George Osborne has announced his penultimate budget before the general election in a year’s time, and with the economy gaining real momentum it was his final opportunity to truly shape this government’s fiscal priorities before political posturing commences.
In his Autumn Statement, Osborne argued that the best way to help business is by lowering the burden of tax and generating growth. This was reiterated again in this Budget.
It was hailed as a budget for Makers, Savers and Doers and unusually for recent times, it was remarkably leak free. This left many commentators feeling a rabbit would be drawn from Mr Osborne’s hat (or red box). Overall, a budget of a few surprises and at time humour, has left us with some interesting points for business and individuals.
On a corporate note, the decision to raise the limit for 100% on capital expenditure is a clear sign that the Government would like companies to invest in equipment and drive the economy forward. This measure will cost around £2bn per the Chancellor. It could be argued that this will be clawed back through the PAYE on new jobs, VAT on equipment sales and tax on profits generated.
On a personal level, the rewards for savers with increasing ISA allowances and introducing a £5,000 tax free limit on savings income for basic rate tax payers sends a clear message that Britain should save more. For people aged 65 and above he even addressed the problem of low interest rates on savings by introducing a government backed savings plan.
On an almost unprecedented note, when someone gets to pension age, they will have the option of how they use their savings with most people no longer needing an annuity and being able to take control of their own pensions. This is a move which will no doubt lead to a surge in people taking cash from pension funds, which will in turn lead to an increase in taxable income at a time when the chancellor needs it most…. If you have concerns on this please call our in-house IFA Howard Pearce.
As usual, the devil is in the detail, and we will see if the measures announced are as they appear. In the meantime, please see below a brief summary of the pertinent points.
Economic and Spending Announcements
- UK growth forecast of 2.7% for the forthcoming fiscal year, with 2.3% next year, with 2.6% for 2016 and 2017 with 2.5% in 2018.
- The public deficit will be circa 6.6% of GDP this year, 5.5% in 2014/15 and falling to 0.8% in 2017-18. Finally it will show a surplus for 2018/19. It should be remembered that each year there is a deficit, there is further borrowing needed by the Government.
- Annual borrowing will be £108bn this year (£3bn down from the autumn prediction), falling annually to £5bn in 2018/19.
- Debt as a percentage of UK GDP will continue to rise into 2015/16 to 78.7%, before gradually falling.
- Greater assistance to be offered for businesses wishes to export abroad, with a designated fund set up to help finance this initiative with business.
- In a move that combines historical symbolism with modern technology, a new, difficult to forge, twelve sided £1 coin is going to be introduced in 2017
Announcements from the Autumn Statement, Now Coming into Effect
- The personal income tax allowance is increasing from £9,440 to £10,000 from this April.
- However, the 20% basic rate of income tax threshold is being reduced to £31,865, so once you’re earning £41,865 you’ll being to pay the 40% higher rate of Income tax.
- Corporation Tax is being cut from 23% to 21% (and will decrease to 20% in April next year).
- The amounts which can be contributed to pensions tax-free is being reduced from £50,000 to £40,000 a year. In addition, the tax-free lifetime allowance is to be decreased from £1.5 million to £1.25 million.
- For employers, a new NIC employment allowance will come into force in April, removing the first £2,000 from the National Insurance bill of every business and charity.
- For 2015/16 the basic personal allowance will rise to £10,500 and the 40% tax bracket will also rise to £42,285 in 2015/16
- The 40% tax threshold will rise at 1% a year from 2015/16.
- The first £500,000 of expenditure on qualifying assets will attract 100% tax relief in year of purchase!
- Research & Developments tax credits for loss making companies being increased from 11% to 14.5% to encourage more R&D
- Inheritance Tax exemptions for emergency workers.
- Homes worth more than £500,000 held in a company will face a tax charge (unless rental properties).
Other Announcements and Measures to be Introduced
- A benefits cap to be introduced limiting benefits available to families.
- Various amendments to gambling duties.
- Increases to Tobacco at 2% above inflation.
- Alcohol duty frozen and a 1p per pint reduction on Beer!
Pension & Savings Reforms
- A single simple ISA was announced, with a limit of £15,000 per year (no need for a shares and cash split).
- 0% tax on the first £5,000 of savings for a basic rate tax payer
- People now have the choice on how to spend their pension pot with no need for an annuity.
- Tax rates on pension draw downs hugely reduced from 55%, in some cases to normal income tax rates.