What’s in the Budget?
The intention is to move from "a low wage, high tax, high welfare economy to a higher wage, lower tax, lower welfare country". This said, it looks like there will be higher taxes for many along the way, with a clear focus on attacking tax avoidance.
Here is a brief summary of some of the headline points:
- Landlords with residential buy-to-lets will have the tax relief they receive on interest payments and finance costs cut to the basic rate of income tax (currently 20%). They will also lose the annual 10% deduction against rental income for wear and tear.
- The taxation of dividends is changing with the first £5,000 of dividend income being paid tax free but amounts above this being potentially subject to higher rates of income tax. A 40% tax payer (assuming all dividends fall into the 40% band) will actually be better off provided their dividend income does not go above £21,666.
- Non-UK domiciled individuals are particularly in the firing line with those who have been UK resident in 15 out of the last 20 years becoming subject to UK tax on their worldwide income and gains. Furthermore, UK property previously sheltered by offshore structures may no longer be safe from UK Inheritance Tax. It is, however, difficult to plan at this stage without draft legislation .
- However, it is not all bad. The long-promised increase to the nil rate band is on its way. It is far from simple though. The increase is limited to apply to a family property or proceeds deriving from such property and the assets in question must pass to direct descendants. On your death your personal representatives have the option to elect the property to which the nil rate band should apply, giving scope for further planning. The potential for tax saving is there, but care needs to be taken now to make sure your Will takes advantage of the proposed changes which are due to take effect from April 2017.