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Offline TaxSupport  
#1 Posted : 08 July 2015 13:11:43(UTC)
TaxSupport

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Afternoon All

Thought might be handy to provide links to the July 2015 UK Budget documents.

The July 2015 Budget "Red Book" document can be found using this link.

The HMRC 2015 July Budget documents which are available for download are at this link from about a minute or two before this post went live.

That's two help links to the July 2015 budget documents for users, hope they help.

TaxSupport
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Offline Sally  
#2 Posted : 08 July 2015 13:41:33(UTC)
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TaxSupport

Thanks for that, handy!

I think the restriction of tax relief to basic rate for individual landlords is a big surprise to many. Perhaps answers complaints about a surge in private landlords in recent years and the possible knock on affect on house prices.

HMRC's press release "Restricting finance cost relief for individual landlords" gives more information on this announcement.

Who is likely to be affected?

Individuals that receive rental income on residential property in the UK or elsewhere and incur finance costs (such as mortgage interest), excluding where the property meets all the criteria to be a furnished holiday letting.

Quote:
General description of the measure

This measure will restrict relief for finance costs on residential properties to the basic rate of income tax. This will be introduced gradually from 6 April 2017.

Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

The new rules will phase in over 4 years reduced tax relief for interest and other financial costs for Landlords liable to higher rate tax who will be able to obtain relief as follows:

  • in 2017-18 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction.

  • in 2018-19, 50% finance costs deduction and 50% given as a basic rate tax reduction.

  • in 2019-20, 25% finance costs deduction and 75% given as a basic rate tax reduction.

  • from 2020-21 all financing costs incurred by a landlord will be given as a basic rate tax reduction.


Who said anything about tax simplification! This will be a very complex change to introduce is my guess and potentially quite tricky to explain to clients in simple to understand terms as to the effect it will have on them.

For many property investment is their pension plan as there is little else in some peoples opinion where you can simply invest for pension planning.

However it might discourage the speculative short term property investors.

Sally

Edited by user 08 July 2015 13:46:54(UTC)  | Reason: correction to quote

Offline Ben  
#3 Posted : 08 July 2015 14:47:23(UTC)
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Sally, TaxSupport

The Chancellor mentioned:

Quote:
reforms the taxation of dividends by replacing the Dividend Tax Credit with a Dividend Tax
Allowance of £5,000 and setting new dividends tax rates


I want to find the detailed announcement for this. Can't see it in the list of documents. Have you seen it?

Ben
Offline TaxGuru  
#4 Posted : 08 July 2015 15:18:08(UTC)
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Originally Posted by: Ben Go to Quoted Post
Sally, TaxSupport

The Chancellor mentioned:

Quote:
reforms the taxation of dividends by replacing the Dividend Tax Credit with a Dividend Tax
Allowance of £5,000 and setting new dividends tax rates


I want to find the detailed announcement for this. Can't see it in the list of documents. Have you seen it?

Ben


Ben you won't be the only one looking for and having trouble finding the detail on the changes to the taxation of dividends!

In the "Red Book" 2015 Budget statement on page 44 and 45 is says:

Quote:
Individuals
Dividends
1.185 The current system of tax credits on dividends was designed over 40 years ago when
corporation tax was more than 50% and the total tax bill on dividends for some was more than
80%. Since then, tax rates including corporation tax have fallen, leaving the Dividend Tax Credit
as an arcane and complex feature of the tax system.

1.186 Alongside further cuts to corporation tax rates for all businesses, the government will
reform and simplify the system of dividend taxation, while maintaining the extensive tax reliefs
for investments held in ISAs and pensions. From April 2016 the government will remove
the Dividend Tax Credit and replace it with a new tax-free Dividend Allowance of
£5,000 a year for all taxpayers. This will ensure that ordinary investors with smaller portfolios
and modest dividend income will see no change in their tax liability – and some will pay less tax.

1.187 Combined with the increases the government has made to the personal allowance and
the introduction of the Personal Savings Allowance, from April 2016 individuals will be able
to receive up to £17,000 of income per annum tax-free, and separately invest up to
£15,240 per annum through an ISA tax-free.

1.188 The government will set the dividend tax rates at 7.5% for basic rate taxpayers,
32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. While these
rates remain below the main rates of income tax, those who receive significant dividend income
– for example due to very large shareholdings (typically more than £140,000) or as a result of
receiving significant dividends through a closed company – will pay more.

1.189 These changes will also start to reduce the incentive to incorporate and remunerate
through dividends rather than through wages to reduce tax liabilities. This will reduce the cost
to the Exchequer of future tax motivated incorporation (TMI) by £500 million a year from 2019-
20.
The tax system will continue to encourage entrepreneurship and investment, including
through lower rates of Corporation Tax.


On page 51 is states:

Quote:
1.230 The government is committed to supporting savers at every stage of their life. From
April 2016 the government will deliver a major reduction in the level of tax on savings with the
introduction of the Personal Savings Allowance, which will exempt the first £1,000 of savings
income from tax for basic rate taxpayers and the first £500 for higher rate taxpayers, and as
detailed above, this Budget announces the creation of a new £5,000 dividend allowance.


It goes in to say on page 83:

Quote:
2.57 Dividend taxation – The government will abolish the Dividend Tax Credit from April
2016 and introduce a new Dividend Tax Allowance of £5,000 a year. The new rates of tax on
dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher
rate taxpayers and 38.1% for additional rate taxpayers. (Finance Bill 2016) (16) (26)


It is worth noting that point 1.189 mentions the savings for Government taking effect from 2019-20 from when Government expects to save £500M per annum from TMI (Tax Motivated Incorporation) on using dividends which is some time after April 2016 when the changes are due to take effect which is rather odd. Maybe there are some mistakes in the dates stated? Unlikely but you never know eh..

The other paragraphs refer to the introduction of the "Dividend Allowance" of £5,000 and abolision of the Dividend Tax Credit from April 2016

I have not yet found HMRC's TIIN (Tax Information and Impact Note) on this yet. I stand to be corrected but I think the only details released so far are as detailed above in the Red Book statement(speak and detail summary) published by the Treasury.

If the TIIN is missing on this that might be why. We need to track down the TIIN on dividend changes....

Hope that helps a bit though,

TaxGuru

Edited by user 08 July 2015 15:27:05(UTC)  | Reason: typo error

Offline Ben  
#5 Posted : 14 July 2015 15:47:03(UTC)
Ben

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Posts: 5
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Location: Dorset

All

This is not meant to be a party "political" post more a general observation as in the past I have voted for all three main parties depending on which leader I thought had the charisma to run the country, to be honest. They all seem to say different things but ultimately do the same thing or similar things when in power so it is the charisma of the leader that I think caries things through. Just my opinion.

The more I look at the effects of the July 2015 budget the more I think people and particularly anyone who runs a business or invests is no longer going to think of the Conservatives as the "low tax" party and Labour as the "high tax" party!

If you run your own business there is now little incentive to earn over £43,000 or so quid. With an effective combined corporation tax rate and income tax rate of around 26% effectively (20% CT and 7.5% Dividend tax less £5000 div allowance)and the extra tax you will have to pay following the Budget from April 2016 being around £2,000 (if your gross income is say £10,000 salary and £30,000 dividends) many small business people are going to feel the pain.

If you do earn over £43,000 from your own Limited company and have a mixture of dividends and salary your are now looking at an effective combined CT and IT rate of over 50% of the amount over £43k or so.

Plus if your pension planning is a buy to let property the restriction of tax relief to basic rate on interest and finance costs to basic rate only further has a massive cost if you hit the higher rate tax bands.

I think a fair few people won't bother trying to earn over £43k and will take their foot off the earnings pedal so to speak.

I thought the main thing the Government needs to boost was "productivity" as this would boost tax revenues but I can't see this budget doing anything to boost productivity if anything it may well have the opposite effect.

I also thing a lot of business people and investors who voted Conservative this time will have found their votes leading to a rather shock result following this budget and may well think twice at the next election.

No longer is it Conservatives "low tax" and Labour "high tax". Many will be thinking it is the other way around. 15 years of Labour did not see massive hikes in tax for ordinary basic and marginally higher rate tax payers.

This Budget seems to punish people who run their own companies rather harshly and suddenly.

Just months of a pure Conservative Government majority has seen massive tax hikes for ordinary average earning business people.

All parties and especially the Conservatives banged on about standing for ordinary "hard working people".

People already think twice about employing people with all the red tape, employee rights, etc. but do so if it financially worth the risk of the extra financial responsibility of employing people. Many many small companies will think even harder now about generating the extra turnover needed to employ people and growing their business now following the July 2015 Budget changes I think.

If that does happen the Government may well see tax revenues start to fall which will certainly not help clear the deficit.

Tricky times ahead for sure for people running their own companies particularly and if indeed many small businesses make no effort to generate profits over £43,000 or so I can't see tax revenues for the Government rising either and employment rates might start to tapper off now too which will all hinder clearing the deficit so it could end up being a lose lose situation for the Government and business people as well as the many affected by the tax credit changes.

I can see why the Government has made these changes especially as there is a deficit to clear. However I wonder if the Government has really considered the impact on tax revenues of bashing small and medium size business owners?

The basic rate restriction for interest and finance cost on buy to lets is only going to hurt those struggling to invest in property in the 30s, 40s and 50s as say their pension investment plan as the majority of the new surge in buy to let investors are "cash" purchase older often retired investors fed up with getting little interest on their savings who don't need much of or any mortgage to dive into buy to lets.

Banks need to lend to generate a return of savers. No return for savers means many more with large amounts on deposit will use the buy to let property market to increase their return on their savings. Plus there is the incentive now to pay down or pay off buy to let mortgages.

All in all I think this was a rushed not so well thought through budget that might not have the effect on the deficit that the Government hopes it will.

Time will tell I guess,

Ben

Edited by user 14 July 2015 17:13:39(UTC)  | Reason: typo

Offline Sally  
#6 Posted : 06 August 2015 11:04:01(UTC)
Sally

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Posts: 37
Location: Oxfordshire

Thanks: 1 times
All,

With the impending changes to taxation of dividends from 6 April 2016 does that mean that there is now likely to be a spurt in LLP formation as opposed to Ltd formations.

I would image quite a few accountants and clients are now considering whether to wind up existing companies and swap to LLP status.

Any thoughts on that anyone?

Sally
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