Written by Ray Coman
Delivered at 12.30 today, the chancellor's fifth budget contains a number of tax incentives for so called 'doers, makers and savers.' A round up of the main changes is explained below.
Stamp duty on property worth over £500,000
The threshold for stamp duty on residential property purchased via a company will lower from £2 million to £500,000. The new threshold takes effect from midnight (19 March 2014.) The measure provides a further disincentive to owning a property via a company.
Up to £2,000 state help with childcare costs
From September 2015, families where both parents work will be able to obtain government support for the cost of childcare on any of their children aged 11 or younger. Eligible couples will be able to open an online 'tax-free childcare' account which will be administered by HMRC in conjunction with NS&I. The government will contribute 20 pence for every 80 pence paid into an account. Under new proposals, up to £8,000 can be contributed by parents into the fund. Where the maximum is contributed, £2,000 of childcare subsidy would be obtained.
The scheme is open to all parents, except where both parents are earning over £150,000.
Parents using a childcare voucher scheme can continue to use the scheme as an alternative until their child reaches 15 years old. This will be particularly beneficially for parents with children between 12 and 15 who have not moved employer.
Premium bond limit lifted to £50,000
The cap on amounts that can be invested in a premium bond will be raised in June from the current threshold of £30,000 to £40,000. A further increase in the limit to £50,000 will be introduced from 2015/16. Premium bond pay-outs are tax free, but the limit of £30,000 has been in place since 2003.
ISAs limit increase to £15,000
From 1 July 2014, the limit that can be invested in an ISA will increase from to £11,520 to £15,000 and the full amount can be invested in cash. The previous rules restricted the amount that could be invested in cash (to £5,760 for 2013/14.)
Pension annuities to be abolished
From 5 April 2015, pensioners will no longer be required to convert their pension into an annuity. Previously, pensioners had to purchase of an annuity from their pension pot on reaching age 75. An annuity is a guaranteed income for life which is based mainly on the value of the pension fund, prevailing interest rates and life expectancy. It is hoped that greater choice for pensioners will improve the competitiveness of annuity products.
The alternatives of fixed term annuities or income draw-down may leave surplus funds in the pension to be transferred on death.
Most pensioners will have a cap placed on the amount that can be withdrawn. A few pensioners, which sufficient other income, will be able to drawdown unlimited amounts from their pension.
10 pence savings rate to be scrapped
The budget contained welcome news for low income savers, with the abolition of the 10% tax rate.
Where a person's total income is less than the personal allowance and the starting rate, savings income has been taxed at 10%. For 2013/14 the personal allowance was £9,440 and the starting rate was £2,790. Therefore in 2013/14, an individual with total income of £12,230 of which £2,790 was bank interest, would have a tax liability of £279.
Following the budget announcement, a new starting rate of 0% will be introduced for savers and will apply to the first £5,000 of taxable income. This is almost double the current limit.
Further rises to the personal allowance
The chancellor announced that the personal allowance will increase again to £10,500 on 6 April 2015. However unlike previous increases in the personal allowance there is no corresponding decrease in the amount taxed at the basic rate. Therefore all taxpayers with an income up to £100,000 will benefit. The personal allowance is clawed back when income exceeds £100,000.
Social investment and film tax relief
From 6 April a 30% tax relief will be available for investment into social enterprise, such as charities and community interest companies. There are increases to film tax relief and tax relief for theatre productions.
Annual investment allowance to double
The annual investment allowance (AIA) will be increased from £250,000 to £500,000 with immediate effect and until the end of 2015. The AIA determined the amount that can be invested in capital assets and deducted from profits in the year of investment. All but the very largest business will therefore be able to obtain immediate tax relief for capital investment.
Abolishing class 2
The flat rate of national insurance payable by sole traders and partners will be abolished. The change will reduce an administrative burden on the self-employed.
As previously announced the government will be introducing the employment allowance of particular benefit to small business employing staff.
With experience in dealing with a range of tax issues, Coman & Co. would be pleased to assist with your tax compliance or tax advice requirements. Please contact us for an initial consultation.