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The 2015 Budget - Top ten tips

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The dust is settling on the March Budget so what tax planning conclusions can be drawn from the proposals? Here are some ideas, perhaps before we face another Budget after the general election!

1. Radical changes for pension schemes will allow more access to funds. Access to pension funds will be much more flexible although income tax will be payable on these amounts. Inherited pension funds and income from joint annuities will no longer suffer a tax charge. Pension planning will be even more important especially for those at or approaching retirement.

2. A 60 per cent income tax rate applies to those whose income falls between £100,000 and £121,200 in 2015/16. Anyone whose income may exceed £100,000 per annum should consider whether they can claim tax relief (eg pension payments) or share income with other members of the family.

3. The personal allowance is planned to increase by £600 (to £10,600) from April 2015 and the basic rate band is reduced to £31,785 meaning that the 40 per cent tax rate applies to annual income exceeding £42,385, so more individuals will be caught as higher-rate taxpayers. Family businesses should consider how each member withdraws profits from the business to maximise use of the tax allowances and rate bands.

4. The annual limit for individual savings accounts (ISAs) will be increased to £15,240 from April 2015. They operate as a single type as cash and share ISAs were merged in July 2014. ISAs are very tax-efficient and the increased limit and simplified structure will make it easier to make investments that save income tax. Advice on this is recommended and we can help as required.

5. Up to £2,000 rebate can be claimed by most employers against their national insurance contributions (NICs) from April 2014 with some restrictions. Make sure that your business claims this allowance by reducing your NIC payments in the next tax year.

6. The small company corporation tax rate is 20 per cent and the main corporation tax rate will be reduced to 20 per cent in April 2015. So, some partnerships and sole traders could consider incorporating into a limited company to benefit from lower tax rates.

7. Significant capital allowances at 100 per cent on £500,000 of equipment purchases provide a major tax payback for capital intensive businesses (eg farmers, hauliers & manufacturers). The £500,000 limit started in April 2014 and is extended to the end of 2015; so the timing of planned capital expenditure in 2015 is crucial.

8. The capital gains tax rate of 28 per cent for higher rate taxpayers, trusts and estates affects many transactions including sales by property investors. However, entrepreneur's relief reduces the rate to 10 per cent for qualifying gains up to £10 million. Business owners should check carefully whether they qualify for entrepreneur's relief as this relief could be worth up to £1,800,000 in tax savings per individual. However, beware new rules to restrict transfer of business goodwill to connected companies and test on five per cent stakes in the business.

9. The freeze on the inheritance tax nil rate band at £325,000 per individual makes it more difficult to pass wealth down to the next generation without tax being payable at 40 per cent. However, this encourages longer-term planning to start at an earlier age and the use of family trusts to protect assets for younger beneficiaries. It is worth having a family succession strategy.

10. New tax residence rules started in April 2013 and, for many individuals, this makes it more difficult for them to escape liability to UK taxes if they spend time abroad. These rules are complicated and we can advise those who are affected by the consequences of these changes.

As with all such tax situations, advice should also be sought before proceeding. For further details call Alan Boby on 01295 250401 or email: aboby@ellacotts.co.uk.

Alan Boby
Ellacotts LLP

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