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

Budget 2015

Business tax


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

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http://websrv/micore/core/info/content.asp?content_id=9856&type_id=-1&team_id=-1


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.

So what does it all mean?


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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Important Statement

Twitter.com/francisclarkifa

The Budget;

The Financial Planning view

March 2015

Thank you


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Francis Clark Budget Seminar March 2015

Business

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