UK: Budget 2014 - Personal and Trust Taxes

Last Updated: 20 March 2014
Article by Smith & Williamson

The commentaries below are written in general terms. You are strongly recommended to seek specific advice before taking any action based on the information given, both in the commentaries and in the publication.

Income tax rates and thresholds

Income tax rates and thresholds will remain at their 2013/14 levels in 2014/15, except as noted below.  All thresholds are set on in the appendix.

The personal allowance for those born after 5 April 1948 will increase to £10,000 from 6 April 2014, while the higher rate band will decrease to £31,865.  The NIC upper earnings and upper profits limits will be increased in line with the higher rate threshold which will be £41,865.

From 6 April 2015, the personal allowance will increase by £500 to £10,500 while the higher rate band will decrease by £100 to £31,785.

From 2016/17, the personal allowance will be increased with reference to the consumer price index.

Comment

The rise in personal allowance to £10,000 has been trailed since the 2013 Budget and formed a central aim of the coalition Government.

Although the increases to the personal allowance and the effective higher rate band are welcome, it is worth noting that the slight decrease in the actual higher rate band means that those earning over £120,000 in 2014/15 and £121,000 in 2015/16 will experience a small increase in their tax burden as their personal allowance is abated.

Personal allowances for those born before 5 April 1948 remain unchanged as part of the phasing-out of age-related allowances.

Transferable tax allowance for married couples

As announced in the 2013 Autumn Statement, from 6 April 2015, a taxpayer may elect to transfer up to 10% of their tax free personal allowance to their spouse or civil partner, provided the recipient of the transfer is not liable to income tax above the basic rate.

Comment

The current benefit of this relief is rather small; the maximum benefit available amounts to only £210 and will only benefit couples where one is a non-taxpayer and the other is a basic rate taxpayer.

Also, the process for administering the transfer is still being 'developed'.  Given the amounts involved, it is hoped a simple process is implemented as, otherwise, there is the risk that the measure proves to be more hassle than it is worth.

The UK personal allowance and people who are not resident in the UK

The Government has announced that a consultation will take place on whether the availability of the personal allowance should be restricted with a suggested focus on UK residents and those with strong economic connections in the UK.

Comment

The Government considers that this proposal would bring the UK in line with other EU countries.  Also, given the recent increase in the value of the personal allowance, it is clear that the Government is keen to ensure it is only of benefit to those intended.

As always with consultations, it is only when the consultation document is released that we will be able to see the specific detail and how it will impact specific taxpayers.  For example, it will be interesting to see how 'strong economic connections' is defined.

Changing the starting rate of savings income tax

Currently, a 10% income tax rate applies to savings income in certain circumstances.  The threshold for this starting rate band is currently £2,790 (£2,880 for 2014/15).

From 6 April 2015, the threshold will increase to £5,000 and the rate will reduce to nil.

Comment

Although a welcome reduction for some taxpayers, the overall impact is likely to be minimal. 

The ordering rules, which determine at what rate income is taxable, provide that non-savings income is taken into account before savings income.  Therefore, any taxpayer with non-savings income (which includes employment income and trade or rental profits) exceeding their personal allowance by more than £5,000 will not be able to access this starting rate and so will not see the benefit of the reduction in tax.

Income tax relief for qualifying loan interest

As announced in the Autumn Statement, from April 2014, the income tax relief for interest paid on loans to invest in close companies and employee-controlled companies will be extended to investments in such companies resident throughout the EEA.

Comment

Given the need to ensure legislation is non-discriminatory within the EEA, this follows the pattern over recent years that has seen changes to UK legislation in this regard.

Glasgow athletics grand prix and certain other major sporting events

Legislation will be introduced in Finance Bill 2014 to provide an exemption from UK income tax for non-UK resident sports persons on income received as a result of performing in the Glasgow athletics grand prix.  The exemption will also cover any activities carried out between 5 and 14 July 2014 to support or promote the event.

It has been also announced that legislation will be introduced to allow future income and corporation tax provision for major sporting events to be enacted via secondary legislation.  This will allow for such future provisions to be introduced without specific provision in a Finance Act and will take effect on the date of Royal Assent of Finance Bill 2014.

Comment

This first measure follows several introduced in recent years and reflects the Government's approach of granting temporary exemptions in order to encourage top sporting competitors to compete at one-off UK events.

This is a further one-off income tax measures introduced in recent Finance Bills, usually to provide temporary exemptions from UK tax for non-UK sports persons and associated professionals involved, for example those introduced for the 2012 London Olympics and the 2011 and 2013 Champions' League finals held at Wembley.  Such exemptions have become increasingly common and seemingly less controversial in recent years due in most part to the indirect financial benefit of the events so the second provision aims to help to free-up parliamentary time and simplify future Finance Bills.

Scottish rate of income tax and secondary legislation

The structure of the income tax legislation will be amended to allow changes in relation to Scottish tax matters to be made in secondary legislation in a more simplified manner going forward.

As previously announced, legislation will be introduced that will require the National Audit Office (NAO) to annually report directly to the Scottish Parliament on HMRC's administration of the Scottish rate of income tax.

Comment

This will have no effect on the amounts of tax paid by Scottish taxpayers but merely simplifies the process by which changes to legislation can be made. It also provides the Scottish Parliament with an annual review of the management of Scottish income tax by HMRC to provide assurances of its calculations and collection of the tax. It will also help evaluate the value for money the Scottish Parliament receive for HMRC's services in relation to the collection of Scottish income tax.

Simplifying NICs

Class 2 NICs are payable by all self-employed persons at a fixed weekly rate (£2.70 for the 2013/14 tax year), often on a monthly basis.  The collection of these weekly contributions will now be via the self-assessment system from April 2016.

Comment

The process for collecting class 2 NICs is overly complicated in relation to the amounts involved and this is therefore a welcomed simplification. It also furthers the Government's goal of merging the collection of NICs and income tax.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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