Inheritance Tax relief on homes
As pre-announced prior to the Summer Budget, a new ‘nil-rate band’ will be introduced from April 2017 to apply to situations where a main residence is passed on death to children or grandchildren.
The new allowance will be up to £100,000 per person from April 2017 increasing to £175,000 from April 2020, and will be in addition to the ‘regular’ Inheritance Tax nil rate band of £325,000 which itself is frozen until the 2020/21 tax year.
This will mean that where the value of the assets to be passed down to children or grandchildren, including the main family home, is less than £850,000 per married couple from April 2017 (currently £650,000), there will be no Inheritance Tax to be paid on death.
If you believe that your Estate is worth more than this, and are considering your options on how to pass your wealth down the generations effectively, give one of our Partners or Principal Advisers a call who will be able to advise you on the possible options.
Restricting tax relief for Buy to Let landlords
With effect from April 2016, the 10% wear and tear allowance for landlords who let furnished residential properties will be abolished, with tax relief only allowable on expenses actually incurred for the maintenance of the property, including replacement furnishings.
With effect from April 2017, landlords of residential property will also be restricted on the amount of tax relief that can be claimed on mortgage interest. If rental profits, along with any other income, is sufficient to push the landlord into the higher rate of tax, only basic rate relief will be applicable on any costs of finance.
One small giveaway for landlords was the increase in Rent a Room relief which allows individuals who rent a room in their main residence to receive up to £7,500 tax free effective from April 2016 (up from £4,250).
If you are a landlord and you are concerned about how the announcements will affect you, contact one of our specialist team for further advice.
Additional rate taxpayers – reduced tax relief on pension contributions
As widely expected prior to the Summer Budget, from April 2016, individuals with incomes (including employer’s pension contributions) of over £150,000 will lose part of their Annual Allowance for pension contributions.
This will mean that for every £2 of income (and employer’s pension contributions) over £150,000, £1 of the Annual Allowance will be lost down to a minimum of £10,000.
For all other individuals, the amount that can be set aside into a pension with full tax relief remains at £40,000 per annum. However, if the Annual Allowances for the previous three tax years have not been used in full, the contribution may be topped up by this shortfall.
Careful planning on the timing of pension contributions can ensure that you benefit from the optimal tax relief possible, so why not ask one of our Partners or Principal Advisers for an introduction to an A4G approved Independent Financial Adviser.
Tax free childcare system delayed
The previous announcement of a new tax-free childcare system where the government will meet 20% of the first £6,000 of annual childcare costs (per child) for working families earning less than £150,000 will now not be introduced until 2017.
In the interim, the childcare vouchers scheme will continue with basic rate taxpayers able to claim up to £55 per week (per parent) for regulated childcare for children up to 15 years old. Higher rate and additional rate taxpayers can claim £28/week and £25/week respectively.
Childcare vouchers are not taxable and can be provided by an employer (including the owner-manager’s own limited company) either as part of a salary sacrifice arrangement or in addition to regular earnings.
Help to Buy ISA’s
Further to the announcement made in the March Budget, the first new ‘Help to Buy ISA’s’ will be made available from 1st December 2015 for 4 years.
First time buyers will be able to save a maximum of £200 per month, as well as a one off initial deposit of up to £1,000, into these accounts with the government contributing £50 for every £200 saved, effectively allowing savings to be made gross of basic rate Income Tax. The government will contribute a maximum of £3,000 to such an account over a 4 year period.
The government bonus will only be paid once the saver buys their first home.
Increases to the Personal Allowance and higher rate tax threshold
Following on from a key General Election promise, it was announced that the Personal Allowance will be increased to £11,000 from 6th April 2016.
In addition, the higher rate tax threshold will be increased to £43,000 from £42,385 with effect from April 2016.
Fuel duty, Vehicle Excise Duty (VED) and the ‘Roads Fund’
A new VED banding system will be introduced for cars registered on or after 1st April 2017, with the first year rates based on the carbon dioxide emissions.
The flat standard rate of VED will be £140 for all cars except those with zero emissions which will carry a standard rate of £0. Premium cars costing more than £40,000 will attract a supplementary charge for the first 5 years of £310 per year.
With effect from 2020/21, all monies raised from VED in England will be used on the English Strategic Road Network.
In the meantime, it was confirmed that fuel duty will remain frozen for the remainder of 2015.