Posted by James Pearson on 10 Jul 2015

Summer Budget 2015: Key Points

With his summer Budget speech of 8 July 2015, Chancellor George Osborne has introduced significant changes to the UK tax system and set out the Conservatives plans to balance the budget by 2020. The key points and changes are:

Individuals/Income Tax

A new National Living Wage will be introduced for all workers aged over 25, starting at £7.20 an hour from April 2016 and set to reach £9 by 2020. The Low Pay Commission is to advise on future changes to these rates. The Personal Allowance, the level of income at which people start paying tax, is to rise to £11,000 next year.

The government says the Personal Allowance will rise to £12,500 by 2020, so that people working 30 hours a week on the minimum wage will not pay income tax. The higher rate threshold is to rise from £42,385 to £43,000 next year, effectively increasing the basic rate band for the first time since 2009/10.

Once again, the authority for HMRC to access taxpayers’ bank accounts in order to recover unpaid tax is being pushed through, following the consultation regarding safeguards resulting from the same announcement last year. People with buy-to-let properties will suffer a double hit, with mortgage interest relief to be restricted to the basic rate of income tax and the “wear & tear allowance” of 10% of rent being withdrawn from April 2016.

Taxpayers benefiting from the Rent-a-Room relief scheme will benefit from a rise in the tax free allowance for such income from £4,250 per year to £7,500 from April 2016. The Annual Allowance for tax-free pension contributions to be reduced for individuals with incomes over £150,000 from April 2016. Public sector pay increases to continue to be capped at 1% for the next four years.

Business

Corporation tax is to be cut to 19% in 2017 and 18% in 2020. National Insurance employment allowance for small firms is to be increased to £3,000 from 2016, however, companies where the director is the sole employee will no longer be able to claim this allowance. The dividend tax credit is to be replaced with a new tax-free personal dividend allowance of £5,000. Rates of dividend tax to be set at 7.5%, 32.5% and 38.1% for annual dividends exceeding £5,000.

This will remove most of the tax incentive to incorporate small businesses. The Annual Investment Allowance for Capital Allowances will be fixed permanently at £200,000 from January 2016, where it was due to drop to £25,000. Tax relief for the amortisation of goodwill and other similar intangible assets, such as sales lists and unregistered trademarks, has been abolished for assets purchased on or after 8 July 2015, for all companies.

The government will remove the ability for companies to use UK losses and reliefs against a Controlled Foreign Company charge from 8 July 2015. The Bank levy rate will be gradually reduced over the next six years and a new 8% surcharge on bank profits introduced from 2016. Insurance premium tax will increase to 9.5% from November and a cap on charges imposed by claims management companies will be introduced. There will be a new apprenticeship levy for large employers. The Climate Change Levy exemption for renewable electricity will be removed.

Inheritance Tax and Non-Doms

The Inheritance Tax threshold is to increase to £1m, phased in from 2017, underpinned by a new, transferable, family home allowance, starting at £100,000 in 2017/18 increasing at £25,000 per year to £175,000 in 2020/21. The standard Nil-rate band for inheritance tax will remain frozen at £325,000 until April 2021. Permanent non-dom status will be abolished from April 2017; anyone who has lived in the UK for 15 of the past 20 years will be deemed to be UK domiciled.

The current Inheritance Tax deemed domicile rule (17 of 20 years) will also change to match this. From April 2017, legislation will be enacted to ensure that Inheritance Tax is payable on all UK residential property owned by non-domiciles, regardless of their residence status for tax purposes, including property held indirectly through an offshore structure.

Duties

Fuel duty rates will continue to be frozen for this year. There is no mention of future periods. There will be reform of vehicle excise duties (VED) to pay for a new road-building and maintenance fund in England. New VED bands for brand new cars is to be introduced from 2017, based on emissions for the first year. Subsequently, 95% of car owners will pay a flat fee of £140 a year. The requirement for the first MOT for new cars is moved from 3 to 4 years. Alcohol and tobacco duties were not changed in this Budget

Welfare

Tax credits and Universal Credit are to be restricted to two children, affecting those born after April 2017. The family element of child tax credits will not be given for first children after this date. The income threshold for tax credits is to be reduced from £6,420 to £3,850 and the rate of taper from this point is to be increased from 41% to 48% from April 2016. The income rise disregard will be reduced from £5,000 to £2,500 from this date. Working-age benefits, aside from maternity pay and disability benefits, are to be frozen for four years.

Rents in the social housing sector will be reduced by 1% a year for the next four years, and subsidies for social housing will be phased out with local authority and housing association tenants in England who earn more than £30,000 (£40,000 in London) having to pay up to the market rent. Disability benefits will not be taxed or means-tested while the state pension triple lock is to be protected. 18-to-21-year-olds will not be entitled to claim housing benefit automatically, with a new “earn or learn” obligation.

Employment and Support Allowance payments for new claimants who are deemed able to prepare for work to be “aligned” with Jobseeker’s Allowance. The annual household benefit cap will be reduced to £23,000 in London and to £20,000 in the rest of Britain.

Education

Student maintenance grants to be replaced with loans from 2016-17, to be paid back once people earn more than £21,000 a year, but the maintenance loan will increase to £8,200.

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