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Talking Point - Summer Budget 2015

By Wesleyan

In the first Budget since the General Election, the Chancellor George Osborne said he was aiming for a “higher wage, lower tax, lower welfare country” and said he intended this “to be a budget for working people”.

He announced that public sector pay will increase by just 1% a year from April 2016 for four years, many family homes will be taken out of Inheritance Tax and permanent non domiciled status will be abolished.

Other key announcements included:

Income Tax

The personal allowance, the amount you can earn before starting to pay tax, will increase to £11,000 in April 2016. This is
part of the government’s ambition to increase it to £12,500 by 2020. Additionally, the Higher Rate tax threshold will rise to £43,000 in April 2016, with the intention of increasing it to £50,000 by 2020.

Inheritance Tax

The introduction of a new “family home allowance” will effectively increase the Inheritance Tax threshold to £1 million for couples from 2017. This new allowance will be worth £175,000 per person and added to the existing £325,000 tax free allowance. It will mean that the estates of individuals who die and pass on assets worth up to £500,000, including a home, will not face an Inheritance Tax charge. As per the existing tax free allowance the new allowance is transferable between spouses.

The permanent non domiciled status will be abolished in 2017. This means that individuals who have been resident in the UK for 15 out of the last 20 years, will pay UK tax on their worldwide assets, income and gains.

Pensions

From April 2016, for those earning more than £150,000 a year the Annual Allowance for pension contributions will reduce to £10,000.

A Green paper has been published to consult on the future structure of pensions in the UK. The Chancellor stated that he was open to radical suggestions, for example whether pensions should operate more like an ISA.

Reform of Dividend Taxation

The dividend tax credit (which reduces the amount of tax paid on income from shares) will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016. Tax rates on dividend income will be increased.

Buy To Let and Rent-a-Room Relief

Currently, individual landlords can deduct their costs, including mortgage interest, from their profits before they pay tax. This means they can receive tax relief at 40% and 45%. By April 2020 this tax relief will be restricted to 20% for all individuals. The Rent-a-Room relief will be increased from £4,250 to £7,500 a year from April 2016.

Welfare reforms

Working age benefits, such as Employment Support Allowance, have been frozen for four years. This does not include maternity allowance, maternity pay, paternity pay and sick pay.

Child Tax credits will be limited to two children per family for new claimants, from April 2017.

Student Maintenance grants, providing support to students from lower income homes are to be scrapped from 2016-2017 and replaced with loans, in line with the treatment of other students.

For businesses

  • Annual Investment Allowance will be increased to £200,000 per year
  • The main rate of Corporation Tax will be cut to 19% in 2017 and 18% in 2020
  • Businesses will have their employer National Insurance bill cut by another £1,000 from April 2016, as the Employment Allowance rises from £2,000 to £3,000. The Employment Allowance gives businesses and charities a cut in the employer National Insurance they pay
  • The budget introduced a new National Living Wage for over 25 year olds starting at £7.20 per hour in April 2016, rising to £9.00 per hour by 2020


For you

  • Public Sector pay will increase by just 1% a year for four years from 2016-17
    Fuel duty remains frozen in 2015
  • New Vehicle Excise Duty bands introduced for new cars from 2017
    Free childcare increased to 30 hours a week for all three and four year olds


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