Summer Budget 2015: Everything you need to know
Written on 8 July 2015
George Osborne promised a big and bold Budget today and he certainly kept his word.
As expected he raised the Inheritance Tax and higher-rate tax thresholds and cut benefits. But he also pulled several unexpected rabbits out of the hat including the introduction of a National Living Wage, the scrapping of student maintenance grants, a four-year public sector pay cap and changes to the buy-to-let rules.
We take a look at the announcements and what they mean for you.
New National Living Wage
The National Living Wage will be compulsory and will reach £9 an hour by 2020. It will apply to anyone aged 25 or over and will start at £7.20 from next April.
Inheritance Tax scrapped on family homes worth up to £1 million
As expected, George Osborne increased the Inheritance Tax (IHT) threshold for those passing on a family home to their children or grandchildren. Currently, there's no IHT to pay on estates worth less than £325,000. But from April 2017 an additional 'family home allowance' of £175,000 will be phased in, taking the overall limit to £500,000 or up to £1 million for married couples and civil partners from 2020/21
This change means nearly one million more properties in England, Wales and Scotland will be exempt from IHT, according to figures from the property website, Zoopla.
Personal Allowance to increase
The government has already promised to increase the Personal Allowance to £12,500 by the end of this Parliament. The Personal Allowance is the amount of income you can have before you have to pay any Income Tax. Today the Chancellor announced that it will rise from its current level of £10,600 to £11,000 next April.
Higher-rate tax threshold to rise
The Chancellor also announced that the higher-rate tax threshold (that’s the amount of income you can have before paying tax at 40%) will rise from £42,385 to £43,000 from 2016/17. His aim is to increase this threshold to £50,000 by 2020.
Cuts to welfare benefits
Working-age benefits are to be frozen for four years. This includes tax credits and Local Housing Allowance.
Tax credits and Universal Credit will be restricted to two children so any subsequent children born after April 2017 will not be eligible. And anyone starting a family after April 2017 won’t be able to claim the Family Element. However, families who are already claiming tax credits and Universal Credit won’t be affected by either of these changes.
The income threshold at which tax credits and Universal Credit start to be withdrawn will reduce from £6,420 to £3,850.
More help with childcare
From September 2017, working parents with three to four year olds will get 30 hours a week of free childcare (up from the 15 hours they currently get).
Changes to help with the cost of housing
The Chancellor announced that 18 to 21 year olds will no longer have an automatic entitlement to Housing Benefit. He is also introducing changes which will mean that local authority and housing association tenants in England earning more than £30,000 (£40,000 in London) will have to pay rent up to the market rate.
Benefits Cap to reduce
The Benefits Cap - the limit on the amount of benefits you can claim in a year- will reduce to £20,000 (£23,000 in London).
Public sector pay
Public sector pay will continue to rise by just 1% a year for the next four years from 2016-17.
Changes to mortgage interest relief on buy-to-let properties will be phased in over four years from April 2017. The changes will see the relief restricted to 20% for everyone by April 2020. In addition, from April 2016, the wear and tear allowance will be replaced by a new system which means landlords will only be able to claim tax relief when they replace furnishings in their property.
Rent-a-room relief, which is available to people who rent out a room in their main home, will rise from £4,250 to £7,500 next year to reflect increases in rent.
Student maintenance grants scrapped
Student maintenance grants for students from low-income families will be scrapped from the 2016/17 academic year. They'll be replaced with loans of up to £8,200 a year which will become repayable once you earn over £21,000 a year.
Dividend tax rates
From next year the current system of dividend tax credits will be replaced by a tax-free allowance of £5,000. This means you'll be able to earn up to £5,000 in dividend income a year without paying any tax. Dividend income over £5,000 will be taxed at rates of 7.5%, 32.55% and 38.1%
New limit for tax relief on pensions
A new limit on pensions tax relief is being introduced for those earning £150,000 a year or more. The annual allowance - which is the maximum you can contribute to your pension tax free - will be reduced by £1 for every £2 you earn over the £150,000 threshold, down to a floor of £10,000 for those earning £210,000 or more.
The government also says it will consult on ways to reform pensions tax relief to strengthen incentives to save for retirement.
- Insurance Premium Tax (IPT) is rising from 6% to 9.5% from this November. IPT is paid on some insurance policies including building, contents, car and private medical insurance. The British Insurance Brokers' Association says this increase could result in higher insurance premiums.
- Road tax is changing for cars registered from April 2017. There will be a flat rate of £140 for most cars. Existing cars won’t be affected.
- Support for Mortgage Interest, currently a benefit, will be turned into a loan.
- The previously announced Help-to-Buy ISA will be available to save into from 1 December 2015.
- A new “Innovative Finance ISA” will be launched next year allowing peer-to-peer lending to be sheltered from tax in an ISA.
- There will be a review of the regulation of claims management companies and a cap on the charges they can make.
- From April 2017, anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed UK-domiciled for tax purposes.