On 19th of March 2014 the chancellor George Osborne delivered a new 2014 Budget and we would like to provide you with quick overview of key changes which were set up in this budget.
The 2014 budget has been received in a positive light and reflects the fact that the austerity measures are working, at least from a macroeconomic point of view. From a taxation point of view the changes to the anti-avoidance legislation will go a long way towards making artificial tax avoidance schemes less attractive as once in dispute with HMRC the tax will have to be paid anyway and then reclaimed if the case is won in the courts, but given the number of courts HMRC could go through, this could take years. This is also a move that follows up on the government’s campaign to see paying all the tax you should as a moral issue using peer pressure to put people of schemes.
The revised Annual Tax on Enveloped Dwellings rules bring far more dwellings into the net and is again seen as an attack on avoidance schemes, these tax charges mean a lot of non-domiciled individuals will have to look at the structures they have in place to hold the beneficial interest in their dwellings.
Most of the other changes were widely predicted and the pension changes will no doubt attract considerable debate going forwards, the move to remove the requirement to purchase an annuity is seen as treating people like grownups and allowing then to choose how and when they draw their pension. The debate may centre on how responsible people will be, there will be some who will draw as much as they can as fast as they can and then relay on the state to bail them out. However in jurisdiction’s that already follow this system the opposite has been found to be true and that most people are a bit too sensible.
How the pensions industry reacts will be of great interest over the next few months and should be watched closely, there will no doubt be new and exciting investment opportunities to be had as well as a few dodgy scheme coming out that will be badly thought out and only benefit the salesmen concerned.
George Osborne seems confident that he has seen off Labour’s “cost of living” challenge. Last autumn ministers seemed to be spooked by the impact of Ed Miliband’s proposed energy bill freeze, and the government spent weeks drawing up its own cost of living measures in retaliation (on energy bills, fuel taxes and school meals, for example). But today’s budget contained relatively little on this theme; 1p off the price of a pint of beer is nice, but not a serious Treasury hand-out. It is as if Osborne has decided that, with polling evidence suggesting that voters are increasingly convinced by the government’s economic strategy, he has done enough to neuter the Labour threat on this issue.
Savers are the new target voter. There have been suggestions that Osborne is investing so much energy in winning over the support of people who complain about ISA limits being too low and annuity rules too strict because these are the kind of people who are flocking to Ukip. Perhaps there is something in this. But they are also a core Tory demographic, and for years they have been complaining that, with interest rates at rock bottom, they have been losing out and that no one has been listening to their concerns.
The key changes
The UK economy and public finances:
The deficit as a share of GDP is forecast to have fallen by a half by 2014-15 compared to 2009-10, and the Office for Budget responsibility (OBR) forecasts a small surplus by 2018-19. Budget 2014 announces further detail on the difficult decisions needed to reduce the deficit and debt beyond this Parliament, including setting the level of the welfare cap and controlling the cost of public sector pay and pensions.
A record number of people are in work and business investment is forecast to increase this year. Budget 2014 sets out further action to help businesses invest and export, to reduce energy costs – especially for manufacturers – and to increase housing supply.
The tax allowance for investment has been increased to £500,000 and will run to the end of 2015. The annual limit on business investment tax relief stands at £250,000 in 2014, but will fall back to £25,000 from the beginning of 2015.
There will be an increase in the amount of loans from £1.5 billion to £3billion for foreign buyers to purchase goods and services from the UK. A £7billion relief package for businesses that will reduce energy bills over the next few years.
Firms and individuals who are disputing with the UK tax office over their use of tax avoidance schemes will have to pay the disputed sum to the government.
Those using the schemes will get their money back, with interest, if they win, Chancellor George Osborne announced yesterday. HMRC will also be able to directly seize money owed from bank accounts. The Government plans to give HRMC power to recover tax directly from debtors' bank accounts where they owe more than £ 1,000 and have previously been contracted about paying the tax. The Treasury says the new power will bring the UK tax authorities in line with France and the US tax authorities, which already have this power.
In total, the new tax rules may recoup £385m in 2015. "While the vast majority of wealthy people pay their taxes, there is still a small minority who do not,' said Mr Osborne. "We will now require those who have signed up to disclosed tax avoidance schemes to pay their taxes, like everyone else, up front." The chancellor also said the government would seek to stop companies cutting their tax bill by moving money between their subsidiaries."These payments will be disregarded for tax purposes, and companies will pay tax on profits generated in the UK," the Budget document said. Mr Osborne expects to recover £290m in the 2015 financial year and £1.23bn the year after by forcing those using registered tax avoidance schemes to pay disputed money to the state. Mr Osborne cut the threshold for companies having to pay 15% stamp duty on home purchases from £2m to £500,000. "Many of these are empty properties held in corporate envelopes to avoid stamp duty," Mr Osborne said. "This abuse will end.''
Changes to the personal tax allowance, to the higher rate threshold:
The increase to the personal allowance conveys the government's target to help those on low and middle incomes. This measure will reduce income tax for several million income tax payers, including low and middle income tax payers. It will also create incentives to enter employment, and increase household disposable incomes.
Legislation has been introduced in Finance Bill 2014 to increase the personal allowance by £560 in 2014-15, meeting the Government's commitment to increase it to £10,000. Finance Bill 2014 has also introduced legislation to reduce the basic rate limit by £145 to £31,865 in 2014-15.
The personal tax allowance will be further increased to £10,500 for those born after 5 April 1948. The basic rate limit will be further reduced to £31,785.These changes will come into force in 2015-16.
For tax years 2014-15 and 2015-16, the higher rate threshold (the level of income after which taxpayers begin to pay the 40 per cent higher rate of tax) will increase by 1 per cent to £41,865 and £42,285 respectively. The higher rate threshold is the sum of the personal allowance and the basic rate limit. For the tax year 2014-15 the higher rate threshold of £41,865 will be made up of a personal allowance of £10,000 and a basic rate limit of £31,865. For the tax year 2015-16 the higher rate threshold of £42,285 will be made up of a personal allowance of £10,500 and a basic rate limit of £31,785.
Changes to National insurance contributions (NIC):
The primary threshold for employees will rise from £7,755 to £7,956 while the upper earnings limit goes up from £41,450 to £41,865.
A new NIC employment allowance begins in April 2014. Every business, charity and Community Amateur Sports Clubs will be entitled to an annual employment allowance of £2,000 to reduce their liability for Class 1 secondary National Insurance Contributions (NICs).
Changes to the Isa allowance:
The annual Isa allowance will be increased from £11,520 to £15,000.
From July 1, stocks and cash individual savings accounts (ISAs) will be merged into one single allowance of £15,000, which will scrap current rules that mean savers can only put half of their £11,520 entitlement into a cash ISA, while they could invest the whole allowance into a stocks ISA.
Annual Chargeable Amounts
Budget 2014 announced a reduction in the threshold from £2 million to £500,000 to be introduced over 2 years. From 1 April 2015 a new band will come into effect for properties with a value greater than £1 million but not more than £2 million with an annual charge of £7,000. For those persons who fall into this new threshold there is a transitional rule where returns will be due by 1 October 2015 and payment by 31 October 2015. From 1 April 2016 a further new band will come into effect for properties with a value greater than £500,000 but not more than £1 million with an annual charge of £3,500. For future years these charges will be indexed in line with the previous September CPI.
Services we offer
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For all questions regarding your business in the UK and tax planning, please contact our Business Consultancy team at Law Firm Limited on +44 (0)20 7907 1460 or via email