Budget 2015 – Personal tax

Tax rates

There were no changes to rates of income tax announced in the Budget for 2015-16.

Allowances and tax bands

The tax allowances and bands for 2015-16 had been announced previously, as a reminder: the personal allowance will be £10,600, with the income on which you start to pay tax at 40% increasing to £41,865.

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 1060L taking effect in April 2015.

Other allowance levels can be found on the HMRC web site here.

The Chancellor announced in the Budget that the personal allowance for 2016-17 will increase to £10,800, with the 40% band starting at £42,700.  For 2017-18, it will be £11,000 with the 40% band starting at £43,300.

From 6 April 2016, there will be one income tax personal allowance regardless of an individual’s date of birth – ie there will be no higher allowances for older people.

Marriage Allowance

The Marriage Allowance starts from 6 April 2015.  This allows a spouse or civil partner to transfer £1,060 of their personal allowance to their spouse (where both were born after 5 April 1935).  Neither party can be higher or additional rate tax payers.

The Marriage Allowance is set at 10% of the personal allowance, so will be £1,080 for 2016-17 and £1,100 for 2017-18.

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).

Savings

Starting rate for savings income

Announced in the 2014 Budget: 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.

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 £1,600 of your savings income falls within the personal allowance.  The remaining £3,400 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 2015-16, your pension was £12,000, you would only qualify for the savings rate on savings income of up to £3,600 (ie £5,000 savings rate band-(£12,000 pension-£10,600 personal allowance).

Personal savings allowance

It was announced in the 2015 Budget that a new Personal Savings Allowance will be introduced from 6 April 2016.  The first £1,000 of interest income will be exempt from tax for basic rate tax payers, and the first £500 for higher rate tax payers.  There will be no exemption for additional rate (45%) tax payers.

Banks and building societies will no longer be required to deduct tax from interest as it is paid.

Individual Savings Accounts (ISAs)

The ISA limit for 2015-16 is £15,240.  This can now be all in shares, all in cash, or a mixture of the two.

The Chancellor announced in the Budget that, from Autumn 2015, the government will allow ISA savers to withdraw and replace money from their cash ISA without counting towards their annual ISA subscription limit for that year, as long as the repayment is made in the same tax year as the withdrawal.

As of Budget day 2015, you still have a couple of weeks to use your 2012-13 allowance of £15,000 – the deadline is 5 April 2015.

Junior ISAs and Child Trust Funds will have an investment limit of £4,080 (previously £4,000) per annum.

Help to Buy ISA

A new type of ISA will be launched to help first time buyers save for their deposit.

For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings. Savers will have access to their own money and will be able to withdraw funds from their account if they need them for another purpose but the bonus will only be made available for home purchase.

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.

In the 2015 Budget, it was announced that the maximum benefit to children of disabled children would be doubled to £4,000.

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 2015.   Changes to the rates of payments were announced previously and can be found at here.

Child Benefit

There were no changes announced to child benefit in Budget 2015, although the rates will increase slightly (from £20.50 to £20.70 for the first child and from £13.55 to £13.70 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 Tax Return System
The days of the annual personal tax return are numbered!
The Chancellor announced that annual tax returns will be abolished, being replaced by digital tax accounts which can be managed online.  The process will start by early 2016 and be completed over the next parliament.
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