“Big Bold Budget”
The Chancellor has just sat down from delivering his second 2015 Budget speech. He has confirmed the changes laid out in the Conservative Party’s manifesto, including spending cuts and reforms to welfare and pensions. New laws will lock future Governments into budget surpluses in times of growth. The Tories have also fulfilled their pledge to raise the Inheritance Tax (IHT) threshold on homes to £1 million by 2017. As ever the devil is in the detail and we will provide more information on the changes announced as they emerge.
The main tax and savings matters referred to in the speech were as follows:
Inheritance Tax
- From April 2017 parents will each have a further £175,000 “family home allowance” to enable them to pass property on to children or grandchildren inheritance tax-free on their death.
- When added to the existing £325,000 IHT threshold, this brings the total transferrable inheritance tax-free allowance to both parents in a married couple or civil partnership to £1m.
- The new allowance will be tapered for estates worth more than £2 million.
Business Tax
- The Annual Investment Allowance for capital expenditure on plant, due to be reduced to £25,000 from January 2016, will be lowered to £200,000 indefinitely.
- Corporation Tax is to fall to 19% in 2017 and 18% by 2020.
Employment Tax
- A National Living Wage is to be introduced from April 2016 at £7.20 an hour (for those aged over 25) to replace the Minimum Wage with a target of £9 an hour by 2020.
- In 2017, children aged 3 to 4 years old, of working parents will receive 30 hours free childcare.
- An Apprenticeship Levy will apply to large employers.
- Student Maintenance Grants are to be increased and replaced by Student Maintenance Loans from 2016/17.
- There will be a consultation on freezing the Student Loans repayment threshold at £21,000 for 5 years
- The national insurance Employment Allowance is to be increased to £3,000 for small firms from April 2016.
Property Tax
- From April 2017, the Chancellor has restricted mortgage interest relief for “buy to lets” to the basic rate of income tax, with a phased withdrawal for higher rate taxpayers over 4 years.
- The Rent a Room Relief amount of £4,250 will be increased to £7,500.
Savings and income tax
- The dividend tax credit will be removed and replaced with a tax free allowance of £5,000 for all taxpayers. The rates of dividend income tax will be set at 7.5%, 32.5% and 38.1%.
- The income tax free personal allowance is set from April 2016 at £11,000 and will be linked to minimum wage in future.
- The threshold for the higher rate (40%) of income tax is to rise to £43,000 next year.
- The benefits cap is to be reduced to £23,000 in London and £20,000 everywhere else.
- Working age benefits are to be frozen for 4 years.
- Tax credits and universal credits are to be limited to 2 children from 2017.
Tax Avoidance
- Further funding will be provided for HMRC to tackle the hidden economy and offshore tax evasion.
- Permanent Non-Domiciled status is to be abolished.
- From April 2017, all individuals are to be taxed in the UK on all their worldwide income and gains where they have been UK tax resident for 15 of the last 20 years.
- Changes will be introduced to restrict losses on Controlled Foreign Companies.
- Corporates are to be stopped from artificially increasing the value of stock.
- The national insurance Employment Allowance is to be removed where the director is the sole employee.
- Corporation tax payment dates for larger companies are to be brought forward.
Pensions
- The Annual Allowance for pensions will be tapered down to only £10,000 for the highest earners.
- Further consultation will be undertaken on creating an ISA-style of pensions saving, suggesting tax relief may be removed altogether.
Duties
- In 2017 there will be new bandings for Vehicle Excise Duty for new cars.
- Fuel Duty is frozen for the current year.
- Insurance Premium Tax is to be increased to 9.5% from November 2015.
This is very much an overview of the speech and more details will be available in the press releases on which we will report in due course. If you do require any further information at this stage please contact our Tax Director Jenny Marks.
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