Summer Budget digested: The 10 things you really need to know
The UK economy continues to grow
We now know that UK GDP grew by 3% in 2014, rather than the previous forecast of 2.6% announced during the March Budget. Britain is expected to have the strongest economic growth of any major advanced economy in the world, according to Chancellor George Osborne.
In 2016, the Office for Budget Responsibility (OBR) has growth unchanged at 2.3%. It is then revised up to 2.4% in 2017.
The minimum wage is going up
From April 2016, a new National Living Wage of £7.20 an hour for the over 25s will be introduced. It is due to rise to over £9 an hour by 2020.
The were some important changes to income tax
The amount earned before paying tax will rise to £11,000 in 2016, a year earlier than first announced. The tax-free personal allowance was due to rise from £10,600 in 2015-6 to £10,800 in 2016-7 and £11,000 in 2017-8.
The Chancellor will also legislate so that the personal allowance always rises in line with the minimum wage.
The higher rate tax bracket threshold, which currently stands at £42,385, will rise to £43,000 from next year. Osborne said this marked the start of the Tory commitment to raise the threshold to £50,000.
There were also changes to the inheritance tax rules
Currently, inheritance tax is charged at 40% on estates over the tax-free allowance of £325,000 per person. Married couples and civil partners can pass any unused allowance on to one another.
From April 2017, each individual will be offered a ‘family home allowance’ so they can pass their home on to their children or grandchildren tax-free after their death. This will be phased in from 2017-18. The family home allowance will be added to the existing £325,000 inheritance tax threshold, meaning the total tax-free allowance for a surviving spouse or civil partner will be up to £1m in 2020-21.
The allowance will be gradually withdrawn for estates worth more than £2m.
Higher earners were dealt a pensions blow
The amount people with an income of more than £150,000 can pay tax-free into a pension will be reduced.
Most people can contribute up to £40,000 a year to their pension tax-free. From April 2016, this amount will be reduced for individuals with incomes of over £150,000, including pension contributions.
Businesses got a boost
The main rate of corporation tax, which was already cut from 28% in 2010 to 20%, will now fall to 19% in 2017, and then to 18% in 2020, benefiting over a million businesses.
Insurance premiums could go up
From November 2015 the standard rate of Insurance Premium Tax will rise from 6% to 9.5%. Although this tax is levied on insurance companies, the worry is the tax rise will be passed onto consumers through higher premiums.
One commentator said that by increasing insurance premiums, there’s a risk it may discourage people from taking out insurance, or being underinsured.
There was bad news for landlords
Currently, individual landlords can deduct their costs – including mortgage interest – from their profits before they pay tax, giving them an advantage over other home buyers. Wealthier landlords receive tax relief at 40% and 45%. This tax relief will be restricted to 20% for all individuals by April 2020.
In addition, from April 2016, the ‘wear and tear allowance’, which allows landlords to reduce the tax they pay (regardless of whether they replace furnishings in their property) will also be replaced by a new system that only allows them to get tax relief when they replace furnishings.
But good news for parents
From September 2017, working families with 3 and 4 year olds will receive 30 hours of free childcare – an increase from the 15 hours they’re currently offered.
And mixed news for drivers
George Osborne announced a new payment hierarchy for Vehicle Excise Duty (VED). From 2017, new cars will pay a flat standard rate of £140 a year for VED regardless of emissions, unlike today where vehicles are taxed on a sliding scale. Owners buying a new car with a list price over £40,000 will have to pay an additional £310 on top of the standard rate.
However, the government is extending the deadline for new cars and motorcycles to have a first MOT test from 3 years to 4, saving motorists more than £100m per year (subject to public consultation and cost-benefit evaluation).
Fuel duty will remain frozen this year.