HARBOUR KEY’S ELECTION RESULT FINANCIAL & TAX SUMMARY
With the decisive Conservative election result and the months of speculation over, we now have some certainty at least in the short term, regarding what is going to happen when the Chancellor moves back to number 11 Downing Street.
Below is our brief summary of the key points. It should be noted that there is still a large gap to be filled in the new Government’s finances and some tax changes may be required to deal with this which have not been announced, despite the five year tax lock pledge (see below). There is also the fact that continued pressure will be put on HM Revenue & Customs to close the tax gap (difference between the tax collected and the amount believed to be due), with enforcement action and the use of the connect IT system increasing.
Key Points from Election Result:
- With political matters clear, investor confidence surged and the FTSE rose 61 points on Friday. The value of sterling also increased.
- With no prospect of a Mansion Tax (or similar being introduced) Estate Agencies reported increased interest at the weekend re expensive property.
- As part of their manifesto the new Government pledged not to increase VAT, income tax or national insurance rates in the next five years with their “tax lock” legislation to be introduced with 100 days of the new Parliament. The additional rate of income tax will remain at 45% for now. (Nothing mentioned about capital gains tax rates).
- Increase the personal allowance to £12,500 (currently £10,600) by 2020 and increase the threshold at which you start to pay higher rate tax from £42,385 the current threshold to £50,000. (The rules regarding the personal allowance be tapered away for every £1 of income above £100,000 remain in place).
- It is highly likely that the majority of the measures announced in the March budget will now be introduced next year, for example the personal savings allowance of £1,000, the Help to Buy ISA. If you have forgotten what was announced in the budget, see our summary.
- The introduction of an inheritance tax transferable main residence relief, which will lift the inheritance tax threshold for married and civil couples to £1 million from £650,000, but only in respect of the main home. It is understood that the allowance will be tapered away, if the couple leave assets worth more than £2million, to a point at about £2.35million where the new allowance will be of no benefit. Likely to see more details later this year.
- The introduction of the flat rate of corporation tax of 20% on 1 April 2015 looks set to remain, as this was a George Osborne initiative.
- For now it looks like non-UK domiciles are safe, now the threat of a Labour Government abolishing the rules has been removed. However this is an area that has been attacked previously include in the recent budget when an increase in the remittance tax charge for those who wish to use their non-UK domiciled tax status and have lived in the UK for 17 years to £100,000 from £50,000.
- Additional rate taxpayers (those with income above £150,000) will loose the tax relief on their pension contributions. This is being introduced to cover the cost of the increase of the inheritance tax threshold. The current proposal is that cut in the relief will be tapered by 50p for every £1 of earnings between £150,000 and £210,000. It is still proposed that the basic rate relief will be available.
- The life time allowance, the maximum that an individual can hold in a pension and gain full tax relief, is also to reduce from £1.25million to £1 million.
If you wish to discuss any of the Budget Statement announcements or any other tax matter, please do not hesitate to contact us.
Harbour Key Limited
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