Budget 2014 – summary of the key tax measures for private clients
A relatively quiet Budget on the tax front. It is particularly welcome that the Government has, as promised, not introduced any further changes to the tax regime for UK resident non-UK domiciled individuals. The main announcements relevant to private clients were:
- a significant (and this time positive) overhaul of pensions to give pensioners more choice about how they use their savings on retirement;
- merging of stocks and shares, and cash ISAs into a single system with a £15,000 annual limit;
- abolition of the 10% starting rate of income tax on savings income;
- extension of the 15% Stamp Duty Land Tax (SDLT) rate on residential property, the Annual Tax on Enveloped Dwellings (ATED) and the related Capital Gains Tax (CGT) charge on homes subject to the ATED;
- confirmation that users of tax planning disclosed under the Disclosure of Tax Avoidance Schemes (DOTAS) regime or counteracted by the General Anti-Abuse Rule (GAAR) will have to pay any disputed tax upfront before taking their dispute with HMRC to court.
High value residential property
Read our full article on the changes to the tax regime for high value residential property.
Savings income & ISAs
From 1 July 2014 the “New ISA” will allow individuals to save up to £15,000 per year in cash or stocks and shares or a combination of both. All existing ISAs will automatically be converted into New ISAs. From 1 July 2014 savers will be able to transfer their stocks and shares ISA investments to cash (and vice versa). This will apply both to new ISAs and to amounts invested in previous tax years.
From 6 April 2015 the starting rate of income tax for savings income will be reduced from 10% to nil and the maximum amount of an individual's savings income that qualifies for the starting rate will be increased from £2,880 to £5,000. As a result, anyone with a total income of less than £15,500 will not pay tax on their savings.
The Government is pressing ahead with its controversial plans to give HMRC power to require taxpayers to pay disputed tax when HMRC has won another case involving similar facts. The power is aimed at marketed tax avoidance schemes but there is nothing in the current draft of the legislation to limit its use to such cases. And there is still a disturbing lack of clarity over what rights of appeal (if any) a taxpayer will have against HMRC’s use of this power.
As mooted in January’s consultation document, the power is to be extended to situations involving schemes disclosed under the DOTAS rules or tax planning that the GAAR Advisory Panel has decided was not a reasonable course of action. However, in these situations it seems clear that the taxpayer will be able to appeal.
Despite mounting pressure for them to be deferred, the rules treating certain members of Limited Liability Partnerships as employees for tax purposes will have effect from April this year, as will the rules applying to partnerships with a mixture of individual and non-individual partners, which may reallocate the partnership profits or losses to produce a higher tax charge for individual partners.
The proposed pension reforms are significant and welcome. From April 2015 pensioners will be able to withdraw up to 25% of their pension pot tax free. They will then be able to choose whether to draw down as much of the remainder as they want, subject to it being taxed at their marginal rate of tax (in contrast to the current 55% rate on full withdrawals), or they can use some or all of it to buy an annuity. However, they will no longer be required to buy an annuity.
The Government is also introducing a number of changes to the existing system, which take effect from 27 March 2014. These include increasing the capped drawdown limit from 120% to 150%.