A politician yesterday announced the official end of austerity, in his Summer 2015 Budget. From now on, reduction of public spending will be a matter of ideology, not necessity.
George Osborne is confident about the strength of the economy and its prospects for growth, and his relaxed deficit reduction plans reflect that confidence.
One area immune from cuts is NHS, where an undertaking was given to fully fund the Stevens Plan produced by the NHS itself for its future.
The following tax and welfare measures have been identified as being of special interest professionally:
Abolition of permanent non-dom status from 2017/18
Small company tax
Tax write-offs of goodwill against trading profits abolished for companies, for acquisitions made after 7 July 2015
Tax on dividends from 2016/17: the measure effectively represents cut-price NI on dividends where owner-managers of small companies take profits as dividends rather than salary
Lower corporation tax from 2017/18
IHT nil-rate band threshold for a couple increased to £1.0m, where at least £350000 represented by family home passed onto direct descendants: being introduced over 4 years, from 2017/18. Relief limited where joint Estate potentially worth more than £4.0m. This measure is likely to be cumbersome in practice.
The cost of the reform, reckoned at £790m in 2019/20, will be offset by further restrictions on tax relief for pension contributions for high earners, from 2016/17
Housing and Property
Restriction of mortgage interest relief for buy-to-let landlords from 2017/18
Abolition of 10% Wear and Tear allowance for landlords from 2016/17
Rents paid by tenants for social housing will be cut to save Housing benefit. The Chancellor does not explain the underlying assumption that Housing Associations and Local Authorities can afford to make the required corresponding economies. Another measure sees richer households occupying social housing being obliged to pay a market or near market rent to stay: using the yield from one to subsidise the other however appears to be ruled out in HM Treasury’s Summer Budget report HC264.
There remains no sign of a coherent housing policy to increase the stock of homes generally
Cuts to welfare budget
Conversion of support for mortgage interest payments into a loan, not grants: it may come as a surprise to many that this is not already the case
Individuals and earnings
Introduction of national living wage set initially at £7.20, based on 35 hours, at 52 weeks a year, equating to an annual salary of £13104, some of which will be exposed to income tax.
Could you live on it?
Increased personal allowances & higher rate bands from 2016/17. You will pay no tax on £24500 if your income is as follows:
Earnings, £11000; Rent-a-Room relief, £7500; dividend income, £5000; savings income, £1000.
The Employment Allowance, which exempts businesses from paying some employment National Insurance is increased to £3000 from 2016/17 to compensate for higher employment costs arising from the introduction of the national living wage.
The tax measures affecting mortgage interest deductions for landlords, and dividends for smaller owner-managed companies are straightforward solutions to long run irritations.
Overall, an egalitarian Budget.
For specific advice and further information, please contact Nicholas Ridge, CTA.