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Summer 2015 Budget

Last week brought the eagerly awaited Summer 2015 Budget – the first of the new Conservative government. This was the chance to see whether they would deliver on their election promises, and a guide to what the next five years has in store.

It’s safe to say there was a lot to digest and while this blog only scratches the surface it gives you an insight into the areas that we feel will impact most on you and your businesses.

Changes for individuals

The long awaited changes to Inheritance Tax thresholds specifically for the family home were announced while at the other end of the spectrum the difference between treatment of mortgages for homeowners and private landlords is being partially addressed:

  • An additional transferable allowance will be available from April 2017 of £100k, rising to £175k by 2020/21;

Gift of family home

  • Higher rate tax payer’s mortgage with let property will have their mortgage interest relief will be restricted from April 2017 to that of a basic rate tax payer. This will be phased in over 4 years with 100% of mortgage interest relief restricted by 2020/21;

Everyone will receive more income tax free with the announcement of increases in allowances, but extraction of profits via dividends is set for reform:

  • The personal allowance will increase to £11k for 2016/17 while the higher rate tax threshold increases to £43k at the same time;
  • While 10% tax credits on dividends are removed, new rates are being introduced from April 2017 of 0% (up to £5k), 7.5%, 32.5% and 38.1%. This “should” simplify the way dividends are taxed but will have an impact on companies where the director/shareholder takes a small salary and dividends. This doesn’t make the dividend route unattractive but we are waiting for final guidance on how allowances can be used with dividends and thus the impact on individual circumstances. We’ll have a specific blog on this in due course;

Changes for businesses

Minimum wage levels are increasing with the introduction of a National Living Wage from April 2017 of £7.20 which is estimated to cost the average employer an extra 1% on their wage bill. To counter this, other taxes are reducing:

  • Corporation Tax rates are coming down further – down to 19% in April 2017 and down to 18% by 2020;

Corporation Tax Deduction

  • The National Insurance Employment Allowance, the amount of wages on which no Employer’s National Insurance is due, is increasing from £2,000 to £3,000 from April 2016 thus bringing the cost of employment down;

Further investment in plant and equipment is being encouraged, but incorporation and acquisition incentives are being removed:

  • Investment of up to £200k from 1 January 2016 will attract 100% allowances, up from the previous levels of £25k but a reduction to the current level of £500k. Don’t be caught out by the transition down to £200k, contact us for guidance in this area;
  • The annual write-down of goodwill, be that generated on new incorporations or newly acquired businesses, no longer attracts corporation tax relief. This may impact on key business decisions so do get in touch if you are planning an acquisition or planning on incorporating your sole trade or partnership;

Many other areas of your business or personal affairs may have been impacted by the budget announcements and subsequent expected reforms. Pension relief reforms (which we’ll cover on a separate blog), vehicle excise duty changes, insurance premium tax rises, apprenticeships incentives, rent–a-room changes, the abolition of student grants (again!) are just a few of these areas. If there is anything that you need further information on, don’t hesitate to give a member of the team a call.

There are many ways that we can advise you and your company on the changes outlined above, particularly surrounding dividend extraction, inheritance tax and investment allowance planning, as well as many other areas. We’ll be talking to our clients about this and other matters over the coming months but in the meantime, why not get in touch and arrange a meeting with us to discuss how they impact you.

CNM Advisory