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The Summer Budget – an overview

The Summer Budget – an overview

Category: Economy

Updated: 08/07/2015
First Published: 08/07/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Chancellor George Osborne delivered his latest Budget earlier today, the first wholly-Conservative Budget seen since 1996. There were few surprises in store – most of the announcements simply confirmed previous reports – but here's a quick run-through of some of the key points.

  • A new National Living Wage will be implemented, starting with a wage of £7.20 an hour for the over-25s in April 2016 before rising to over £9 an hour by 2020.
  • The tax-free Personal Allowance (the amount people earn before they start paying tax) will be increased from £10,600 in 2015/16 to £11,000 in April 2016, with an ambition to increase it to £12,500 by 2020. The higher rate threshold will also be increased, with the point at which people start paying income tax at 40p set to rise from £42,385 to £43,000 next year.
  • An increase to the inheritance tax threshold for family homes. Currently, inheritance tax is charged at 40% on estates over the tax-free allowance of £325,000, but from April 2017 everyone will be offered a "family home allowance", whereby they can pass their home onto their children or grandchildren tax-free. This £175,000 allowance effectively brings the IHT threshold up to £500,000, and given that married couples and civil partners can pass any unused allowance on to one another, it means that couples will be able to pass on assets worth up to £1m.
  • Pensions tax relief is to be reduced for those with an income of more than £150,000. Currently, people can contribute up to £40,000 a year to their pension tax-free, but from April 2016 this tax relief will be limited to pension contributions of £10,000 per year.
  • Corporation Tax will be cut to 19% in 2017 and 18% in 2020, which could benefit "over a million businesses", said the Chancellor.
  • The annual investment allowance will be set permanently at £200,000 from January 2016 to help businesses plan their spending on longer-term investments.
  • The dividend tax credit, which reduces the amount of tax paid on income from shares, will be replaced by a new £5,000 tax-free dividend allowance from April 2016, while tax rates on dividend income above that level will be increased.
  • Reforms to the welfare system were confirmed. This included a four-year freeze of working-age benefits from 2016/17, a reduction of the household benefit cap to £20,000 (£23,000 for London), and support through child tax credit being limited to two children born from April 2017.
  • Student maintenance grants will be scrapped and replaced with loans.
  • There'll be a clampdown on nuisance calls from claims management (e.g. PPI claim) companies.
  • The standard rate of Insurance Premium Tax will rise to 9.5% from November this year (currently 6%).
  • Tax relief will be restricted on buy-to-let mortgages. Currently, landlords can deduct their costs (including mortgage interest) from their profits before they pay tax, which was felt gave them an advantage over other home buyers. "Wealthier" landlords receive tax relief at 40% and 45%, but this will be restricted to 20% for all landlords by April 2020.
  • A crackdown on tax avoidance, including an end to permanent non-dom status and increased resources for HMRC.
  • Reforms to the way banks are taxed, including a new 8% tax on banking profits from January 2016.
  • Public sector pay will increase by 1% a year for the next four years.
  • Proposals for a "radical change" to the pension system, such as the possibility of being able to treat pensions like ISAs. However, the Chancellor said that this would require careful consideration, with nothing being set in stone.

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