The Budget speech of summer 2015 unveiled some £12 billion of welfare cuts, including reductions to child tax credit and housing benefit. Child tax credits will only be available for the first two children in a household from April 2017, and the total annual benefits a household can claim will be reduced from £26,000 to £20,000 (£23,000 in London).
However, the Chancellor also announced the introduction of a new ‘national living wage’, which will in effect be a new minimum wage for the over 25s. All employees over this age must be paid at least £7.20 per hour from April 2016, a figure which will rise to an estimated £9.35 per hour by 2020 (the true figure in 2020 will be 60% of median earnings).
Public sector pay increases have been set at 1% for the next four years, although at present this does represent an above inflation increase.
Some workers can look forward to paying less in income tax. The personal allowance will increase to £11,000 from April 2016, while the threshold for paying higher rate tax (40%) will increase to £43,000.
So some households will become better off due to the income tax changes and the living wage, and others worse off due to the benefit cuts.
Firms’ corporate clients may be feeling the pinch in the near future as well. Not only do they have to pay the new living wage, but many smaller firms also face the prospect of making contributions to employee pension schemes for the first time. However, the rate of corporation tax is to be cut from the current level of 20% to 19% from April 2017 and 18% from April 2020.
Another blow to business owners with large shareholdings, or who pay themselves via dividends, came with the announcement of changes to the dividend taxation system. The existing 10% tax credit on dividends will be replaced by a new tax-free allowance of £5,000. Above this level, dividend income will be taxed at 7.5% (basic rate), 32.5% (higher rate) and 38.1% (additional rate).
Inheritance tax planning may be less of a need for some clients. The value of their property was the main reason why many middle-class households had an estate that exceeded the inheritance tax threshold of £325,000. Now, married couples will be able to leave a family home valued at up to £1 million to their children or grandchildren without attracting inheritance tax. The changes will be phased in from April 2017, with the full allowance available from April 2020.
Higher income clients may find it less attractive to save via a pension. At present, the annual allowance (the pension contributions that can be made while still attracting tax relief) is £40,000 per annum. But from April 2016, those earning over £150,000 will see their annual allowance reduce by £1 for every £2 that their income exceeds £150,000 (with a minimum allowance of £10,000 for those earning £210,000 or above).
Insurance premium tax – paid on insurances such as household and vehicle policies – will rise significantly, from the current level of 6% to 9.5%. The change will take effect in November 2015.
Landlords who enjoy higher rate income levels will no longer be able to enjoy higher rate mortgage interest tax relief. The available tax relief will gradually decrease to 20% by 2021.
University maintenance grants will be abolished, and students will instead need to take out loans to cover the cost of living while studying for their degrees.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.