I’ll bet that when George Osborne announced the Budget date as 8 July he never envisaged that his first Budget as “Chancellor with a majority” would be swamped by headlines about the Greek In or Out debate, Andy Murray at Wimbledon, The Ashes or even Rory McIlroy’s ankle!
Delivered against a backdrop of commitments regarding no increases to the rates of income tax, corporation tax, National Insurance and VAT, and promises to support the Northern Powerhouse, he has in the end delivered a Budget which included a number of significant and wide ranging reforms that will no doubt dominate the headlines tomorrow. Little wonder my mind is in a spin!
Key measures include:
• An increase in the personal allowance to £11,000 from 5 April 2016 coupled with an increase in the threshold at which you pay higher rate tax to £43,000. This is in line with the Government’s election promise to achieve an allowance of £12,500 and a higher rate threshold of £50,000 by 2020.
• Major change to the taxation of dividend income – gone is the notional 10% tax credit, to be replaced by a tax free band of £5,000 and incremental tax rates of 7.5%, 32.5% and a new rate of 38.1%.
• A reduction in the level of pension contribution that will attract tax relief at the higher rate. For additional rate taxpayers the annual allowance will be tapered away until it reaches a minimum of £10,000.
• Interest relief on buy to let mortgages taken out on residential properties to be restricted to the basic rate of income tax from 5 April 2017. This will have a major impact on the margins achieved by buy to let landlords, but is believed to be essential in rebalancing the property market by the Chancellor.
• A further reduction in the rate of corporation tax to 19% by 2017 and to 18% by 2020. The current rate of 20% is the joint lowest rate of business tax in the G20 group of companies – we didn’t expect any further reductions but the lower rates will continue to make UK PLC a good place to do business.
• The Annual Investment Allowance at which tax relief is given at 100% for qualifying capital expenditure will become £200,000 on 1 January 2016 and will remain at this level indefinitely. This is good news and will ensure that the majority of small and medium sized enterprises will obtain 100% tax relief when they invest in plant and machinery.
• Measures to take the family home out of inheritance tax by the introduction of a transferable nil-rate band of up to £175,000 per Estate when a main residence is passed to direct descendants – this means that the effective inheritance tax threshold will become £1,000,000.
• Final clarification of the tax treatment of non-UK domiciled individuals – if you’ve been resident for 15 out of the last 20 years then you will be treated as UK domiciled for tax purposes from 5 April 2017.
• Wholesale reform of the welfare system culminating in the introduction of a national living wage of £7.20 from 5 April 2016 with the expectation that this will increase to £9.00 by 2020.
A huge amount for the BHP tax team to work through to confirm the impact of each of the measures… a late night beckons if only to stop the mind spinning.
