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Mike's View: A "one purpose, one policy, one nation" Summer Budget announcement

George Osborne’s first budget since the General Election, and the first to take place under a Conservative majority government in almost 20 years, contained the usual mixture of good and bad news, and the expected and unexpected.  It also contained confirmation of a number of items included in the March budget that were subsequently dropped from the Finance Act that was passed before the General Election in April.


Personal Allowance
Further increases in the personal allowance and the level of income at which higher rate tax becomes payable were announced, together with a commitment to increase the personal allowance to £12,500 and the higher rate tax threshold to £50,000 by the end of this Parliament.

Corporation Tax
Businesses will be happy with the reduction in corporation tax rates to 19% in 2016 and 18% in 2017, and the announcement that the annual investment allowance will permanently be set at £200,000 per annum for expenditure on or after 1 January 2016.

Inheritance Tax
The expected changes to inheritance tax to provide an increased exemption for family homes were included, although they are only going to start taking effect in April 2017 and will not be fully effective until April 2020.  The existing nil rate band of £325,000 will now remain in place right through until April 2021.  The additional exemption for the family home will start at £100,000 in April 2017 and increase by £25,000 in each of the three following years, reaching £175,000 in April 2020.  As with the normal nil rate band, this new relief is fully transferable between spouses and civil partners.

Dividends
The taxation of dividends will be changed in April 2016 with the replacement of the 10% notional tax credit by a new tax-free allowance for dividend income of £5,000.  For dividends in excess of that amount, the tax rate will be 7.5% for basic rate taxpayers, 32.5% for 40% taxpayers and 38.1% for 45% taxpayers.

Buy to Let
Buy to let landlords will be hit by 2 changes coming into effect in the future.  From April 2016 the 10% wear and tear allowance for furnished lettings will be abolished and replaced by allowing landlords to deduct the actual cost of replacing furnishings.  Then in April 2017 tax relief on mortgage interest payments for buy to let properties will gradually be phased out over the next 4 years until only basic rate relief is available from April 2020 onwards.

Pensions
Tax relief on pension contributions for the highest earners will be limited from April 2016 onwards by applying a taper to the amount qualifying for relief for anyone with income of more than £150,000.  Relief will reduce gradually from a maximum of £40,000 until someone with income of £210,000 or more will only be able to obtain tax relief on up to £10,000 of contributions.

Non-Doms
Further changes are also being made to the taxation of non-domiciled individuals, who from April 2017 will automatically lose their non-dom status for all tax purposes once they have been in the UK for 15 out of the last 20 years.  Also anyone born in the UK to UK domiciled parents will not be able to claim non-dom status whilst resident in the UK.

Alongside these tax items, a number of changes are being made to welfare payments, including an increase in the taper rate for the withdrawal of tax credits from 41% to 48% in April 2016, restricting the child element of tax credits and Universal Credit so they are not available for third children born after 6 April 2017, the freezing of most working-age benefits for 4 years from April 2016, and a reduction in the amount by which income can increase before a tax credit award is reduced (the income disregard) from £5,000 to £2,500.

Michael Wakeford