Budget 2014 – Personal Tax

Tax rates

There were no changes to rates of income tax announced in the Budget for 2014-15

Allowances and tax bands

Announced previously were the tax and NI bands for 2014-15.

The personal allowance will be £10,000, with the upper limit of the basic rate tax band (ie the level of income above the personal allowance at which people start to pay tax at 40%) reduced to £31,865.  This means that the income on which you start to pay tax at 40% increases from £41,450 to £41,865.

Comment: This means that most people with straight forward tax affairs and no benefits in kind (for example, cars or health insurance) should have a tax code of 1000L taking effect in April 2014.

Other allowance levels can be found on the HMRC web site at http://www.hmrc.gov.uk/rates/it.htm

The Chancellor announced in the budget that the personal allowance for 2014-15 will increase to £10,500, with a basic rate limit of £31,785. meaning that 40% tax will be payable from £42,285.

Transferable tax allowances for married couples and civil partners

It had been announced previously that, from 6 April 2015, a spouse or civil partner who is not liable to income tax above the basic rate will be able to transfer up to £1,000 of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate.

In the 2014 budget, the Chancellor announced that the transferable amount will be set at 10% of the personal allowance, so will start at £1,050 (based on the current personal allowance).

Comment: This is mainly aimed at situations where one partner is a non-tax payer and the other pays tax at 20%.  However, it may also have benefits where one partner has a salary of less than the tax threshold and dividend income taxable at 10% and the other has income, such as PAYE income, taxable at 20% (eg, shareholder-directors taking a salary of the lower NI limit plus dividends within the 20% band).

Starting rate for savings income

From 6 April 2015, the starting rate for savings income will be reduced from 10% to zero, and the maximum amount of qualifying savings income will increase from £2,880 in 2014-15 to £5,000 in 2015-16.

Comment: To explain the savings rate: Say you have a pension of £9,000 and savings income of £5,000.

In 2014-5, your pension and £1,000 of your savings income will fall wholly within the personal allowance and you will pay no tax on it.  This leaves you with £4,000 of taxable savings income.  £2,880 of this is taxable at the 10% starting rate and the remainder at the 20% rate, meaning that you would pay tax of £512.

In 2015-16, your pension and £1,500 of your savings income falls within the personal allowance.  The remaining £3,500 of savings income falls within the savings rate, and is therefore subject to the zero savings rate, so you would pay no tax.

If your earned/pension income is more than the personal allowance, the savings rate is band is reduced by the excess (so, if in 2014-5, your pension was £12,000, you would only qualify for the savings rate on savings income of up to £880 (ie £2,880 savings rate band-(£12,000 pension-£10,000 personal allowance).

Tax relief of childcare

A new childcare scheme was announced in the 2013 budget will be introduced to support working families with their childcare costs, but is still to come into effect.

In 2013, it was announced that childcare costs up to £6,000 per child would be eligible for relief at 20% tax, with only under 5s qualifying in the first year.

In the 2014 budget, the Chancellor announced that the cap would be increased to £10,000 per child (worth up to £2,000 per child each year), and that under 12s would be included within the first year.

The scheme will be rolled out to all eligible families with children under 12 from Autumn 2015.

Tax Credits

There are two types of Tax Credits; Working Tax Credit (WTC) and Child Tax Credit (CTC). The CTC is potentially available to families who have responsibility for one or more child.

There were no changes to tax credits announced in the Budget 2014.   Changes to the rates of payments were announced previously and can be found at http://www.hmrc.gov.uk/rates/taxcredits.htm

Child Benefit

There were no changes announced to child benefit in Budget 2014, although the rates will increase slightly (from £20.30 to £20.50 for the first child and from £13.40 to £13.55 for subsequent children).

A reminder that new rules came in on 7 January 2013 for higher earners which mean that, once the income of one of the parents reaches £50,000, 1% of the Child Benefit award will effectively be lost for every £100 of that parent’s income between £50,000 and £60,000 and at £60,000 of income, any remaining benefit will be withdrawn.

The actual mechanics of the scheme is that Child Benefit will continue to be paid and an additional tax charge will be levied on the parent earning over £50,000, which must be reported in their self assessment tax return.  Alternatively, the tax payer can elect not to receive Child Benefit.

Individual Savings Accounts (ISAs)

Changes were announced to the ISA regime, and from 1 July 2014, all ISAs will become NISA!

There will be a new annual subscription limit of £15,000, which may all be in cash.  Transfers will be allowed from stocks and shares NISAs to cash NISAs.

As of Budget day 2014, you still have a couple of weeks to use your 2012-13 allowance of £11,520 (of which £5,760 may be in cash) – the deadline is 5 April 2014.

Junior ISAs and Child Trust Funds will have an investment limit of £4,000 (previously £3,720) per annum.

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