Summer Budget 2015 Key Announcements

The Chancellor, George Osborne, delivered his Summer Budget to Parliament; here is a summary of what was announced.

1. Implementing a new National Living Wage of more than £9 per hour by 2020.

A new National Living Wage of £7.20 per hour will be implemented for those over the age of 25 beginning in April 2016. By 2020, this will have risen to more than £9 per hour.

2. The federal government will run a budget surplus in 2019-20. 

The deficit will be reduced by around 1% of GDP (the total value of the economy) on average each year, which is the same rate as in the previous five years. This means that a surplus (where more tax is collected than spent) will be achieved in 2019-20, and debt will be reduced each year. This includes the following:

Welfare reforms will save £12 billion by 2019-20. Measures to combat tax avoidance, planning, evasion, compliance, and systemic imbalances will cost £5 billion by 2019-20.

Following the spending review, plans for the remaining savings will be announced in the autumn.

3. In April 2016, the tax-free Personal Allowance will be increased from £10,600 in 2015-16 to £11,000.

In 2016-17, the tax-free Personal Allowance – the amount people can earn before having to start paying Income Tax – will be increased to £11,000.

Personal Allowance increases since 2010, when it was £6,475, mean that a typical taxpayer will be £905 better off in 2016-17.

The government intends to raise the Personal Allowance to £12,500 by 2020, and a law will be enacted to ensure that once this level is reached, people working 30 hours per week on the National Minimum Wage will not have to pay Income Tax at all.

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4. Defending defence spending

The budget of the Ministry of Defence will increase by 0.5 percent per year (above inflation) until 2020-21. An additional £1.5 billion per year will also be made available by 2020-21 to fund increased military and intelligence spending.

The government intends to meet NATO’s pledge to spend 2% of national income on defence each year of this decade.

5. Making the welfare system more affordable by reforming it.

The welfare system will be reformed to make it more equitable for taxpayers who pay for it while still supporting the most vulnerable. Among the changes are: Working-age benefits, such as tax credits and Local Housing Allowance, will be frozen for four years beginning in 2016-17 (excluding Maternity Allowance, maternity pay, paternity pay, and sick pay). The benefit cap for households will be reduced to £20,000 (£23,000 in London). 

For children born after April 2017, Child Tax Credit support will be limited to two children. Those on Universal Credit aged 18 to 21 will be required to apply for an apprenticeship or traineeship, gain work-based skills, or go on a work placement 6 months after the start of their claim.

Rents for social housing will be reduced by 1% per year for the next four years, and tenants with higher incomes (over £40,000 in London and over £30,000 elsewhere) will be required to pay market rate, or near market rate, rents.

6. Changes to the dividend tax

Dividend income tax rates will be raised.

Because of this simplified system, only those with significant dividend income will be taxed more. Investors with modest share income will either see a tax cut or see no change in the amount of tax they owe.

7. Exempting the family home from Inheritance Tax

Any unused allowance can be passed on to a married couple or civil partner.

Each individual will be offered a family home allowance beginning in April 2017, allowing them to pass their home on to their children or grandchildren tax-free after their death. This will be phased in beginning in 2017-18.

The family home allowance will be added to the existing Inheritance Tax threshold of £325,000, bringing the total tax-free allowance for a surviving spouse or civil partner to £1 million in 2020-21.

For estates worth more than £2 million, the allowance will be phased out gradually.

8. The amount that people earning more than £150,000 can contribute to a pension tax-free will be reduced.

Most people can make tax-free contributions to their pensions of up to £40,000 per year. Individuals with incomes of more than £150,000, including pension contributions, will see this amount reduced beginning in April 2016.

9. The higher rate threshold will rise from £42,385 to £43,000 in 2016-17, up from £42,385 in 2015-16.

The amount people must earn before paying 40% tax will rise from £42,385 in 2015-16 to £43,000 in 2016-17.

10. Corporation tax will be reduced to 19% in 2017 and 18% in 2020.

In order to boost UK competitiveness, the main rate of Corporation Tax has already been reduced from 28 percent in 2010 to 20 percent. It will now fall even further, from 20% to 19% in 2017, and then to 18% in 2020, benefiting over a million businesses.

11. The annual investment allowance will be set at its highest ever permanent level, of £200,000, for the first time.

The annual investment allowance, which had previously been temporarily increased, will be permanently set at £200,000 beginning in January 2016.

The allowance allows businesses to deduct the full cost of certain items, such as machinery and equipment, up to a total value of £200,000 from their profits before tax. This improves their cash flow because the full tax relief is granted in the year the items are purchased, rather than over several years.

This permanent increase will assist businesses in budgeting for longer-term investments.

12. The Employment Allowance will be increased by £1,000 to £3,000 per year.

Employers’ National Insurance bills will be reduced by £1,000 beginning in April 2016, as the Employment Allowance increases from £2,000 to £3,000. The Employment Allowance reduces the amount of employer National Insurance paid by businesses and charities.

This means that starting next year, businesses will be able to hire four full-time employees on the National Living Wage while paying no National Insurance.

13. The standard Insurance Premium Tax rate will rise to 9.5 percent.

The standard rate of Insurance Premium Tax will be raised from 6% to 9.5 % beginning in November 2015. Insurance prices for households are falling, and the standard rate remains lower than in many other EU countries.

14. Reducing the number of nuisance calls from claims management companies

The amount that claims management companies – such as those that promote claims for payment protection insurance (PPI) or personal injury insurance – can charge will be limited, reducing nuisance calls to potential customers.

15. Limiting tax breaks for wealthy landlords

Individual landlords can currently deduct their costs – including mortgage interest – from their profits before paying taxes, giving them a competitive advantage over other home buyers. Landlords with a higher net worth benefit from tax breaks ranging from 40% to 45 percent. By April 2020, this tax relief will be limited to 20% for all individuals.

Furthermore, beginning in April 2016, the ‘wear and tear allowance,’ which allows landlords to reduce their tax liability regardless of whether they replace furnishings in their property, will be replaced by a new system that only allows them to receive tax relief when they replace furnishings.

16. Removal of permanent non-dom status

Non-domiciled individuals (non-doms) reside in the United Kingdom but consider their permanent residence to be elsewhere. Non-doms are only required to pay UK tax on their offshore income when it is brought into the country.

Permanent non-dom status will be phased out beginning in April 2017. Anyone who has lived in the UK for 15 of the last 20 years will be considered UK-domiciled for tax purposes as of that date.

17. Rethinking how banks are taxed

Following rising bank profits and changes in banking regulation, the government is:

introducing a new 8% tax on banking sector profits beginning in January 2016 introducing a phased reduction in the rate of the Bank Levy (which is charged on banks’ balance sheets) between 2016 and 2021 excluding UK banks’ overseas subsidiaries from the Bank Levy beginning in January 2021 There will be 18.3 million new apprenticeships.

A levy on large employers will fund the creation of 3 million new apprenticeships by 2020. Firms that invest in training will be able to recoup their investment.

19. Transport for the North receives £30 million in funding.

Northern cities and counties will be given even more control over local transportation. Transport for the North (TfN) will receive £30 million in funding over three years and will be given more authority over policy and investment decisions.

20. 30 hours of free childcare for children aged 3 and 4.

Working families with three and four-year-old children will receive 30 hours of free childcare beginning in September 2017, an increase from the current 15 hours.

21. Student maintenance grants will be phased out in favour of loans.

Cash support for new students will be increased by £766 to £8,200 per year beginning with the 2016-17 academic year, the highest level ever for students from low-income households. Student grants will be replaced by new maintenance loan assistance. Loans will be repaid only when graduates earn more than £21,000 per year.

22. The road tax will be reformed, and the proceeds will be used to improve the road network.

The road tax system will be revamped to make it more equitable and sustainable. From 2017, most cars will be taxed at a flat rate of £140, with the exception of the first year, when tax will be based on the amount of CO2 emitted by the vehicle. Electric vehicles will not pay any road tax, and the most expensive vehicles will pay more.

Existing cars will not be affected – no one will be charged more for a car they already own. The money raised by the road tax in England will be spent on the country’s roads beginning in 2020.

The government will increase the time limit for the first MOT of new cars and motorcycles from three to four years.

23. The public sector’s pay will rise by 1%.

Pay in the public sector will rise by 1% per year for the next four years, beginning in 2016-17.

24. Ensuring that individuals and businesses pay their debts

The government will continue to crack down on tax avoidance, planning, and evasion, while also increasing resources for HM Revenue and Customs (HMRC) to ensure that people pay their fair share of tax. This includes the following: extra funding for HMRC’s work on evasion and non-compliance between now and 2020 Increasing the number of criminal investigations into complex tax fraud that HMRC can conduct, with a focus on wealthy individuals and businesses. granting HMRC access to more data in order to identify businesses that are not declaring or paying tax putting a stop to the organised crime gangs that are behind the illegal tobacco and alcohol trade preventing investment fund managers from exploiting tax loopholes to avoid paying the correct amount of Capital Gains Tax on fund profits (this is known as carried interest) ensuring that international corporations pay tax on profits diverted from the United Kingdom

Enacting a ‘general anti-abuse rule’ penalty and tough new measures for serial avoiders, such as publishing the names of people who use failed tax avoidance schemes on a regular basis.

The industry’s reaction will be forthcoming.

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Last Updated on December 28, 2021


Author: Indra Gupta

Indra is an in-house writer with a love of Newcastle United and all things sustainable.

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