3 things you need to know from the 2015 Budget
In light of the up and coming General Election, the 2015 Budget on March 18 was expected to have a political edge. The promise made by the Chancellor at the end of 2014 was that the pre-election Budget
would not have any “significant and unaffordable promises”, which was largely the case. A few things did arise though that could affect tax planning and retirement planning for doctors and dentists.
The key points for doctors and dentists
Figurit have summarised the key points from the election that could affect you.
Of course, depending on the outcome of the election will depend if these actually make it to the next phase of development. The answer to that will be clear in a matter of weeks now – let’s wait and see.
Clients of Figurit will have received the full Budget Summary in the days following the announcments. If you are not yet a client and would like to be sent our formal Summary, free of charge, please contact Katie.
1: Changes to both NHS and private pensions
The lifetime allowance is a figure set by the government dictating the level of funds that can be drawn from a pension fund on retirement with no further tax implications.
This limit has been declining for a while now – reduced from £1.5 million to the current £1.25 million a few years ago and this Budget has now announced a further cut to £1 million, taking effect from April 2016.
Doctors and dentists typically use a combination of NHS superannuation pensions topped up with private pensions as part of a retirement plan.
As a result, this is likely to have a negative impact and makes retirement planning even more important. Those with existing pension funds in excess of £1 million will have some protections though, so contributions are not lost in the process.
To give some reassurance that the lifetime allowance limit is somewhat stabilising, the government are promising, should they remain in power, the £1 million allowance will be effective to 2018. After that it will fluctuate in line with the Consumer Price Index (CPI).
The £40,000 annual allowance for pension contributions is set to remain the same.
2: The “death of the tax return”
You may have seen in the media of what was referred to by The Chancellor as “the death of the annual tax return” and rubbed your hands in delight at the news.
This announcement though is likely to not have much impact for most dentists and doctors, particularly those with their own dental or medical practice, as formal financial accounts will still be required for filing and subsequently the doctor or dentist will need to report income from their business on their personal tax return, as they do now.
Whilst the full details are not available yet and more news is expected later in the year, the only people who are likely to benefit from this are individuals who have simply salary, savings income and dividend income (excluding dividends from their own private company).
Anyone with property income, income from self-employment or dividend income from their own private limited company will be required to file tax returns, broadly speaking, in the same way as current legislation dictates.
3: The reduction of the Annual Investment Allowance (AIA)
The AIA has been extremely generous over the past year or two – currently it stands at £500,000, which means investment into capital equipment up to this limit is eligible 100% for tax relief.
This was only set at this high level temporarily, to encourage investment and this “arrangement” comes to an end on 31 December 2015.
The Chancellor announced reducing it to £25,000, the previous allowance, would not be acceptable and that a more “generous rate” would be announced in the Autumn Statement 2015.
However, to ensure you maximise tax relief carefully time large capital spending and consider making significant purchases before 31 December 2015.
Other points worth knowing
SAVINGS & INVESTMENTS:
- Class 2 NI is due to be abolished. Whilst not a huge financial implication this will reduce paperwork for the self-employed.
- Some savings income will be earned tax-free. From April 2016, £1,000 of savings income for basic rate taxpayers and £500 for higher rate tax-payers will fall under a new, proposed “personal savings allowance” set as an initiative to get people saving again.
- ISA savers from this autumn will be able to contribute and withdraw money from a Cash ISA within the same tax year and for it to not count towards their annual subscription limit. This is also to encourage investment into saving by giving investors greater access to their cash should they need it.
- There is the possibility of an extension to the list of qualifying investments held in an ISA.
- The personal allowance will increase to £10,800 in 2016/17 and £11,000 in 17/18. Small increases but in the right direction!
Figurit provide our clients with a full Budget Summary. For your free copy contact Katie. We also post up to date news on our blog so be sure to keep an eye out for topics that could affect you.
- The Capital Gains Tax allowance for 15/16 has been set at £11,100.
020 7376 9333
– Chancellor announces Budget date
– TAX: Pensions and Savings following the Autumn Statement
– TAX: HMRC plan to remove £100 penalty for late filing