Summer 2015 Budget for farmers and landowners

Summer 2015 Budget for farmers and landowners

George Osborne claims that this is a Budget for working people that puts security first, whilst those with the broadest shoulders are bearing the greatest burden.

Tax relief on interest on borrowings for residential rental businesses to be restricted

Further restrictions on Income Tax reliefs have been announced, with relief being restricted from April 2017 on loan interest paid in residential rental businesses. For further details see here

Also for rental businesses, landlords of furnished residential properties can currently deduct 10% of their rent from their profit to account for wear and tear, irrespective of their expenditure.  Although introduced as a simplification, HMRC are concerned that this means that landlords can reduce their tax liability even when they have not maintained the property.  From April 2016, wear and tear allowance will be replaced with a new system that will enable all landlords of residential property (including unfurnished presumably) to deduct the costs that they actually incur.  For unfurnished properties, this may well restore the position to that existing before April 2014, when the renewals basis was withdrawn.

Inheritance tax threshold

As expected, the inheritance tax threshold which has been at £325,000 since 2009, will be raised from April 2017 by creating a new residence nil rate band worth up to £175,000 per individual (£100,000 in 2017/18, £125,000 in 2018/19, £150,000 in 2019/20, and £175,000 in 2020/21), which will be transferable between spouses. For further details see here

The existing nil rate band will remain at £325,000 until the end of 2020/21.

Dividend income

From April 2016 the dividend tax credit will be replaced by a £5,000 tax-free dividend band. Above this tax-free dividend band, the rates of dividend tax will be set at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

This will benefit higher rate taxpayers who only receive modest dividend income outside ISA portfolios, but will increase the tax payable by individuals who use personal companies to receive dividend income rather than earnings (liable to National Insurance). For further details see here

Pension tax relief

From April 2016 Income Tax relief on pension contributions will be tapered for those with annual incomes (including employer’s pension contributions) over £150,000.  For every £2 of income over £150,000, an individual’s Annual Allowance, the limit on the amount of tax relieved pension saving that can be made, will be reduced by £1, down to a minimum of £10,000.

In addition, consultation is to be taken on pension tax relief generally, with the possibility floated that pensions could be treated like ISAs, ie no Income Tax relief but taken from taxed income.

Annual Investment Allowance

From January 2016, the Annual Investment Allowance for capital allowance purposes will be £200,000 (reducing from the current £500,000 limit), which is much higher than the £25,000 limit previously expected.

Corporation tax

Corporation tax, now at 20%, is to be reduced to 19% in 2017 and then 18% by 2020. New national living wage introduced from 2016 at £7.20/hour (currently £6.50/hour) and to reach £9/hour from 2020, but this will affect all businesses, including sole traders and partnerships.

Personal allowance

The personal allowance will increase to £11,000 from 2016 with the higher rate threshold increasing to £43,000.

Finally, there has been criticism of HMRC performance standards, especially responding to telephone calls.  The Chancellor has committed a further £800m investment in HMRC over the next five years, although this is to be targeted at HMRC’s work on non‑compliance and tax evasion.

If you have any queries, please contact your usual consultant or Caroline Lovibond on 01865 261100 ([email protected])

10 July 2015