George Osborne’s budget speech revealed several changes that will impact on a taxpayer’s personal tax position, some of which are great news for the taxpayer. Here is our rundown of some of the key points and how they might affect your personal tax position.
Firstly, the introduction of digital accounts over the next five years. The government proposes to introduce digital tax accounts by early 2016 which will remove the need to submit annual tax returns.
George Osborne’s budget speech revealed several changes that will impact on a taxpayer’s personal tax position, some of which are great news for the taxpayer. Here is our rundown of some of the key points and how they might affect your personal tax position.
Firstly, the introduction of digital accounts over the next five years. The government proposes to introduce digital tax accounts by early 2016 which will remove the need to submit annual tax returns. These accounts will aim to bring together each taxpayer’s details all in one place so that their tax liability is calculated in real time and the process simplified. Whilst we all welcome the simplification of the current tax return process, the government will need to ensure their IT systems are robust enough to provide this service. There is also the concern that it may result in a higher burden on small businesses, which will have to comply with several deadlines and make it part of their daily operations. We wait with interest for the finer detail to be released.
Class 2 National Insurance paid by self-employed individuals will now be abolished during the next parliament. Consultation will also take place regarding the reform of Class 4 National Insurances to include a contributory benefit test. This would potentially bring a tax saving of £2.75 per week, with the added benefit of much easier administration for self-employed individuals.
Personal tax free allowance will increase to £10,800 in 2016/17 and to £11,000 in 2017/18 and the married couple’s allowance will increase in line with this. We would advise that couples consider how their income is split to ensure that these tax free allowances are fully utilised. For example, if one member of a couple owns an income generating asset such as rental property, they may want to ensure the property is held jointly to spread the income across both parties. Such planning doesn’t have to be arranged in equal shareholdings and the legal ownership of the asset doesn’t necessarily need to change into joint names to be able to benefit from the change.
Higher rate tax-payers will see their tax threshold increased to £42,700 in 2016/17 and to £43,000 in 2017/18, which will remove nearly a million people out of the 40p higher rate tax.
Changes that will benefit savers were also outlined by the chancellor. A new personal savings allowance will be introduced removing the first £1,000 of savings from tax for basic rate tax payers and the first £500 for higher rate tax payers, potentially saving up to £200 each year. There will also be greater flexibility for those with ISA accounts with savers able to withdraw and replace money within their cash ISA without infringing on their tax free contribution limit. A new help-to-buy ISA will also be introduced for first time house buyers for which savers will receive a £50 bonus for every £200 they save up to a maximum bonus of £3,000.
There was good and bad news for pension holders though. On the plus side, from April 2016, people who already receive income from an annuity will be able to sell it to a third party, subject to the annuity provider’s agreement. The proceeds can then be taken directly or drawn down over a number of years and taxed at the marginal rate. On the downside, the lifetime allowance for pension savings that can be accumulated free of tax will be cut from £1.25m to £1m from April 2016.
All in all, with additional savings incentives and changes to pensions, our advice would be for all taxpayers to take stock of their future plans and consider how the budget might affect them.
For further information or to discuss how the tax team at Haines Watts can help you with your personal or inheritance tax planning, contact Jennie Bellamy on 01536 483513 or e-mail .