UK Summer Budget 2015: key announcements at a glance
Chancellor George Osborne presented his Summer Budget to Parliament on 8 July 2015. It followed the Conservative Party’s victory in the general election May. Key announcements included:
- Reforming dividend tax – the dividend tax credit (which reduces the amount of tax paid on income from shares) will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016. Tax rates on dividend income will be increased. This system will mean that only those with significant dividend income will pay more tax. Investors with modest income from shares will see either a tax cut or no change in the amount of tax they owe.
- Taking the family home out of Inheritance Tax – currently, Inheritance Tax (IHT) is charged at 40% on estates over the tax-free allowance of £325,000 per person. Married couples and civil partners can pass any unused allowance on to one another. From April 2017, each individual will be offered a family home allowance so they can pass their home on to their children or grandchildren tax-free after their death. This will be phased in from 2017-18. The family home allowance will be added to the existing £325,000 Inheritance Tax threshold, meaning the total tax-free allowance for a surviving spouse or civil partner will be up to £1 million in 2020-21. The allowance will be gradually withdrawn for estates worth more than £2 million.
- The amount people with an income of more than £150,000 can pay tax-free into a pension will be reduced – most people can contribute up to £40,000 a year to their pension tax-free. From April 2016, this amount will be reduced for individuals with incomes of over £150,000, including pension contributions.
- The higher rate threshold will increase from £42,385 in 2015-16 to £43,000 in 2016-17 – the amount people will have to earn before they pay tax at 40% will increase from £42,385 in 2015-16 to £43,000 in 2016-17.
- Corporation Tax will be cut to 19% in 2017 and 18% in 2020 – the main rate of Corporation Tax has already been cut from 28% in 2010 to 20% in order to boost UK competitiveness. It will now fall further, from 20% to 19% in 2017, and then to 18% in 2020.
- Ending permanent non-dom status – Non-domiciled individuals (non-doms) live in the UK but consider their permanent home to be elsewhere. The UK rules allow non-doms to pay UK tax on their offshore income only when they bring it into the UK. Permanent non-dom status will be abolished from April 2017. From that date, anyone who’s been resident in the UK for 15 of the past 20 years will be considered UK-domiciled for tax purposes.
- UK-born taxpayers with UK-domiciled parents will no longer be able to create a domicile of choice elsewhere in the world if they take up UK residency again later on.
- Previously, if a non-domiciled individual owned an offshore company, which in turn owned UK property, the UK property did not form part of their UK estate for inheritance tax purposes. Under new plans, it will be not be possible to avoid UK tax through this mechanism, and the asset would be liable for UK inheritance tax irrespective from April 2017.
- The government will continue to clamp down on tax avoidance, planning and evasion, including:
- extra investment between now and 2020 for HMRC’s work on evasion and non-compliance;
- tripling the number of criminal investigations HMRC can undertake into complex tax crime, concentrating on wealthy individuals and companies;
- allowing HMRC to access more data to identify businesses that are not declaring or paying tax;
- stopping investment fund managers from using tax loopholes to avoid paying the correct amount of Capital Gains Tax on their profits from the fund (this is known as carried interest);
- making sure international companies pay tax on profits diverted from the UK;
- introducing a “general anti-abuse rule” penalty and new measures for serial avoiders, including publishing the names of people who repeatedly use failed tax avoidance schemes.