Summary of 2015/16 budget changes
Annual Tax Return to be abolished. New Home Buyers ISA. Personal Allowance to increase to £11,000 in 2 years. Read on to see how the budget will affect your take home wage.There were no surprise changes to 2015/16 tax rates or bands from yesterdays budget. The increase of the Personal Tax Free Allowance to £10,600 from April was previously announced and well publicised by George Osborne. The news that this allowance would further increase to £10,800 in April 2016 and £11,000, in April 2017, was welcome news. As were the changes to ISA's and pensions. But first lets look at how the new budget will affect your wage packet from next month.
|People born between 6th April 1938 - 5th April 1948||£10.600||£10.500||+ £100|
|People born before 6th April 1938||£10.660||£10,660||none|
|Married Couples Allowance ( if born before 6th April 1935)||£8,355||£8,165||+ £190|
|Blind Person's Allowance||£2,290||£2,230||+ £60|
|Transferable personal allowance between spouse *||£1,060||N/A||N/A|
* An annual transferable allowance between spouses of £1,060 has been introduced. A spouse or civil partner who is not liable to income tax above the basic rate may transfer £1,060 of their unused personal allowance to their spouse/civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate. This measure will only be of benefit to those in the lower income bracket.
The increase in the Basic Personal Allowance by £600 to £10,600 a year will certainly be appreciated by lower income families. It was announced that the personal allowance would increase to £10,800 for the 2016/17 tax year, and £11,000 for 2017/18.
There was little movement in the personal allowances for the over 65's however. Allowances for both the over 65's and 75's were frozen for the past few years. This was part of the Government's plans to see one Personal Allowance for all. So this year both the over 65's, and the Basic Personal Allowance, are now the same figure of £10,600. After next year the over 75's will also be at the same amount as the Basic Personal Allowance and the Government will have succeeded in its one Personal Allowance for all aim.
Since 2010, anyone (irrelevant of age) who earns over £100,000 has had their Basic Personal Allowance reduced by £1 for every £2 they earn above £100,000. There has been no change to the earning limit of £100,00 when the reductions kick in. Of course the increase to the Basic Allowance will mean that reaching earnings of £121,200 now negates your personal allowance rather than £120,000 as it was this past tax year.
The Age Related Income Limit has increased by £700. For 2014/15 the rate was £27,000. The 2015/16 rate is £27,700. From April if you are over 65 years and your earnings are above £27,700, your Personal Allowance will be reduced by £1 for every £2 you earn over that £27,700 limit.
|Basic rate 20%||£0 -£31,785||£0 -£31,865||cut by £80|
|Higher Rate 40%||£31,786 - £150,000||£31,866 - £150,000||widened by £80|
|Additional Rate 45%||£150,001+||£150,001+||no change|
|NOTE: These rates are applied after your tax free allowance has been deducted from your gross wage.|
There has been no increase or change in the tax rates. But changes to the tax brackets themselves will mean that more taxpayers will be paying the higher rate of tax (40%) in 2014/15. The 40% tax bracket has widened by another £80, a smaller increase than last years £145, but enough to push more 20% tax payers into the 40% bracket.
The decrease in the threshold for the Higher Rate tax bracket has been offset by the increase in the Basic Personal Allowance. If you take the new Basic Tax Rate threshold of £31,785 and add it it the new Basic Personal Allowance of £10,600, we see that for 2015/16 you can earn £42,385 before you cross in to 40% tax territory. Last year, 2014/15, this figure was £41,865 and for 2013/14 it was £41,450. So you can earn £520 more this year, before crossing into the 40% bracket, than you could have last year. Anyone hovering around the start of the 40% bracket, should be looking at salary sacrifices, childcare vouchers, pensions, etc as ways to keep themselves out of the 40% bracket.
Change in take home pay after tax and NI
|Gross Wage||Net 2015/16||Net 2014/15||Difference|
There have been no changes to the percentage of National Insurance Class 1 contributions, they remain at 12% for employees, and 2% above the upper earnings limit. Employers Class 1 have remained the same at 13.8%. No NI wil be payable by those aged under 21 up to a Threshold of £815 a week. Class 2 NI have been abolished for self employed people. The limits and thresholds have changed, as illustrated in the table below. See HMRC for a more detailed view of NIC changes to other Classes.
|Lower earnings limit, primary Class 1||£111 per week||£112 per week|
|Upper earnings limit, primary Class 1||£805 per week||£815 per week|
|Primary threshold||£153 per week||£155 per week|
|Upper Secondary Threshold for under 21's||N/A||£815 per week|
|Secondary threshold||£153 per week||£156 per week|
|Upper accrual point||£770 per week||£770 per week|
Other Notable Changes/Surprises
Abolishing the Annual Tax Return
A major surprise for many was George Osborne's announcement that the Annual Tax Return as we know it is to be abolished. Instead we will all have digital tax accounts where we can access our up to date tax information and complete any forms. We will have the choice to pay tax owing at any stage throughout the year. Our accounts shall contain much pre-populated information from HMRC, making the completion of regular returns easier for the individual. For more details see HMRC's Guide.
ISA's are to become more flexible and a new Home Buyers ISA
Another announcement of changes to ISA's has been widely welcomed. ISA's have been floundering due to the low interest rates and general apathy towards them in the last few years. This shake up may go a long way to re- invigorate the whole tax-free savings market. ISAs are being reformed and made more flexible so that instead of just being able to save up to the annual allowance limit, people can take out their money and put it back in within the same year, without losing their ISA tax benefits - as long as the repayment is made in the same financial year as the withdrawal.
There was also the announcement of a new Help To Buy ISA. People will be able to open an ISA, save up to £200 a month towards their first home, and the government will boost it by 25%. That’s a £50 bonus for every £200 people save, up to £3000.
The Annual Personal ISA savings limit has been increased to £15,240 for 2015/16.
The Annual Junior ISA savings limit has also increased to £4,080 for 2015/16.
Personal Savings Allowance
A tax-free personal savings allowance of £1,000 will be introduced from April 2016. This means that you will not pay any tax on the first £1,000 (£500 pounds if you are a higher rate tax payer) of annual interest earned from your regular savings.
There has been no change to the Annual Pension Contribution Allowance, which for 2015/16, is £40,000. The lifetime limit will be further reduced from £1.25 million to £1 million. The biggest change announced has been the news that pensioners will now have the option to sell their annuity for a cash lump sum. From April 2016, people who already have an annuity will be able to sell it on, so that they too can benefit from the pension freedoms announced at last year’s Budget. Currently, people who have bought an annuity are unable to sell it without having to pay at least 55% tax on it. From April 2016, the tax rules will change so that people who already have income from an annuity can sell that when they choose and will pay the usual rate of tax that they pay on income, instead of 55%.