Its been almost a week since The Chancellor George Osborne delivered his latest budget to Parliament. The dust has now settled and we have received the highlights, headlines and analysis and now its time to consider what the actual impact is likely to be on our clients. As Accountants for Bath and Wiltshire based businesses here is our practical view on the budget and how it may affect you.
The personal allowance will rise to £10,000 for 2014-15 and £10,500 for 2015-16 while the threshold at which 40% is payable will increase by 1% in each of those years. This is good news for all lower paid employees as the coalition seeks to take many lower paid workers out of tax altogether. It is also some relief for higher rate tax payers who have been squeezed in recent years as the higher rate threshold has remained the same. We should however be mindful that the National Insurance thresholds are much lower for 2014-15 and that employees and employers will pay NI on earnings over £663 per month or £7956 per annum. This is may be particularly relevant to owner managed companies where a small salary and dividends are taken. National Insurance is tax in every way except name and surely this should be looked at sooner rather than later.
Just a further point on the 40% tax rate. It is estimated that since the coalition took power 1.4 million EXTRA tax payers are now paying 40% tax and that in real terms (taking into consideration inflation) the threshold has actually fallen by £4910. This is known as “fiscal drag” and we have seen the effect of this before with both inheritance tax and stamp duty land tax .
Finally on personal allowances, married couples and those in civil partnerships will be able to transfer £1050 of their personal allowance to their spouse or civil partner from April 2015. Only couples where neither tax payer is a higher rate tax payer will be eligible.
ISA or Individual Saving Accounts are savings accounts that pay interest that is free of tax. From July 1st 2014 the annual subscription limit will be £15000 and can comprise of either cash or stocks and shares. This will offer some relief for savers and pensioners as they will be able to move more of their savings to a tax free product at a faster rate.
Junior ISA’s and Child Trust Funds limits will also rise from £3720 to £4000 from 1st July 2014 allowing and encouraging parents to save more for their children’s futures. While the premium bond limit will also rise from £30,000 to £40,000 in June this year and up again to £50,000 next year.
The government also also confirmed that the 10% tax rate for less well off savers will be abolished and the nil rate band extended to £5000.
Overall this was all received positively by savers who have endured the lowest interest rates on record over the past 5 years.
There is to be a range of changes to pensions to allow greater flexibility to access pension savings. The finer details are to be revealed but it is thought that pensioners will be able to continue to draw 25% of their “pension pot” tax free as well as draw further funds at the pensioners marginal rate of tax. The view has been expressed as “you earned it and saved it so you are entitled to do as you please with it”. The fear expressed is that pensioners may well spend their pensions unwisely and then become a burden on the state. Lets see how this one develops.
Look out for our next blog on the budget where we will looking at Capital Gains Tax, Property, Childcare and the usual fuel, alcohol and tobacco.
In the meantime call Park Lane Accountants on Bath 01225 701875 if you need any help or support.