This year’s summer budget has seen the first Conservative Budget for 19 years and, unhindered by a coalition government the Chancellor announced a budget that saw somewhat radical shake-ups of public spending and taxation as he set the agenda for the next five years under the Tory Government.
There were a number of winners in this summer’s budget but, arguably there were even more losers as some of the most vulnerable in society are expected to take the brunt of more cuts.
Here at K A Farr & Co, Chartered Accountants, we’ve done an overview of the summer 2015 budget and outlined the biggest changes.
National Living Wage
This is something that was unexpected from the Conservative party. The national living wage will be increased starting with £7.20 an hour for the over-25s in April 2016 before eventually rising to £9.00 an hour by 2020.
Tax Free Personal Allowance
This is the amount that people earn before they begin to pay tax. This threshold will be increased from £10,600 in 2015/16 to £11,000 in April 2016 with a target pledge to increase it to £12,500 by the year 2020.
The higher rate threshold will also be increased with the point at which people begin to pay income tax at 40p set to rise from £42,385 to £43,000 next year.
Inheritance Tax Threshold
Family homes are set to have their inheritance tax threshold increased. At the minute, the current rate of inheritance tax is charged at 40% on estates over the tax-free allowance of £325,000. However, as of April 2017, everyone will be offered a “family home allowance”, whereby they can pass their home to their children or grandchildren tax-free.
This £175,000 allowance effectively brings the inheritance tax threshold up to £500,000. Given that married couples and civil partners can pass any unused allowance on to one another, it means that couples will be able to pass on assets worth up to £1m.
Pensions Tax Relief
This is to be reduced for those with an income of more than £150,000. Currently, people can contribute up to £40,000 a year to their pension tax free however, from April 2016, this tax relief will be limited to pension contributions of £10,000 per year.
Corporation Tax Relief
This is set to be cut to 19% in 2017 and 18% in 2020 which could be set to benefit, according to the Chancellor, “over a million businesses”.
Annual Investment Allowance
This is to be permanently set at £200,000 from January 2016. The plan is that it will help businesses to plan their spending on longer-term investments. This is anticipated to be widely received by firms and entrepreneurs.
Dividend Tax Credit
The dividend tax credit, which reduces the amount of tax paid on income from shares is set to be replaced by a new £5,000 tax-free dividend allowance from April 2016. Meanwhile, tax rates on dividend income above that level will be increased.
Welfare System Reforms
These reforms were confirmed in the budget and included a four-year freeze of working-age benefits from 2016/17, a reduction of the household benefit cap to £20,000 (£23,000 for London) and also support through child tax credits being limited to two children born from April 2017.
The child tax credits being limited to two children from April 2017 is something that has angered a lot of families with the cost of child care being so expensive.
Student Maintenance Grants
This is a grant which helps higher education students, in particular those from lower income backgrounds, with their general living costs whilst they study. These grants are set to be scrapped and replaced with loans.
One announcement which, here at K A Farr & Co, we think will be greeted with joy from the majority of people in the UK is that there is set to be a clampdown on nuisance calls like PPI claims calls.
Insurance Premium Tax
The standard rate of the insurance premium tax is set to rise from 6% to 9.5% in November of this year.
This is a tax on general insurance premiums and it is the standard rate of 6% which is set to rise this year.
Restricted Tax Relief on Buy-to-Let Mortgages
As it stands, landlords can deduct their costs (including mortgage interest) from their profits before they pay tax, which was felt gave them an advantage over other home buyers.
“Wealthier” landlords receive tax relief at 40% and 45%, but this will be restricted to 20% for all landlords by April 2020.
“Radical Changes” to The Pension System
There have been proposals set for what is being called a “radical change” to the pension system. The possibility of being able to treat pensions like ISAs. However, the Chancellor said that this would require careful consideration, with nothing being set in stone as of yet.
Get In Touch
Do you have any questions about the changes that are have been announced in this summer’s budget?
If so, feel free to get in touch with us here at K A Farr & Co, Chartered Accountants & Tax Advisers in Southport. We have friendly staff on hand who are all more than happy to assist you with any queries you may have about the first Conservative budget in almost two decades.
You can find out our contact details here, on our contact page.