The Big “Emergency” Budget

George Osbourne

George Osborne’s stated aim was to create what he called a “new settlement”. That’s politician’s code for re-writing the rules of politics to suit your side.

So it was rather surprising when he announced that he was slowing and softening spending and welfare cuts, when in his pre-election budget last March, promised much faster and deeper cuts.

However I don’t intend to dwell on the massive cuts to government department budgets or the welfare bill, or even the new national living wage, instead today I will focus on the major tax changes announced.

• Income Tax & Pensions
• Rent-a-room Scheme
• Dividends
• Vehicle Excise Duty & Fuel Duty
• Corporation and other Business Tax
• Inheritance Tax
• Buy-To-Let
• Other news

The tax-free personal allowance will rise to £11,000 next April, with higher than inflation rises in all future years to a minimum of £12,500 by April 2020.

The starting point for the 40% tax band will rise from £42,385 to £43,000 next April, with the aim of raising it to £50,000 by the end of this Parliament.

Permanent non-dom status is to be abolished from April 2017, for anyone who has lived in the UK for 15 of the past 20 years. In future they will pay the same level of tax as other UK citizens.

The amount people can contribute to their pension tax-free is to be reduced for individuals with incomes over £150,000.

Rent-a-room Scheme

If you let out part of a property which is your only or main home or take in lodgers, currently you can earn £4,250 per year tax-free under the Rent-a-room relief scheme; the chancellor has now raised this figure to £7,500p.a.

From the next year, Dividend tax credits are to be replaced with a new tax-free allowance of £5,000 on dividend income.

Over this figure a new dividend tax is to be introduced at 7.5%, for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for those individuals on the 45% tax band.

Vehicle Excise Duty & Fuel Duty

New Vehicle Excise Duty (VED) bands are to be introduced, with the intention that once we have a budget surplus, the revenues will go towards a new Roads Fund.

For cars registered after 1 April 2017, VED will be transformed into three bands – zero, standard and premium. George Osborne claimed that the “standard” charge of £140 would cover 95% of all cars. The “premium” charge will be £450 per year for all cars with a list price of over £40,000.

The chancellor also said that fuel duty would remain frozen this year.

Corporation tax is to be cut to 19% in 2017 and 18% in 2020.

The Bank levy will be gradually reduced over the next six years and a new 8% surcharge on bank profits introduced from 2016.

There is to be an increase in the standard rate of Insurance Premium Tax, which will rise from the present 6% to 9.5% from November 2015. The premium rate of 20% on mechanical/electrical appliances and travel insurance is unchanged.

Inheritance Tax

At present, Inheritance Tax is payable at 40% on the value of an estate in excess of the tax-free allowance of £325,000 per person (£650,000 for married couples). Married couples and civil partners can pass the allowance on to each other, but from April 2017 parents will each be offered a further £175,000 “family home allowance” to enable them to pass property on to children tax-free after their death.

This will be added to the existing IHT threshold, bringing the total transferable tax-free allowance from both parents in a married couple or civil partnership to £1m.

Buy-To-Let

Mortgage interest relief for buy-to-let homebuyers is to be restricted to the basic rate of income tax.

Other Big “Emergency” Budget news

• The HMRC budget is to be increased by £750m next year with the hope that with the additional resources, they will be able to recover £7.2bn from a clampdown on tax avoidance and tax evasion.
• The Climate Change Levy exemption for renewable electricity is to be removed.
• The National Insurance employment allowance for small firms is to be increased by 50% to £3,000 from April 2016.
• The Annual investment allowance will be fixed permanently at £200,000 from January 2016.

A Tax Accountant’s View

There is no doubt that I will revisit many of the Tax changes once the detailed information is published for the necessary Finance Bill and the full implication of the changes known.

But until then, if any of you would like me to give you more detailed information on any aspect of this Blog, please send me an email and I will be happy to advise in more depth.

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