We pick out the most interesting morsels from the Chancellor’s summer Budget and serve them up in easily digestible portions.
Bye-bye inheritance tax (well, sort of)
Most married couples and civil partners will no longer have to worry about paying inheritance tax (IHT) on their family home, as of 2017. An additional £175,000 threshold per person, covering primary residences only, means that couples will have a combined threshold of £1m if their legacy includes a family home. However, IHT will still apply on assets above this threshold.
More money in your pocket
Tax allowances have been increased in the lower and middle income brackets, making some people more than a thousand pounds better off each year. The personal allowance is rising next year from £10,600 to £11,000 (and is set to rise to £12,500 by 2020, which would mean that people working 30 hours a week on the current minimum wage would not pay income tax at all).
Meanwhile the point at which people start paying income tax at 40 per cent will rise from £42,385 to £43,000. These changes mean that those on a salary from £11,000 to £43,000 will be £400 better off, and those earning above £43,000 will be just over £1,000 better off.
A blow to some buy-to-let landlords…
…but a fairer playing field for everyone else. Tax relief on mortgage interest payments will be restricted to the basic rate of income tax (20 per cent) from April 2017, rather than the landlord’s marginal rate – which to date has meant that richer landlords received more in tax relief. Good news if you’re a lower-earning landlord or an ordinary homebuyer.
Just when you thought you understood pensions
Not more pension changes to come? Apparently so. The Chancellor has published a green paper on proposals for further radical reforms to the pensions system – so stay tuned to unbiased.co.uk for more on this.
Another pensions-related change was a reduction in the amount of tax-free contributions that can be made by individuals with incomes over £150,000.
The tax man’s net tightens
The Chancellor is still going after tax avoidance hard: the permanent non-dom status is being abolished from April 2017, so that anyone who has lived in the UK for 15 of the past 20 years will pay tax at the same level as other UK citizens. George Osborne also announced plans to claw back around £7.2bn from general tax avoidance and evasion.
Businesses and the Budget
If you run a business the news was a mixed bag, with a few coffee creams but some good treats too. Corporation tax will be dropping to 19 per cent in 2017 and to 18 per cent in 2020, and the National Insurance employment allowance for small firms is rising by 50 per cent to £3,000 from next year.
The dividend tax credit is being replaced with a tax-free allowance of £5,000 on dividend income, with rates of dividend tax set at 7.5%, 32.5% and 38.1%.
The less-good news was that the annual investment allowance (which lets you deduct the costs of plant and machinery from your profits before tax) will fall from £500,000 to £200,000 from January 2016.
It’s hard for a busy individual to keep pace with such a fast pace of change in pensions and taxation, but fortunately IFAs make it their business to do just that. Find your perfect adviser today and discover how you can take full advantage of the Budget reforms, both now and in the long term.
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