The main theme in George Osborne’s pre-election budget speech was, Britain is “walking tall again”.
But what does it mean for taxpayers? George Osborne emphasised that Britain is now and will continue to ‘make the rich pay’. The speech underlined that the top 1% of taxpayers will have to contribute 27% of total income tax receipts in the 2015/16 tax year.
However, there were some positives in the budget speech, such as tax cuts for workers and savers, assistance with deposits for first time buyers, and cash lump sums for pensioners.
Although the annual tax-free lifetime allowance was reduced from £1.25m to £1m, as of 2018 the lifetime allowance will be indexed. This should mean an annual inflationary rise of the overall limit.
Additionally, the new rules on annuities will allow 5 million people to benefit from the removal of the constraints on buying and selling their policies, thus creating a ‘second hand’ annuities market. Under the current rules, people who want to sell their annuity face a 55% tax charge (up to 70% in some cases). The government will remove this punitive charge, so people are taxed only at their marginal rate of income tax. This continues the government’s recent theme of liberalising pension markets.
Class two national insurance contributions will be completely removed to support 5 million self-employed people.
The personal tax-free allowance is to go up to £10,800 in the 2016/17 tax year, and then to £11,000 from the 2017/18 tax year. The threshold for higher rate taxpayers is also rising above inflation rates; this will rise from £42,385 in the 2016/17 tax year, to £43,300 by 2017/18.
From April 2016, the first £1,000 of interest earned on savings will be tax-free. This will remove 95% of taxpayers out of savings tax altogether. Higher rate taxpayers will have an annual tax-free allowance for savings income of £500.
The introduction of a ‘radically more flexible ISA’ is a move which will greatly assist savers. From this autumn people will be able to take money out of their account and put it back at the end of the year without losing any of their tax-free entitlement.
Additionally the introduction of a ‘help to buy ISA’ has been announced that for every £200 a first time buyer saves towards a deposit, the government will give £50 extra.
Tax Evasion and Avoidance
New legislation has been announced which will introduce criminal offences for those that evade tax. In addition the government will be legislating next week on a diverted profits tax aimed at multinationals shifting profits offshore, which will be bought into effect in the 2016/17 tax year.
The government will also be conducting a consultation regarding the use of Deeds of Variation to mitigate inheritance tax.
In advance of the introduction of the Common Reporting Standard which is to be introduced in 2017, a new disclosure facility with less favourable terms than those offered by the current facilities will be offered. The Crown Dependencies Disclosure Facilities and the Liechtenstein Disclosure Facility will be closed at the end of 2015 instead of April 2016 and September 2016. We will be releasing further information regarding this matter shortly.
Death of the Annual Tax Return
Lastly, one of the most controversial policies has now been confirmed, the annual tax return is to be completely abolished. The Chancellor has said that this will be “a revolutionary simplification of tax collection”.
The details as to how the new system will operate are not yet fully understood, but the intention is that these sweeping changes will be introduced by 2020. The aim is for taxpayers to be able to submit tax information over the course of the year, in the hope this will allow them to be able to spread payments as a result.
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