Last week, the Chancellor, Mr Osborne, outlined his Conservative Budget for the coming year. In this email, we have summarised the main points that we believe would be of interest to both business owners and individuals with personal tax requirements:
Main points for individuals
- National Living Wage: This is the highly publicised change to the minimum wage. The Chancellor announced there would be a new, compulsory Living Wage from April 2016 – initially, it will be set at £7.20 an hour, with a target of it reaching £9 an hour by 2020. This applies to over 25s and also part-time workers will qualify.
- Inheritance tax: There has also been much publicity around this aspect of the budget. The Chancellor announced that he will raise the inheritance tax (IHT) threshold from £325,000 per person to £500,000. This means that married couples and civil partners will be able to pass on assets worth up to £1m, including a family home, without paying any IHT at all.
- Tax-free allowance: The personal tax allowance will increase from £10,600 in the current year to £11,000 from April 2016. There are also increases planned to the basic rate tax band.
- Wear & Tear allowance: This is a significant change for those who let out properties to tenants. Residential landlords who let out fully-furnished properties have been able to claim a special ‘wear and tear allowance’ on furniture etc. From next April, this allowance is to be abolished and in future it will be now be possible to deduct the actual costs of replacing said furnishings.
- Mortgage interest for landlords: From April 2017, the Chancellor announced that the higher rate of mortgage interest relief would be withdrawn gradually over a four-year period from April 2017. The restriction will result in only basic rate tax relief being available, and will be brought in over a 4 year period.
- Rent-a-Room relief: The Chancellor has announced that the amount that householders can earn by renting out a room will rise from £4,250 to £7,500 a year tax-free.
Main points for business
- Dividends: We have today sent out a separate email in respect of the changes which affect our clients who own limited companies and vote dividends as a tax planning measure
The budget last week included changes which are set to come in next April which replaces the current dividend tax credit of 10% with a tax-free dividend allowance of £5,000. Dividends received above the allowance will be taxed at 7.5%, 32.5% and 38.1% respectively for each tax band that the shareholder falls into. This means that remuneration through a limited company using the traditional low salary/dividends combination will be less tax efficient than at present. In other words, for anyone drawing more than £5,000 in dividends, they may end up paying more tax.
- Corporation tax: The corporation tax rate is set to be reduced to from 20% to 19% in 2017 and 18% in 2020.
- Annual Investment Allowance: For businesses investing in plant and machinery and other office equipment (e.g. computers, printers, etc.), this is to be set at £200,000 from January 2016.
- Employment allowance: This allowance, which gives employers a reduction in the amount of NICs they pay, has been around for a couple of years now, and will increase from £2,000 to £3,000 from next April. It should be noted that from this date, companies will be restricted in claiming this allowances where the only employee is the director.
For further information, please do not hesitate to get in touch with us using the details below.