Budget round up- George's July Budget
Well, George started his speech this afternoon by saying he was presenting a ‘Budget for workers’ and it was certainly very interesting. Here’s a round up of the main things that could affect your pocket from the Chancellor’s announcements.
Child Tax Credits/Universal Credit
Widely tipped to be for the chop, the Chancellor duly cut Child Tax Credits and Universal Credit in a fairly hefty way. New claimants will not get the family element of tax credits and will be limited to claims for two children only. Existing claimants will see the earnings cap, before which amounts are not reduced, brought down from £6,420 to £3,450, with the taper rate on earnings above that level increased to 48%. The income disregard for income fluctuations between years will also be reduced from £5,000 to £2,500. The overall benefits cap will be reduced from £26,000 to £23,000 in London and £20,000 elsewhere.
National Living Wage
Totally taking the wind out of Labour’s sails, the Chancellor’s announcement of a £9 per hour minimum wage for the over 25s by the end of this Parliament will be welcomed across parties. The NMW rate will increase to £7.20 from next year. George is, of course, assuming that employers will have to pay people more so that they won’t notice the reductions in tax credits. Which is a great idea in theory, but many are predicting that those earning slightly more than hardly anything, who will see the biggest cuts in tax credits but the smaller increase in wages, will miss out.
But the idea of getting employers to pay more towards a living wage is accepted as a reasonable one, and giveaways like increasing the employers NI exemption for small employers and a reduction in corporation tax rates by 2% over the next five years.
Tax on individuals
Working towards his 2020 targets, the Chancellor announced that the personal allowance will go up to £11,000 from April 2016 (£11,200 for 2017/18), and at the same time the point at which the 40% tax rate kicks in will also go up to £43,000 from the current £42,385 (£43,600 for 2017/18).
However, the most radical change is that relating to dividends. Currently, dividends are subject to special rates, but benefit from a notional tax credit to reflect the corporation tax paid by the company. However, the Chancellor announced a new idea to scrap tax credits altogether, and make the first £5,000 of dividend income tax-free, with the next basic, higher and additional rates of tax being recalculated to be 7.5%, 32.5% and 38.1% respectively. This move should only make those receiving high levels of dividends end up paying more tax.
Pensions tax relief will be further restricted and the Government is consulting on changing the pension relief regime totally- mooting the idea that pensions would become more like ISAs, receiving no relief on the way in, but being tax free on the way out- another move that would penalise those paying tax at higher rates.
Additionally, no IHT will be due when passing down a family home worth up to £1m.
There were a number of other things crammed into the Budget, and as widely predicted, non-doms who live in the UK will see their tax advantaged status withdrawn after being UK resident for 15 years. Fuel duty remains frozen and the rent a room relief threshold will go up to £7,500. Interesting, but likely bad news for landlords- from 2017 mortgage interest will only be deductible from rental income to the extent that it gets relief at the basic rate of tax (20%) rather than at higher rates.
Those aged 18-21 are coming off quite badly, with a ‘youth obligation’ to earn or learn (meaning it will be much harder for them to get any benefits) and the withdrawal of housing benefit for these groups. But don't think about going into higher education- at the same time, University maintenance grants will be withdrawn and replaced with additional student loans.
Finally, new classifications for new cars paying road tax will come in, with most cars paying a ‘standard’ rate of £140 per year, which is lower than the current average of £160. Second hand car rates will remain and no one will end up paying more than they currently do. Interestingly, road tax money is to be ring fenced to actually start paying for roads. What a novel idea.
So, as with all Budgets, there are winners and losers. Losers will include those currently claiming tax credits, even if they are the workers the Budget was aimed at. You will be a winner if you have a house worth £1m.