The second Budget of 2015 was fuller than in previous years, and saw George Osborne announce some changes that we knew were on their way and some which came as more of a surprise. There were also some noticeable absences including no change to the rates of Income Tax and Capital Gains Tax. We discuss the main announcements for our clients below.

Inheritance Tax nil-rate band

The Inheritance Tax ("IHT") nil-rate band ("NRB") will remain at £325,000 until at least 2020/21.

However, from April 2017, a new additional main residence NRB will be phased in.  It will apply when the main residence is passed on death to direct descendants.

Just as with the current NRB, it will be possible to transfer any unused part of the new main residence NRB between spouses.

In 2017/18 the main residence allowance will be £100,000, increasing to £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21.  Therefore, from 2020/21, married couples and civil partners will have a potential total IHT allowance of £1m between them, which will come as welcome news to many of our clients.

Those not leaving their main residence to direct descendants will miss out, but not those who downsize.  Those who downsize or sell their main home without purchasing a new one will still benefit from the main residence allowance to the extent that they leave the sale proceeds to their descendants.

However, for estates with a net value of more than £2m there will be a tapered withdrawal of the main residence allowance.

It remains to be seen exactly how the main residence relief will be applied in less straightforward cases such as where the main residence is left to the children on trust to protect from the risk of divorce.  As there is nearly two years until the relief will come into effect there is, however, plenty of time to iron out the details.


Significant changes are being made to the long established domicile regime.

Currently, an individual who is non-UK domiciled ("a non-dom") who has been living in the UK for 17 out of the last 20 tax years is treated as UK domiciled for IHT purposes.  From April 2017 this will be reduced to 15 out of the last 20 years and Income Tax and Capital Gains Tax ("CGT") will be included.

Also from April 2017, residential property held in offshore structures will be subject to IHT.  Currently if a non-dom owns an offshore company which in turn owns a UK residential property that property is not subject to IHT on the death of the non-dom because they do not own the property.

Finally, changes will be made to prevent an individual who is born in the UK to parents who are UK domiciled from claiming non-dom status if the individual leaves the UK, and assumes a domicile of choice in another country, but then returns and takes up residency in the UK.  This is likely to mean that IHT planning undertaken whilst away from the UK will no longer be effective for such individuals.  


From next April, dividend tax credit will be replaced with an annual tax-free dividend allowance of £5,000.  Investors with small portfolios and modest dividend income will see no change in their tax liability and some will pay less.  However, investors with more than £5,000 annual dividend income from non-ISA portfolios will see an increase in their Income Tax liability.


From April 2017, the Income Tax relief available to higher rate tax payers on mortgage interest for buy-to-let properties will be reduced.  Over a period of four years the relief will be cut until it is restricted to the basic rate of Income Tax.

In addition, the 10% deduction from profits to allow for wear and tear will removed from April 2016.  In future tax years landlords will only be able to deduct the expenses that they actually incur.  The main benefit of the wear and tear allowance was its simplicity so more time may be taken completing Tax Returns. However, the Income Tax paid by the majority should remain largely unchanged.


As expected, from April 2016 a taper to the annual allowance will be introduced for those with adjusted annual incomes (including their own and employer's pension contributions) over £150,000.  For every £2 of adjusted income over £150,000 the annual allowance will be reduced by £1 to a minimum of £10,000.  Those with income below £110,000 (excluding pension contributions) will not be subject to the tapering.

The Government will also be launching a consultation on reforming pensions tax relief.  One option they will consider is leaving the current system unchanged.

Carried interest

Carried interest paid to investment fund managers is, with immediate effect, subject to CGT at 28%.  Fund managers will no longer be able to use tax planning to reduce the gain but will be relieved that the Government have recognised that carried interest reflects the underlying long term performance of the fund's investments and should therefore be subject to CGT and not Income Tax as has been suggested in the past.

Personal service companies

HMRC will be working with businesses to review and improve the effectiveness of the anti-avoidance legislation that applies to individuals who work through their own limited companies.  This is with a view of cracking down on the current non-compliance by some in this area. 

Corporation tax

Corporation tax will be reduced from the current rate of 20%.  In 2017 it will be cut to 19%, and then again to 18% in 2020.  This will help to ensure that UK remains an attractive place for inward investment. 

Income tax

The tax rates remain unchanged but the higher rate threshold will be increased to £43,000 next year and the personal allowance will be increased to £11,000.

General Anti-Abuse Rule ("GAAR")

The crackdown on abusive tax avoidance continues.  The Government has announced that it will consult on introducing tougher measures for those who persistently enter into tax avoidance schemes that fail and on a new GAAR penalty.

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.