21 July 2015

What does the 2015 summer Budget mean for you?

Weeks before the Chancellor presented his emergency post-election Budget, the first conservative Budget for almost two decades, it was widely predicted that the main focus would be on delivering further reductions in the UK deficit.

Whilst George Osborne’s seventh Budget did indeed include a raft of moves to reduce expenditure on welfare, he also unveiled a number of changes, which depending on your personal circumstances could have an impact on your personal finances.

Budget changes

Keep more of your earnings

Keep more of your earnings as income tax thresholds rise

From the 2016/17 tax year, the tax free personal allowance, i.e. the amount you are permitted to earn before income tax is payable, will increase from £10,600 to £11,000, as part of a longer term strategy to increase this threshold to £12,500.

The level at which you become liable for income tax at 40% will also increase from the current £42,385 to £43,000 from April 2016. The Chancellor is ultimately looking to raise this figure to £50,000 by the end of this parliament in 2020.

Inheritance tax limits

Overhaul of outdated Inheritance tax limits

“The decision to increase the inheritance tax allowance will be a popular move”.

Inheritance tax has been crying out for reform for many years, and the decision to increase the inheritance tax allowance (IHT) for people who leave their property to their children by £175,000 (on top of the standard £325,000 allowance) will be a popular move.

Since the threshold was last changed in 2009, house prices have risen by more than 40%, meaning an increasing number of individuals have become liable for IHT, simply through virtue of being long-term occupants of their family home.

The threshold of £500,000, which will be phased in from 2017 is doubled for married couples and civil partners who will enjoy a combined IHT allowance of £1 million.

Insurance premium tax

Insurance premium tax to rise

The Chancellor announced that Insurance Premium Tax (IPT) will increase from 6% to 9.5% with effect from 1 November 2015.

This is likely to lead to a rise in your premiums for your motor insurance, home insurance and travel insurance, so keep a close eye on your renewal notices when they come through.

On a £350 annual car insurance premium, the additional 3.5% tax will set you back an extra £12.25, so it will be worth shopping around for a new deal as you may be able to offset this price increase by changing to a different insurance provider.

Buy to let

Buy to let landlords to receive less mortgage interest tax relief

The tax relief for the mortgage finance costs of individual landlords will be gradually reduced until it reaches the basic rate which currently stands at 20% – with the change being phased in over four years from April 2017.

Currently landlords receive full tax relief for their mortgage interest whilst homeowners receive none. This relief will be tapered out and replaced fully by a basic rate tax deduction in 2020/21.

Future pension changes

Future pensions changes

People earning more than £150,000 will see their tax free contributions allowance tapered from £40,000 per annum to a minimum of £10,000.

The Chancellor has also announced that he plans to consult on future reforms on pension tax relief in an effort to boost the level of savings in the UK, particularly among young people and those with insufficient provision for their retirement needs.

He said the government would look at the possibility of introducing an ISA-style pension and increasing the simplicity, so that you’ll pay income tax on contributions made but where withdrawals would be tax free.

With regards to the proposed secondary annuities market, the government has delayed implementation until 2017, to ensure that the proper support is in place to help consumers in making such an important decision.

Vehicle exercise duty

Changes to vehicle excise duty

Vehicle excise duty (VED) is being revamped. Drivers will not have to pay any duty on vehicles that have zero carbon emissions, however new VED bands for new cars come into effect from 2017.

The Chancellor stressed that all revenue from this reform to vehicle taxation will be used to finance future road building and maintenance programmes in the UK.

For the first year, the VED fee will be based on vehicle emissions but thereafter the majority of car owners will be subject to a flat rate charge of £140 per year.

If a vehicle costs more than £40,000, the driver will pay a £310 surcharge each year on top of the £140 mentioned above.

Additionally, the requirement for the first MOT for a new vehicle is being extended to when it reaches four years old (an MOT is currently required after three years).

UK Budget Guide

Want more information on what the Budget is and what it could mean for you?

    About the author

    Andrew Hagger

    Andrew Hagger
    Personal finance writer
    Twitter: @hagerdoo

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