Francis Clark Budget Seminar March 2015

2015
FRANCIS CLARK
BUDGET SEMINAR

Budget 2015
Private client issues

www.francisclark.co.uk
Timetable – where are we?
• Autumn Statement – some measures with immediate effect from
December; some for Finance Bill
• Finance Bill to be published Tuesday 24 March
• Parliament dissolved Monday 30 March
• Which measures will be passed by then?
• Election and second Budget
• …and a third?

Osborne’s promises to 2020…
• Raise starting point for HRT to £50k
• Increase IHT nil rate band
• Raise the personal allowance to £12,500
• £10,800 for 2016/17
• £11,000 for 2017/18
• HR taxpayers will benefit from 2016/17
• What is left for the Tory election manifesto…?

Since May 2010
• Rich have gained from a 10% cut (50% - 45%)
• Millions escape tax completely
• Meanwhile ‘middle England’…
• means tested child benefit (£50k)
• lowering of start point for higher rate tax (£42k)

Rates and allowances – income tax
Allowances – 2015/16 tax year
£
Personal allowance 10,600
Higher rate band 31,785
Additional rate band 150,000
Personal allowance abated £1 for £2 at 100,000
Personal allowance lost at 121,200
(60% effective tax rate)

Personal allowances – tax free
-
2,000
4,000
6,000
8,000
10,000
12,000
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Rates and allowances – income tax
Rates – 2015/16 tax year
Basic rate 20%
Higher rate 40%
Additional rate 45%
Rate for trusts 45%
Effective dividend rate (HR) 25%
Effective dividend rate (AR) 30.6%
No rate
changes

Rates and allowances – NIC
Lower earnings limit (LEL) 112
Primary threshold (PT) 155
Upper earnings limit (UEL) 815
Upper profits limit 42,385
Under 21s lower threshold/secondary threshold (ST) 156
Under 21s upper threshold 815
Lower profits limit 8,060
Small profits threshold/small earnings exemption (SPT) 5,965
Employees - PT to UEL 12%
Employees - Above UEL 2%
Employer - Above ST 13.8%
Class 4 LPL - UPL 9%
Class 4 above UPL 2%
Class 2 £2.80 per week

NIC update
Class 2 NIC
• Move to collection via Self Assessment in 2015/16
• Plan to abolish class 2 NIC by end of next Parliament
Class 4 NIC
• Consultation on reforms in next Parliament

High income child benefit charge
• Earnings > £50k
• At £60k - 100% claw-back
• Election not to receive
• Consider income planning
• Pension/Gift Aid contributions pre-5 April?
• 2014/15 charge is £1,770 for a two child family

Savings rate – changes
• Currently 10% on £2,880
• April 2015 – 0% on £5,000
• Linda, who is 65, has pension income of £9,800 and savings
income of £4,600 in 2015/16. She will have no tax liability. The
liability in 2014/15 would have been £592.
• Budget announcement – from April 2016 – “personal savings
allowance”
• no tax on first £1,000 of interest (basic rate taxpayers)
• £500 allowance for 40% taxpayers
• Banks & building societies will stop automatically deducting interest

Married couples transferable allowance –
“marriage allowance”
• From April 2015
• “Transferable personal allowance” – sort of
• But only where neither is a HR taxpayer
• Can transfer up to £1,100
• Tax reducer of 20% of amount transferred
• Worth a maximum of … £220
• Value v administration?

“The death of annual tax returns”
• Plan = to replace with “digital tax accounts”
• Automatic receipt of information from various sources – increased
risk of errors?
• Will still need to input accounts and other tax information
• Expected to be in place by 2020

Rates and allowances – CGT
• Annual exemption 2015/16 £11,100
• Capital gain treated as top slice of income
• 18% if basic rate
• 28% if higher or additional rate
• Entrepreneurs’ relief taxes first £10m of ‘business’ gains at 10%
• Some ‘tweaks’ in Autumn Statement - incorporation
• Changes in Budget yesterday – joint ventures & associated disposals
• Post election changes?

Entrepreneurs Relief – future changes?
• Mr X and his wife Mrs Y looking to retire.
• Disposal in 31 March 2015. CGT payable at 10% on proceeds.
• If ER limit slashed by next government and/or CGT rates increased then tax
payable could increase substantially.
• Consider planning to ‘bank’ the £10m lifetime limit.

Non-residents CGT
• From 6 April 2015
• Disposal of UK residential property
• Individuals, trust and close companies
• To be paid with 30 days (or by normal self assessment if relevant)

PPR – main residence relief
• Consultation over summer suggested loss of ability to elect for all
taxpayers – now dropped
• From 6 April 2015 non-residents cannot claim PPR relief unless 90
midnights spent at the property
• UK residents cannot claim PPR relief on overseas property unless
spent 90 midnights there

SDLT – residential property
• Changes to SDLT effective 4 December 2014 – marginal system
• For residential purchases only
• Average family home price of £275,000 would save £4,500
• A £2.1m purchase would carry £18,750 more stamp duty
compared with the old system.
Residential £
£0 - £125,000 0%
£125,000 - £250,000 2%
£250000 - £925,000 5%
£925,000 - £1,500,000 10%
£1,500,000+ 12%

Remittance basis for non-doms
• Current regime
• Consultation on minimum claim period (3 years?)
• Proposed changes
• Remittance basis charges to increase:
Current From 6 April 2015
7 out of 9 years 30,000 30,000
12 out of 14 years 50,000 60,000
17 out of 20 years 90,000

Inheritance tax
• 16,000 estates paid IHT in 2010, now 35,000 +
• NRB frozen until 2019 at £325,000
• Life-time planning might now be easier?
• Use of trusts
• PETs
• Gifts out of income
• £3,000 exemption (!)
• Deeds of variation – under review – per Budget

Year End Tax Planning - Individuals
Income Tax and Capital Gains Tax (CGT)
• Pension Contributions/Gift Aid
• Utilise CGT Annual Exemption
• Equalising income between spouses
• Taxable gains – accelerate or postpone?
• SEIS / EIS / VCT investments
• Utilise ISA allowance

Corporation Tax
• Relatively quiet Budget
• Corporation tax rate 20% (regardless of associates)
• Associated companies still applicable under certain circumstances
• E.g. quarterly instalment payments
• Corporate partner arrangements have been attacked - unless
commercial
• Diverted profits tax (“Google tax”) – 25% from 1 April 2015

Goodwill – Entrepreneurs’ Relief
• Where a business is transferred from a sole trade/partnership to
company
• Goodwill transferred as part of the disposal
• Taxpayer would pay 10% tax on the gain
• Blocked for transfers to related company from 3 December 2014
• Deduction for the amortisation of the acquired goodwill?
• Not where transfer is to a related party from 3 December 2014

Budget – Entrepreneurs’ Relief changes
Associated disposals
• “Associated disposal” rules tightened
• Disposal of personally owned asset associated with
• a disposal of shares or
• reduction in partnership share
• In the past – what minimum reduction is acceptable?
• New rule = 5% minimum reduction = “meaningful disposal”
• Rules also tightened for joint ventures

Venture capital – EIS, SEIS, VCT & SITR
• Gains on disposals on or after 3 December 2014 eligible for ER
after deferral under EIS or SITR
• SITR to be extended to community energy generation
• 30% Income Tax relief
• No tax on dividends received or disposal of shares
• Energy generation removed from EIS, SEIS and VCT

Research & Development
• “Above the line” credit 11% (previously 10%)
• SME R&D rate: 230% deduction (previously 225%)
• Restriction if material used in product that this sold
• Increased access to R&D = aim
• Voluntary advanced assurances
• Raise awareness & guidance for small companies

Capital allowances
Annual Investment Allowance
• 100% deduction
• £250k limit until 1/4/2014
• Then £500k!
• Original plan = back to £25k from 1/1/16
• Chancellor has consulted with industry – to be increased to a
‘much more generous amount’

Farmers – changes to averaging
• Currently allowed to “average” profits over 2 tax years
• Assist where substantial fluctuations in profits – often out of control
of the farmer (e.g. weather)
• Consultation re extending from 2 years to 5 years from April 2016

NIC & employing staff
• Abolition of employer contributions for apprentices under 25 up to
UEL from 6 April 2016
• No employers NIC for under 21s from 6 April 2015
• Employment allowance of £2,000 to reduce employers NIC liability
• extended to staff for personal family or household affairs e.g. nannies,
gardeners, housekeepers from 6 April 2015
• National Minimum Wage - £6.70 from October 2015

Changes to benefits in kind
From April 2016
• Abolition of £8,500 threshold for benefits in kind
• Dispensations will be removed – replaced with exemption or
alternatively a scale rate
• Employers can voluntarily payroll car, fuel, medical insurance and
subscriptions
From April 2015
• Statutory exemption for trivial BIKs (worth <£50 in the tax year)

Budget 2015 – VAT
• VAT registration threshold £82,000 from 1 April 2015
(currently £81,000)
• Deregistration threshold £80,000 from 1 April 2015
(currently £79,000)
• No changes to Fuel Scale Charges

Budget 2015 – VAT
• VAT Refund Scheme from 1 April 2015 for Charities
• Hospices
• Search and Rescue and Air Ambulance
• Blood Bikes
• Prompt Payment Discount – changes from 1 April 2015
• Reminder – MOSS introduced from 1 January 2015
• No VAT on Severn River Toll from 2018

Budget 2015 – Other Indirect Taxes
• 2% reduction in alcohol duty rates from 23 March for spirits, sparkling cider,
perry, beer, wine (for each for certain ABVs)
• 2% increase all tobacco products from 6pm on 18 March 2015
• Gaming duty – new (increased) bandings for accounting periods starting on or
after 1 April 2015
• Landfill tax – increase in rates from 1 April 2016
• Vehicle Excise Duty – increase in rates in line with RPI - April 2015
• VED for HGVs frozen for 2015/16
• Fuel duty - planned increase for September 2015 has been cancelled

Miscellaneous
• Business rates review on-going
• Bad debt relief on peer to peer lending to allow offset of bad debts
against interest on loans made from 6 April 2015
• Charities – small donations gift aid (without needing paperwork) –
increase from £5,000 to £8,000 a year

The Budget;
The Financial Planning view
March 2015

www.fcfp.co.uk Twitter.com/francisclarkifa
The Budget
Agenda
• What changed
Anything we weren’t expecting? (the headlines)
Investments
Pensions
• What does it all mean?
Placing the changes in context
• Case Study

What Changed
Anything we weren’t expecting? – (the headlines)
• Yes!
• Annuity buy-backs introduced
(with a few days notice, thanks George)
• Pension Lifetime allowance cut to £1m
• Help-to-buy ISAs
• More flexible-ISAs
• Pension reforms
Plus the things we already knew come in to force

What Changed
Investments
• ISAs
Help-to-buy ISAs introduced: £50 top up for every £200 saved
Re-contribution of ISA withdrawals now possible
• Premium Bonds
Max holding rose from £30,000 to £40,000 from June 2014
And now to £50,000 from 2015

What Changed
Investments
• Pensioner Bonds
Enhanced saving bonds for over 65s from January 2015 – sold
out in 3 weeks!
Cap scrapped – pensioners have until 15 May 2015
• SEIS/EIS/VCT
No changes
• Investment Bonds (onshore & offshore)
No changes

What Changed
Pensions
• Lifetime Allowance
Reduced to £1m from £1.25m
(Was £1.8m as recently as 2011/12)
• Annuity buy-backs
Pensioners now have the ability to exchange their guaranteed
annuity income for a lump sum.
• Other changes
As already announced.

What does it all mean?
Annuity buy-backs
• Raises many more questions…
• But, in short….

Re-cap
Budget 2014: Death of the annuity

Wait!
• Short term annuities
• Decreasing annuities introduced
Maybe annuities aren't dead?
Re-cap

What now?
Budget 2015: No, annuities are dead again

Annuity buy-backs
Specifics to be determined…..
• How will buy-back values be determined?
• Can annuities be re-purchased? On enhanced
terms?
• Joint life annuities in payment after first death?
• Investment-linked annuities?
Even greater need for advice.
Who will help you?

Pensions; Right to advice
• 2014: Everyone retiring from a DC scheme offered
“free, impartial, face-to-face advice”

Pensions; Right to advice
• “Guidance”
• Citizens advice bureau to provide face-to-face
guidance
• TPAS offering telephone service
• The Money Advice Service will be building the
online part of the service and developing material
after Treasury Select Committee “concerns”1
1 - FTAdviser 20/10/2014

• Displeased with your annuity?
• Situation changed?
• This is an unexpected second chance
• Don’t get it wrong twice (definition of madness, anyone?)
• Seek independent advice before taking action
Annuity buy-backs

• Well, more pensions actually…
• Really? Why’s that then?
Anything else?

• Will not affect the majority of savers
• Individual Protection 2014 still available
• However, will catch those with large(ish) defined benefit
entitlement
• Those in control of their pension funding – business
owners – can manage their position with proper planning.
…….and advice?
What about the reduced lifetime allowance?

Case Study –
Mr Ant E Pensions

Case Study
• Aged 60
• Business owner, higher rate tax payer
• Wants to phase retirement…go PT…wind down slowly
• Never liked pensions – has no provision
• Except an old works pension from years ago; worth £2.50
Background

Case Study
Never liked pensions…..
• “Can’t get my hands on the money”
• “Forced to buy a meaningless annuity”
• “Can’t control my investment”
• “Can’t pass it on to my family”
• “Taxed unfairly on my death”

Case Study
Now I do like Pensions. I changed my mind. OK.
• Entire pension pot available as a lump sum
• Punitive 55% tax charge removed
• First 25% of pension pot still tax-free
• On death, pensions can be passed on as a lump
sum without charge (pre-age 75)
• Or at recipient's marginal rate (post age 75)

Case Study
Pension funding
• Anthony pays £90,000 in to a pension this year –
using his allowance for 2014/15 and 2011/12
• Further funding of £90,000 next year (2015/16 and
2012/13)
• And £90,000 the year after (2016/17 and 2012/13)
• £270,000 in. Tax saving £108,000. Net cost £162,000

Case Study
Pension withdrawal
• Age 63. Fund now £300,000
• Stops working
• Withdraws £75,000 tax free.
• And £40,000 income. Net income = £34,000
(no national insurance!)

Case Study
Pension
• Next day he is hit by a bus.
• £185,000 passes tax free to his children

Case Study
Pension – summary position
*assumes CGT @28% saved on growth, and 20%
income tax saved on tax free lump sum.

Questions
?

www.fcfp.co.uk
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presentation. We therefore strongly recommend that no action should be taken before obtaining
detailed professional advice.
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them may go down as well as up and an investor may not get back the amount invested.
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Francis Clark Budget Seminar March 2015

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