13 May 2014

Chancellor George Osborne unveiled his fifth Budget amidst signs of growing levels of confidence in the UK’s economic condition. Keen to drive home the message that the economy is recovering ‘faster than forecast’, the Chancellor announced that the Office for Budget Responsibility had revised its economic growth forecast upwards from 2.4% to 2.7% for 2014.

Budget Highlights

  • Annual Investment Allowance doubled to £500,000
  • Income tax personal allowance to rise to £10,500
  • New £15,000 ISA to combine cash and stocks and shares elements
  • Export finance doubled to £3bn
  • Retirees to be granted more power over their pension pots

Corporation tax

Corporation tax rates and bands are as follows:
Financial Year to31 March 201531 March 2014
Taxable profits
First £300,00020%20%
Next £1,200,00021.25%23.75%
Over £1,500,00021%23%
From 1 April 2015 the main rate of corporation tax will be reduced and unified with the small profits rate, giving a new unified rate of 20%.

Annual Investment Allowance (AIA)

The maximum amount of the AIA has been increased from £250,000 to £500,000 for all qualifying expenditure on plant and machinery made from 1 April 2014 for corporation tax and 6 April 2014 for income tax. After 31 December 2015 the limit will be reduced to £25,000. Transitional rules will apply.

Enhanced capital allowance (ECA)

The period in which businesses investing in new plant and machinery in ECA sites in Enterprise Zones can qualify for 100% capital allowances has been extended by three years to 31 March 2020.

Research and development (R&D)

From 1 April 2014 the rate of R&D payable tax credit for loss making SMEs will be increased from 11% to 14.5%.

Employer NICs for under-21s

As announced in the 2013 Autumn Statement, from 6 April 2015 employers will no longer be required to pay Class 1 secondary NICs on earnings paid up to the Upper Earnings Limit to any employee under the age of 21. This will apply to both existing employees and to employers taking on new staff. No individual’s state pension entitlement will be affected by the measure.

Changes to allowances and rate bands from 2015

The Chancellor announced that from 6 April 2015:
  • the personal allowance for all those born after 5 April 1938 will be £10,500
  • the basic rate limit will be reduced to £31,785, and
  • the starting rate will be 0% and will apply to a maximum of £5,000 of savings income.

Transferable tax allowance for married couples

An individual will be entitled to transfer £1,050 of their personal allowance to their spouse or civil partner, from 6 April 2015, so long as neither is paying tax at more than the basic rate. From 6 April 2016, the transferable amount will be 10% of the personal allowance

Pensions

The Chancellor announced some changes to apply on or after 27 March 2014 to:
  • increase the maximum income that a drawdown pensioner (member or dependant) with a capped drawdown pension fund can choose to receive to 150% of the "basis amount"
  • reduce the minimum income threshold for flexible drawdown to £12,000
  • allow members over 60, with total pension savings of £30,000 or less to take out all of those savings as one or more trivial commutation lump sums and
  • increase the size of a small pension pot which can be taken as a lump sum from £2,000 to £10,000 and the number of personal pension pots that can be taken as a lump sum under the small pot rules from two to three.
Announcing a period of consultation, the Chancellor also proposed that from April 2015, those in a defined contribution scheme will, from age 55, be able to choose from three options. The access to a tax-free lump sum at retirement will continue, but thereafter the retiree can choose:
  • to draw the remainder of the pension pot, which will then be taxed at the marginal rate (0, 20, 40 or 45%) - (currently it would be taxed at 55%)
  • to go into drawdown under the new limits as above, or
  • to buy an annuity.

The New ISA

  • From 1 July 2014, ISAs will be reformed into the ‘New ISA’ (NISA). From that date all existing ISAs will become NISAs, and the overall annual subscription limit for these accounts will be increased to £15,000 for 2014/15.
  • ISA savers will be able to subscribe this full amount to a cash account (currently only 50% of the overall ISA limit can be saved in cash), and will also be able to transfer their investment from a stocks and shares to a cash account and vice versa.
  • There will be changes to the rules on the investments that can be held in a NISA, so that a broader range of securities, including certain retail bonds with less than five years before maturity, can be invested.
  • Between 6 April and 1 July 2014, the total amount that can be paid into a Cash ISA is £5,940. For those with a Stocks and Shares ISA, money can still be paid into that account, but the combined amount paid into Cash and Stocks and Shares ISAs must not exceed £11,880. From 1 July 2014, when any ISA will automatically become a NISA, further money can be added to either a Cash or a Stocks and Shares NISA up to the new £15,000 limit.

Junior ISA

From 1 July 2014, the amount that can be subscribed to a child’s Junior ISA or Child Trust Fund (CTF) in 2014/15 will be increased to £4,000.

Taxation of high value residential property

The Government will introduce two new bands for the Annual Tax on Enveloped Dwellings (ATED). Residential properties worth over £1m and up to £2m will be brought into the charge with effect from 1 April 2015. The charge for these properties in 2015/16 will be £7,000. Properties worth over £500,000 and up to £1m will be brought into the charge with effect from 1 April 2016. The charge for these properties in 2016/17 will be £3,500. These charges will be increased in line with the CPI each year. The Government will also extend the 15% SDLT rate applied to residential properties purchased by certain non-natural persons to properties purchased for over £500,000 with effect from 20 March 2014. It will extend the related CGT charge on disposals of properties liable to ATED for residential properties worth over £1m and up to £2m with effect from 6 April 2015 and for residential properties worth over £500,000 and up to £1m with effect from 6 April 2016. The Government will consult over summer 2014 on possible options to simplify the administration of ATED.

Help to Buy scheme

The Help to Buy: equity loan scheme will be extended to March 2020 with the aim of helping a further 120,000 households to buy a new-build home.

Employee share schemes

From 6 April 2014 the maximum value of shares that employees can acquire under all-employee Share Incentive Plans (SIPs) will be increased to £3,600 on the ‘free’ shares companies can award to employees; and £1,800 on the ‘partnership’ shares employees can purchase.

Ebbsfleet Garden City

Britain’s first new garden city since Welwyn Garden City in 1920 will be built in Ebbsfleet, Kent. The new city will contain 15,000 homes. The Government will set up a dedicated Urban Development Corporation for the area, in consultation with local MPs, councils and residents, and will make up to £200m of infrastructure funding available to kick start development.

Increased help for exporters

In an attempt to make UK Export Finance (UKEF) more competitive the Government will double the size of UKEF’s direct lending scheme to £3bn, remove the scheme end date, relax conditions on loan sizes, and lend at the minimum interest rates allowed by international agreements. It also aims to work in partnership with the banks to deliver the enhanced lending scheme to ensure that smaller companies can also benefit from the scheme, and to consult on changes to the legislation governing UKEF to allow the organisation to support individual export supply chains and intangible exports.