Budget 2015 – Personal tax

Personal Self-Assessment Returns

The government is looking to reform the tax system by introducing digital accounts which will remove the need for individuals and small businesses to submit annual tax returns. However no details on this proposal are announced only that further announcements will be published later in 2015.

The new digital accounts will also be responsible for collecting tax and national insurance instead of self-assessment.

This is a major overhaul of the existing system but expected to be aimed at simple returns.

Personal Allowance

As widely speculated the personal allowance is being increased to reach £11,000. In the autumn statement the personal allowance was increased to £10,600 from April 2015. The proposal is for an increase to £10,800 in 2016-17 and up to £11,000 in 2017-18.

Previously we have seen the basic rate band reduced when the personal allowance is increased, however it was also announced that this is increased to £42,385 from April 2015 further increasing to £42,700 in 2016-17 and to £43,000 in 2017-18, which is a welcome relief for individuals hovering around this income level which previously have seen their income reduced.

National Insurance

Employee primary national insurance will see the upper earnings level increased to keep in line with the higher rate tax threshold.

Personal Savings Allowance

From April 2016 a new Personal Savings Allowance will be created exempting the first £1,000 of savings income from any tax for basic rate taxpayers and the first £500 for higher rate taxpayers, saving up to £200 off an annual tax bill. This will not apply to additional rate taxpayers. Because so many people will no longer pay tax on their savings, the automatic deduction of tax by banks and building societies will no longer be necessary therefore the current deduction of 20% income tax by banks and building societies on non-ISA savings will cease from April 2016. As part of these reforms, HMRC will introduce automated coding out of savings income.

ISAs – general

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. These changes will be introduced in autumn 2015.

Help to Buy ISA

The scheme will work by the government providing a “top up” to savings used by first time buyers to purchase their first home. For every £100 a first time buyer saves, the government will provide a further £25 bonus up to a maximum bonus of £3,000 on £12,000 of savings. Savers will still have access to their funds whilst they are saving and will be able to withdraw funds from their account for other purposes if they need to but the top up will only be made available for house purchase.

Pensions

From 6 April 2016 the lifetime allowance for pension contributions that benefit from tax relief will reduce from £1.25m to £1m. The lifetime allowance will be then increased in line with indexation from 6 April 2018

From April 2016 people who are already receiving income from an annuity will be able to dispose of the annuity to a third party and access their funds either immediately or via a draw down. The income will be taxed at their marginal rate, in the same way as those taking their pension after April 2015..

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