Partner Tessa Till covers the major points to be aware of for personal financial planning on the back of the July 2015 Budget.
1. Inheritance tax (IHT)
The Main Residence Nil Rate Band
There has been much speculation about a £1million Nil Rate Band (NRB) for Inheritance Tax for married couples. The Budget went some way towards this but there are some specifics you need to be aware of with this increase.
- The Inheritance Tax NRB will remain at £325,000 for individuals (£650,000 for married couples) until April 2021
- An additional IHT NRB is to be introduced in April 2017 where you pass a residence to direct descendants such as children or grandchildren after your death. This will initially be £100,000 in 2017/18, finally rising to £175,000 in 2020/21. This additional NRB can only be used in respect of one property which has, at some point, been a residence of yours. Any unused amount of the additional NRB may be transferred to a surviving spouse on top of their own NRB allowance. It will also be available when you downsize or cease to own a home on or after 8th July 2015 and assets of an equivalent value, up to the value of the additional NRB, are passed to direct descendants upon your death
- Where you have been resident in the UK for at least 15 out of the last 20 tax years, you will lose your non-dom status and be deemed domiciled here for IHT purposes. This will take effect from April 2017
- If you were domiciled in the UK when you were born and you have since taken up residency abroad, whenever you are resident in the UK from this point forward your entire estate will be subject to UK IHT law
- From April 2017, IHT is payable on all UK residential property owned by a non-dom, regardless of your residence status for tax purposes. This includes property held indirectly through an offshore structure such as a Trust or partnership
2. Personal Tax
- The tax-free personal allowance will rise to £11,000 in 2016-17, and to £11,200 in 2017/18
- The basic rate limit for income tax will be increased to £32,000 for 2016/17 and to £32,400 for 2017/18
- The higher rate threshold for income tax will rise to £43,000 in 2016/17 and £43,600 in 2017/18
It was announced that the government will be looking at whether there is a case to reform pensions tax relief.
Help to Buy ISA
- A new Help to Buy ISA will provide a tax free savings account for first time buyers wishing to save for a home
- A government bonus will be provided to each person who has saved into a Help to Buy ISA when they buy their first home. For every £200 saved, the government will provide a £650 bonus up to a maximum of £3,000 on £12,000 of savings
- Help to Buy ISAs will be available from 1st December 2015
Buy-to-Let Property Investors
- The amount of income tax relief landlords can get on residential property finance costs will be restricted to the basic rate of income tax
- This means you will no longer be able to deduct all of your finance costs from your property income
- You will instead receive a basic rate reduction from your income tax liability
- The restriction will be phased in over 4 years from April 2017
- The restriction will not apply to landlords of furnished holiday lettings
If you require any further advice on how the new budget may affect your tax planning, contact Tessa via email or call 0131 624 6814.