BUDGET STATEMENT 2014 19 MARCH 2014 Introduction Increased growth forecasts enabled Chancellor George Osborne to deliver the most positive Budget Statement of his tenure for 2014 although there were few giveaways as the Chancellor, once more, maintained that the Budget should be fiscally-neutral. He insisted that his economic plan is working, citing an upward revision in UK economic growth to 2.7%, but also stressed that the job is far from done. His statement focussed on building a resilient economy as part of his long-term plan a plan that we must work through, he urged, in order to put things right. Although many of the measures contained in the Budget had been announced by the government previously, there are some significant changes to the rules to savings and pensions. Below we have provided details of the key points to be taken from the Chancellor s statement, along with a table summarising relevant rates and allowances. Taxation Personal Tax-free childcare The Budget confirmed that the tax-free childcare costs cap, against which eligible parents can claim 20% support, will be increased to 10,000 per year for each child. This means that eligible parents will benefit from support worth up to 2,000 per child from Autumn 2015. Tax-free childcare will be rolled out to all eligible families with children under 12 within the first year of the scheme s operation. Income tax allowances and bands As previously known, the personal allowance, or point after which people start paying tax on their income, will increase to 10,000 from April 2014 with the higher rate threshold increasing to 41,865. The Chancellor announced these figures would increase to 10,500 and 42,285, respectively, from April 2015, in line with the policy to increase the higher rate threshold by 1% in 2014/15 and 2015/16. The personal allowance will be increased by CPI from 2016/17. The UK personal allowance is now one of the most generous personal allowances in the world. To ensure this remains well targeted, the government intends to consult on restricting it to UK residents and those living overseas who have strong economic connections to the UK. Starting rate band for savings From 6 April 2015 the starting rate of tax for savings income will be reduced from 10% to 0%. Furthermore, the starting rate band will be increased from 2,880 to 5,000. Accordingly, where an individual s non-savings income is below 15,500, up to 5,000 of savings income will, effectively, be tax-free. This will benefit those with low earnings or pension income who also have savings income typically pensioners.
Transferable tax allowance for married couples The transferrable amount of an individual s personal allowance will increase from 1,000 to 1,050 from April 2015. This allows married couples and civil partners to transfer part of their unused personal allowance to their spouse or civil partner where neither is a higher rate taxpayer. This allowance is to be set at 10% of the personal allowance going forward. Capital Gains Tax annual exemption The CGT exemption continues to increase by circa 1% per year and will, therefore, be 11,000 in 2014/15 and 11,100 in 2015/16. CGT and private residence relief On the disposal of a property resided in at any time, the final 36 months of ownership were deemed to be occupied for the purposes of calculating the exempt gain. As announced in the 2013 Autumn Statement, this period reduces to 18 months from 6 April 2014. This change may also affect the amount of lettings relief available where the property was rented out during ownership. There are circumstances where a disposal after April 2014 may still qualify for the final 36 month exemption, but these are very limited. CGT on non-residents selling a UK property Again, as announced in the Autumn Statement, legislation will be introduced to charge CGT on future gains made by nonresidents disposing of UK residential property. A consultation on how best to implement the change will begin soon with the changes having effect from April 2015. IHT nil rate band There was no change to the Chancellor s announcement in the 2013 Budget with the inheritance tax nil rate band remaining at 325,000. This threshold will be frozen until 2017/18. IHT exemption for emergency service personnel The government announced it will consult on extending the existing IHT exemption for members of the armed forces whose death is caused or hastened by injury while on active service to members of the emergency services. IHT for trusts There were no new announcements in relation to the inheritance tax regime applicable to trusts. The previously announced simplification of filing and payment dates was confirmed, as was the treatment of income undistributed for more than 5 years as capital. The Budget stated there would be a further consultation on the unpopular proposal to split the IHT nil rate band between all trusts settled by the same settlor. Help-to-Buy The Chancellor announced that the Help-to-Buy equity loan scheme will be extended to March 2020. He stated this would help a further 120,000 homebuyers to purchase a home.
Savings New ISAs ISAs are to be reformed into New ISAs (NISAs), effective from 1 July 2014. The distinction between cash and stocks and shares ISAs will be scrapped and there will be a single increased annual investment limit of 15,000. Junior ISAs The investment limit for JISAs and Child Trust Funds will be increased to 4,000 from 1 July 2014. Pensioner savings bonds The Budget announced that NS&I will launch new fixed-rate savings bonds for people aged 65 and over from January 2015. Although taxable, these low risk investments will provide a market-leading return. The Chancellor estimated a 1-year bond would pay 2.8% gross and a 3-year bond 4.0% gross, although precise details will be given in the 2014 Autumn Statement. Premium bonds The investment cap on premium bonds will be increased from 30,000 to 40,000 from 1 June 2014, before being increased again to 50,000 in 2015/16. NS&I will also offer two 1 million prizes per month, rather than one, from August this year. Pensions Voluntary National Insurance Contributions (VNICs) Further to his Autumn Statement, the Chancellor announced more details of the scheme which enables those reaching state pension age prior to the introduction of the single-tier state pension in 2016 (and those already in receipt of a state pension) to top-up their additional state pension by making Class 3A VNICs. The scheme will be open for 18 months from October 2015 and will help individuals with savings who want to boost their state pension income in a way that protects them from inflation. It could be particularly beneficial for those with gaps in their additional state pension record, such as the self-employed and individuals who have taken time out from work to raise children. Pension benefits It was announced there are to be radical changes in respect of pension benefits that focus mainly on increasing the flexibility and appeal of pensions. From 27 March 2014, the current ability to cash-in pension funds under the small pots and triviality rules will be extended to pension pots of 10,000 and 30,000 respectively (increased from the current exemptions of 2,000 and 18,000) and the flexible drawdown minimum income requirement will be reduced from 20,000 to 12,000 per annum. In addition, those taking pension benefits via Capped Drawdown are currently restricted to drawing up to 120% of the Government Actuary's Department (GAD) rate (typically that of an annuity rate). This will be increased to 150%.
From 6 April 2015, individuals will be able to cash in any size of pension pot. It appears that this will supersede the changes introduced from 27 March 2014. As is currently the case with encashment under the Flexible Drawdown, Small Pots and Triviality rules, 25% of the sum may be taken tax-free. However, the remaining funds could be drawn subject to the member s marginal rate of income tax, rather than the current 55% tax charge. Further potential changes were mentioned, which may result in further consultation. These included increasing the minimum pension age (currently 55) to 10 years below the state pension age; reducing the tax charge levied upon death for funds in drawdown (presently 55%); a ban on transfers from defined benefit schemes to defined contributions schemes; and the possibility of enabling those over 75 to continue making pension contributions. Taxation Business Class 2 National Insurance Contributions (NICs) The government will introduce legislation to simplify administration for self-employed individuals and partners by using self-assessment to collect Class 2 NICs, as is currently the case with Class 4 NICs. It was stated this change will take effect from April 2016. Annual Investment Allowance (AIA) The AIA will be doubled to 500,000 from 6 April 2014 until 31 December 2015. This will benefit businesses that invest in plant and machinery by giving them 100% tax relief in the year of purchase, rather than spreading the relief over the life of the asset. Company car benefit The appropriate percentage of list price subject to tax will increase by 2% for cars emitting more than 75 grams of carbon dioxide per kilometre, up to a maximum of 37%, in 2017/18 and 2018/19. Fuel Benefit Charge (FBC) From 6 April 2015 the FBC multiplier for both cars and vans will increase by RPI. Capital allowances in enterprise zones The Chancellor announced that the business rates discount and enhanced capital allowances available to businesses who set up in or relocate to enterprise zones will be extended for another three years to March 2020, as a continuing incentive to businesses to establish themselves in such locations. Employment allowance Another previously announced measure, an employment allowance of 2,000, comes into effect from 6 April 2014. Employers will be exempt from paying employers NICs on the first 2,000 of gross salary payments to employees. Research and Development (R&D) tax credits The government announced an increase in the rate of the payable credit for loss-makers under the small and mediumsized businesses R&D tax credit scheme from 11% to 14.5% from April 2014.
Seed Enterprise Investment Scheme (SEIS) The Chancellor announced that the SEIS is to be made permanent. The government will also make the associated 50% CGT reinvestment relief a permanent feature of SEIS. Partnerships review Despite a number of concerns raised by professional bodies and the House of Lords, the government intends to introduce anti-avoidance legislation effective from April 2014. This treats partnership profits from LLPs as employment income where the partnership s relationship with the recipient is deemed to be that of an employer and employee, as opposed to an active partner in the business for example, salaried partners with little influence over the running of the business. VAT thresholds From 1 April 2014 the VAT registration threshold will be increased from 79,000 to 81,000 and the deregistration threshold from 77,000 to 79,000. Tax Avoidance and Evasion Accelerated payment in tax avoidance cases As announced in the Autumn Statement, legislation will be introduced that will require taxpayers who have used avoidance schemes that have been defeated in another party s litigation to pay the disputed tax amount to HMRC up front. Following consultation, further legislation will be introduced in Finance Bill 2014 to extend accelerated payment of tax to users of schemes disclosed under the Disclosure of Tax Avoidance Schemes (DOTAS) rules, and to taxpayers involved in schemes subject to counteraction under the General Anti-Abuse Rule (GAAR), so that the amount in dispute is held by HMRC while the dispute is resolved. Avoidance schemes involving the transfer of corporate profits The Budget announced further anti-avoidance measures to prevent companies from obtaining a corporation tax advantage by transferring profits between companies within a group. The legislation, which took immediate effect, will tax the company s profits as though the transfer had not occurred. SDLT on residential properties held by NNPs The Chancellor announced an extension to his 2012 Budget anti-avoidance measures that target the purchase of residential property by certain non-natural persons (NNPs) typically companies. The 2million threshold, above which a 15% Stamp Duty Land Tax (SDLT) charge is applied, was reduced to 500,000 from 20 March 2014. Enveloping of residential property The government announced it will introduce two new bands for the Annual Tax on Enveloped Dwellings (ATED). Residential properties worth between 1 and 2 million will be brought into the charge from 1 April 2015 with annual charges of 7,000 for 2015/16. Properties worth between 500,000 and 1 million will be brought into the charge from 1 April 2016 with an annual charge of 3,500 for 2016/17. These charges will be increased by CPI each year. The 28% CGT charge on disposals of properties liable to the ATED will also apply to these new bands.
Tax Summary 2013/14 2014/15 2015/16 Income Tax Allowances Personal allowance (basic) 9,440 10,000 10,500 If born 6/4/38 to 5/4/48 10,500 10,500 10,500 If born before 6/4/38 10,660 10,660 10,660 Transferable personal allowance N/A 1,000 1,050 Married couple's allowance (max.) 7,915 8,165 TBA Rates of Income Tax Savings rate (10%) 2,790 2,880 N/A Savings rate (0%) N/A N/A 5,000 Basic rate (20%) 32,010 31,865 31,785 Higher rate (32.5/40%) 32,011-150k 31,866-150k 31,786-150k Additional rate (37.5/45%) over 150k over 150k over 150k CGT Annual Exemption Personal 10,900 11,000 11,100 Trusts (typically) 5,450 5,500 5,550 Rates of CGT Personal 18/28% 18/28% 18/28% Trusts 28% 28% 28% Inheritance Tax Nil rate band 325,000 325,000 325,000