Following the recent election, George Osborne has delivered the first Conservative budget in almost 20 years. Some of the announcements had been released prior to today but there were a few surprises (good and bad).
The March budget did provide some insight into what the Conservatives had planned if they won the election, but the party were always going to be limited in the changes they could make under the Liberal Democrat Coalition.
Osborne began today’s speech by explaining that Britain’s economic outlook continues to improve, child poverty is down and the gender pay gap is at an all time low. He explained that the richest are shouldering more of the tax burden than they were at the start of the last parliament and we remain “all in this together”.
The Chancellor’s “big budget for a country with big ambitions” was geared towards “hard working families” (the slogan of the pre-election Conservative manifesto) and aimed to save £30bn to fund further deficit reductions, which Osborne made clear would continue at the same pace as the last 5 years.
All in all, the key winners from today’s budget were small and medium sized businesses, though not without the odd sting in the tail.
It is however clear that some will be significantly worse off following today’s announcements; university students and people on welfare face significant cuts (£12bn of the total savings found) as a result of the “difficult decisions taken to live within our means”, although the Chancellor did stress than “no year will see cuts as deep as those in 2011/12 and 2012/13”.
Some of the key measures announced were as follows:
- In a bid to find savings of £5bn the government is boosting HMRC’s coffers to enable them to further tackle tax avoidance and evasion
- In a move which will be welcomed by all, the Annual Investment Allowance, which was set to fall to £25,000 from 1 January 2016, will instead fall to a much more palatable £200,000 and will remain at that level on a permanent basis
- Corporation tax changes were announced to bring forward payment dates, and Osborne hinted at the removal of tax relief for amortisation on goodwill; but further detail on these measures will be needed
- Corporation tax rates will be cut further; to 19% from April 2017 and 18% from April 2020
- The bank levy will be gradually reduced over the next 6 years and an 8% profits surcharge introduced next year instead
- Insurance premium tax will increase to 9.5% from this Autumn
Personal and Inheritance Tax
- A significant change will be made to the taxation of dividends. More detail is needed; however the chancellor suggested that a new £5,000 dividend allowance will be created, with the dividend tax credit being abolished and new higher rates of personal tax being due on amounts over £5,000. This could have a significant impact on business owners across the UK
- Whilst it is accepted that they contribute hugely to the UK tax system, major changes will be made to the taxation of non-UK domiciled individuals, to include the abolition of rules allowing UK property to be exempt from UK Inheritance Tax by utilising offshore companies and introducing full UK inheritance tax liability to those resident here for 15 out of the last 20 tax years
- Mortgage interest relief on rental properties will be restricted to the basic rate; the withdrawal of higher rate relief will be gradual and will commence from April 2017
- The rent a room allowance will increase to £7,500 from next year (this is currently just over £4,000)
- A new home allowance of £175,000 will be introduced for inheritance tax for the transfer to children or grandchildren, which will be on top of the £325,000 nil rate band and will be transferable to a spouse. Downsizing won't impact this allowance but it will taper for estates worth over £2m. This means that £1m per couple could be passed on IHT free to your children
- A green paper will be issued inviting ideas and views on potentially radical changes to pension taxation; the chancellor hinted that these could become more like ISAs in future (i.e. paid out of taxed income but received tax free on withdrawal) and it is clear that pension contributions tax relief will be restricted more and more in years to come
- The personal allowance will increase to £11,000 next year and the basic rate band to £43,000 (long term the aim is a £12,500 personal allowance and a £50,000 basic rate band)
- The £2,000 employment allowance will increase to £3,000 from 2016 but will no longer be available to companies where the sole employee is a director
- A new national living wage is being introduced at £7.20 from next April for all those aged 25 and above. This will increase to £9 per hour by 2020
- Fuel duty is to remain frozen. However, major reforms to Vehicle Excise Duty will take place such that from April 2017, all new cars purchased will be subject to 3 new tax bands based on emissions. The money raised will be allocated to a new Roads Fund which will be earmarked for improving roads
- The government will look to increase the first MOT deadline to 4 years from the current 3 years.
- 3m more apprenticeships will be created by introducing an apprenticeship levy to incentivise large firms to offer these opportunities (subject to consultation)
- From 2016/17, university students will no longer receive grants towards their living costs, and will instead receive maintenance loans. The cap on these will also be increased to over £8,000 which could substantially increase the level of debts a student leaves university with. A consultation on freezing the repayment threshold at £21,000 for 5 years will take place
- The cap on student numbers will also be removed
- The BBC will fund free TV Licenses for the over 75s
- A new 18-21 “youth obligation” will be introduced: to earn or learn, and no housing benefit will be available to most 18-21 year olds
- Working age benefits will be frozen for 4 years (excluding maternity leave, disability benefits and similar)
- Cuts to tax credits and universal credit will also be made by lowering the withdrawal threshold, increasing the taper rate and lowering the income rise disregard. Benefits will also be limited to 2 children from April 2017
- The current £26,000 benefits cap will be reduced to £23,000 in London and £20,000 elsewhere
- From September 2017 free childcare will be provided for up to 30 hours per week for working parents of 3&4 year olds
- The NHS will receive additional funding of £8bm by 2020
- The period of restraint in the public sector will continue, and public service workers will receive 1% pay rises for the next 4 years
- Devolution of various powers to Scotland in relation to tax, as promised pre-election
- Continued devolution to English councils and local authorities, particularly in relation to transport and the creation of the “Northern Powerhouse”
- Sunday trading hours will be decided by local authorities rather than central government.
- New permanent memorial for victims of terrorism overseas, along with additional defence and security resources (including a joint security fund of £1.5bn by the end of this parliament).
Overall, most will be pleasantly surprised with the measures announced in the budget. However we suspect there will be a backlash from various groups over the changes to welfare and to student loans.
The devil will be in the detail of some of these measures and we will be reviewing the additional documentation released in due course. If you would like any advice on any of the above changes, please feel free to get in touch.