Our overview of personal tax changes
December 03, 2014
By Iain McCluskey, tax director at PwC
The Chancellor continued his theme of raising the income tax personal allowance above the rate of inflation, with a further increase announced to £10,600. This rise is almost 5% above the rate of inflation, and means that overall the personal allowance has increased by almost 29% above the rate of inflation in this parliament. However, unlike in some previous years, the cost has been passed on to higher rate taxpayers this time - albeit the allowance is phased out once earnings reach £100,000 and over.
For lower and middle earners this will be welcome news, and have some benefit for anyone earning up to £120,000. For the cost of £600m a year, this will put almost £2 a week into people's pockets. The difficulty with a change like this, is because it's given to so many people, the Chancellor can only afford a small amount each. It's also worth remembering the very poorest don't benefit, as they're already under the threshold amount.
Overall, during this parliament, the increase in personal allowance has benefitted basic rate taxpayers around £825.
There was also support for married savers, with ISA's transferred to surviving spouses retaining tax relief, aligning with the changes announced to pensions for surviving spouses.
Iain McCluskey, added: "On top of the ISA allowance increase announced in the Budget, the Chancellor is developing a late reputation as the savers' friend.
For non Doms
There were further changes announced to the tax regime for UK residents who are not domiciled in the UK. Whilst the chancellor announced that he would not look to remove the concept of domicile in the next parliament, he announced increases in the remittance basis charge from £50,000 to £60,000 for those resident for 12 years, and £50,000 to £90,000 for those resident for 17 years or more in the UK. In addition, the Government will consult on whether an election to file on the remittance basis should be for 3 years, rather than an annual election.
The unexpected announcements on non-dom changes are a mixed bag for non-doms resident in the UK. Whilst the chancellor has given his support to the contribution made by non-doms by continuing to only tax them on overseas income and gains that they bring to the UK, the price of filing on this basis has significantly increased for longer term residents. In addition, non-doms will be concerned about the possibility of losing the flexibility to elect to file on the remittance basis year by year - after all, who can predict the future?