On Wednesday 8th July 2015 the Chancellor delivered his post-election Summer Budget which unveiled many of the election promises to enable Britain to become a higher wage, lower tax and lower welfare cost economy.
His speech included some key announcements regarding Corporation Tax and Inheritance tax as well as introducing a New Living Wage and major changes to the Benefits System.
Below is our summary and brief analysis of the main content of the Chancellor’s Summer Budget statement:
Personal Tax Changes 2016/17
- The tax free personal allowance is to be increased to £11,000 from 2016/17 with a target figure of £12,500 by 2020.
- The basic rate tax band for 2016-17 will be £32,000. This means that individuals will be able to receive income up to £43,000 before being liable to higher rate income tax.
- The main rates of income tax are to be unchanged at 20%, 40% and, for income above £150,000, 45%.
- A new system of taxing dividends is to be introduced from 6 April 2016 with the current tax credit being replaced by a new £5,000 dividend tax allowance. This will result in an increase in effective tax rates for individuals who receive significant dividend income. Investors with a modest level of income from a portfolio of shares will see no change or even a reduction to the amount of tax due.
Business Tax Changes
- The single rate of corporation tax is to be reduced from the current rate of 20% to 19% from 2017 and 18% from 2020. These changes will benefit over one million companies and will result in the UK having the lowest rate of corporation tax in the G20 group of countries.
- The Annual Investment Allowance, which can provide 100% tax relief to businesses for purchases of plant and equipment, is to be permanently set at £200,000 pa from January 2016. The current level of AIA of £500,000 will cease to apply on 31 December 2015.
- The Employment Allowance is to be increased by 50% to £3,000 per year from 2016/17. This applies to Employer Class 1 National Insurance Contributions and means that, for example, from April 2016 a business will be able to employ 4 people full-time on the National Living Wage without incurring any Employer National Insurance.
- From April 2016 a new National Living Wage is to be introduced of £7.20 per hour for employees over 25. This figure will rise to £9 per hour by 2020.
- To ensure that the NIC Employment Allowance is targeted at businesses that support employment, from April 2016 companies where the sole director is the only employee will no longer be eligible to claim Employment Allowance.
Reforms to the Welfare System
- The welfare system is to be reformed to ensure it is fairer to taxpayers who fund it while ensuring it provides support to the most vulnerable. Significant changes from 2016/17 are to be made to working-age benefits, the household benefit cap, Child Tax Credits, Universal Tax Credit and rents for social housing.
- From September 2017 working families with 3 or 4 year olds will receive 30 hours of free childcare. This provides a 50% increase on the current 15 hours currently available.
- For individuals with income over £150,000 per year the amount of tax-free pension contributions will be reduced from the current level of £40,000 a year from April 2016.
Property Letting Tax Relief
- By April 2020 tax relief on mortgage interest incurred by landlords letting residential properties, will be restricted to the basic rate of income tax of 20%. These new restrictions are to be phased in over 4 years from April 2017.
- From April 2016 the current system of ‘wear and tear allowance’ is to be replaced by a new system where tax relief will only be available to landlords on costs actually incurred. The current system allows an arbitrary 10% of gross rents as an annual deduction irrespective of whether any costs are actually incurred.
- The Rent-a-Room relief is to be increased from the current £4,250 pa to £7,500 pa from April 2016. The value of this tax-free allowance has been frozen since 1997 and is available to individuals who rent a room in their main residence.
- From April 2017 every individual will eventually qualify for an IHT family home allowance of £175,000 where a home is left to their children or grandchildren. This is in addition to the existing £325,000 nil rate band which is to be frozen until 2020/21. This change will result in a total tax-free IHT allowance for a surviving spouse or civil partner of £1 million
Other Significant Announcements
- Permanent Non-Domiciled Status is to be abolished from April 2017 for individuals who have been UK resident for 15 of the past 20 years.
- The government will continue to clamp down on tax avoidance, tax evasion and aggressive tax planning and ensure that HMRC are provided with the necessary resources to ensure that people pay the correct tax that is due.
- The Vehicle Excise Duty system is to be made fairer and more sustainable from 2017 with a flat rate of £140 introduced for most new cars. Existing cars will not be affected. Money collected from road tax in England will be ring fenced to ensure that it is only spent on England’s roads from 2020.
- 3 million new apprenticeships are to be created by 2020 funded by a levy on large employers.
- The government is to consult on devolving Sunday trading hours to city mayors and local authorities
Here is a link which provides a summary of the key tax changes applicable from the current 2015/16 tax year which have all been previously announced:
If you would like to discuss the content of this article/newsletter and how any proposed changes relate to your individual circumstances then please do not hesitate to email us at firstname.lastname@example.org or ring us on 01633 215 544