshold at which individuals start to pay income tax at 40% will increase to £43,000 in 2016/17 and to £43,600 in 2017/18. These are small steps towards the manifesto target of £50,000 by 2020, so steeper increases will be needed in future years.
Property Owners
Rent-a-room relief will rise from £4,250 per year to £7,500 per year from April 2016.
Mortgage interest relief for buy-to-let owners is to be restricted to 20% by April 2020. This change will be phased in from April 2017.
From April 2016 the 10% annual wear and tear allowance will be replaced by a new relief that allows landlords to deduct the actual costs of replacing items of furniture and furnishings. Landlords of furnished holiday lets will continue to receive capital allowances. A consultation will be issued this summer.
Dividends
From April 2016, the notional 10% dividend tax credit will be replaced with a new tax-free allowance of £5,000 on dividend income. The rates of tax for dividends in excess of the allowance will be set at 7.5%, 32.5% and 38.1% for basic rate taxpayers, higher rate taxpayers and additional rate taxpayers respectively.
Previously, an individual could earn up to £38,000 tax free from dividends alone, but from April 2016, they will have a tax bill of £1,700 on those dividends.
This measure will particularly impact shareholders of family and owner managed businesses, who will need to review the manner in which profits are extracted from the business, and the dividends vs salary ratio.
Pensions
From April 2016, individuals with an income of more than £150,000, including the value of pension contributions, and whose income excluding pension contributions is above £110,000, will see a reduction in their annual allowance to £10,000.
Also from 6 April 2016, the lifetime allowance will be reduced from £1.25m to £1m, although it will be indexed in line with the CPI from 6 April 2018. Protection will be available for those whose pension funds are worth more than £1m.
Inheritance Tax
The nil rate band of £325,000 per individual will remain at this rate until April 2021. However, an additional family home allowance of £175,000 per person will be phased in from 6 April 2017 to be set against the value of the main home passing on death. The allowance will also be available when an individual downsizes or ceases to own a home on or after 8th July 2015 and assets up to the value of the additional nil rate band are passed on death to direct descendants.
The additional nil rate band will be tapered for estates with a net value of more than £2m at the rate of £1 for every £2 over this threshold, so estates worth more than £2m will see no benefit from the additional allowance.
These measures will be subject to consultation later this year.
Domicile
Non-domicile status will be abolished for individuals who have been resident in the UK for more than 15 out of the past 20 tax years. These individuals will be considered domiciled in the UK for all tax purposes, and will therefore be liable to income tax and capital gains tax on their worldwide income and gains. This measure will therefore make the £90,000 remittance basis charge redundant, but the £30,000 and £60,000 charges will remain intact.
Finally, UK domiciled individuals who leave the UK, acquire a non-UK domicile of choice in another jurisdiction and then return to the UK will be regarded as UK domiciled when they return. This will be subject to technical consultation.
Author's bio
Nicole has over 15 years’ experience specialising in cross-border taxation, having trained with two out of the Big Four in their expatriate tax departments before qualifying as a Chartered Tax Adviser. Following her career with KMPG and Ernst and Young, Nicole joined Blevins Franks where she specialised in tax planning for individuals relocating to France, Spain, Portugal and Cyprus and secured the position of Head of Tax.
Nicole joined Forth Capital’s London Branch in February 2015 as Head of Tax, focusing on all aspects of tax planning for individuals looking to relocate overseas, purchase properties abroad or return to the UK. Having previously lived in both France and Spain and being fluent in both French and Spanish with a high competency in Portuguese, Nicole has a strong understanding of the expatriate market and has the skills to advise a diverse range of individuals with differing needs.
Nicole is a member of the Chartered Institute of Taxation. She holds a BA honours in French, Spanish and Portuguese and an MA in translating. Nicole routinely lectures to the public and interest groups on cross-border tax issues, has featured on various radio podcasts and has contributed a variety of articles to a number of publications, including the professional publication ‘Trusts and Estates Law and Tax Journal’.
