We have just seen the first Conservative budget in nineteen years, free from the influences of the Liberal Democrats.
Having just been given their next term in office, this budget was described by many commentators as a key indication of how the next five years will develop.
Given that the business community backed the Conservative party pre-election, there was an expectation that this budget would be “business-friendly”. This would always be tempered by there being little room for manoeuvre and the focus was always likely to be on the spending cuts which were inevitably going to happen.
From the March Budget, we already knew that personal allowance and higher rate tax bracket banding increases are due to continue till at least 2017.
There were inevitably key things leaked before the budget, including
• An Inheritance Tax threshold increase to £1m for a married/civil partnership couple when passing on a family home.
• Tax credit reductions
• Amendments to Sunday trading laws
• No VAT, Income Tax, or NIC rises
• Benefit caps per household
The detail below summarises the key points announced today:
Economic and Spending Announcements
• The UK economy grew by 3% in 2014. Forecast to be 2.4% for 2015, as noted in the March prediction. 2.3% and 2.4% from then on.
• One million extra jobs predicted to be created by 2020.
• Deficit to be cut at the same pace as the last coalition government, meaning a budget surplus in 2019/20 rather than 2018/19.
• £37bn of spending cuts required by 2020 with £12bn of welfare cuts and £5bn from tax evasion and avoidance.
• Debt as a share of GDP to fall from 80.3% this year to 79.1% next year and falling over the term of parliament.
Personal Taxation Announcements
• So-called “triple lock” on taxation, meaning no rises in income tax /NIC/ VAT rates during this government.
• HOWEVER, the way in which dividends are taxed is changing – we will update all of our clients who are affected by this.
• Personal tax allowance to rise as noted, previously along with a rise in 40% tax bracket.
• Increase in rent-a-room allowance, after nearly twenty years to £7,500.
• Restriction on tax relief for interest payments on a rental property for higher rate tax payers.
• Pension contribution relief to be restricted for those earning more than £150,000.
• Non-domicile tax payers targeted if living in the UK for 15 years.
Corporate Taxation Announcements
• Corporation tax to fall in to 19% in 2019 and 18% in 2020.
• Annual Investment Allowance to be £200,000 for purchases of plant and machinery etc. for the foreseeable future.
• Employment allowance to be increased to £3,000 from current £2,000 (but restriction for Sole Director companies)
• Insurance premium tax to increase to 9.5%.
Other announcements and measures to be introduced
• National Living wage to be brought in from April 2016, starting at £7.20 and to reach £9.00 by 2020.
• Fuel duty will remain frozen.
• Consultation on pensions to encourage additional saving.
• New VED bands for brand new cars from 2017
• Apprenticeship levy for large employers (although this can be claimed back by employing apprentices)