On Wednesday 8th July, George Osborne gave the first wholly Conservative budget in eighteen years. Whatever your political preferences may be, there are some key elements to the budget that may have a bearing on your financial planning.
The Expected!
Inheritance Tax
The Conservatives have talked about raising the Inheritance Tax (IHT) threshold for many years and this budget finally sees the unveiling of their proposals. These see a slow increase in the threshold up to £500,000 each (£1million for a couple) by 2020/21. The increase only applies to those wishing to leave their home to children or grandchildren. Click here for more on IHT.
Pensions
Despite the significant changes to pensions announced last year, we suspected that there may be more to come and we were not surprised to see further restrictions on the tax savings available to very high earners. In addition, nine years on from changes known at the time as “pension simplification,” the Chancellor has initiated an industry wide review of the pension regime asking for feedback regarding plans to finally achieve the aim of simplifying pensions. Click here for more on Pensions.
And the Unexpected!
Dividends
The tax regime for dividends has continued unchanged for over forty years and has become complicated and archaic in relation to other taxes. The Chancellor announced a simplified dividend regime, removing the confusing dividend tax credit from April 2016 and introducing a new £5,000 Dividend Allowance for all taxpayers. Any dividend income in excess of the £5,000 allowance will be taxed as follows:
- Basic rate taxpayers – 7.5%
- Higher rate taxpayers – 32.5%
- Additional rate taxpayers – 38.1%
Income from Properties
Mr Osborne made two changes to the current regime relating to rental income. The first change affects buy-to-let investors and will see relief for mortgage interest being restricted to basic rate tax. In addition, landlords will now need to prove ‘wear and tear’ costs rather than deduct an automatic 10% from rental income. Click here for more on restricted interest relief.
The second change is an increase in the Rent a Room Allowance from £4,250 up to £7,500. Click here for more on the Rent a Room allowance.
The result of these changes is to shift tax reliefs so that wealthy landowners pay more tax rather than those who need to rent out a room to supplement their income.
Summary
We believe that these are the key areas that will affect long-term planning strategies, which we will be discussing with new and existing clients in detail when we meet for planning reviews.
There were, of course, a range of other announcements such as changes to the benefit system, reductions to corporation tax and the new National Living Wage. If you have any queries or concerns regarding anything that you have read relating to the budget, please get in touch and we will be happy to discuss the details with you.
Our view is that the budget contains a number of favourable steps to move the UK economy forward. Click here to read the budget in full
