The Summer Budget: ringing in the changes
The first Budget after an election is often the most radical and this year’s post-poll offering was no exception.
The summer Budget of 2015 was a very different affair from its March predecessor. While the spring Budget marginally cut taxes over the five year period from 2015/16, the summer Budget increased taxes by more than £22bn over the same period.
One of the largest money-spinners for the Exchequer is the reform of dividend taxation taking place from 2016/17. You will be able to receive up to £5,000 of dividends with no tax liability, regardless of your tax rate, but above this new dividend allowance, tax rates will be 7.5% higher than currently. If you have a large investment portfolio or you are a company owner who draws dividends instead of salary, you could be considerably worse off from next tax year.
Another target for extra revenue was buy-to-let residential property. From April 2016, the 10% wear and tear allowance will be replaced with a relief based on the actual costs incurred in replacing furniture. A year later, the maximum rate of tax relief on finance costs (mainly interest) for individual investors will be reduced year by year, reaching basic rate by 2020/21. If, as a buy-to-let investor, you have used a mortgage to fund part of your property purchase costs, you could face a substantial increase in income tax.
There was an easing on the inheritance tax front with the introduction of a new transferable main residence nil rate band, initially set at £100,000 in 2017/18 and rising to £175,000 by 2020/21. As a result, from April 2020 a couple with a joint estate worth up to £2m will be entitled to nil rate bands totalling £1m, provided they have (or, in most cases, have had) property worth at least £350,000 that is passed to direct descendants. Above £2m the new band will be subject to a 50% taper. The Chancellor also decided to freeze the normal inheritance tax nil rate band at £325,000 (its 2009 level) for another three years, until April 2021.
These tax changes, together with many other measures announced in July, mean that an early review of your financial planning could be a wise and rewarding move.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.
The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.