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Summer Budget 2015: Private Client measures

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In his Summer Budget, the UK Chancellor announced major changes to the taxation of UK resident, non-UK domiciled individuals (‘non-doms’) which will have a significant impact on non-doms who have been UK tax resident for more than 15 years (and those approaching 15 years) and non-doms who own UK residential property, however it is held. These proposals are discussed in detail in our blog Summer Budget 2015: significant changes to UK tax for non-doms.

In this blog we look at some of the other measures of interest to private clients, including:

  • introduction of a 'main residence' inheritance tax nil rate band;
  • abolition of the dividend tax credit;
  • reduction in the main rate of corporation tax from 2017 and again from 2020;
  • restriction of pension tax relief for individuals with income of £150,000 or more.

Main residence inheritance tax nil rate band

From 6 April 2017, an additional inheritance tax nil rate band (NRB) is to be introduced which will apply to a residence which passes on death to a deceased's children or grandchildren (but not where the residence passes to any other close relative). The additional 'main residence' NRB will initially be £100,000 rising to £175,000 in 2020/2021. This means that, from 2020/2021, a married couple will be able to leave up to £1m to their children/grandchildren when they die, free of inheritance tax.

The additional main residence NRB will apply where the deceased leaves a residential property, which has at some point been the deceased's residence, to one or more direct descendants. A property which has never been a residence for the deceased, like a buy-to-let property, will not qualify. Only one residential property can benefit from the additional main residence NRB, on each death.

Any unused proportion of the additional main residence NRB will be transferable between married couples/civil partners (including where the first spouse/civil partner dies before 6 April 2017).

If, after 8 July 2015, an individual downsizes to a less valuable home or ceases to own a home, any part of the additional NRB which would potentially be lost will still be available provided assets of an equivalent value are left to the deceased's children and/or grandchildren.

If the net value of the deceased's estate is more than £2m, the additional main residence NRB will be tapered away by £1 for every £2 that the net estate exceeds £2m, with the new relief being unavailable for those with a net estate worth more than £2.35m.

Taxation of dividends

The income tax regime for dividends will be reformed. The archaic dividend tax credit system will be abolished with effect from April 2016 and replaced with a £5,000 annual tax-free allowance for dividends.

Higher rate taxpayers will pay 32.5% on dividends above that amount. For additional rate taxpayers the rate will be 38.1%.

The net result will be a tax increase for individuals who receive significant dividend income.


The lifetime allowance will be reduced from £1.25m to £1m from 6 April 2016. There is no absolute limit on the level of benefits that an individual can receive from a registered pension scheme. The lifetime allowance is the maximum level of benefits that a member can draw from all registered pension schemes without incurring penal tax charges.  Transitional protection for pension rights already over £1m will be introduced.

Pensions tax relief will be restricted with effect from 6 April 2016, by a tapered reduction in the amount of the annual allowance, for individuals with income over £150,000 (including the value of pension contributions) and those who have an income (excluding pension contributions) in excess of £110,000. The rate of reduction will be £1 for every £2 of income over £150,000, subject to a maximum reduction of £30,000 (so individuals with income of over £210,000 will have an annual allowance of £10,000). The carry forward of unused annual allowance will continue to be available, but the amount available will be based on the unused tapered annual allowance.

There is no limit on the amount of contributions that can be paid by an individual to a pension scheme. The annual allowance is a limit on the amount (paid into a pension scheme) on which an individual can claim income tax relief. Currently, tax relief on pension saving is available at a taxpayer's marginal rate, including in relation to income taxed at the additional rate of 50%.

Corporation tax

The main corporation tax rate will fall to 19% from 1 April 2017; and to 18% from 1 April 2020.


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