Summer Budget 2015: The winners and losers
Chancellor George Osborne has outlined his first ‘Blue Budget' and there were some big giveaways for many people - but to pay for them, more cuts were announced too.
In delivering his plans to the House of Commons on 8 July, George Osborne said: "This will be a Budget for working people. A Budget that sets out a plan for Britain for the next five years to keep moving us from a low wage, high tax, high welfare economy; to the higher wage, lower tax, lower welfare country we intend to create."
Here's our look at who will be the big winners from the Budget and who will lose the most.
For a complete recap of the Summer Budget click here
Middle income households and pensioners
They will have less of their income nibbled away by tax thanks to another uplift in the Personal Allowance from the current £10,600 to £11,000 from 6 April 2016. The Treasury says increases to the Personal Allowance since 2010, when it was just £6,475, mean that a typical taxpayer will be £905 a year better off in 2016-17.
Meanwhile, middle income households and pensioners will also benefit from an increase in the threshold at which the higher rate of income tax – the 40p rate – kicks in. It rises from £42,385 this tax year to £43,000 in the next one. The government has previously outlined its intention to raise this further, to £50,000, and also improve the Personal Allowance to £12,500 by 2020.
The children of married couples
Particularly those with a family home in London and the South East, will be able to inherit their parents estates worth up to £1 million completely free from tax. Currently, inheritance tax (IHT) is charged at 40% on the portion of an estate over the tax-free allowance of £325,000 per person. Married couples and civil partners can pass any unused allowance on to one another.
The change announced in the Summer Budget means that from 6 April 2017, each spouse will be offered a family home allowance so they can pass their home on to their children or grandchildren tax-free after their death. However, all this will take some time and will be phased in from 2017-18. The full benefit of the £1 million tax-free inheritance will not be had until 2020-21, according to the Treasury.
People who use P2P loans as savings vehicles
Savers with money deposited at peer-to-peer loans companies – whose money is used to make loans to borrowers - will be able to protect the interest they earn from tax for the first time through the new Innovative Finance Isa.
Low-earners over the age of 25
This group is set to benefit from the introduction of the compulsory National Living Wage. It will be £9 an hour from 2020 but from April next year begins at the lower £7.20 - 70p above the current National Minimum Wage and 50p above the increase in the minimum wage due to come into effect in October 2015.
People who use claims management firms
They stand to benefit from a government investigation into the industry as well as a cap on charges that significantly erodes the amount of compensation awarded.
They will receive their disability benefits free of tax and they won't be means-tested; although Disability Living Allowance, Attendance Allowance, Carer's Allowance and Incapacity Benefit are all within the scope of the new proposed ‘welfare cap'.
They will get access to more free childcare from September 2017, when they will receive up to 30 hours a week for three- and four-year-olds – this is double the 15 hours they can currently claim.
Social housing tenants
Will see their rent reduced by 1% a year for four years.
Homeowners taking lodgers
And those renting rooms short term through the likes of Airnbnb can now make more money a year without having to pay tax. The amount will rise to £7,500 a year tax-free under the Rent a Room Scheme. Previously a householder could only earn up to £4,250 a year tax free.
People on benefits
Welfare claimants will see their incomes squeezed further with the benefits cap being reduced from £26,000 to £20,000 (£23,000 in London) – presuming MPs give the proposal the go ahead when they are asked to vote on it. Employment and Support Allowance will also be reduced for some claimants and working-age benefits (excluding maternity pay) would be frozen for four years.
Big families with three or more children
Will no longer receive tax credit support as this is to be limited to two children. This means that any further children born after April 2017 won't be eligible for support. The only exception is if further children are the result of twins, triplets or other multiple births.
In addition, those starting a family after April 2017 will no longer be eligible for the Family Element in tax credits. The equivalent in Universal Credit (the successor to tax credits), known as the first child premium, will also not be available for new claimants after April 2017. Those who already have large families and receive tax credits won't be affected by the new rules.
Higher earners paying into a pension
The amount people with an income of more than £150,000 can pay tax-free into a pension will be reduced from the current £40,000 level. The new limit is yet to be confirmed as the government plans to consult with the pensions industry "on a radical overhaul of tax relief on pensions", said the Treasury.
One consideration will be whether pension contributions could be paid from taxed income – but with no tax paid when savings are cashed in. In return, tax relief would no longer be offered on contributions.
Despite duty being frozen for the rest of the year, drivers will be hit by a double whammy of updated Vehicle Excise Duty (VED) bands for new cars from 2017 and a rise in insurance costs. From 2017, new cars will pay a flat standard rate of VED of £140 a year, regardless of emissions, except for the first year when they will face VED of between £0 and £2,000 depending on emissions.
Owners of more expensive new cars – with a list price above £40,000 - must also have to fork out an extra £310 a year for the first five years.
Meanwhile, the government is also increasing the standard rate of Insurance Premium Tax from 6% to 9.5% in November 2015, affecting many types of insurance (except travel, which is already taxed at 20% and life insurance, which is exempt).
MoneySuperMarket.com said drivers and households across the country will see their home and car insurance premiums "rocket by almost 60% from November", adding £35 to insurance bills for the average two-car family.
Wealthy buy-to-let investors
Will only be able to offset mortgage interest at the basic-rate rate of tax, whereas now tax is charged in line with their normal income tax banding – allowing higher rate taxpayers to offset their mortgage interest at 40% (and additional-rate taxpayers, 45%).
"To help people adjust, we will phase in the withdrawal of the higher rate reliefs over a four year period, and only start withdrawal in April 2017," said the chancellor.
Osborne also announced that from April 2016, the existing 'wear and tear allowance', which lets landlords reduce the tax they pay, whether or not they replace furnishings in their property, will also be replaced. In its place will be a new system that only allows them to get tax relief when they actually do replace furnishings.
The government is to replace maintenance grant of up to £3,387 with loans of up to £8,200, hitting around 500,000 students from poorer backgrounds. The loans will have to be repaid once graduates begin earning £21,000 a year. Sir Peter Lampl, chairman of the Sutton Trust and of the Education Endowment Foundation, told the BBC the move could put off many low and middle income students from going to university.
Osborne also said tuition fees could rise in line with inflation, potentially saddling students with even more debt.
Public sector workers
They will only receive a 1% pay rise in each of the next four years, meaning they will effectively be getting a pay cut as soon as inflation exceeds 1%.
People receiving (or paying themselves) dividends
The majority (85%) of people who are paid dividends from their investments (or pay themselves in company dividends) will benefit from a new annual £5,000 tax-free dividend allowance. However, the remaining 15% should expect to pay more in tax.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
A way of combining a mortgage and savings so the savings “offset” and reduce the mortgage. Rather than earning interest on savings, the savings reduce the mortgage and the interest paid on the borrowing, so savings are effectively earning interest at a higher rate than most mainstream savings accounts will pay. They are also tax-efficient, as savers avoid paying tax on interest that their deposits would otherwise have earned. Offset mortgages offer the disciplined borrower a great deal of flexibility, as overpayments can be made to reduce the term or monthly mortgage repayments, which can save thousands of pounds in interest payments over the mortgage term.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.