On 8 July, George Osborne, the Chancellor of the Exchequer, announced the revised budget for the 2015/16 financial year and beyond. This is his seventh budget and is directed at working people.
Osborne began by highlighting the Tories achievements over the last five years; saying, “Our tax receipts are stronger than forecast, showing the recovery is firmly entrenched.” He also noted that the strong conservative majority government has been able to make extra savings during the financial year.
He also stated: “We can make faster progress in returning our banks, including RBS, to where they belong – the private sector.”
The key points of the Summer Budget are as follows.
State of the economy
- The UK is the fastest-growing major economy with a 3% growth rate last year (previously thought to be 2.6%).
- There is a 2.4% growth forecast for 2015, 2.3% the next year and then 2.4% in the following four years up until 2020. This is stronger than other major economies.
- 2 million jobs have been created since the start of this parliament and a further 1 million are set to be created over the next five years.
- Apprenticeships doubled to 2 million, with a plan in place for 3 million more. There is money on offer for employers via a levy on large firms. Firms that offer apprenticeships can “get more back than they put in”.
- The national income deficit was 10.2% in 2010. This year it is expected to be 3.7% followed by 2.2%, 1.2% and 0.3% in the next three years. A surplus of 0.4% is expected for 2018/19, reaching 0.5% by 2020. This is helped by stronger tax receipts and increased asset sales.
- Public sector net borrowing was £69.5 billion for this fiscal year, £43.1 billion is projected for 2016/17, £23.3 billion for 2017/18 and £6.4 billion for 2018/19. A surplus of £10 billon is predicted for 2019/20.
- Business investment was 31.9% higher than 2010 and revised up again this year. Real business investment has increased from 9.0% of GDP in 2010 to 10.6% of GDP in 2014, and is forecast to continue rising.
- Sunday trading hours are to be decided locally following consultation.
- 2% of national income to be spent on defence.
- NHS funding will be increased by £10 billon per annum, above inflation, by 2020/21.
- Tax free personal allowance will be increased to £11,000 in 2016 instead of 2017 and will increase with minimum wage. The 40% higher rate tax threshold raised to £43,000, up from £42,385 last year. The goal is to eventually raise this to £50,000.
- Dividend tax system reform: 10% tax credit will be replaced with a £5,000 tax-free allowance. From next year the tax bands will be set at 7.5% for basic rate, 32.5% for higher rate and 38.1% for additional rate tax payers.
- Non-domiciled individuals born in the UK to non-domiciled parents no longer get non-domiciled tax treatment.
- From April 2017, permanent non-domiciled tax status will be abolished for those residents who have been in the UK for 15 of the last 20 tax years. The new rules will raise £1.5 billion for the Treasury.
- For residential property landlords deducting mortgage interest from rental profits, the relief from April 2016 will be restricted to the 20% tax band where the income is taxable at 40%.
- Rent-a-room relief of £4,250 is set to increase to £7,500 from next year; the first increase in 18 years.
- A tax lock to prohibit increases in the main rates of Income Tax, National Insurance or VAT for five years will be legislated in coming weeks.
- From September 2017, the government will extend the free childcare entitlement to 30 hours a week for working parents of three and four year-olds.
- Education maintenance grants will be replaced by student loans of up to £8,200. The government will consult on freezing the repayment threshold at £21,000 for five years from 2016/17.
- The Benefits cap will be set at £23,000 in London and £20,000 outside London.
- For those aged 25 and over, the new compulsory National Living (Minimum) Wage will increase to £7.20 per hour in April 2016, and then to £9.00 per hour by 2020. This is an 11% rise from the current £6.50.
Businesses and employers
- Corporation Tax is set to be reduced to 19% by 2017, and then to 18% by 2020/21.
- Annual Investment Allowance giving relief on the purchase of new assets was set to decrease to £25,000 from December 2015. This has now increased permanently to £200,000.
- From April 2016 the Employment Allowance will increase to £3,000 for small employers
- To ensure that the NICs Employment Allowance is focussed on businesses and charities that support employment, companies where the director is the sole employee will no longer be able to claim the Employment Allowance from April 2016.
- From 2017 new Vehicle Excise Duty bands will be based on emission bands. There is no change for existing cars. Three new duty bands – zero emission, standard and premium will be introduced.
- Fuel duties will remain frozen.
- There will be an increase in Insurance Premium Tax from 6% to 9.5%.
- The bank levy rate will be reduced over six years, but an 8% surcharge will be introduced from next year.
Pensions and inheritance
- Pension contributions: From April 2016 the government will introduce a taper to the annual allowance for those with adjusted annual incomes, including personal and employer’s pension contributions over £150,000. For every £2 of adjusted income over £150,000, an individual’s annual allowance (the limit on the amount of tax-relieved pension savings that can be made by an individual or their employer each year) will be reduced by £1 – down to a minimum of £10,000.
- Lifetime allowance for pension contributions: The government will reduce the lifetime allowance for pension contributions from £1.25 million to £1 million from 6 April 2016.
- The family home will be taken out of Inheritance Tax for all but the wealthiest, with a new transferable nil-rate band being introduced from April 2017. This will apply when a main residence is passed to direct descendants, such as a child or grandchild, upon death. The allowance will be up to £100,000 in 2017/18, £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21. This is in addition to the Inheritance Tax nil-rate band, which is set at £325,000 for the estates of individuals. This creates an effective £500,000 Inheritance Tax threshold for estates in 2020/21. As with the current nil-rate band, any unused main residence nil-rate band will be transferred to a surviving spouse or civil partner. This means that the effective Inheritance Tax threshold will rise to £1 million in 2020/21.
For tax purposes, the government will introduce legislation to ensure that, from April 2017, Inheritance Tax is payable on all UK residential property owned by non-domiciles, regardless of their residence status. This includes property held indirectly through an offshore structure.