Budget 2014

Here is a quick run down of the key changes:

Personal Tax

Personal Allowance

This will be increased to £10,500 from 6 April 2015 but to compensate the basic rate tax band will be decreased to £31,785.

Interestingly, a new opportunity coming into effect from the 2015-16 tax year is the ability for taxpayers to transfer up to £1,050 of the personal allowance to a spouse/civil partner provided they are not higher rate taxpayers.

Starting Rate tax rate for savings

This is really for the lowest earners. There is a 10% tax rate on savings income of £2,790 (although you do not always benefit from this rate if you have other non-savings income).

The main change is that the 10% rate has been reduced to 0% and the £2,790 limit has been has been increased to £5,000. Again this kicks in from 6 April 2015.

Expatriate Taxes

Legislation will be introduced to counter the use of dual contracts.

Also there is tweak to capital gains tax and split year treatment for remittance basis users.

ISA reforms

They will become known as ‘New ISA’ (NISA). From 1 July 2014 the limit will increase to £15,000 from £11,520 and the 50% cash ISA investment restriction will also go.

Capital Taxes

SEIS and CGT

SEIS is a scheme where investors that subscribes to certain qualifying shares can obtain beneficial income tax and capital gains tax reliefs. One of the CGT reliefs for this year only was a 50% CGT exemption of any gains reinvested in SEIS shares (commonly called a CGT holiday).
The 50% exemption will now continue beyond the current year.

CGT Annual Exemption for individuals

This will increase by £100 from 6 April 2014 to £11,000.

Pensions

This is probably the biggest shake up in the Budget.

Capped drawdown

A drawdown pension allows you to take income from your pension pot while the pot remains invested. You can choose how much pension you want to be paid each year within certain limits. There are two forms of drawdown pension:
– capped drawdown
– flexible drawdown

There is a limit of 120% of the value called ‘basis amount’. This percentage will increase to 150%.

Flexible drawdown

You must have pensions in payment from other sources of at least £20,000 (called the minimum income requirement) payable in the tax year in which you make your flexible drawdown declaration. In other words, it is the amount of pension received that counts not the annual rate of your pension, so you must actually be due to receive at least £20,000 pension income in the declaration year.

This £20,000 minimum income threshold will be reduced to £12,000.

Trivial commutation

This is a situation where individuals with very small values in all registered schemes can be taken as a lump sum. The trivial commutation limit will increase to £30,000 from £18,000.

The lump sum will remain potentially taxable.

Business/Corporation Tax

Annual Investment Allowance

From 1 April 2014 (6 April 2014 for unincorporated businesses) the current limit of £250,000 will double to a massive £500,000 and this will be available until 31 December 2015.

Again there will be transitional rules for accounting periods spanning April 2014.

SME R & D

For SME that have a loss, they can reclaim a tax credit of 11% of the qualifying loss. This percentage will increase to 14.5% from 1 April 2014.

Enhanced Capital Allowances

The list outlines equipment and technologies that can qualify for 100% capital allowances. This will be updated to include ‘active chilled beams’ and ‘desiccant air dryers’. If anyone knows what these items are please let me know!

Farmers – Basic Payment Scheme

This will become one of the assets which you can claim rollover relief.

Stamp Taxes

Non-natural person (NNP) acquiring residential property

When NNP acquired residential property worth more than £2M, there was a potential super SDLT charge at 15%. Any gains on this property would also be potentially liable to CGT at 28% and there would be an annual ATED charged depending on the value. NNP includes companies, collective investment vehicles and partnerships.

The £2M limit for properties where these special measures come in has been reduced and now apply to residential properties of just £500,000.
Some changes come in immediately and some next year or the year after that.

Indirect Taxes – VAT

VAT Registration threshold

This will increase by £2,000 to £81,000 from April 2014.

Prompt Payment Discount (PPD)

The VAT position was that output tax was charged on the discounted amount for PPDs even if this was not taken up. This has been aligned with EU law so output VAT is charged on the consideration actually received.

We hope this gives you a flavour of the main changes announced today, and look forward to seeing you at one of our Budget Presentations.

Talk to Barnes Roffe today
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