Budget Update August 2015

Jul 20, 2015   //   by Ralph   //   Latest News

As this is the first edition after the summer budget, I’m highlighting some of the changes and the effects that they will have. This is because some of them are far reaching and will require the restructuring of some business prior to April 2016 in order to ensure that the increase in tax is kept to a minimum. I cannot cover all of the budget in one article so will pick up on the new inheritance tax rules and those affecting employers and employees next month.

New dividend tax. As from the 6th April 2016 there will be tax payable on dividends over £5,000 even if you are a basic rate taxpayer. If you trade through a limited company and as many people who do, have a salary of the personal allowance and dividends to utilise your basic rate allowance, then you will effectively be approximately £1875 per year worse off. There is the £5,000 tax free allowance on dividend income which if you transfer shares to your spouse means you can save £375 of this tax. If you also have investments of course then this will eat into the £5,000 dividend income allowance. What can be done? Very little unless you have parents or possibly children over the age of majority who don’t have any share income, so you can transfer shares to them. These must be true gifts though and you will lose the right to the dividend paid. There are other things that can be done too, which I will expand upon in future articles.

Corporation tax rate reduction. As from the 1st April 2017 the corporation tax rate will fall to 19% and from 1st April 2018 to 18%.

The annual investment allowance. This is to be fixed at £200,000 per annum from 1st January 2016. Currently £500,000 per annum. This won’t affect most businesses but there are transitional rules which can mean that tax relief will not be fully available when the accounting year doesn’t coincide with the tax year. It was due to go down to £25,000 so it’s pleasing to see this measure brought in.

Rent a room scheme. This is increasing to £7500 from the £4250 that it has been stuck at for more than a decade. Also includes B&B income so if you have modest income from this source it can be tax free.

Restriction of tax relief on finance costs of buy to let properties. Higher rate tax payers will see the tax relief on finance costs restricted to 20% over the four years from April 2017. The calculations are not straightforward, but this rule does not apply to furnished holiday lettings, so if you have property in a tourist area it may be worth considering changing it, at least until the mortgage is paid off.

Abolition of the wear and tear allowance on let furnished property. This is to be replaced by actual costs for deduction. If you do have any properties that fall into this category delay the replacement of any items until after the 6th April 2016 if you can, so you get the wear and tear allowance this year and the actual cost next year.

Insurance premium tax. This is increasing to 9.5% (up from 6%) on the 1st November 2015. This will of course affect everyone and was a notable exclusion from the “Triple Lock” announced by George Osborne.

Ralph Robson can be contacted at his office at TA Gittins & Company Chartered Accountants on 01978 264846 or via email below. If you would like a particular issue covered in this article please contact Ralph on ralph.robson@tagittins.co.uk

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