News Item - July 2015

 

A brief summary of the Chancellor's Budget Statement on Wednesday 8th July 2015:

• The Personal allowance will be increased from £10,600 for 2015-16, and then to £11,000 for 2016-17.

• The Basic rate limit is increased from £42,385 for 2015-16, and then up to £43,000 in 2016-17.

• There will be an introduction of a new National Living Wage of over £ 9 an hour by 2020. Before that, from April 2016 a new NLW of £ 7.20 an hour for the over-25's will be introduced.

• The Ministry of Defence's budget will rise by 0.5% above CPI each year to 2020-21. Up to an additional £ 1.5 bn a year will be available by that target year, to fund increased spending on both the military and defence agencies. The government will meet the NATO pledge to spend 2% of GDP on defence in every year of this decade.

• The dividend tax credit (which reduced the tax paid on income from shares) will be replaced by a new £ 5,000 dividend allowance for all taxpayers from April 2016. Tax rates on dividend income above this new allowance will be increased to 7.5% (on basic rate payers), 32.5% (on higher rate payers) and 38.1% (on additional rate payers) .

• Inheritance Tax is currently charged at 40% on estates over the tax free allowance of £ 325,000 per person, though married couples and civil partners can pass on any unused allowance to each other. However, from April 2017, each individual (with issue) will be able to utilise a family home allowance of £ 175,000, so that their property, up to value of £ 1,000,000 can be subsequently passed on to their children or grandchildren, tax free.   (i.e. £ 325,000 + £ 175,000 = £ 500,000 X 2 persons). Note that the additional allowance applies on the children/grandchildren, and  the allowance will be gradually withdrawn for estates valued in excess of £ 2,000,000.

• From April 2016, the maximum tax free sum that people earning in excess of £ 150,000 per year can pay into a pension will be reduced. This contribution for most people is currently £ 40,000, plus allowances for up to 3 years unused carry forward. 

• Corporation Tax will be reduced to 19% in 2017, then 18% in 2020 (was 28% in 2010). Over one million business will benefit.

• The annual investment allowance will be permanently increased to £ 200,000 from January 2016. Subject to qualifying rules, businesses can take full tax relief in the year items are purchased, rather than over a number of years.

• The Employment Allowance will increase from £ 2,000 to £ 3,000 in April 2016. Businesses will be able to employ 4 people full time on the National Living Wage, and pay no National Insurance at all.

• The standard rate of Insurance Premium Tax will be increased from 6% to 9.5%, in November 2015.

• "Buy-to-let" landlords: The tax relief on finance costs (mortgage interest) will be restricted down to 20% by April 2020. As from (a) 2017-18, the allowance = 75% finance costs + 25% basic rate; (b) 2018-19, allowance = 50% finance costs + 50% basic rate; (c) 2019-20, allowance = 25% finance costs + 75% basic rate; (d) 2020-21 onwards, all finance costs will be given at basic rate. Individuals will be able to claim a basic rate tax relief from their income tax liability, on the portion of finance costs not deducted in calculating the profit. Any excess finance costs may be carried forward to following years, if the tax relief has been limited to 20% of the profits of the business in the tax year. In addition, from April 2016 the "wear and tear" allowance, which gave relief whether justified or not, will be replaced by a new system, that allows relief only against actual expenditure on replacement furnishings.

• Permanent "non-dom" status will be abolished from April 2017, for anyone who has been resident in the U.K. for 15 of the past 20 years. (Only then can they continue to avoid pay tax on offshore income, unless brought into the U.K.)

• The Chancellor announced that the welfare system will be reformed to make it fairer for the taxpayers who pay for it, but whilst continuing to support the most vulnerable in society. The main items were (a) working-age benefits will be frozen for 4 years from 2016-17; (b) the household benefit cap will be reduced to £ 20,000 (£ 23,000 London); (c) support through Child Tax Credit will be limited to 2 children born before April 2017; (d) those aged 18 to 21 on Universal Tax Credit will have to apply for an apprenticeship or a traineeship, gain work based skills, or go on a work placement 6 months after the start of their claim; (e) rents for social housing will be reduced by 1% a year for 4 years, and tenants on higher incomes - £ 30,000 (£ 40,000 London) will be required to pay market rate, or near market rate rents. 

• Banking reform: (a) new 8% tax on profits from January 2016; (b) phased reduction in rate of the Bank Levy, down from 0.21% to 0.1% between 2016 and 2021; (c) excluding U.K. banks' overseas subsidiaries from the Bank Levy from January 2021. 

 

Please note that the above report is only our brief interpretation and understanding of the Government's budget proposals for the 2015 Emergency Summer Budget, delivered to Parliament by George Osborne on Wednesday 8th July 2015. These provisions are normally confirmed upon the receipt of Royal Assent later in the year. Jonathan Davis and his associates cannot be held responsible for any errors, omissions or changes to the above.