2014 Budget Sum Up from Figurit

The 2014 budget was clearly aimed at winning the hearts (and votes) of savers and pensioners but also saw good news for business owners alike.

Income & personal tax

Your personal allowance

The amount of tax-free income has been fixed for 14/15 at £10,000 with a further above inflation increase to £10,500 for 2015/16. Note: if net income exceeds £100,000 the personal allowance is reduced by £1 for every £2 over £100,000 giving an effective rate of 60% on income between £100,000 and £120,000 for 2014/15.

High rate tax limits

The level at which higher rate tax kicks in has increased for the first time in several years, not by much but it’s a start. The rates now look as follows:
Tax band 2014/15 2015/16
20% basic rate band £31,865 £31,785
40% higher rate band £41,865 – £150,000 £42,285+
45% top rate £150,000
This means that you pay 40% tax if your taxable income exceeds £41,865 for 2014/15. Company directors – Read our recent article on how to tax effectively pay yourself to avoid the higher rate tax

Tax free childcare

From Autumn 2015, there will be a 20% claim available to parents to support the cost of childcare. Based on £10,000 per year, per child this means a £2,000 tax benefit. This is more than initially expected; Read our January 2014 article on the Future of Child Free Tax Care. To qualify, both parents will have to be in work, earning just over an average of £50 a week and not more than £150,000 per year. This new form allowance will also be available to the self-employed, which currently it is not.

Married couples

The transferable tax allowance for married couples is set at £1,050 for 2015/16.

Loans to employees (that includes directors)

The interest free, tax-free loans to employees, including directors will increase from April 2014 from £5,000 to £10,000. This is a short-term way to boost funds if you need them but must be repaid within 9 months of the transaction to qualify as interest and tax-free.

Other taxes

Capital gains tax (CGT)

Not new news (and certainly not big news) however, the CGT annual exemption increases to £11,000 for 2014/15 and £11,100 for 2015/16. Taking into account a top rate of CGT at 28%, this allowance would potentially save around £3,000 per year or double for a married couple.

Inheritance tax (IHT)

No major changes to report and the nil rate band remains the same until 2018, set at £325,000.

Investments

Savings

Good news (for next year)! The first £5,00 of savings income will be tax free from 2015/16. So the tax % has decreased AND the savings rate band has increased, the government are certainly taking steps to encourage savings! For 2014/15 the 10% rate will still apply to the first £2,880 of savings income.

Pensions

The area of Pensions is where the most significant changes arose. Even the Chancellor admitted that this was the most radical of changes in the last 100 years! Effectively, pensions will be made available to draw down from age 55 under flexible terms. On retirement 25% of the fund can be drawn down from the pension, tax free, as is the deal now. The rest though can be drawn down however the pension holder sees fit and will be subject to income tax accordingly. Pensions are a great vehicle for tax efficient investment already but this is sure to see increased contributions in the future.

ISA’s

From 1 July 2014, the annual allowance for payment into an ISA has substantially increased to £15,000 per annum and is being renamed NISA, “New ISA”. In 13/14 the limit is £11,520 and there is a maximum of 50% (£5,760) that can be held in a “Cash ISA”. With the NISA 100% can effectively be held in cash deposits if preferable to the saver. The Junior ISA limit increases to £4,000 from 1 July 2014 from the current limit of £3,720. Read our full article covering ISA’s and pensions in more detail.

Business taxes

Annual Investment Allowance

Previously anticipated to decrease to £25k from December 2014, surprisingly the Chancellor has extended the good news regarding the Annual Investment Allowance. From April 2014, up to £500,000 can be spent on equipment and other capital items and qualify for 100% tax relief in the first year. This is double the current limit and 20 times the limit that it was expected to return to!! There is a one year extension too so this allowance applies until 31 December 2015. Get spending!

Corporation tax (CT)

Still a fantastic vehicle for tax efficient trading, limited companies will pay a rate of CT of 21% from April 2014 and 20% from April 2015. Read more about why incorporation makes more sense than ever: Read our full article covering why incorporation makes more sense than ever for legitimate tax savings.

Summary

So to wrap up, the budget had some surprises, some minor changes and some significant changes to our taxes and our investments.

Of course, for any specific advice and guidance the Figurit team are happy to help explain any of the points further and in line with your personal circumstances.

Proactive accountants!

In fact, we are also working our way around each of our clients at the moment having meetings via web-ex or telephone to cover off any points from the Budget that are specific to them or indeed any other relevant matter.