Well, the Summer Budget 2015 was a bit of a shocker in some respects and not good news for those of us who run owner-managed businesses or those with rental properties.
There seems to have been little publicity over a few major areas so I’d like to give you my take on the changes and what they will mean for you.
Dividends
The biggest shock was the change to dividend tax. Current effective rates mean that all dividends paid under the basic rate band have no tax liability. Anything up to the additional rate is effectively taxed at 25% and 30.56% thereafter.
From the 6 April 2016, all dividends over £5k will be taxed at 7.5%, the higher rate will be at 32.5% and the additional rate will be 38.1%.
This means that as an owner-managed business not only do you have to pay Corporation Tax at 20%, you also have to pay additional tax on your dividends.
Employers National Insurance Allowance
Although this is increasing to £3k from April 2016, it will not be allowed where there is only one employee who is a director.
What this means is that those tax efficient salaries you should all be on of £10,600 this year, will have to be reduced to the primary threshold (currently £7,956).
So Limited Companies who only employ their director, will miss out on savings of over £200 per year.
However, the specifics of how this is going to work haven’t been decided yet. It would be very easy to get around this, just add another director, you could even use a nominee.
I think that because of this, they will actually legislate that the allowance can’t be used against director’s income, full stop. But we will have to see when the Finance bill comes out next month.
Corporation Tax
It isn’t all bad news for Limited Companies, Corporation Tax is set to become 18% by 2020/21
Buy To Let Properties
Buy to lets have been pushing the price up for first time buyers for a long while now as every Tom, Dick and Harry wants a property portfolio. Almost everyone I speak with has either already got at least one buy to let or is planning on having one in the future.
So how to combat that?
Tax relief on mortgage interest on buy to let properties is to be restricted to the basic rate. This will come into effect from 2017/18 in tranches so by 2020/21 it will be fully in force.
Other
My Thoughts
When it comes to deciding whether to incorporate, Limited companies have suddenly become much less attractive to sole traders.
Buy to Let properties have also become less attractive which may be good news for first time buyers, or perhaps the market will suddenly become flooded with properties when investors try to get rid of their portfolios, house prices will drop, builders will stop building because there is no longer the demand and this will stymie the growth of our economy?
Let’s watch this space.