Summer 2015 Budget - What It Means for You

• Pensions
• Inheritance Tax (IHT)
• Income Tax

The Summer 2015 Budget introduced major changes to, among other things, dividend tax, buy-to-let mortgage tax relief, inheritance tax and pensions.

We have summarised some of the key tax points of the recent Budget below, and Kirsten Brass has published a separate article looking at the inheritance tax changes. 

If you’d like to discuss how any of these points might impact on your own arrangements (such as your Will, tax affairs or investment portfolio), please contact any of our Private Client team.

 

Please note that all information in this newsletter is provided subject to changes which made be made in subsequent Finance Acts.

The information contained in this newsletter is for general guidance only and represents our understanding of relevant law and practice as at July 2015. Wright, Johnston & Mackenzie LLP cannot be held responsible for any action taken or not taken in reliance upon the contents. Specific advice should be taken on any individual matter. Transmissions to or from our email system and calls to or from our offices may be monitored and/or recorded for regulatory purposes. Authorised and regulated by the Financial Conduct Authority. Registered office: 302 St Vincent Street, Glasgow, G2 5RZ. A limited liability partnership registered in Scotland, number SO 300336.

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Pensions

• The Lifetime Allowance for pension funds is to be reduced from £1.25 million to £1 million from April 2016; transitional protection will be available. The allowance will be indexed annually from April 2018.
• The benefits of pension tax relief will be restricted from April 2016 for high earners with incomes, including pension contributions, above £150,000.
• The government will carry out a 90-day consultation on whether and how to undertake a wider reform of pension tax relief.

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Inheritance Tax (IHT)

• The IHT nil-rate band, currently frozen at £325,000 until April 2018, will remain frozen at that level until April 2021.
• There will be an extra transferable IHT nil-rate band for main residences passed on death to direct descendants, starting at £100,000 in 2017/18 and rising to £175,000 in 2020/21.

See Kirsten Brass’s article on this topic for more detail.

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Income Tax

• Personal Allowance will increase to £11,000 in 2016/17, aiming to be £12,500 by 2020, with the threshold rising in line with the minimum wage*.
• Higher rate income tax band to be £43,000 2016/17, targeting £50,000 by 2020.
• A tax lock will be introduced by legislation to rule out increases in the main rates of income tax, VAT or National Insurance over the course of this Parliament.
• The 10% dividend tax credit will be abolished from April 2016; in its place will be a new dividend tax allowance of £5,000 a year. Above that level the tax rates on dividends will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
• Non-UK domiciled individuals who have been UK resident for at least 15 of the last 20 years will be treated as UK domiciled for tax, including inheritance tax (IHT), from April 2017.
• Buy-to-let mortgage interest tax relief is reducing to 20% by 2020 and “wear and tear allowance” to be replaced by allowance on actual improvement costs.
• In addition, the Rent-a-Room relief will be increased from £4,250 to £7,500 a year from April 2016.

(*Introduction of a new National Living Wage, from April 2016: £7.20 an hour for over 25s, rising to £9 by 2020 based on 30 hours per week.) 

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