Mid Week Budget Update Wednesday, 8 July 2015
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Budget Update Wednesday, 8 July 2015
Chancellor George Osborne delivered the first Conservative Budget in nearly 20 years, free from Liberal Democrat constraints and delivering on Conservative election manifesto promises. Mr Osborne with this Budget was taking decisive steps towards a further reduction of approx. £12billion in welfare spending.
In summary, it was a Budget of:
• higher wages
• lower taxes
• lower welfare spending
Mr Osborne’s approach is clear – dramatic overhaul of an outdated system by focussing on encouraging people into work and out of poverty whilst equalising the taxation system.
KEY POINTS – more detail to follow as it becomes clearer upon further analysis.
Inheritance Tax threshold raised from £325,000 to £500,000 where the estate includes a family home – effective April 2017 – a married couple will have a shared Nil Rate Band of £1m. for inheritance tax purposes.
The personal tax allowance rises to £11,000 effective April 2016 – the pledge is to get this to £12,000.
Higher Rate Tax threshold will rise from £42,385 to £43,000 effective April 2016 and eventually it is planned to get this up to £50,000.
Dividend Tax Credit is removed and replaced by £5,000 tax free allowance effective April 2016 with new rates at 7.5%, 32.5% and 38.1% to be introduced.
Corporation Tax at 20% currently will be reduced further to 19% (April 2017) and then 18% (April 2020).
Tax avoidance measures will increase in focus and non-domiciled persons can expect their favourite loopholes to be closed. This measure could reduce tax revenue “haemorrhaging” by £1.5billion! This is a move welcomed by many UK residents who feel that the global rich should not be able to benefit from UK privilege whilst penny pinching on their financial obligations (through tax) towards supporting the UK economy which exists for the benefit of all UK domiciled residents and citizens. Permanent non-dom status is being abolished and those who have lived in the UK for 15 of the last 20 years will have to pay UK taxes on their worldwide earnings.
National Living Wage – for all workers over age 25 this will start at £7.20 per hour effective April 2016 and is expected to rise annually reaching £9.00 per hour by April 2020.
Tax Credits and Universal Credit will be restricted to families with two children.
The current Bank Levy will be replaced by a new 8% surcharge on banking profits from April 2016 – [so no doubt there will be some “creative discussions” in accounting firms and the like advising banks on what constitutes a “profit”, no doubt…]
[A previous discussion mooted during recent public outrage at the minute UK tax footprint of some large global corporations deriving revenue from the UK was advocating a tax on turnover rather than profit – perhaps this topic is for another time…]
Pension Tax Relief on Contributions will be limited to £10,000 per year for those earning £210,000 a year – effective April 2017.
Going forward there is a possibility for further pension reforms – in particular George Osborne has hinted that pensions could be treated more like ISAs where no tax relief is received on contributions in but the investment growth and subsequent income withdrawals would be free of tax.
George Osborne confirmed he will continue to protect State Pension Benefits “triple lock”, guaranteeing state pension benefits will always increase each year.
The UK economic growth of 3% in 2014 makes it the strongest growth for any developed economy in the world for the second year running. The Office for Budget Responsibility forecasts economic growth of 2.4% for 2015, 2.3% for 2016, 2.4% for 2017 and 2.4% for 2018.
It is expected that successive cuts to budget deficit will lead to a surplus in 2019/2020, taking a year longer to achieve than originally planned. Debt to GDP is expected to fall from 80.3% to 68.5%
With this Budget it seems that most groups will be better off although there is some concern from critics that poorer, low income families will take the biggest hit as a result of tighter controls on tax credits.
As always – the devil is in the detail. As more information becomes available we will be able to provide more comment from a financial planning perspective. Retained Private Clients will have access to a special summary report of this Budget.
If you have any questions please do not hesitate to contact us – we’ll be happy to discuss these with you.
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Inflation Target expected to stay in place: 2.0% based on the Consumer Prices Index (CPI)
The Chancellor confirmed in his Budget Speech Wednesday 20th March 2013 that the 2% Inflation target for the Bank of England would stay in place.
The Government’s Inflation Target is announced each year by the Chancellor of the Exchequer in the annual Budget statement. The Bank of England Monetary Policy Committee has as one of its aims, the aim to set interest rates so that over- or under- inflation can be brought back to Inflation Target over a reasonable time period without creating undue instability in the economy. Inflation Target is not a permanently fixed level and may vary depending on prevailing economic and fiscal conditions.
KEY to Important Indeces:
RONIA – Repurchase Overnight Index Average Rate – Launched June 2011
Changes to Method of Calculating Inflation Measurement Index – March 2013
pmL Metal and Precious Metal Pricing used in Market Numbers
lme3 – London Metal Exchange 3 months
[}{] – Denotes a Stock or Share of a FT Global 500 company
xd – Denotes a Stock or Share price quoted as ex-dividend
xc – Denotes a Stock or Share price quoted as ex scrip dividend
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“Secure” “investments” such as Cash on deposit, can provide relative safety to the amount invested or held in this way and can be expected to offer relatively low growth over the medium to long term. They cannot fall in actual value, but can fall in “real” value due to the effects of inflation.
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Photo Credit: SBG PhotoStock
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