How the Summer Budget 2015 affects personal tax

Personal Allowance and Higher Rate Threshold

Typical taxpayers will be £905 per year better off as a result of the increases to the right. The Government have already announced they want to increase the personal allowance to £12,500 and the higher rate threshold to £50,000 by 2020. These increases will take 277,000 people out of income tax altogether from 2016.

The Government stats suggest this is comprised of 105,000 men and 172,000 women!

2015/16 2016/17 2017/18
Personal allowance £10,600 £11,000 £11,200
Basic rate threshold £31,785 £32,000 £32,400
Higher rate threshold £42,785 £43,000 £43,600

Reform to dividend tax

Perhaps the biggest announcement for our clients is the introduction of a £5,000 dividend allowance in place of the notional 10% tax credit. The tax rates on dividends in excess of the allowance will be 7.5% at the basic rate, 32.5% at the higher rate and 38.1% at the additional rate.

The implication of this is that company director / shareholders who pay themselves via low salaries and dividends will now see a tax charge on any dividends in excess of £5,000. This is expected to raise an additional £2.5bn p.a. for the Treasury.

Darrell Booth, Head of Tax at Sedulo says,

This is a direct measure to reduce the incentive for clients to incorporate. Before the change, it was possible for a husband & wife to extract around £80,000 from their limited company without paying any Income Tax

Non-domiciled status

People who live in the UK but consider their permanent home to be abroad are classed as non-domiciled individuals.

The existing rules mean these people only have to pay UK tax on their offshore income when they bring it into the UK. The Chancellor has announced that these rules will be changed from April 2017, so that anyone who has been resident in the UK for 15 out of the last 20 years will be considered UK domiciled.

Our non-domiciled clients will therefore have to review how many years they have been in the UK to consider whether they’ll be caught by this change.

Tax lock

As previously announced in the Queen’s Speech, legislation will be introduced to fix certain tax rates throughout the current parliament. The rates are:

  • Income tax basic (20%), higher (40%) and additional 45% rates
  • Class I NIC rates payable by employees and employers
  • Standard (20%) and reduced (5%) rates of VAT

More on how the Summer Budget 2015 affects you…

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