Budget speculation

Speculation is rife that George Osborne is under pressure to pre-empt possible interest rate increases next year by offering tax cuts in the forthcoming Budget announcements on 19 March.

Polling day for the 2015 general election is 7 May so an announcement to increase the basic personal allowance (presently £10,000) may be an option as this would feed into taxpayers’ pockets before polling day.

MPs are keenly aware that any increase in mortgage interest rates, prior to the next election, would have unfortunate associations with the coalition, even though the Bank of England is responsible for setting rates.

Many of the other tax changes for the 2014-15 year are disclosed in draft legislation released by HMRC last month. These include:

Personal Tax:

  • Individuals born after 5 April 1948 will be entitled to a personal tax allowance of £10,000.
  • Employees will be able to increase the maximum value of shares acquired under Share Incentive Plans (SIP) and Save As You Earn (SAYE) schemes. The increased limits will be: SIPs – £3,600 on the free shares that can be awarded to employees and £1,800 on the partnership shares employees can purchase; SAYE – the monthly amount that employees can save will be increased to £500.
  • It is proposed that the annual exemption limit for employer-related loans, to be treated as earnings, will be increased from £5,000 to £10,000.

 Capital Gains Tax:

  • The annual exempt amount is to be increased to £11,000.
  • The rule that exempts the final 36 months of ownership of a private residence from CGT is to be reduced to 18 months. The 36 months will still apply if the owner is disabled or moved into a care home.

 Business Tax:

  • HMRC are introducing new legislation affecting Limited Liability Partnerships. Members of LLPs who satisfy the new criteria as “salaried members” will effectively lose their self employed status and be taxed under the PAYE legislation. There will also be restrictions on the way in which mixed partnerships, those with individual and typically corporate members, allocate profits and losses. 

George Osborne has also announced that from 5 April 2015 married couples and civil partners will have a limited ability to transfer personal allowances.

Whilst it is unlikely that we will see a return to direct tax relief for mortgage interest payments, the historical mortgage interest relief at source (MIRAS), Mr Osborne may be tempted to offer something to his back-bench MPs to placate their concerns.

Expected tax changes in the Budget 2014

The government has already published certain draft clauses for the Finance Bill 2014. We have listed below some of the more topical changes disclosed.

 Changes for the tax year 2014-15:

 Personal Tax:

  • Individuals born after 5 April 1948 will be entitled to a personal tax allowance of £10,000.
  • Employees will be able to increase the maximum value of shares acquired under Share Incentive Plans (SIP) and Save As You Earn (SAYE) schemes. The increased limits will be: SIPs – £3,600 on the free shares that can be awarded to employees and £1,800 on the partnership shares employees can purchase; SAYE – the monthly amount that employees can save will be increased to £500.
  • It is proposed that the annual exemption limit for employer-related loans, to be treated as earnings, will be increased from £5,000 to £10,000.

 Capital Gains Tax:

  • The annual exempt amount is to be increased to £11,000.
  • The rule that exempts the final 36 months of ownership of a private residence from CGT is to be reduced to 18 months. The 36 months will still apply if the owner is disabled or moved into a care home.

 Business Tax:

  • HMRC is introducing new legislation affecting Limited Liability Partnerships. Members of LLPs who satisfy the new criteria as “salaried members” will effectively lose their self employed status and be taxed under the PAYE legislation. There will also be restrictions on the way in which mixed partnerships, those with individual and typically corporate members, allocate profits and losses. 

 Changes for the tax year 2015-16:

It is proposed that spouses (including civil partners) will be able to transfer up to £1,000 of their personal allowance to their spouse (or civil partner). This will be a useful, although somewhat limited, tax planning device that will allow couples to partially equalise their taxable incomes. It will only apply where neither party is a higher rate tax payer.

April 1st auto-enrolment deadline

For employers with between 50 and 249 employees auto-enrolment of employees into a pension scheme starts 1 April 2014. Smaller employers, under 50 employees, will need auto-enrol on a staged basis between 1 June 2015 and 1 April 2017.

Employers who are still unclear what their responsibilities are under this new regulation should take a look at the Pensions Regulator website:

https://www.thepensionsregulator.gov.uk/employers/does-automatic-enrolment-apply-to-me.aspx

The key points listed on the site are:

  • Automatic enrolment affects all employers with staff in the UK.
  • You must enrol certain staff into a pension scheme.
  • You must start doing this from your staging date, though there is an option to postpone automatic enrolment for up to three months.
  • You must write to all your staff to tell them how they’ve been affected.

The regulator further advises:

“People are living longer yet too many people are under-saving or not saving at all for what could be a long retirement. The law on workplace pensions has changed to make it easier for millions more people to build up a pension, particularly those on lower incomes.

Automatic enrolment means that, rather than having to actively choose to join a pension scheme, staff are put into one by their employer as a matter of course. If they don’t want to be in the pension scheme, they must actively choose to opt out. It’s to encourage people to stay in pension saving.”

This is a further raft of regulation that all employers must comply with. Whenever possible automate the compliance processes by using payroll or HR software that includes the new pensions' auto-enrol steps.