Income Tax and Personal Savings

Income tax 2014/15 2013/14
Basic rate band – income up to £31,865 £32,010
Starting rate for savings *10% *10%
Basic rate 20% 20%
Dividend ordinary rate 10% 10%
Higher rate - income over £31,865 £32,010
Higher rate 40% 40%
Dividend upper rate 32.5% 32.5%
Additional rate – income over £150,000 £150,000
Additional rate 45% 45%
Dividend additional rate 37.5% 37.5%
‘Rent a Room’ exempt on gross annual rent £4,250 £4,250
Construction Industry Scheme deduction rate 20/30% 20/30%
*Starting rate is for savings income up to the starting rate limit of £2,880 (£2,790) within the basic rate band. The rate applies to any balance of the limit remaining after allocating taxable non-savings income.
Personal allowances (PA) 2014/15 2013/14
Born after 5 April 1948 £10,000 £9,440
Born after 5 April 1938 and before 6 April 1948 £10,500 £10,500
Born before 6 April 1938 £10,660 £10,660
Married couple's allowance (MCA) 2014/15 2013/14
Either partner born before 6 April 1935 (relief restricted to 10%)
£8,165 £7,915
Age-related allowances are reduced by 1 for every £2 that adjusted net income exceeds £27,000 (£26,100) to a minimum PA of £10,000 (£9,440) and to a minimum MCA of £3,140 (£3,040). Where adjusted net income exceeds £100,000, PA is reduced in the same way until it is nil.
Tax Shelters 2014/15 2013/14
Venture Capital Trust up to £200,000 £200,000
Enterprise Investment Scheme up to £1,000,000 £1,000,000
Seed Enterprise Investment Scheme up to £100,000 £100,000

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.

Dual contracts

It was announced that UK resident non-domiciles paying income tax on the remittance basis who use separate employment contracts for UK and overseas duties with the same or associated employers will be taxed on the arising basis, where certain conditions are met. This means that the income will cease to be eligible for the remittance basis tax treatment. The change will have effect for general earnings and employment-related securities income from an overseas employment and overseas employment income provided through third parties arising on and after 6 April 2014 (except where the income is related to employment duties performed in a year prior to 2014/15).

Glasgow Grand Prix and future major sporting events

Non-UK resident sportspeople will benefit from an exemption from UK income tax on any income received as a result of their performance at the athletics event, the Glasgow Grand Prix 2014, or as a result of any activity carried out between 5 and 14 July 2014, where the main purpose is to support or promote the Glasgow Grand Prix.

This exemption will be granted via Finance Bill 2014 but in future, under a new power to make such exemptions for major sporting events through Treasury regulations, it will not be necessary to legislate for such provisions in a Finance Bill.

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.

Measures were also announced to tackle pension liberation fraud.

National Savings and Investments (NS&I)

From 1 August 2014 the Premium Bond investment limit will be increased from £30,000 to £40,000 and will offer two £1m monthly prizes instead of one. The limit will be further increased to £50,000 in 2015/16.

The Government will launch in January 2015 a range of fixed-rate, market-leading savings bonds for people aged 65 and over, taxable in line with all other savings income. Interest rates and individual investment limits will be confirmed at Autumn Statement 2014 to take account of prevailing market conditions but the central assumption made at Budget 2014 is that NS&I will launch a 1-year bond paying 2.8% gross/AER and a 3-year bond paying 4.0% gross/AER with an investment limit of £10,000 per bond.

Individual Savings Accounts (ISAs) 2014/15

  To 30 June 2014 From 1 July 2014
Overall Investment limit £11,880* £15,000
Junior ISA limit £3,840 £4,000


(Transitional rules may apply)
*Including cash maximum of £5,940

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.