2015 Budget for all

2015 Budget for all

Modern Budgets have become a piece of political theatre and George Osborne certainly didn’t disappoint in this respect, scoring points, almost at will, at the expense of his political opponents.

The difficulty in analysing a 21st century Budget is the “timeline”. This Budget contained a restatement of many previously announced items and “proposals” for inclusion in future legislation. There was little “new” material that would impact individuals in 2015-16. Floating suggestions for future development must be good – it gives time for constructive thought and review.

The volume of material can be almost overwhelming. By my reckoning the Chancellor made 148 taxed based announcements – some of greater consequence than other.

My selection of the ones most directly relevant to client financial and estate planning are as follows (and apologies if your conception of relevant doesn’t match mine!);


Making Individual Savings Accounts (ISAs) more flexible

Individuals will be able to withdraw and replace money from their cash ISA in-year without it counting towards their annual ISA subscription limit, and the government will change the rules this autumn following technical consultation with ISA providers.

In effect the annual contribution limits will apply to net contributions (i.e. contributions less withdrawals).

This change will significantly improve the usefulness of ISAs as financial planning vehicles.

Help To Buy ISAs:

Help to Buy ISA accounts will be available through banks and building societies from Autumn 2015. They will only available to individuals who are 16 and over.

First time buyers, saving up to £200 a month towards their first home with a Help to Buy ISA will receive a bonus of 25%. The maximum bonus will be £3,000.

An initial deposit of up to £1,000 can be made when the account is opened – in addition to normal monthly savings.

There is no minimum monthly payment – the maximum will be £200 per month.

Help to Buy ISAs will be limited to one per person rather than one per home – so those buying together can both receive a bonus.

Transferable ISAs: The bonus is available to first time buyers purchasing UK properties. It will be available on home purchases of up to £450,000 in London and up to £250,00 outside London.

When an ISA saver dies, on or after 3 December 2014, his/her spouse or civil partner can now inherit their ISA tax allowance.

The survivor will benefit from an additional one-off ISA allowance equal to the amount held in the deceased’s ISA at the date of death.

This additional ISA allowance can be used from 6 April 2015.

Assume one spouse died on 15 March 2015 with ISA investments worth £50,000. A surviving spouse will be allowed to invest £65,240 in his or her own ISA in 2015. Without this change the “normal” limit of £15,240 for 2015-16 would have applied.

Class 2 National Insurance contributions (NICs)

As part of the planned reforms to tax administration, the government will abolish Class 2 NICs in the next Parliament and will reform Class 4 to introduce a new contributory benefit test. The government will consult on the detail and timing of these reforms later in 2015.


Reform of the UK pension system continues apace.

The not so unexpected news was that, as of April 2016, pensioners who have already purchased an annuity will be able to sell that annuity to a third party. This will be subject to the agreement of the annuity provider. The current provider will not be able to buy back an annuity. The pensioner could take the proceeds of the sale immediately or over a number of years. The proceeds will subject to income tax at the pensioner’s marginal rate.

The less expected news was that from 6 April 2016 the Lifetime Allowance for accrued pension rights will fall from £1.25 million to £1 million. It is proposed that there will be transitional protection for rights already accrued in excess of £1 million. As from 6 April 2018 Lifetime Allowance will be indexed annually in line with Consumer Price Index (CPI).

Special Purpose Share Schemes

These are commonly known as ‘B share schemes’. The basic idea is that a company wishing to distribute some of its profits to shareholders offers those shareholders two options;

(a) a conventional dividend subject to income tax in the normal way
(b) “B” shares which the shareholder sells and pays capital gains tax

The second option is usually more attractive from a tax viewpoint.

From 6 April 2015 all returns made to shareholders through such schemes will be taxed in the same way as dividends.

A new “Personal Savings Allowance”

The government will introduce an allowance (Personal Savings Allowance) from 6 April 2016 excluded from tax up to £1000 of savings income for basic rate taxpayers and up to £500 for higher rate tax payers.

Additional rate taxpayers will not receive a Personal Savings Allowance.

As part of these reforms HM Revenue and Customs (HMRC) will introduce automated coding out of savings income that remains taxable through the Pay As You Earn system from 2017 to 2018 with pilots starting in autumn 2015.

From April 2016 banks and building societies will stop automatically taking 20% in income tax from the interest earned on savings.

At time of writing it is not clear what type of income will fall to be covered by the Personal Savings Allowance. It seems that at the very least bank and building society interest will be included.

The introduction of this new allowance calls into question the use of cash ISAs for basic rate taxpayers – except for those using the new Help to Buy ISA.

Inheritance Tax

Deeds of variation: The government will review the use of deeds of variation for tax purposes.”

Deeds of variation permit the beneficiaries of a Will and the personal representatives of the deceased to jointly decide to distribute the deceased’s assets in a different way to that set out in the Will. The deed must be executed within two years of death.

The use of Deeds of Variation was identified by the Labour Party in the 1990s as constituting a significant loophole in the IHT code. Despite this, the subsequent Labour government took no action to counter their use. The advantages of variations are often overstated – they achieve nothing that couldn’t be achieved by prudent lifetime planning! The threat of their removal could paradoxically encourage earlier and more effective lifetime planning. The Miliband family has used such a strategy and received condemnation in the press – was the Chancellor having a dig at a political opponent?

Nil rate band: It is worth noting that the nil rate band will remain at £325,000.

IHT and trusts: There have been a number of consultations on the “reform” of IHT in relation to trusts. These were initially launched under the banner of simplification but gradually morphed into anti-avoidance measures. They have now come to an end and will have little impact on most IHT planning. It will still be possible to use “Rysaffe” strategies; it will still be possible to use pilot trusts; it will still be possible to use “by pass” trusts.

Death on Active Service: The existing IHT exemption for members of the armed forces whose death is caused or hastened by injury while on active service will be extended to members of the emergency services and humanitarian aid workers responding to emergency circumstances. The exemption will apply for deaths on or after 19 March 2014.

Making tax easier: the end of the tax return

The end of the requirement to make a tax return for “millions of individuals and small businesses” – through the introduction of digital tax accounts – has also sparked interest.

A “roadmap” has already been published;

“The idea is to streamline how tax works, automatically targeting help and support to customers when they need it, based on the data in their tax account. This will allow more people to solve their queries easily online, rather than by phone, letter or paper forms. By the end of the next Parliament, every individual and small business will be able to see and manage their tax affairs through their digital tax account, removing the need for annual tax returns.”

It is intended that access to online accounts will be available from 2016. A consultation on a new payment process to support the use of digital tax accounts will follow. Pension tax relief refunds, for higher and additional rate taxpayers, might be made available earlier than currently is the case. Similarly tax refunds flowing from EIS, SEIS, BPRA, SITR and VCT investments might be advanced.

Countering Tax Avoidance

No Budget would be complete without announcements on the continuing good fight against evasion and unacceptable avoidance. Mr Osborne has not disappointed. Financial intermediaries and tax advisers will be required to contact their UK resident customers with UK or overseas accounts to explain the full impact of the forthcoming Common Reporting Standard, the opportunities to disclose, and the penalties for non-disclosure. The Liechtenstein and Crown Dependencies disclosure facility will close at the end of this year – earlier than previously envisaged. The Chancellor can be tough when required.

Changes to farming income averaging (the averaging period has been increased from two to five years) was no doubt inspired by recent events in Ambridge but, when combined with previously announced measures on tax relief for flood prevention works, will keep Radio 4 listeners “happy”.

The Budget is a piece of political theatre. Were we simply witnessing Act 1 with the main drama to follow after the General Election interval?


Source: Gerry Brown – Prudential